<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1996
REGISTRATION NO. 333-3084
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
COLORADO 84-1317717
COLORADO APPLIED FOR
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
AND SUBSIDIARY GUARANTORS
CABLE EQUITIES OF COLORADO, LTD.
RIFKIN/TENNESSEE, LTD.
CABLE EQUITIES OF COLORADO MANAGEMENT CORP.
CABLE EQUITIES, INC.
FNI MANAGEMENT CORP.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
COLORADO 84-1000716
TENNESSEE 84-1317714
COLORADO 84-1004751
COLORADO 84-0977193
TENNESSEE 62-1198228
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
484100 (OPERATING)
671200 (HOLDING)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
--------------- MONROE M. RIFKIN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RIFKIN & ASSOCIATES, INC.
360 SOUTH MONROE STREET, SUITE 600 360 SOUTH MONROE STREET, SUITE 600
DENVER, COLORADO 80209 DENVER, COLORADO 80209
(303) 333-1215 (303) 333-1215
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S INCLUDING AREA CODE, OF AGENT FOR
PRINCIPAL EXECUTIVE OFFICE) SERVICE)
COPY TO:
STUART G. RIFKIN
BAKER & HOSTETLER
303 EAST 17TH AVENUE, SUITE 1100
DENVER, COLORADO 80203
(303) 861-0600
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration number for
the same offering. [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/8% Senior
Subordinated Notes due
2006.................... $125,000,000 100% $125,000,000 $43,104
- -----------------------------------------------------------------------------------
Guarantees of 11 1/8%
Senior Subordinated
Notes
due 2006................ $125,000,000 (2) (2) (2)
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Total................... $125,000,000 100% $125,000,000 $43,104
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</TABLE>
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(1) In accordance with Rule 457(f)(2), the registration fee is calculated
based on the book value, which has been computed as of March 31, 1996, of
the outstanding 11 1/8% Senior Subordinated Notes due 2006 of Rifkin
Acquisition Partners, L.L.L.P. and Rifkin Acquisition Capital Corp.
(2) No additional consideration will be paid by the recipients of the 11 1/8%
Senior Subordinated Notes due 2006 for the Guarantees. Pursuant to Rule
457(n) under the Securities Act of 1933, no separate fee is payable for
the Guarantees.
---------------
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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
------ ---- ----------------------
<C> <S> <C>
1. Forepart of the
Registration Statement and
Outside Front Cover Page
of Prospectus............. Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of
Prospectus................ Inside Front Cover Page Of Prospectus and
Outside Back Cover Page of Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges................... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds............ Use of Proceeds
5. Determination of Offering
Price..................... Not Applicable
6. Dilution................... Not Applicable
7. Selling Security Holders... Not Applicable
8. Plan of Distribution....... Outside Front Cover Page of Prospectus; The
Exchange Offer; Description of Exchange
Notes; Plan of Distribution
9. Description of Securities
to be Registered.......... Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of Exchange Notes
10. Interests of Named Experts
and Counsel............... Legal Matters
11. Information with Respect to
the Registrant............ Prospectus Summary; The Company; Risk
Factors; Capitalization; Selected
Unaudited Pro Forma Condensed Consolidated
Financial Data; Selected Historical
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal Security Holders;
Certain Relationships and Related
Transactions; The Partnership Agreement;
Description of Amended and Restated Credit
Agreement; Description of Exchange Notes;
Old Notes Registration Rights; Financial
Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... Not Applicable
</TABLE>
<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 BY ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY , 1996
PROSPECTUS
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
11 1/8% SENIOR SUBORDINATED NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
EACH $1,000 IN PRINCIPAL AMOUNT OF ITS OUTSTANDING
11 1/8% SENIOR SUBORDINATED NOTES DUE 2006
THE ISSUERS (AS DEFINED) HAVE NOT ISSUED AND DO NOT HAVE ANY CURRENT FIRM
ARRANGEMENT TO ISSUE, ANY SIGNIFICANT INDEBTEDNESS TO WHICH THE NOTES (AS
DEFINED) WOULD BE SENIOR.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1996, UNLESS EXTENDED.
-----------
Rifkin Acquisition Partners, L.L.L.P., a Colorado limited liability limited
partnership (the "Partnership"), and Rifkin Acquisition Capital Corp., a
Colorado corporation and a wholly owned subsidiary of the Partnership ("RACC"
and together with the Partnership, the "Issuers"), hereby offer to exchange
(the "Exchange Offer") up to $125,000,000 in aggregate principal amount of
their new 11 1/8% Senior Subordinated Notes due 2006 (the "Exchange Notes") for
up to $125,000,000 in aggregate principal amount of their outstanding 11 1/8%
Senior Subordinated Notes due 2006 (the "Old Notes" and, together with the
Exchange Notes, the "Notes") that were issued and sold in a transaction exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act").
The terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the terms
of the Old Notes for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes (i) are freely transferable by holders
thereof (except as provided below) and (ii) are not entitled to certain
registration rights and certain additional interest provisions which are
applicable to the Old Notes under the Registration Rights Agreement (as
defined). The Exchange Notes will be issued under the indenture governing the
Old Notes. The Notes are the joint and several, general unsecured obligations
of the Issuers and will rank pari passu with any future senior subordinated
indebtedness of the Partnership and its subsidiaries, including its
predecessors (the "Company"), and subordinate in right of payment to all
existing and future senior indebtedness of the Company, including all
Indebtedness under the Amended and Restated Credit Agreement (as defined). The
Notes are fully and unconditionally guaranteed on a senior subordinated basis
by all of the subsidiaries of the Partnership, other than RACC (the
"Guarantors"). As of December 31, 1995, on a pro forma basis after giving
effect to the offering of the Old Notes (the "Old Notes Offering") and certain
related transactions, including the Acquisitions (as defined), the only
outstanding long-term indebtedness of the Company (as defined) would have been
the Notes, $3 million outstanding under the New Rifkin Note (as defined) and
$70.1 million outstanding under the Amended and Restated Credit
(Continued on Next Page)
-----------
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN "RISK
FACTORS" COMMENCING ON PAGE 18 OF THIS PROSPECTUS PRIOR TO MAKING A DECISION
WITH RESPECT TO THE EXCHANGE OFFER.
-----------
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 THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
(Cover Page Continued)
Agreement. On such pro forma basis, such indebtedness under the New Rifkin
Note would have ranked pari passu with, and the indebtedness under the Amended
and Restated Credit Agreement would have ranked senior to, the indebtedness
under the Notes. Concurrently with the closing of the Old Notes Offering, the
net proceeds of the Old Notes Offering were placed in an escrow account
maintained by the Trustee (as defined). Such funds, together with all interest
earned thereon were released on March 1, 1996 and were used to finance the
Mid-Tennessee Acquisition (as defined) and to reduce outstanding indebtedness
under the Amended and Restated Credit Agreement. See "Use of Proceeds." For a
complete description of the terms of the Exchange Notes, including provisions
relating to the ability of the Company to create indebtedness that is senior
to or pari passu with, the Exchange Notes, see "Description of Exchange
Notes." There will be no cash proceeds to the Company from the Exchange Offer.
The Exchange Notes will bear interest from January 26, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes
accrued from January 26, 1996 to the date of the issuance of the Exchange
Notes. Interest on the Exchange Notes is payable semiannually in arrears on
January 15 and July 15 of each year, commencing July 15, 1996, accruing from
January 26, 1996 at a rate of 11 1/8% per annum.
The Notes are redeemable at the option of the Issuers, in whole or in part,
at any time on or after January 15, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. In
addition, at any time prior to January 15, 1999, the Issuers at their option,
may redeem up to 25% of the aggregate principal amount of the Notes originally
issued with the net proceeds of one or more Public Equity Offerings or
Strategic Investments (as defined) pursuant to which the Issuers receive
proceeds of not less than $25 million, at a redemption price equal to 111 1/8%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of redemption; provided, however, that after any such
redemption the aggregate principal amount of the Notes outstanding must equal
at least 75% of the aggregate principal amount of the Old Notes originally
issued. Upon the occurrence of a Change of Control (as defined), each holder
of the Notes has the right to require the Issuers to repurchase such holder's
Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. An acquisition of control of the Company
by Monroe M. Rifkin, VS&A Communications Partners II, L.P. or any of their
respective affiliates would not constitute a Change of Control under the
Indenture governing the Notes. See "Description of Exchange Notes--Change of
Control".
The Old Notes were originally issued and sold on January 26, 1996 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon its
view of interpretations provided to third parties by the Staff (the "Staff")
of the Securities and Exchange Commission (the "Commission"), the Company
believes that 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 holders thereof (other than any holder which is (i) an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act (an "Affiliate"), (ii) a broker-dealer who acquired Old Notes directly
from the Company or (iii) a broker-dealer who acquired Old Notes as a result
of market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such 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 Exchange Notes. The Letter of Transmittal that is filed as an
exhibit to the Registration Statement of which this Prospectus is a part (the
"Letter 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. Broker-dealers who
acquired Old Notes as a result of market making or other trading activities
may use this Prospectus, as
2
<PAGE>
supplemented or amended, in connection with resales of the Exchange Notes. The
Company has agreed that, for a period of 180 days after the Registration
Statement of which this Prospectus is a part is declared effective by the
Commission, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
and any other holder that cannot rely upon interpretations must comply with
the registration and prospectus requirements of the Securities Act in
connection with a secondary resale transaction.
Old Notes initially purchased by qualified institutional buyers were
initially represented by a single, global Note in registered form, registered
in the name of a nominee of the Depository Trust Company ("DTC"), as
depository. The Exchange Notes exchanged for Old Notes represented by the
global Note will be represented by one or more global Exchange Notes in
registered form, registered in the name of the nominee of DTC. See
"Description of Exchange Notes--Book-entry; Delivery and Form." Exchange Notes
issued to non-qualified institutional buyers in exchange for Old Notes held by
such investors will be issued only in certificated, fully registered,
definitive form. Except as described herein, Exchange Notes in definitive
certificated form will not be issued in exchange for the global Note(s) or
interests therein.
The Old Notes and the Exchange Notes constitute new issues of securities
with no established public trading market. Any Old Notes not tendered and
accepted in the Exchange Offer will remain outstanding. To the extent that Old
Notes are not tendered or are tendered but not accepted in the Exchange Offer,
a holder's ability to sell such Old Notes could be adversely affected.
Following consummation of the Exchange Offer, the holders of any remaining Old
Notes will continue to be subject to the existing restrictions on transfer
thereof and the Company will have no further obligation to such holders to
provide for the registration under the Securities Act of the Old Notes except
under certain limited circumstances. See "Old Notes Registration Rights." No
assurance can be given as to the liquidity of the trading market for either
the Old Notes or the Exchange Notes. The Old Notes are not listed on any
securities exchange and the Issuers do not intend to apply for a listing of
the Exchange Notes on a Securities Exchange.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Exchange
Offer will expire at 5:00 p.m., New York City time, on , 1996,
unless extended (the "Expiration Date"). The date of acceptance for exchange
of the Old Notes (the "Exchange Date") will be the first business day
following the Expiration Date, upon surrender of the Old Note. Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date; otherwise such tenders are irrevocable.
3
<PAGE>
AVAILABLE INFORMATION
The Issuers and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain items of which are omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Issuers, the Guarantors and the Exchange Notes, reference is
hereby made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all
respects by the provisions in such exhibit, to which reference is hereby made.
The Issuers are not currently subject to the informational requirements of
the Exchange Act. Upon the effectiveness of the Registration Statement or, if
earlier, the Shelf Registration Statement (as defined herein), the Issuers
will become subject to the informational requirements of the Exchange Act and,
in accordance therewith, will file all reports and other information required
by the Commission. The Registration Statement, as well as periodic reports,
proxy statements and other information filed by the Issuers with the
Commission, may be inspected at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W, Washington, D.C. 20549, or
at its regional offices located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can be obtained from the
Issuers upon request. Any such request should be addressed to the Issuers'
principal offices at 360 South Monroe Street, Suite 600, Denver, Colorado
80203 (telephone number (303) 333-1215).
The Issuers' obligation to file periodic reports with the Commission
pursuant to the Exchange Act may be suspended if the Notes are held of record
by fewer than 300 holders at the beginning of any fiscal year of the Issuers,
other than the fiscal year in which the Registration Statement or the Shelf
Registration Statement becomes effective. However, the Issuers have agreed,
pursuant to the indenture dated as of January 26, 1996 (the "Indenture")
governing the Notes, that, whether or not it is then subject to Section 13 or
15(d) of the Exchange Act, it will file with the Commission and furnish to the
holders of the Notes and the Trustee (and, if filing such documents with the
Commission is prohibited, to prospective holders of the Notes upon request)
copies of the annual reports, quarterly reports and other periodic reports
which the Issuers would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Issuers were
subject to such Sections. In addition, the Issuers will furnish, upon the
request of any holder of a Note, such information as is specified in paragraph
(d)(4) of Rule 144A, to such holder or to a prospective purchaser of such Note
which such holder reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A, in order to permit compliance by such holder
with Rule 144A in connection with the resale of such Note by such holder
unless, at the time of such request, the Issuers are subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), 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.
NOTICE TO INVESTORS
THIS PROSPECTUS (THE "PROSPECTUS") DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, ANY NOTES BY ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
the Registration Statement of which this Prospectus is a part. As used in this
Prospectus, the "Partnership" refers to Rifkin Acquisition Partners, L.L.L.P.,
a Colorado limited liability limited partnership that directly or indirectly
controls and operates cable television systems in Georgia, Tennessee, Illinois
and Michigan; "RAP L.P." refers to Rifkin Acquisition Partners, L.P., a
Colorado limited partnership and the predecessor entity to the Partnership
prior to the Recapitalization (as defined); "General Partner" refers to Rifkin
Acquisition Management, L.P., a Colorado limited partnership which serves as
the general partner of the Partnership; and "Rifkin & Associates" refers to
Rifkin & Associates, Inc., a Colorado corporation that is owned and controlled
solely by Monroe M. Rifkin. Pursuant to a management agreement, Rifkin &
Associates serves as the manager of the cable television systems owned by the
Company. Unless the context otherwise requires, the "Company" refers to the
Partnership and its subsidiaries, including its predecessors. See "Risk
Factors" for a discussion of certain risks associated with an investment in the
Notes.
THE COMPANY
The Company owns, operates and develops cable television systems in Georgia,
Tennessee, Illinois and Michigan (the "Other Systems"). Systems serving 45% of
the Company's basic subscribers as of December 31, 1995, pro forma for the
Acquisitions, were located in counties in Georgia and Tennessee with
populations that grew at an average compound annual rate of 4.0% from 1991 to
1995, according to data from Market Statistics, Demographics USA 1995. Annual
population growth over the same period in Georgia, Tennessee and for the United
States as a whole was 1.9%, 1.3% and 1.1%, respectively. Since commencing
operations in 1989, the Company has demonstrated an ability to take advantage
of the favorable demographics in its markets to increase its basic and premium
subscribers through innovative marketing, selective upgrades and extensions of
its cable television systems and superior customer service. As a result, the
Other Systems have experienced growth in homes passed, basic subscribers and
Adjusted EBITDA/1/ between January 1, 1991 and December 31, 1995 of 18.9%,
37.3% and 47.9%, respectively, despite having incurred losses under generally
accepted accounting principles during the years ended December 31, 1991, 1992,
1993, 1994 and 1995 of $17.9 million, $16.9 million, $16.3 million, $12
million, and $10.7 million, respectively (such losses being primarily
attributable to depreciation and amortization expenses resulting from the
initial acquisitions of the Other Systems, as well as subsequent capital
additions and interest expense). At December 31, 1995, the Other Systems passed
approximately 174,100 homes and served approximately 132,300 basic subscribers.
On March 1, 1996, the Company acquired certain cable television systems of
Mid-Tennessee Cable Limited Partnership (the "Mid-Tennessee Systems"). In
addition, on April 1, 1996 the Company acquired the cable television systems of
Rifkin Cablevision of Tennessee, Ltd. (the "RCT Systems" and, together with the
Mid-Tennessee Systems, the "New Tennessee Systems"). The acquisition of the
Mid-Tennessee Systems (the "Mid-Tennessee Acquisition") and the acquisition of
the RCT Systems (the "RCT Acquisition" and, together with the Mid-Tennessee
Acquisition, the "Acquisitions"), which are proximate to the Company's other
systems in Tennessee (the "Other Tennessee Systems" and, together with the New
Tennessee Systems, the "Tennessee Systems"), furthers the Company's strategy of
clustering its cable systems to achieve economies of scale and operating
efficiencies. Rifkin & Associates has managed the New Tennessee Systems since
1986 and these systems have experienced growth in homes passed, basic
subscribers and Adjusted EBITDA between January 1, 1991 and December 31, 1995
of 12.3%, 21.7% and 10.4%, respectively, despite having incurred losses under
generally accepted accounting principles during the years ended December 31,
1991, 1992, 1993, 1994 and 1995 of $3.7 million, $2.6 million, $2.2 million,
$2.6 million and $2.4 million, respectively (such losses being primarily
attributable to depreciation and amortization expenses resulting from the
initial acquisitions of these cable systems and subsequent capital additions
and interest expense). At December 31, 1995, the New Tennessee Systems passed
approximately 56,800 homes and served approximately 45,600 basic subscribers.
At December 31, 1995, pro forma for the Acquisitions, the Other Systems and
the New Tennessee Systems (collectively, the "Systems") passed approximately
230,800 homes and served approximately 177,900 basic
- --------
1. See footnote (b) on p. 17.
5
<PAGE>
subscribers, for a basic penetration level of 77.1%. The Company is one of the
largest multiple system operators ("MSO") in Tennessee, based on information
provided by The Tennessee Cable Television Association as of December 31, 1995
regarding the number of basic subscribers served. The Company believes that its
strategy of clustering of these systems to achieve economies of scale and
operating efficiencies will create opportunities to improve customer service
and marketing, reduce administrative costs and deploy new technologies more
cost-effectively. For the year ended December 31, 1995, pro forma for the
Acquisitions, the Company had revenue of approximately $65.6 million and,
Adjusted EBITDA/1/ of approximately $30.1 million.
MANAGEMENT AND OWNERSHIP
The Systems are managed by Rifkin & Associates, which was founded in 1982 by
Monroe M. Rifkin, its Chairman and Chief Executive Officer. At December 31,
1995, Rifkin & Associates managed 81 cable television systems in the United
States serving over 341,000 basic subscribers. For the period from January 1,
1991 to December 31, 1995, the cable television systems managed by Rifkin &
Associates experienced an aggregate growth in basic subscribers of 23.9%.
Substantially all of this growth was generated through increases in basic
penetration levels and homes passed. Prior to establishing Rifkin & Associates
in 1982, Mr. Rifkin founded and served as Chairman and Chief Executive Officer
of American Television and Communications Corporation ("ATC"). ATC was the
second largest cable television company in the United States in 1978, when it
was purchased by Time Incorporated. Mr. Rifkin and the other senior officers of
Rifkin & Associates have an average of 15 years of experience in the
construction, acquisition, ownership, management and operation of cable
television systems. The Company believes that the depth and experience of the
management team of Rifkin & Associates is a key asset which significantly
enhances the Company's operating and financial performance. See "Management--
Director and Executive Officers of Rifkin & Associates; Advisory Committee of
the Company."
In August 1995, the Company effected a recapitalization (the
"Recapitalization") in which a group led by VS&A Communications Partners II,
L.P. ("VS&A"), an investment fund affiliated with Veronis, Suhler & Associates
Inc. (an investment banking firm specializing in the media and communications
industry) and further comprised of Greenwich Street (RAP) Partners I, L.P.
("Greenwich"), IEP I Holdings LLC, an affiliate of ING Equity Partners L.P. I,
and PaineWebber Capital, Inc. (collectively, the "VS&A Group") acquired the
interests of certain limited partners in RAP L.P. for approximately $39.4
million in cash and invested approximately $41.6 million in cash as new equity
in the Partnership. In connection with the Recapitalization, Mr. Rifkin,
certain trusts controlled by Mr. Rifkin (the "Rifkin Trusts") and certain
current and former members of management of Rifkin & Associates (collectively,
the "Rifkin Group") exchanged their then-existing limited partnership interests
in RAP L.P., which for purposes of the Recapitalization were valued at
approximately $9.1 million, for limited partnership interests in the
Partnership (the "Equity Rollover"). In addition, the Rifkin Trusts invested
$600,950 in cash as new equity in the Partnership. In January 1996, as a
condition to issuance of the Old Notes, the VS&A Group and the Rifkin Group
(collectively, the "Investor Group") invested $15 million in cash as additional
equity in the Partnership (the "New Equity"). As a result, the Investor Group
has invested an aggregate of $57.2 million in cash in addition to the $39.4
million paid to the prior limited partners of RAP L.P. for their partnership
interests and the Equity Rollover for its ownership interest in the
Partnership. As a result of these transactions, the VS&A Group and the Rifkin
Group hold 89.2% and 9.8% limited partnership interests in the Partnership,
respectively, and the General Partner continues to hold its 1% general
partnership interest in the Partnership. See "Principal Security Holders" and
"Certain Relationships and Related Transactions." As a condition to the
investment in the Partnership made by the VS&A Group, in connection with the
Recapitalization, the Partnership also assumed from RAP L.P. a subordinated
note in the principal amount of $3 million payable to Monroe M. Rifkin (the
"Old Rifkin Note"). In connection with the Old Notes Offering, the Old Rifkin
Note was amended and restated to rank pari passu with the Notes (the "New
Rifkin Note"). See "Certain Relationships and Related Transactions--Senior
Subordinated Debt Held by Monroe M. Rifkin." Finally, as part of the
Recapitalization, the fee payable by the Partnership to Rifkin & Associates for
management services was reduced from 5.0% to 3.5% of the Partnership's revenue.
- --------
1. See footnote (b) on p. 17.
6
<PAGE>
THE SYSTEMS
Certain information regarding the Systems is presented below as of December
31, 1995:
<TABLE>
<CAPTION>
NEW TENNESSEE ALL
OTHER SYSTEMS SYSTEMS SYSTEMS
---------------------------------------------- ----------------- -------
OTHER TOTAL MID-
GEORGIA TENNESSEE ILLINOIS MICHIGAN OTHER TENNESSEE RCT
SYSTEMS SYSTEMS SYSTEMS SYSTEMS SYSTEMS SYSTEMS SYSTEMS
------- --------- -------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Homes Passed............ 66,307 58,289 35,469 13,989 174,054 42,448 14,320 230,822
Basic Subscribers(1).... 48,925 48,128 24,269 10,949 132,271 33,407 12,230 177,908
Basic Penetration....... 73.8% 82.6% 68.4% 78.3% 76.0% 78.7% 85.4% 77.1%
Premium Service
Units(2)............... 34,651 25,401 13,555 6,778 80,385 20,800 7,140 108,325
Premium Penetration..... 70.8% 52.8% 55.9% 61.9% 60.8% 62.3% 58.4% 60.9%
CAGR:(3)
Homes Passed........... 5.8% 3.8% 0.0% 2.3% 3.5% 3.5% (0.7)% 3.2%
Basic Subscribers...... 11.1% 4.8% 2.9% 5.5% 6.5% 5.1% 1.3% 5.9%
Premium Service Units.. 13.0% 10.0% 14.8% 10.1% 12.0% 12.4% 11.6% 12.1%
Capacity in Mhz......... 450 312-450 300-450 318-400 300-450 286-400 450 286-450
Channel Capacity........ 61 37-60 35-60 38-53 35-61 33-53 60 33-61
Revenue (in
millions)(4)........... $19.8 $17.6 $8.9 $3.9 $50.2 $11.7 $3.7 $65.6
</TABLE>
- --------
(1) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on a "basic
subscriber equivalent" basis in which the total basic monthly bill for the
account is divided by the basic monthly charge for a single residential
outlet in the applicable system.
(2) Premium Service Units represents the number of subscriptions to premium
channels.
(3) CAGR represents the compound annual growth rate for the period from January
1, 1991 to December 31, 1995.
(4) Revenue is presented for the year ended December 31, 1995.
OTHER SYSTEMS
The Georgia Systems. The Georgia Systems serve communities in northeast
Gwinnett County, including the cities of Lawrenceville, Duluth, Suwanee,
Buford, Sugar Hill and Dacula, and the city of Roswell in Fulton County. All of
the communities served by the Georgia Systems are suburbs of Atlanta. At
December 31, 1995, these systems passed approximately 66,300 homes and served
approximately 48,900 basic subscribers. Since 1985, Gwinnett County's
population has grown at a compound annual rate of over 5.7% according to the
Atlanta Regional Commission (the "ARC"), which tracks growth for road
development and other governmental uses. The ARC estimates that Gwinnett
County's population will continue to grow from approximately 410,000 in 1994 to
approximately 541,000 by the year 2000, which implies a compound annual growth
rate of 4.7%. According to the ARC, the population of the census tracts within
the Company's Gwinnett County service area is projected to grow through the
year 2000 at a compound annual growth rate of 5.0%. The Roswell system serves a
population of 54,000 and, according to United States 1990 Census data,
residents of Roswell had one of the highest per capita incomes in the Atlanta
metropolitan area.
The Other Tennessee Systems. The Other Tennessee Systems serve the
communities of Columbia, Cookeville, Paris and Tullahoma, located in central
Tennessee, proximate to Nashville. At December 31, 1995, these systems passed
approximately 58,300 homes and served approximately 48,100 basic subscribers.
Columbia, the largest of the Other Tennessee Systems, principally serves Maury
County which, according to the Tennessee State Planning Office, has experienced
compound annual population growth of 3.5% since 1990. This growth is largely
the result of the construction of the General Motors Saturn plant in Spring
Hill, Tennessee (a community served by the Columbia System) and related new
business formation.
The Illinois Systems. The Illinois Systems serve communities in southern
Illinois. At December 31, 1995, these systems passed approximately 35,500 homes
and served approximately 24,300 basic subscribers. These communities generally
receive poor off-air reception from St. Louis and require cable service to
receive high quality broadcast signals. Nearly 60% of the subscribers served by
the Illinois Systems are in the Mt. Vernon and Centralia systems.
The Michigan Systems. The Michigan Systems serve the cities of
Bridgeport/Frankenmuth, Bad Axe, Gagetown, Harbor Beach and Reese. At December
31, 1995, these systems passed approximately 14,000 homes
7
<PAGE>
and served approximately 10,900 basic subscribers. The Bridgeport/Frankenmuth
system, which is located between the industrial cities of Flint and Saginaw,
represents approximately two-thirds of the subscribers served by the Michigan
Systems. Bridgeport is home to numerous manufacturing plants which support the
automobile industry, while the other communities served by the Michigan Systems
have economies based primarily on tourism.
THE NEW TENNESSEE SYSTEMS
Mid-Tennessee Systems. The Mid-Tennessee Systems serve Lebanon and
McMinnville, which are proximate to the Company's Other Tennessee Systems, and
communities in the Tri-Cities area in northeast Tennessee (the "Hickory Hill
System"). At December 31, 1995, the Mid-Tennessee Systems passed approximately
42,500 homes and served approximately 33,400 basic subscribers. The Lebanon
system serves a growing suburban area east of Nashville. The McMinnville system
serves communities proximate to Nashville in central Tennessee. The Hickory
Hill System serves communities near the Tri-Cities of Bristol, Johnson City and
Kingsport in northeast Tennessee. A major Bridgestone tire plant was recently
completed in McMinnville and the Company expects businesses serving the
automobile industry to continue to develop in the region.
RCT Systems. The RCT Systems, located in south central Tennessee, are
proximate to the Company's Columbia system and serve the communities of
Pulaski, Lawrenceburg and Fayetteville. At December 31, 1995, the RCT Systems
passed approximately 14,300 homes and served approximately 12,200 basic
subscribers. These communities enjoy diverse employment in manufacturing,
farming and light industry. Homes in this area generally receive limited off-
air reception and require cable to receive high quality broadcast signals and a
greater variety of television programming.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements intended
to enhance its operating and financial performance:
Consolidating Operations/Strategic Acquisitions. The Company believes that
consolidating operations will increase Adjusted EBITDA/1/ by allowing for
efficiencies in such areas as administration, marketing, customer service and
advertising sales. The Company will also explore opportunities to consolidate
headends in order to reduce maintenance costs as well as the cost of adding new
channels and implementing new technologies and services. The Company has
consolidated and intends to further consolidate certain of the operations of
the New Tennessee Systems with the Other Tennessee Systems. Future acquisition
efforts are expected to focus on acquiring systems in close proximity to
existing systems, or on systems of sufficient size to serve as cores for new
operating clusters. The Company has identified two potential acquisitions,
neither of which is of a material size. The Company will also consider
divesting systems on an opportunistic basis.
Innovative Marketing. The Company aggressively markets and promotes its cable
television systems with the objective of increasing penetration and average
revenue per subscriber. The Company actively markets its basic and premium
program packages through innovative marketing tactics that include direct mail
and telemarketing efforts targeted to specific subscriber and non-subscriber
demographic profiles, newspaper and television advertising and door-to-door
sales. In selected markets, the Company is also expanding its sources of
revenue from services such as pay-per-view and new services such as the Sega
Channel. In addition, the Company also recently entered into an agency
relationship with Sprint Communications Company, L.P. to market Sprint long
distance telephone services in certain markets.
System Enhancements. The Company is committed to maintaining and enhancing
the technical integrity and channel capacity of its cable systems as
demonstrated by the fact that all of the Systems have capacities of 30 or more
channels. Within the next five years, the Company intends to rebuild nearly all
of the Systems such that the Systems will have a minimum bandwidth of 450 MHz
(60 analog channel capacity) and a number of the Systems will have bandwidth of
750 MHz (110 analog channel capacity or a combination of 93 analog channel
capacity and 100 MHz of digital channel capacity). Additionally, the Company is
committed to extending its distribution system to keep pace with the growth in
the communities it serves as well as making continuous investments that improve
picture quality and plant reliability.
- --------
1. See footnote (b) on p. 17.
8
<PAGE>
Subscriber Value. The Company uses a high quality, well-trained staff of
customer service representatives and local field technicians which Management
believes provides exceptional customer service. To this end, the Company
continues to invest resources in training its customer service representatives
and field technicians. In addition, the Company regularly evaluates the
programming offered by its systems in order to offer its subscribers innovative
packages of basic and premium services, including locally originated
programming.
ACQUISITIONS AND FINANCING PLAN
Acquisitions. On March 1, 1996, the Company acquired the Mid-Tennessee
Systems from Mid-Tennessee Cable Limited Partnership ("MTCLP"). On April 1,
1996 the Company acquired the RCT Systems, from Rifkin Cablevision of
Tennessee, Ltd. Both MTCLP and Rifkin Cablevision of Tennessee, Ltd. are
affiliates of Monroe M. Rifkin. See "Risk Factors--Conflicts of Interest;
Affiliate Transactions." The purchase price for the Mid-Tennessee Systems
(including approximately $1.1 million of assumed liabilities), which remains
subject to certain post-closing adjustments, was $62 million. The Company
acquired the Mid-Tennessee Systems pursuant to a right of first refusal
exercised by Rifkin/MT Management, L.P., an entity controlled by Monroe M.
Rifkin following the acceptance by MTCLP of an offer from an unrelated third
party to acquire such systems. The right to acquire the Mid-Tennessee Systems
pursuant to such right of first refusal was subsequently assigned to the
Company. In connection with such assignment, the Company paid a fee of
approximately $619,000 to Rifkin & Associates. The purchase price for the RCT
Systems of $10.2 million (including approximately $500,000 of assumed
liabilities) which remains subject to certain post-closing adjustments, was
reached through negotiations with the principal limited partner that controlled
such systems and is unaffiliated with the Company and Monroe M. Rifkin.
ORGANIZATIONAL CHART
--------------------
[Organizational Chart of the Company appears here in courtesy copy provided to
the S.E.C.]
9
<PAGE>
The Financing Plan. On January 31, 1996, the Issuers completed the Old Notes
Offering, as part of a plan (the "Financing Plan") designed to enable the
Company to complete the Acquisitions and to provide the Company with long term
fixed rate financing. Under the Financing Plan, (i) the Issuers issued the Old
Notes in the Old Notes Offering, (ii) the Company received $15 million of New
Equity from the Investor Group, (iii) the Company's prior credit agreement was
amended (as amended, the "Amended and Restated Credit Agreement") to provide
ongoing borrowing availability, including availability to finance Permitted
Acquisitions (as defined), provided the Company satisfies certain requirements
and (iv) the $3 million Old Rifkin Note was amended and restated to, among
other things, provide that such indebtedness shall rank pari passu with the
Notes and have an interest rate and scheduled maturity identical to that of the
Notes. Proceeds of the Offering and the New Equity were used to complete the
Acquisitions, to pay transaction costs and expenses related to the Financing
Plan and the Acquisitions (collectively, the "Transactions") and to reduce
outstanding indebtedness under the Amended and Restated Credit Agreement.
The following table presents the sources and uses of funds under the
Financing Plan assuming the Transactions had occurred on December 31, 1995:
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- ----------------
<S> <C>
Senior Subordinated Notes... $125,000,000
New Equity Contributions.... 15,000,000
------------
Total Sources........... $140,000,000
============
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS
- -------------
<S> <C>
Acquisitions(1):
The Mid-Tennessee Acquisition........................................... $ 60,877,000
The RCT Acquisition..................................................... 9,699,000
Repayment of borrowings under the Amended and Restated Credit Agreement.. 63,424,000
Transaction costs and expenses........................................... 6,000,000
------------
Total Uses........................................................... $140,000,000
============
</TABLE>
- --------
(1) The aggregate cash consideration payable for the New Tennessee Systems is
subject to certain adjustments for working capital as contemplated by the
respective purchase agreements. Such adjustments are assumed to reduce the
aggregate cash purchase price for the Acquisitions by $1.6 million for
purposes hereof based on the current assets and liabilities of the New
Tennessee Systems as of December 31, 1995. See "Unaudited Pro Forma
Condensed Consolidated Financial Data."
After giving effect to the Transactions as of December 31, 1995, the Company
would have had total unused commitments under the Amended and Restated Credit
Agreement of $73.9 million, $13.9 million of which would have been available
for general corporate purposes. See "Description of Amended and Restated Credit
Agreement."
RECENT REGULATORY DEVELOPMENTS
On February 8, 1996, the President signed into law the Telecommunications Act
of 1996 ("1996 Telecom Act"). This new law alters federal, state and local laws
and regulations regarding telecommunications providers and cable television
service providers, including the Company. See "Legislation and Regulation in
the Cable Television Industry." The 1996 Telecom Act deregulates the rates for
"small cable operators" for cable programming service tiers. On April 5, 1996,
the FCC issued a Notice of Proposed Rulemaking and adopted interim rules under
which the Company would generally qualify as a "small cable operator."
Management anticipates that it will qualify as a small cable operator when the
rulemaking is concluded and final rules are issued. It is the Company's
understanding, that based on such interim rules, the Company qualifies as a
"small cable operator" and its systems are subject to the specific rules for
small cable operators. Under the FCC's interim rules, the Company's systems are
immediately relieved from any rate regulation on Cable Programming
10
<PAGE>
Service Tiers and the Company will have pricing flexibility on this tier of
programming service. The 1996 Telecom Act did not change the existing
streamlined rate regulation rules for small cable systems adopted by the FCC in
1995. Additionally, the 1996 Telecom Act removed all barriers to telephone
company and electric utility company entry into the cable television business.
Further, the 1996 Telecom Act allows for potentially significant pole rental
attachment increases commencing in five years, with such increases being
phased-in over the succeeding five year period. For a detailed review of the
1996 Telecom Act, see "Legislation and Regulation in the Cable Television
Industry."
Regarding the rate regulation of basic cable service, on June 5, 1995, the
Federal Communications Commission (the "FCC") issued an order (the "Small
Systems Order") adopting new rules to reduce the substantive and procedural
burdens of rate regulation applicable to small cable systems (serving 15,000 or
fewer subscribers) owned by cable companies which operate multiple systems
serving fewer than 400,000 subscribers. Under the Small Systems Order, the
regulatory benefits accruing to such systems remain effective even if such
systems are later acquired by MSOs which serve in excess of 400,000
subscribers. All of the Systems qualify as "small cable systems" under the
Small Systems Order, except for the systems serving northeast Gwinnett County,
Georgia and Columbia, Tennessee, which had approximately 34,500 and 17,200
basic subscribers, respectively, as of September 30, 1995, representing
approximately 29% of the total basic subscribers in the Systems. The Company
has applied to the FCC to have the Columbia system characterized as a small
system, but is unable to predict the timing or outcome of such application. See
"Legislation and Regulation in the Cable Television Industry--Rate Regulation."
TRANSACTIONS RELATED TO THE OLD NOTES OFFERING
In connection with the offering of the Old Notes (the "Old Notes Offering"),
the following transactions (together with the Old Notes Offering and the use of
proceeds thereof, collectively, the ("Transactions") occurred or will occur:
Escrow Account; Mid-Tennessee Acquisition. Concurrently with the closing of
the Old Notes Offering, the net proceeds of the Old Notes Offering were placed
in an escrow account maintained by the Trustee (the "Escrow Account"). All of
the funds in such Escrow Account, together with any interest earned thereon
were released on March 1, 1996, and were used to finance the New Tennessee
Acquisitions, to reduce outstanding indebtedness under the Amended and Restated
Credit Agreement. See "Acquisitions", "Use of Proceeds," "Capitalization,"
"Description of Amended and Restated Credit Agreement" and "Description of
Exchange Notes."
THE EXCHANGE OFFER
The Exchange Offer........ The Company is offering to exchange (the "Exchange
Offer") up to $125,000,000 aggregate principal
amount of its new 11 1/8% Senior Subordinated Notes
due 2006 (the "Exchange Notes") for up to
$125,000,000 aggregate principal amount of its
outstanding 11 1/8% Senior Subordinated Notes due
2006 that were issued and sold in a transaction
exempt from registration under the Securities Act
(the "Old Notes") and, together with the Exchange
Notes, the "Notes"). The form and terms of the
Exchange Notes are substantially identical
(including principal amount, interest rate,
maturity, security and ranking) to the form and
terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except
that the Exchange Notes are freely transferable by
holders thereof except as provided
11
<PAGE>
herein (see "The Exchange Offer--Terms of the
Exchange" and "--Terms and Conditions of the Letter
of Transmittal") and are not entitled to certain
registration rights and certain additional interest
provisions which are applicable to the Old Notes
under a registration rights agreement dated as of
January 31, 1996 (the "Registration Rights
Agreement") among the Partnership, RACC, the
Guarantors and BT Securities Corporation, Smith
Barney, Inc., First Union Capital Markets Corp. and
PaineWebber Incorporated as initial purchasers
(collectively, the "Initial Purchasers").
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered
for resale, resold and otherwise transferred by
holders thereof (other than any holder which is (i)
an Affiliate of the Company, (ii) a broker-dealer
who acquired Old Notes directly from the Company or
(iii) a broker-dealer who acquired Old Notes as a
result of market-making or other trading
activities), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged
in, and do not intend to engage in, and have no
arrangement or understanding with any person to
participate in, a distribution of such Exchange
Notes.
Minimum Condition......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange.
Expiration Date........... The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1996, unless extended
(the "Expiration Date").
Exchange Date............. The first date of acceptance for exchange for the
Old Notes will be the first business day following
the Expiration Date.
Conditions to the The obligation of the Company to consummate the
Exchange Offer........... Exchange Offer is subject to certain conditions.
See "The Exchange Offer--Conditions to the Exchange
Offer." The Company reserves the right to terminate
or amend the Exchange Offer at any time prior to
the Expiration Date upon the occurrence of any such
condition.
Withdrawal Rights......... Tenders of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for any
reason will be returned without expense to the
tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering See "The Exchange Offer--How to Tender."
Old Notes................
Federal Income Tax
Consequences............. The exchange of Old Notes for Exchange Notes by
tendering holders will not be a taxable exchange
for federal income tax purposes, and such holders
should not recognize any taxable gain or loss as a
result of such exchange.
Use of Proceeds........... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
12
<PAGE>
Effect on Holders of Old As a result of the making of this Exchange Offer,
Notes.................... and upon acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of this
Exchange Offer, the Company will have fulfilled a
covenant contained in the terms of the Old Notes
and the Registration Rights Agreement, and,
accordingly, the holders of the Old Notes will have
no further registration or other rights under the
Registration Rights Agreement, except under certain
limited circumstances. See "Old Notes Registration
Rights." Holders of the Old Notes who do not tender
their Old Notes in the Exchange Offer will continue
to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under
the Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in the
Old Notes and the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old
Notes not so tendered could be adversely affected.
See "Risk Factors--Consequences of Failure to
Exchange Old Notes."
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $125,000,000 aggregate principal amount of Old
Notes. The form and terms of the Exchange Notes are substantially identical to
the form and terms of the Old Notes, except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same
debt as the Old Notes and will be entitled to the benefits of the Indenture.
See "Description of Exchange Notes."
Securities Offered........ $125,000,000 aggregate principal amount of 11 1/8%
Senior Subordinated Notes due 2006.
Issuers................... The Notes are joint and several obligations of
Rifkin Acquisition Partners, L.L.L.P. and Rifkin
Acquisition Capital Corp. ("RACC").
Maturity Date............. January 15, 2006.
Interest Payment Dates.... Interest on the Notes will accrue from the date of
issuance, January 26, 1996 (the "Issue Date"), at
the rate of 11 1/8 % per annum and will be payable
in cash semi-annually in arrears on January 15 and
July 15 of each year, commencing July 15, 1996.
Optional Redemption....... The Notes will be redeemable at the Issuers'
option, in whole or in part, at any time on or
after January 15, 2001, at the redemption prices
set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time on or prior to January 15,
1999, the Issuers, at their option, may redeem up
to 25% of the aggregate principal amount of the
Notes originally issued with the net proceeds of
one or more Public Equity Offerings or Strategic
Equity Investments in which the Issuers receive
proceeds of not less than $25 million, at a
redemption price equal to 111 1/8% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of redemption;
provided, however, that after any such redemption
the aggregate principal amount of the Notes
outstanding must equal at least 75% of the
aggregate principal amount of the Notes originally
issued.
13
<PAGE>
Change of Control......... Upon the occurrence of a Change of Control, each
holder of the Notes will have the right to require
the Issuers to purchase all or a portion of such
holder's Notes at 101% of the principal amount
thereof, together with accrued and unpaid interest,
to the date of purchase. An acquisition of control
of the Company by Monroe M. Rifkin, VS&A or any of
their respective affiliates would not constitute a
Change of Control under the Indenture governing the
Notes. See "Description of Exchange Notes--Change
of Control."
Ranking................... The Notes will represent senior subordinated
obligations of the Issuers and will be subordinated
in right of payment to all existing and future
Senior Debt of the Issuers. As of December 31,
1995, on a pro forma basis after giving effect to
the Transactions, the Issuers would have had $71.1
million of Senior Debt outstanding (excluding
unused commitments of $73.9 million under the
Amended and Restated Credit Agreement) and $3
million of indebtedness outstanding that ranks pari
passu with the Notes. See "Risk Factors--
Substantial Leverage and Risk of Inability to
Service Debt."
Subsidiary Guarantees.....
The Notes will be jointly and severally guaranteed
on a senior subordinated basis by the Guarantors.
The Guarantees will be general unsecured
obligations of the Guarantors and will be
subordinated in right of payment to all existing
and future Senior Debt of the Guarantors. As of
December 31, 1995, on a pro forma basis after
giving effect to the Transactions, the Guarantors
would have had no Senior Debt outstanding
(excluding guarantees of Senior Debt of the
Company). See "Risk Factors--Subordination of Notes
and the Subsidiary Guarantees; Asset Encumbrances."
Certain Covenants......... The Indenture contains certain covenants,
including, but not limited to, covenants with
respect to the following matters: (i) limitations
on additional indebtedness and issuance of certain
additional equity interests; (ii) limitations on
restricted payments; (iii) limitations on
transactions with affiliates; (iv) limitations on
asset sales; (v) limitations on the incurrence of
liens; (vi) limitations on the creation of
restrictions on the ability of certain subsidiaries
to make certain distributions and payments to the
Company; (vii) limitations on the transfer of
certain assets to subsidiaries; and (viii)
restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets
of the Company to another person. These covenants
are subject to important exceptions and
qualifications. See "Description of Exchange
Notes--Covenants."
EXCHANGE OFFER; REGISTRATION RIGHTS; ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, the Issuers and the Subsidiary
Guarantors have agreed (i) to file the Registration Statement on or prior to
April 10, 1996 with respect to the Exchange Offer, and (ii) to use their best
efforts to cause such registration statement to become effective under the
Securities Act on or prior to June 10, 1996. If the Issuers and the Subsidiary
Guarantors do not comply with their registration obligations in a timely
manner, the Issuers will be required to pay additional interest (in addition to
the scheduled payment of
14
<PAGE>
interest) during the first 90-day period of such default in an amount equal to
0.50% per annum. The amount of the additional interest will increase by an
additional 0.50% per annum for each subsequent 90-day period until such
obligations are complied with, up to a maximum amount of additional interest of
2.0% per annum. See "Transactions Related to the Old Notes Offering--The
Exchange Offer--Effect on Holders of Old Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the investment in the Notes.
----------------
The Company is the successor to a Colorado limited partnership that was
formed in 1988 and reorganized as a Colorado limited liability limited
partnership in August 1995 pursuant to the Recapitalization. Rifkin Acquisition
Capital Corp. is a Colorado corporation that was formed in January 1996. The
principal offices of the Issuers are located at 360 South Monroe Street, Suite
600, Denver, Colorado 80209, and their telephone number is (303) 333-1215.
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
The summary historical consolidated financial data set forth below for the
years ended December 31, 1993 and 1994 and the eight months ended August 31,
1995 and the four months ended December 31, 1995 have been derived from, and
are qualified by reference to, the audited financial statements of the Company
included elsewhere in the Registration Statement of which this Prospectus is a
part. The summary historical consolidated financial data set forth below for
the years ended December 31, 1991 and 1992 have been derived from the Company's
audited financial statements not included herein. Because of the
Recapitalization, the Company's results of operations for the four month period
September 1, 1995 to December 31, 1995 are not comparable to results for prior
periods. The summary unaudited pro forma consolidated statement of operations
and other data give effect to the Recapitalization, the Acquisitions and the
Financing Plan as if such transactions had occurred as of the beginning of the
period presented. The summary unaudited pro forma consolidated balance sheet
data as of December 31, 1995 give effect to the Acquisitions and the Financing
Plan as if such transactions had occurred at such date. The summary pro forma
financial data do not purport to be indicative of the results that actually
would have been obtained had all of the transactions been completed as of the
assumed date and for the period presented and are not intended to be a
projection of the Company's future results or financial position. The
information contained in this table should be read in conjunction with
"Unaudited Pro Forma Condensed Consolidated Financial Data," "Selected
Historical Financial Data" and the financial statements of the Company and the
Mid-Tennessee Systems (including accompanying notes) included elsewhere in the
Registration Statement of which this Prospectus is a part.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
EIGHT FOUR
MONTHS MONTHS
ENDED ENDED COMBINED 1995 PRO
1991 1992 1993 1994 8/31/95 12/31/95 1995(A) FORMA
-------- -------- -------- -------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 32,879 $ 36,935 $ 41,470 $ 44,889 $ 32,907 $ 17,301 $ 50,208 $ 65,567
Total costs and
expenses.............. 32,071 34,635 36,010 37,292 25,854 17,697 43,551 67,875
-------- -------- -------- -------- -------- --------- ----------- -----------
Operating income
(loss)................ 808 2,300 5,460 7,597 7,053 (396) 6,657 (2,308)
Interest expense....... 18,757 19,222 18,283 18,008 14,619 4,252 18,871 21,723
-------- -------- -------- -------- -------- --------- ----------- -----------
Loss before income
taxes, extraordinary
item and cumulative
effect of accounting
change................ $(17,949) $(16,922) $(12,823) $(10,411) $ (7,566) $ (4,648) $ (12,214) $ (24,032)
======== ======== ======== ======== ======== ========= =========== ===========
CASH FLOWS:
Operating activities... $ 3,111 $ 4,080 $ 3,060 $ 3,976 $ (3,172) $ 4,879 $ 1,707 --
Investing activities... (4,256) (7,704) (6,185) (6,302) 171,740 (178,114) (6,374) --
Financing activities... 991 3,984 3,000 2,750 (164,939) 173,553 8,614 --
OTHER FINANCIAL DATA:
Capital expenditures
(excluding
acquisitions)......... $ 4,302 $ 7,917 $ 6,278 $ 6,280 $ 4,119 $ 3,360 $ 7,479 $ 9,524
Depreciation and
amortization.......... 14,735 14,313 13,795 13,154 7,625 8,200 15,825 31,895
Adjusted EBITDA(b)..... 15,844 17,911 20,015 20,879 15,350 8,079 23,429 30,094
Total cash interest
expense............... 12,106 14,657 17,604 16,745 17,013 4,025 21,038 21,198
FINANCIAL RATIOS:
Ratio of earnings to
fixed charges(d)...... -- -- -- -- -- -- -- --
Adjusted EBITDA to
revenue............... 48.2% 48.5% 48.3% 46.5% -- -- 46.7% 45.9%
Pro forma total debt to
Adjusted EBITDA(e) 6.4x
Pro forma Adjusted
EBITDA to total cash
interest expense 1.4x
OPERATING DATA:
Homes passed........... 149,421 155,013 158,723 165,740 -- -- 174,054 230,822
Basic subscribers...... 102,532 108,991 115,793 124,059 -- -- 132,271 177,908
Basic penetration...... 68.6% 70.3% 73.0% 74.9% -- -- 76.0% 77.1%
Premium service units.. 45,099 56,437 67,192 74,913 -- -- 80,385 108,325
Premium penetration.... 44.0% 51.8% 58.0% 60.4% -- -- 60.8% 60.9%
Average monthly revenue
per basic subscriber.. $ 28.55 $ 29.10 $ 30.75 $ 31.19 -- -- $ 32.65 $ 31.60
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........... $122,377 $114,074 $101,724 $ 95,210 -- $ 238,045 -- $ 316,916
Total debt............. 153,827 160,449 163,766 166,833 -- $ 137,500 -- $ 199,076
Redeemable partner's
interests and
detachable warrants... 2,739 2,739 2,739 2,739 -- $ 3,600 -- $ 3,600
Total partners'
capital............... (39,842) (56,764) (73,087) (85,057) -- $ 68,898 -- $ 83,898
</TABLE>
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<PAGE>
- --------
(a) Reflects the historical financial data of the Company for the eight months
ended August 31, 1995 and the four months ended December 31, 1995, combined
for convenience purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and consolidated financial
statements of the Company.
(b) Adjusted EBITDA represents income (loss) before interest expense, income
taxes, depreciation and amortization, costs associated with the transfer of
net assets, loss on disposal of assets, extraordinary item and cumulative
effect of accounting change. Industry analysts generally consider Adjusted
EBITDA to be an appropriate measure of the performance of multi-channel
television operations. Adjusted EBITDA is not presented in accordance with
generally accepted accounting principles and should not be considered an
alternative to, or more meaningful than, operating income or operating cash
flow as an indication of the Company's operating performance.
(c) Earnings were inadequate to cover fixed charges by $18.8 million, $17.8
million, $13.2 million, $10.8 million, and $12.6 million, for the years
ended December 31, 1991, 1992, 1993, 1994 and 1995, $24.6 million for the
pro forma year ended December 31, 1995 and $7.8 million and $4.8 million,
respectively, for the eight months ended August 31, 1995 and the four
months ended December 31, 1995. In calculating the ratio of earnings to
fixed charges, earnings consist of net loss before income taxes,
extraordinary item, cumulative effect of accounting change and interest
expense. Fixed charges consist of interest expense and the portion of
rental expense which, in Management's opinion, is representative of the
interest factor.
(d) For purposes of this calculation, Adjusted EBITDA is annualized from the
three month period ended December 31, 1995. The Company's adjusted EBITDA
is not subject to seasonality or other trends that would materially affect
the accuracy of such annualization. For the three month period ended
December 31, 1995, pro forma for the Transactions and the Recapitalization,
the Company's Adjusted EBITDA was $7.8 million, or $31.2 million on an
annualized basis.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Old Notes for the Exchange Notes offered hereby, holders of
Old Notes should consider carefully the following factors, which may be
generally applicable to the Old Notes as well as to the Exchange Notes:
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 and
applicable state securities laws, or pursuant to an exemption therefrom.
Except under certain limited circumstances, the Company does not intend to
register the Old Notes under the Securities Act. In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating
in a distribution of the Exchange Notes may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Old Notes are tendered
and accepted in the Exchange Offer, the trading market, if any, for the Old
Notes not so tendered could be adversely affected. See "The Exchange Offer"
and "Old Notes Registration Rights."
SUBSTANTIAL LEVERAGE AND RISK OF INABILITY TO SERVICE DEBT
The Company is highly leveraged and has indebtedness that is substantial in
relation to its partners' capital. On December 31, 1995, the Company's
indebtedness would have been approximately $199.1 million and its partners'
capital would have been $88 million on a pro forma basis after giving effect
to the Transactions. In addition, subject to the restrictions in the Amended
and Restated Credit Agreement and the Indenture, the Company may incur
additional indebtedness, including indebtedness constituting Senior Debt or
rating pari passu with the Notes, from time to time to finance acquisitions or
capital expenditures or for general corporate purposes. The high level of the
Company's indebtedness will have important consequences to holders of the
Notes, including: (i) a substantial portion of the Company's cash flow from
operations must be dedicated to debt service and will not be available for
general corporate purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures or
acquisitions may be limited; (iii) the Company's level of indebtedness could
limit its flexibility in reacting to changes in the industry and economic
conditions generally; and (iv) because certain of the Company's borrowings are
and will continue to be at variable rates, an increase in interest rates could
result in higher interest expense. See "-Significant Capital Expenditures."
For the years ended December 31, 1994 and 1995, the Company's earnings were
insufficient to cover fixed charges by $11.3 million and $12.6 million,
respectively. In addition, during 1995 the Company defaulted on payments
aggregating $3.8 million in respect of certain indebtedness that subsequently
was repaid in full in connection with the Recapitalization. On a pro forma
basis after giving effect to the Transactions and the Recapitalization, the
Company's earnings would have been insufficient to cover fixed charges by
approximately $24.6 million for the year ended December 31, 1995. There can be
no assurance that the Company will generate earnings in future periods
sufficient to cover its fixed charges, including the debt service obligations
with respect to the Notes. In the absence of such earnings or other financial
resources, the Company could face substantial liquidity problems. The
Company's ability to pay interest on the Notes and to satisfy its other debt
obligations will depend upon its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. The Company anticipates that
its operating cash flow, together with available borrowings, including
borrowings under the Amended and Restated Credit Agreement, will be sufficient
to meet its operating expenses and capital expenditure requirements and to
service its debt requirements for the next twelve months, as well as through
the maturity date of the Notes. However, if the Company is unable to service
its indebtedness, it will be forced to adopt an alternative strategy
18
<PAGE>
that may include actions such as reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness, or seeking
additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SUBORDINATION OF NOTES AND SUBSIDIARY GUARANTEES; ASSET ENCUMBRANCES
The Notes and the Subsidiary Guarantees are subordinated in right of payment
to all Senior Debt of the Issuers and the Subsidiary Guarantors, respectively.
At December 31, 1995, on a pro forma basis after giving effect to the
Transactions, the Issuers would have had approximately $71.1 million of Senior
Debt (excluding unused commitments of approximately $73.9 million under the
Amended and Restated Credit Agreement) and the Subsidiary Guarantors would
have had no Senior Debt (excluding guarantees of Senior Debt of the Company).
Additional Senior Debt may be incurred by the Issuers and the Subsidiary
Guarantors from time to time subject to certain restrictions contained in the
Amended and Restated Credit Agreement and the Indenture. In the event of
bankruptcy, liquidation or reorganization of the Issuers or the Subsidiary
Guarantors, the assets of the Issuers or the Subsidiary Guarantors will be
available to pay obligations on the Notes only after all obligations under the
Senior Debt have been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. In
addition, under certain circumstances no payment may be made with respect to
the principal of, or interest on, the Notes if a default exists with respect
to the Senior Debt. See "Description of Exchange Notes--Ranking and
Subordination." The Company's indebtedness under the Amended and Restated
Credit Agreement will be secured by substantially all of the assets of the
Company and its subsidiaries (including RACC and the Subsidiary Guarantors).
The lenders under the Amended and Restated Credit Agreement will have
available to them all of the remedies available to a secured creditor under
applicable law and accordingly will have prior claims on the assets of the
Company. The Notes are not secured by any assets of the Issuers or the
Subsidiary Guarantors. See "Description of Exchange Notes--Ranking and
Subordination," and "Description of Amended and Restated Credit Agreement."
HISTORICAL LOSSES
The Company has reported a net loss in each full year since its inception in
1988, including net losses of approximately $16.9 million, $16.3 million, $12
million, and $10.7 million in 1992, 1993, 1994 and 1995, respectively. The New
Tennessee Systems likewise have reported net losses on a historical basis.
These losses are primarily attributable to the depreciation and amortization
expenses resulting from the initial acquisitions of the Systems, as well as
subsequent capital additions and interest expense. The Company expects to
continue to experience net losses for the next twelve months, as well as
through the maturity date of the Notes, primarily as a result of charges for
depreciation and amortization resulting from the Recapitalization and the
Acquisitions and interest expense relating to the Notes and the Amended and
Restated Credit Agreement.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Issuers and the Subsidiary
Guarantors' ability to incur additional indebtedness, incur liens, pay
distributions or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, incur
indebtedness that is subordinate in right of payment to any Senior Debt and
senior in right of payment to the Notes or the Subsidiary Guarantees, as the
case may be, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
the assets of the Company. In addition, the Amended and Restated Credit
Agreement contains other and more restrictive covenants and prohibits the
Company from prepaying its other indebtedness (including the Notes). The
Amended and Restated Credit Agreement requires the Company to maintain
specified financial ratios and satisfy certain financial condition tests. The
Company's ability to comply with these covenants and meet these financial
ratios and tests can be affected by events beyond its control, and there can
be no assurance that the Company will meet those tests. A breach of any of
these covenants could result in a default under the Amended and Restated
Credit Agreement and/or the Indenture. Upon the occurrence
19
<PAGE>
of an event of default under the Amended and Restated Credit Agreement, the
lenders could elect to declare all amounts outstanding under the Amended and
Restated Credit Agreement, together with accrued interest, to be immediately
due and payable. If the Company were unable to repay those amounts, the
lenders could proceed against the collateral granted to them to secure that
indebtedness. If the lenders under the Amended and Restated Credit Agreement
accelerate the payment of the indebtedness, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness
and the other indebtedness of the Company, including the Notes. Substantially
all the assets of the Issuers and the Subsidiary Guarantors are pledged as
security under the Amended and Restated Credit Agreement. See "Description of
Exchange Notes--Certain Covenants" and "Description of Amended and Restated
Credit Agreement."
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is to expand by
acquiring cable television systems located in reasonable proximity to the
Company's existing systems to achieve operating and administrative
efficiencies through regional clustering, or of sufficient size to serve as
cores for new operating clusters. There can be no assurance that the Company
will be able to identify acquisition opportunities consistent with this
strategy on favorable terms or that the Company will be able to obtain the
financing necessary to consummate such acquisitions.
In carrying out its acquisition strategy, the Company attempts to minimize
the risk of unexpected liabilities and contingencies associated with acquired
businesses through planning, investigation and negotiation, but such
liabilities and contingencies may nevertheless accompany acquisitions,
including the Acquisitions. There can be no assurance that the Company will be
able to integrate successfully any acquired businesses, including the New
Tennessee Systems, into its operations or realize any efficiencies through the
consolidation of the operations and administrative functions of acquired
businesses.
SIGNIFICANT CAPITAL EXPENDITURES
Consistent with its business strategy and in order to comply with the
requirements imposed by certain of the Company's franchises, the Company
expects to upgrade a significant portion of its cable television distribution
systems over the next several years to, among other things, increase bandwidth
and channel capacity. For example, in December 1995 the Company completed a
15-year renewal of its franchise with Gwinnett County, Georgia that requires
an upgrade of the Company's Northeast Gwinnett County System to 750 MHz by
December 31, 1999. In February 1996, the Company completed a 15-year renewal
of its franchise with the City of Roswell, Georgia that requires a similar
upgrade within the same timeframe. The estimated expenditures related to these
mandated upgrades is approximately $15.5 million. There can be no assurance
that the Company will be able to upgrade its cable television systems in
accordance with applicable franchise requirements or 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., wireless multichannel, multipoint distribution
services ("MMDS") and direct broadcast satellite ("DBS") services) or have
access to significantly greater amounts of capital and an existing
communications network. The Company's inability to upgrade its cable
television systems could adversely affect the Company's operations and
competitive position. See "Business--Systems" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive
computer programs and home video products, including video tape cassette
recorders. Within the home video programming market, the Company competes with
other cable franchise holders and with satellite and wireless cable providers.
Significant new competition may be introduced as a result of recent FCC and
judicial decisions that enable local telephone
20
<PAGE>
companies to provide a wide variety of video services in the telephone
company's own service area which will be directly competitive with services
provided by cable systems. Additionally, over the past two years there has
been significant growth in the number of subscribers to DBS services. The cost
of the reception dish required to receive such DBS services has been greatly
reduced over that same time period, which is expected to expand the growth of
DBS subscribers. Also, such DBS providers have access to essentially all of
the programming services that are typically provided by cable operators such
as the Company. Further, subscribership to MMDS services has also increased
recently. Substantial growth of the MMDS industry can be anticipated as a
result of recent significant investments in and acquisitions of MMDS companies
by local phone companies. The Company cannot predict the extent to which
competition will materialize from other cable television operators, other
distribution systems for delivering video programming to the home or other
potential competitors, or, if such competition materializes, the extent of its
effect on the Company. See "Business--Competition" and "Legislation and
Regulation in the Cable Television Industry."
NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES
Cable television systems generally operate under franchises granted by state
or local authorities that are subject to renewal and renegotiation from time
to time. The Company's business is dependent upon the retention and renewal of
its local franchises. A franchise generally is granted for a fixed term
ranging from five to fifteen years but in many cases is terminable if the
franchisee fails to comply with the material provisions thereof. A franchise
typically imposes conditions relating to the use and operation of the cable
television system, including requirements relating to the payment of fees, the
maintenance or expansion of bandwidth capacity and the nature of programming.
See "--Significant Capital Expenditures." Although the Company believes that
it generally has good relationships with its franchise authorities, no
assurance can be given that the Company will be able to retain or renew such
franchises or that the terms of any such renewals will be on terms as
favorable to the Company as the Company's existing franchises. The non-renewal
or termination of franchises relating to a significant portion of the
Company's subscribers could have a material adverse effect on the Company's
results of operations. See "Business--Franchises."
It is possible that a franchise authority might grant a franchise to another
cable company containing terms and conditions more favorable than those the
authority has afforded the Company. In certain of the Systems' service areas,
including Gwinnett County, there are multiple franchisees. To date, however,
overbuilding (the industry term for the construction of a competing cable
system) in the communities served by the Systems has been limited to two
locations, affecting less than two percent of the total homes passed by the
Systems as of December 31, 1995. In August 1995, Metro Cable, Inc. submitted
to Gwinnett County an application for a franchise and authority to build and
operate a cable television system, which, if approved, could permit it to
overbuild in the Company's Gwinnett County service area. The Company cannot
predict the outcome of this application, nor can it predict the probability or
timing of future overbuilds on its business. See "Business--Competition."
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels. On February 8, 1996, the President signed
into law the Telecommunications Act of 1996 ("1996 Telecom Act"). This new law
alters federal, state and local laws and regulations regarding
telecommunications providers and cable television service providers, including
the Company. See "Legislation and Regulation in the Cable Industry." Among
many other changes, the 1996 Telecom Act establishes standards for
deregulating "small cable operator" cable programming service tiers (not
including basic service). Additionally, the 1996 Telecom Act removed all
barriers to telephone company and electric utility company entry into the
cable television business. Further, the 1996 Telecom Act allows for
potentially significant pole rental attachment increases commencing in five
years, with such increases being phased-in over the succeeding five year
period. The Company is unable to predict to what extent such increases will
impact the Company. For a complete discussion of the 1996 Telecom Act, see
"Legislation and Regulation in the Cable Television Industry."
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<PAGE>
Cable Acts and FCC Regulation. The Cable Communications Policy Act of 1984
(the "1984 Cable Act") and the 1992 Cable Act (the 1992 Cable Act, together
with the 1984 Cable Act, are collectively referred to as the "Cable Acts"),
established a national policy to guide the development and regulation of cable
television systems. The 1996 Telecom Act left unchanged the vast majority of
regulation imposed by the Cable Acts. Principal responsibility for
implementing the policies of the Cable Acts is allocated between the FCC and
state or local franchise authorities. The Cable Acts and existing and pending
FCC rules establish, among other things, (i) rate regulations, (ii) "anti-buy
through" provisions, (iii) "must carry" and "retransmission" consent
requirements, (iv) rules for franchise renewals and transfer and (v) other
regulations covering a variety of operational areas. The 1992 Cable Act and
the FCC's rules implementing such legislation generally have increased the
administrative and operational expenses of cable television systems and have
resulted in additional regulatory oversight by the FCC and local franchise
authorities.
State and Local Regulation. Cable television systems generally operate
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 franchisee
fails to comply with material provisions. The terms and conditions of
franchises vary materially from jurisdiction to jurisdiction. A number of
states subject 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. Attempts in other states to regulate
cable television systems are continuing and can be expected to increase. None
of the states in which the Company operates has enacted such regulation. The
Company cannot predict whether any of the states in which it now operates, or
in which it will operate in the future, will engage in such regulation in the
future. See "Legislation and Regulation in the Cable Television Industry."
DEPENDENCE ON KEY PERSONNEL
The future success of the Company will be largely dependent upon the efforts
of senior management of Rifkin & Associates, including Monroe M. Rifkin, who
manage all aspects of the business and operations of the Company. Although the
Company has entered into a management agreement with Rifkin & Associates (the
"Management Agreement"), the management personnel of such organization are not
subject to any employment agreements with the Company and events beyond the
control of the Company could result in the loss of the services of any one or
more of the members of such management. Such a loss could have a material
adverse effect on the Company's business and results of operations. See
"Management" and "Certain Relationships and Related Transactions--Management
Agreement with Rifkin & Associates."
DEPENDENCE UPON DISTRIBUTIONS FROM SUBSIDIARIES; POSSIBLE UNENFORCEABILITY OF
THE SUBSIDIARY GUARANTEES
The Company derives a substantial portion of its operating income from its
subsidiaries, including all of the income attributable to the Georgia Systems
and to the Tennessee Systems. The holders of the Notes will have no direct
claim against such subsidiaries, other than RACC, except through the claims
created by the Subsidiary Guarantees, which may themselves be subject to legal
challenge in the event of the bankruptcy of a subsidiary. See "--Fraudulent
Conveyance." If such a challenge were upheld, the Subsidiary Guarantees would
be invalidated and unenforceable. To the extent that the Subsidiary Guarantees
are not enforceable, the rights of holders of the Notes to participate in any
distribution of assets of any Subsidiary Guarantor upon liquidation,
bankruptcy, reorganization or otherwise may, as is the case with other
unsecured creditors of the Company, be subject to prior claims of creditors of
that Subsidiary Guarantor. The Company must rely, in part, upon distributions
and other payments from its subsidiaries to generate the funds necessary to
meet its obligations, including the payment of principal of and interest on
the Notes. The Indenture contains covenants which restrict the ability of the
Company's subsidiaries to enter into any agreement limiting distributions and
transfers, including dividends and distributions. However, the ability of the
Company's subsidiaries to pay dividends and distributions and make other
payments may be restricted by, among other things, applicable state corporate
and partnership laws and other laws and regulations. See "Description of
Exchange Notes."
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<PAGE>
RISK OF INABILITY TO FINANCE A CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Issuers will be required to
make an offer to purchase all of the outstanding Notes at a price equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase. The Amended and Restated Credit Agreement prohibits
the purchase of the Notes by the Issuers in the event of a Change of Control,
unless and until such time as the indebtedness under the Amended and Restated
Credit Agreement is repaid in full. The Issuers' failure to purchase the Notes
would result in a default under the Indenture and the Amended and Restated
Credit Agreement. The inability to repay the indebtedness under the Amended
and Restated Credit Agreement, if accelerated, would also constitute an event
of default under the Indenture, which could have adverse consequences to the
Company and the holders of the Notes. In the event of a Change of Control,
there can be no assurance that the Company would have sufficient assets to
satisfy all of its obligations under the Amended and Restated Credit Agreement
and the Notes. Future Senior Debt of the Company may also contain prohibitions
of certain events or transactions which would constitute a Change of Control
or require the obligations thereunder to be retired upon a Change of Control.
See "Description of Exchange Notes--Change of Control" and "Description of
Amended and Restated Credit Agreement."
CONFLICTS OF INTEREST; AFFILIATE TRANSACTIONS
The Company is subject to actual and potential conflicts of interest arising
out of its relationship with Monroe M. Rifkin and his affiliates and certain
other contractual relationships. Rifkin & Associates, which is solely owned
and controlled by Monroe M. Rifkin, manages all aspects of the business and
operations of the Company pursuant to the Management Agreement for a fee based
on the Company's revenue. Certain decisions concerning the management of the
Company may present conflicts of interest between the holders of the Notes and
Rifkin & Associates.
Prior to the Mid-Tennessee Acquisition, based upon the acquisition price
therefor, Monroe M. Rifkin or entities controlled by Mr. Rifkin beneficially
owned in the aggregate approximately 15.1% of the partnership interests in the
Mid-Tennessee Systems. Prior to the RCT Acquisition, based upon the
acquisition price therefor, Mr. Rifkin and entities controlled by Mr. Rifkin
also beneficially owned approximately 3.4% of the partnership interests in the
RCT Systems. Although the terms of the Acquisitions were reviewed and approved
on behalf of the Company by the Advisory Committee (as defined herein) (with
Mr. Rifkin abstaining), no independent appraisals of the New Tennessee Systems
were used to establish the value of such assets. In addition, although the
Mid-Tennessee Acquisition was made pursuant to a right of first refusal based
on an unaffiliated third party offer, there can be no assurance that the terms
of the Acquisitions represented the most favorable terms that could have been
obtained or that the purchase price to be paid in connection with such
transactions represented the value of such assets to the Company. Mr. Rifkin's
interests in the sellers of the New Tennessee Systems may also present
conflicts of interest with respect to the enforcement of the terms of the
agreements relating to the Acquisitions, particularly the indemnification
provisions and provisions relating to remedies for breaches of representations
and warranties. The partnership agreement relating to the Company (the
"Partnership Agreement") provides that decisions regarding enforcement of such
related party agreements are to be made by the Advisory Committee. Upon the
consummation of the Mid-Tennessee Acquisition, Rifkin & Associates was paid a
fee of approximately $619,000 by the Company in connection with the assignment
of a right of first refusal to acquire the Mid-Tennessee Systems.
Monroe M. Rifkin and other entities owned or controlled by Mr. Rifkin,
including Rifkin & Associates, are actively involved in other business
ventures, including the ownership, operation and management of cable
television systems other than the Systems. Further, under the terms of the
Partnership Agreement, Mr. Rifkin or any entities controlled by Mr. Rifkin may
be permitted to acquire additional cable television systems under certain
circumstances. See "The Partnership Agreement--Investment Opportunities."
The Partnership Agreement requires that certain transactions must be
approved by designees of each of VS&A, Greenwich and ING Equity Partners.
While the specified actions generally do not pertain to day-to-day management,
the possibility of a deadlock exists and may hinder the ability of the Company
to take certain actions, including certain acquisitions or divestitures, in
the event such investors are unable to agree on a particular course of action.
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For a discussion of additional transactions between the Company and
affiliates of the Company, see "Certain Relationships and Related
Transactions." The Indenture permits certain other transactions between the
Company and its affiliates. See "Description of Exchange Notes--Covenants--
Limitation on Transactions with Affiliates."
FRAUDULENT CONVEYANCE
The incurrence by the Issuers and the Subsidiary Guarantors of indebtedness
such as the Notes and the Subsidiary Guarantees to finance the Transactions
may be subject to review under relevant state and federal fraudulent
conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf
of unpaid creditors of the Issuers or any of the Subsidiary Guarantors. Under
these laws, if a court were to find that, after giving effect to the sale of
the Notes and the application of the net proceeds therefrom, either (a) the
Issuers or any of the Subsidiary Guarantors incurred such indebtedness with
the intent of hindering, delaying or defrauding creditors or (b) the Issuers
or any of the Subsidiary Guarantors received less than reasonably equivalent
value or consideration for incurring such indebtedness and (i) were insolvent
or were rendered insolvent by reason of such transactions, (ii) were engaged
in a business or transaction for which the assets remaining with the Issuers
or any of the Subsidiary Guarantors constituted unreasonably small capital or
(iii) intended to incur, or believed that they would incur, debts beyond their
ability to pay such debts as they matured, such court may subordinate such
indebtedness to presently existing and future indebtedness of the Issuers or
such Subsidiary Guarantors, as the case may be, avoid the issuance of such
indebtedness and direct the repayment of any amounts paid thereunder to the
Issuers' or such Subsidiary Guarantors' creditors, as the case may be, or take
other action detrimental to the holders of such indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
There can be no assurance as to what standard a court would apply in order
to determine solvency. To the extent that proceeds from the sale of the Notes
were used to finance the Transactions, a court may find that the Issuers or
the Subsidiary Guarantors, as the case may be, did not receive fair
consideration or reasonably equivalent value for the incurrence of the
indebtedness represented thereby. In addition, if a court were to find that
any of the components of the Transactions constituted a fraudulent transfer,
to the extent that proceeds from the sale of the Notes were used to finance
such Transactions, a court may find that the Issuers or the Subsidiary
Guarantors, as the case may be, did not receive fair consideration or
reasonably equivalent value for the incurrence of the indebtedness represented
by the Notes or the Subsidiary Guarantees, as the case may be. Pursuant to the
terms of each Subsidiary Guarantee the liability of the related Subsidiary
Guarantor is limited to the maximum amount of indebtedness permitted, at the
time of the grant of such Subsidiary Guarantee, to be incurred in compliance
with fraudulent conveyance or similar laws.
Each of the Issuers and the Subsidiary Guarantors believes that it received
equivalent value at the time the indebtedness under the Notes and the
Subsidiary Guarantees was incurred. In addition, neither the Issuers nor any
of the Subsidiary Guarantors believe that, after giving effect to the
Transactions, it (i) was or will be insolvent or rendered insolvent, (ii) was
or will be engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital, nor did any of such entities intend to
incur, or believe that they will or would incur, debts beyond its ability to
pay such debts as they mature. These beliefs are based on the Company's
operating history, analysis of internal cash flow projections and estimated
values of assets and liabilities of the Issuers and the Subsidiary Guarantors
at the time of the Offering and after giving pro forma effect to the
Transactions. There can be no assurance, however, that a court passing on
these issues would make the same determination.
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ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in January 1996 to a small number of
institutional and accredited investors and are eligible for trading in the
Private offerings, Resale and Trading through Automatic Linkages (PORTAL)
Market.
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange. There is currently no established market for the
Exchange Notes and there can be no assurance as to the liquidity of markets
that may develop for the Exchange Notes, the ability of the holders of the
Exchange Notes to sell their Exchange Notes or the price at which such holders
would be able to sell their Exchange Notes. If such markets were to exist, the
Exchange Notes could trade at prices that may be lower than the initial market
values thereof, depending on many factors, including prevailing interest
rates, the markets for similar securities, and the financial performance of
the Company. The Initial Purchasers have made a market for the Old Notes.
Although there is currently no market for the Exchange Notes, the Initial
Purchasers advised the Company that they currently intend to make a market in
the Exchange Notes. However, the Initial Purchasers are not obligated to do
so, and any such market making with respect to the Old Notes or the Exchange
Notes may be discontinued at any time without notice. In addition, such market
making activities will be subject to the limits imposed by the Securities Act
and the Exchange Act and may be limited during the Exchange Offer or the
pendency of an applicable Shelf Registration Statement (as defined herein).
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading market
independent of the financial performance of, and prospects for, the Company.
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USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer.
The Issuers used the gross proceeds from the sale of the Old Notes, together
with $15 million of New Equity from the Investor Group, to: (i) fund the
aggregate cash purchase price for the Mid-Tennessee Acquisition of $60.9
million; (ii) fund the aggregate cash purchase price for the RCT Acquisition
of approximately $9.7 million; (iii) reduce outstanding borrowings under the
Amended and Restated Credit Agreement by approximately $63.4 million; and (iv)
pay fees and expenses related to the Transactions of approximately $6 million.
Until the consummation of the Mid-Tennessee Acquisition and the repayment of
borrowings under the Amended and Restated Credit Agreement on March 1, 1996,
the sum of (i) the net proceeds from the sale of the Old Notes and (ii)
additional funds provided by the Company which, when combined with the net
proceeds from the sale of the Old Notes equaled $125 million plus an amount
equal to the interest thereon at the rate of 11 1/8% per annum to the Special
Redemption Date, was held by the Trustee as security for the Old Notes
pursuant to the Pledge Agreement and invested in Cash Equivalents. See
"Business--Acquisitions" and "Description of Exchange Notes--Escrow of
Proceeds".
The indebtedness repaid under the Amended and Restated Credit Agreement bore
interest at a weighted average rate of approximately 8.8% per annum at
December 31, 1995, and had a maturity date of March 31, 2003. Such
indebtedness was incurred on September 1, 1995 in order to reduce or refinance
existing indebtedness and pay costs and expenses related to the
Recapitalization. The fees and expenses related to the Transactions include a
fee of approximately $619,000 paid to Rifkin & Associates upon consummation of
the Mid-Tennessee Acquisition. See "Certain Relationships and Related
Transactions--Acquisitions of Affiliated Cable Systems; Fee Paid to Rifkin &
Associates."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Issuers and the Subsidiary Guarantors with respect to the registration of the
Old Notes.
The Old Notes were originally issued and sold on January 26, 1996 (the
"Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A promulgated under the Securities Act. In connection with the sale of
the Old Notes, the Issuers agreed to file with the Commission a registration
statement relating to the Exchange Offer (the "Registration Statement"),
pursuant to which the Exchange Notes, consisting of another series of senior
subordinated notes of the Issuers covered by such Registration Statement and
containing substantially identical terms to the Old Notes, except as set forth
in this Prospectus, would be offered in exchange for Old Notes tendered at the
option of the holders thereof. If (i) the Issuers determine in reasonably good
faith that (x) because of any changes in the law or the applicable
interpretations of the Staff of the Commission, the Commission is not likely
to permit the Issuers to effect the Exchange Offer prior to the 135th day
after the Issue Date (the "Effectiveness Date"), or (y) that the Exchange
Notes would not be tradeable upon receipt by the holders of Old Notes that
participate in the Exchange Offer without restriction under state and federal
securities laws (other than due solely to the status of a holder of Old Notes
as an Affiliate of the Issuers or by breach by such holder of its
representation to the Issuers as described in the last paragraph under "--
Terms and Conditions of the Letter of Transmittal" below), (ii) the Exchange
Offer is not consummated within 165 days after the Issue Date, (iii) in
certain circumstances, certain holders of unregistered Exchange Notes so
request or (iv) in the case of any holder of Old Notes that participates in
the Exchange Offer, such holder of Old Notes does not receive Exchange Notes
on the date of the exchange that may be sold without restriction under state
and federal securities laws (other than due solely to the status of such
holder of Old Notes as an Affiliate of the Issuers or by breach by such holder
of its representation to the Issuers as described in the last paragraph under
"--Terms and Conditions of the Letter of Transmittal" below) and so notifies
the Issuers within 60 days after such holder of Old Notes first becomes aware
of such restriction and concurrently therewith provides the Issuers with a
reasonable basis for its conclusion, then, in the case of each of clauses (i)
through (iv) of this sentence, the Issuers will file with the Commission a
registration statement (the "Shelf Registration Statement") to cover resales
of the Old Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. In the event that (i) the Issuers fail to file the
Registration Statement, (ii) the Registration Statement or, if applicable, the
Shelf Registration Statement, is not declared effective by the Commission, or
(iii) the Exchange Offer is not consummated or the Shelf Registration
Statement ceases to be effective, in each case within specified time periods,
the interest rate borne by the Old Notes will be increased. See "Old Notes
Registration Rights."
TERMS OF THE EXCHANGE
The Issuers hereby offer to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying the
Registration Statement of which this Prospectus is a part (the "Letter of
Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in
principal amount of Old Notes. The terms of the Exchange Notes are
substantially identical to the terms of the Old Notes for which they may be
exchanged pursuant to this Exchange Offer, except that the Exchange Notes will
generally be freely transferable by holders thereof, and the holders of the
Exchange Notes (as well as remaining holders of any Old Notes) are not
entitled to certain registration rights and certain additional interest
provisions which are applicable to the Old Notes under the Registration Rights
Agreement. The Exchange Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture. See "Description of
Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange.
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<PAGE>
Based on their view of interpretations set forth in no-action letters issued
by the Staff to third parties, the Issuers believe that Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than
any holder which is (i) an Affiliate of the Issuers, (ii) a broker-dealer who
acquired Old Notes directly from the Issuers or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged
in, and do not intend to engage in, and have no arrangement or understanding
with any person to participate in, a distribution of 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 on 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. Broker-dealers who acquired Old Notes as a result of market
making or other trading activities may use this Prospectus, as supplemented or
amended, in connection with resales of the Exchange Notes. The Issuers have
agreed that, for a period of 180 days after the Registration Statement is
declared effective, they will make this Prospectus available to any broker-
dealer for use in connection with any such resale. Any holder who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
New Notes or any other holder that cannot rely upon such interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Tendering holders of Old Notes 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 the Old Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from January 26, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes
accrued from January 26, 1996 to the date of the issuance of the Exchange
Notes. Interest on the Exchange Notes is payable semiannually in arrears on
January 15 and July 15 of each year, commencing July 15, 1996 accruing from
January 26, 1996 at a rate of 11 1/8% per annum.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1996 unless the Issuers
in their sole discretion extend the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Issuers, expires. The
Issuers reserve the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to Bankers
Trust Company (the "Exchange Agent") and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following the
Expiration Date, 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 Old Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Issuers expressly reserve the right to (i) terminate the
Exchange Offer and not accept for exchange any Old Notes for any reason,
including if any of the events set forth below under "Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Old Notes. If any such termination or
amendment occurs, the Issuers will notify the Exchange Agent in writing and
will either issue a press release or give written notice to the holders of the
Old Notes as promptly as practicable. Unless the Issuers terminate the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Issuers will exchange the Exchange Notes for Old Notes on the Exchange
Date.
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This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuers to record holders of Old Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Old Notes.
HOW TO TENDER
The tender of the Issuers 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 Issuers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures
A holder of an Old Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Old Notes being tendered and any required
signature guarantees (or a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") pursuant to the procedure described below), to the
Exchange Agent at its address set forth on the back cover of this Prospectus
on or prior to the Expiration Date 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, 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 Issuers and duly executed
by the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/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 on the Letter of Transmittal must be
guaranteed by an Eligible Institution.
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 Old Notes should contact such holder promptly and instruct such holder
to tender Old Notes on such beneficial owner's behalf. If such beneficial
owner wishes to tender such Old Notes himself, such beneficial owner must,
prior to completing and executing the Letter of Transmittal and delivering
such Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or follow the procedures
described in the immediately preceding paragraph. The transfer of record
ownership may take considerable time.
Book-Entry Transfer
The Exchange Agent will make a request to 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
receipt of this Prospectus, and any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may make book-entry
delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with the Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address specified on the back cover of this Prospectus on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
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THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the holder
does not provide his taxpayer identification number (social security number or
employer identification number, as applicable) and certify that such number is
correct. Each tendering holder should complete and sign the main signature
form and the Substitute Form W-9 included as part of the Letter of
Transmittal, so as to provide the information and certification necessary to
avoid backup withholding, unless an applicable exemption exists and is proved
in a manner satisfactory to the Issuers and the Exchange Agent.
Guaranteed Delivery Procedures
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received
at its office listed on the Letter of Transmittal on or prior to the
Expiration Date a letter, telegram or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering holder, the
principal amount of the Old Notes being tendered, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Old
Notes to be 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 such letter, telegram or facsimile transmission by the
Eligible Institution, the Old Notes, in proper form for transfer, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Old Notes being tendered by the above-described method (or a timely Book-Entry
Confirmation) 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 Issuers may, at their
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.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) 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 above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal
(and any other required documents) and the tendered Old Notes (or a timely
Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel
to the Issuers, be unlawful. The Issuers also reserve the absolute right to
waive any of the conditions of the Exchange Offer or any defect or
irregularities in tenders of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders. Neither the
Issuers, the Exchange Agent nor any other person will be under any duty to
give notification of any defects or irregularities in tenders or shall incur
any liability for failure to give any such notification. The Issuers'
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
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The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Issuers and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The
Transferor represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Old Notes, and that, when
the same are accepted for exchange, the Issuers will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Issuers to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Old Notes. The
Transferor further agrees that acceptance of any tendered Old Notes by the
Issuers and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Issuers of their obligations under the
Registration Rights Agreement and that the Issuers shall have no further
obligations or liabilities thereunder (except in certain limited
circumstances). All authority conferred by the Transferor will survive the
death or incapacity of the Transferor and every obligation of the Transferor
shall be binding upon the heirs, legal representatives, successors, assigns,
executors and administrators of such Transferor.
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies that (a) it is not an Affiliate of the Issuers, that it
is not a broker-dealer that owns Old Notes acquired directly from the Issuers
or an Affiliate of the Issuers, that it is acquiring the Exchange Notes
offered hereby in the ordinary course of such Transferor's business and that
such transferor has no arrangement with any person to participate in the
distribution of such Exchange Notes, (b) that it is an Affiliate of the
Issuers or of the initial purchaser of the Old Notes in the Offering and that
it will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable to it, or (c) that it is a
participating Broker-Dealer (as defined in the Registration Rights Agreement)
and that it will deliver a prospectus in connection with any resale of such
Exchange Notes. By tendering Old Notes and executing the Letter of
Transmittal, the Transferor further certifies that it is not engaged in and
does not intend to engage in a distribution of the Exchange Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of Old Notes to be withdrawn, the principal amount of Old Notes to be
withdrawn, a statement that such holder is withdrawing his election to have
such Old Notes exchanged, and the name of the registered holder of such Old
Notes, and must be signed by the holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the Issuers that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Old Notes being withdrawn. The Exchange Agent will return the properly
withdrawn Old Notes promptly following receipt of notice of withdrawal. All
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Issuers, and such determination will be
final and binding on all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date.
The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of receiving Exchange Notes from the Issuers and causing the
Old Notes to be assigned, transferred and exchanged. Upon
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the terms and subject to conditions of the Exchange Offer, delivery of
Exchange Notes to be issued in exchange for accepted Old Notes will be made by
the Exchange Agent promptly after acceptance of the tendered Old Notes. Old
Notes not accepted for exchange by the Issuers will be returned without
expense to the tendering holders (or in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the procedures described above, such non-
exchanged Old Notes will be credited to an account maintained with such Book-
Entry Transfer Facility) promptly following the Expiration Date or, if the
Issuers terminate the Exchange Offer prior to the Expiration Date, promptly
after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Issuers will not be required to issue Exchange
Notes in respect of any properly tendered Old Notes not previously accepted
and may terminate the Exchange Offer (by oral or written notice to the
Exchange Agent and by timely public announcement communicated by no later than
5:00 p.m. on the next business day following the Expiration Date, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service) or, at their option, modify or otherwise amend the
Exchange Offer, if (a) there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, (ii) assessing or seeking any
damages as a result thereof or (iii) resulting in a material delay in the
ability of the Issuers to accept for exchange some or all of the Old Notes
pursuant to the Exchange Offer; (b) any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer by any government or governmental
authority, domestic or foreign, or any action shall have been taken, proposed
or threatened, by any government, governmental authority, agency or court,
domestic or foreign, that in the reasonable judgment of the Issuers might
directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the reasonable judgment of the Issuers,
might result in the holders of Exchange Notes having obligations with respect
to resales and transfers of Exchange Notes which are greater than those
described in the interpretations of the Staff referred to on the cover page of
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or (c) a material adverse change shall have occurred in the
business, condition (financial or otherwise), operations, or prospects of the
Issuers.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by them with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Issuers) giving rise to such condition or may be waived by the Issuers in
whole or in part at any time or from time to time in their sole discretion.
The failure by the Issuers at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Issuers have reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Issuers concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon all parties.
In addition, the Issuers will not accept for exchange any Old Notes tendered
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act").
32
<PAGE>
EXCHANGE AGENT
Bankers Trust Company (the "Exchange Agent") has been appointed as the
Exchange Agent for the Exchange Offer. Letters of Transmittal must be
addressed to the Exchange Agent at:
Bankers Trust Company
Corporate Trust and Agency Group
Four Albany Street
New York, NY 10006
Telephone: (212) 250-6763
Facsimile: (212) 250-6392
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Issuers have not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Issuers will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses
in connection therewith. The Issuers will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and
expenses of the Exchange Agent and printing, accounting, investment banking
and legal fees, will be paid by the Issuers and are estimated to be
approximately $160,000.
No person has been authorized to given any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Issuers. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Issuers since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Old Notes in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Issuers may, at their discretion, take such action as they may
deem necessary to make the Exchange Offer in any such jurisdiction and extend
the Exchange Offer to holders of Old Notes in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
is being made on behalf of the Issuers by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
DISSENTER AND APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such holders should
not recognize any taxable gain or loss as a result of such exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
33
<PAGE>
As a result of the making of and upon acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of this Exchange Offer, the Issuers
will have fulfilled a covenant contained in the terms of the Old Notes and the
Registration Rights Agreement. Holders of the Old Notes who do not tender
their Old Notes in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights, and limitations applicable thereto under
the Indenture, except for any such rights under the Registration Rights
Agreement which by their terms terminate or cease to have further effect as a
result of the making of this Exchange Offer. See "Description of Exchange
Notes." All untendered Old Notes will continue to be subject to the
restriction on transfer set forth in the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for any remaining Old Notes could be adversely affected. See "Risk
Factors-- Consequences of Failure to Exchange Old Notes."
The Issuers may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Old Notes
which are not tendered in the Exchange Offer.
34
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical consolidated
capitalization of the Company as of December 31, 1995 and on a pro forma basis
to give effect to the Transactions as if they had been consummated on December
31, 1995. See "Use of Proceeds." This table should be read in conjunction with
the "Selected Historical Financial Data" and the related notes thereto and
"Unaudited Pro Forma Condensed Consolidated Financial Data" and the related
notes thereto included elsewhere in the Registration Statement of which this
Prospectus is a part.
<TABLE>
<CAPTION>
AS OF DECEMBER
31, 1995
-----------------
PRO
ACTUAL FORMA
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Notes payable
Reducing revolving loan(1).......................... $ 94,500 $ 6,076
Term loans(1)....................................... 40,000 65,000
Senior subordinated Notes(2)........................ -- 125,000
Senior subordinated debt(3)......................... 3,000 3,000
-------- --------
Total notes payable............................... 137,500 199,076
Redeemable partner's interests........................ 3,600 3,600
Partners' capital..................................... 68,898 83,898
-------- --------
Total capitalization.............................. $209,998 $286,574
======== ========
</TABLE>
- --------
(1) Pursuant to the Amended and Restated Credit Agreement, on March 1, 1996,
the Company's reducing revolving loan facility decreased from $105 million
to $80 million and $25 million of borrowings thereunder was converted into
a new term loan. See "Description of Amended and Restated Credit
Agreement."
(2) See "Description of Exchange Notes."
(3) This indebtedness ranks pari passu with the Notes. See "Certain
Relationships and Related Transactions--Senior Subordinated Debt Held by
Monroe M. Rifkin."
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data are
based on the historical financial statements of the Company, the Mid-Tennessee
Systems and the RCT Systems, adjusted to give effect to certain transactions
and events. The unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1995 gives effect to (i) the
Recapitalization, (ii) the Acquisitions and (iii) the Financing Plan, all as
if such transactions or events had occurred as of the first date of the period
presented. The unaudited pro forma condensed consolidated balance sheet as of
December 31, 1995 gives effect to (i) the Acquisitions and (ii) the Financing
Plan, as if such transactions had occurred as of such date. References in this
Prospectus to data presented on a "pro forma basis" as of any date or for any
period shall have the meaning set forth above with respect to such date or
period.
For purposes of the accompanying pro forma condensed consolidated financial
statements, adjustments relating to the Acquisitions and the Recapitalization
have been made pursuant to the purchase method of accounting. In the case of
the Acquisitions such adjustments are based upon a preliminary allocation of
the purchase price and upon the assumptions and adjustments described in the
accompanying notes. All pro forma adjustments, as described in accompanying
notes, are based upon the most recent information available and upon certain
assumptions that management believes to be reasonable. No assurances can be
given that the final determinations of the fair value of assets acquired and
liabilities assumed by the Company in connection with the Acquisitions will
not differ from the adjustments presented herein. Such determinations will be
made shortly after consummation of the Acquisitions and are not expected to be
materially different from the estimates used herein. In the opinion of
management, all adjustments have been made that are necessary to present
fairly the pro forma financial data.
The unaudited pro forma condensed consolidated financial data should be read
in conjunction with the consolidated financial statements of the Company and
the Mid-Tennessee Systems (including the notes thereto) included elsewhere in
the Registration Statement of which this Prospectus is a part. The unaudited
pro forma condensed consolidated financial data are not necessarily indicative
of the results that would have been reported or the financial position of the
Company had such events actually occurred on the dates specified, nor are they
indicative of the Company's future results or financial position.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
EIGHT MONTHS FOUR MONTHS RECAPITAL- COMPANY MID- HISTORICAL COMPANY
ENDED ENDED IZATION AS TENNESSEE RCT TRANSACTIONS PRO
8/31/95 12/31/95 ADJUSTMENTS ADJUSTED SYSTEMS SYSTEMS ADJUSTMENTS FORMA
------------ ----------- ----------- -------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service................ $30,954 $16,317 $ -- $ 47,271 $11,139 $3,380 $ -- $ 61,790
Installation and
other................. 1,953 984 -- 2,937 518 322 -- 3,777
------- ------- ------- -------- ------- ------ ------- --------
Total revenue........ 32,907 17,301 -- 50,208 11,657 3,702 -- 65,567
Costs and expenses:
Operating expense...... 11,344 6,130 -- 17,474 4,224 1,496 -- 23,194
Selling, general and
administrative
expense............... 4,568 2,486 -- 7,054 2,005 925 -- 9,984
Depreciation and
amortization.......... 7,625 8,200 8,679 (1) 24,504 4,136 597 2,658 (1) 31,895
Management fees........ 1,645 606 (494)(2) 1,757 583 185 (230)(2) 2,295
Costs associated with
the
transfer of net
assets................ 441 -- (441)(3) -- 81 -- (81)(3) --
Loss (gain) on
disposal of assets.... 231 275 -- 506 8 (7) -- 507
------- ------- ------- -------- ------- ------ ------- --------
Total costs and
expenses............ 25,854 17,697 7,744 51,295 11,037 3,196 2,347 67,875
------- ------- ------- -------- ------- ------ ------- --------
Operating income
(loss)................. 7,053 (396) (7,744) (1,087) 620 506 (2,347) (2,308)
Interest expense........ 14,619 4,252 (6,635)(4) 12,236 3,042 498 5,948 (5) 21,723
------- ------- ------- -------- ------- ------ ------- --------
Loss before income taxes
and
extraordinary item..... (7,566) (4,648) (1,109) (13,323) (2,422) 8 (8,295) (24,032)
Income tax expense
(benefit).............. (1,558) (1,674) 1,558 (6) (1,674) -- -- -- (1,674)
------- ------- ------- -------- ------- ------ ------- --------
Loss before
extraordinary
item................... $(6,008) $(2,974) $(2,667) $(11,649) $(2,422) $ 8 $(8,295) $(22,358)
======= ======= ======= ======== ======= ====== ======= ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(1) Represents additional amortization and depreciation expense resulting from
the increase in the property, plant and equipment and franchise costs and
other intangible assets to fair market value. Fair market value of the
Company's assets was determined based on an independent appraisal obtained
at the time of the Recapitalization. Fair market value of the assets of
the Mid-Tennessee Systems and the RCT Systems was based on the estimated
purchase price, allocated to property, plant and equipment and franchise
costs and other intangible assets based on management's best estimates,
using, in part, percentages obtained from previous independent appraisals.
Amortization and depreciation calculations are based on an average10-year
remaining life for purposes of this pro forma. The average remaining life
of the assets was determined based on Company data for used assets.
(2) Represents the decrease in management fees from 5.0% to 3.5% of operating
revenues in accordance with the Management Agreement.
(3) Represents the elimination of costs incurred by the Company during the
eight months ended August 31, 1995 relating to the Recapitalization and
the costs incurred by Mid-Tennessee Systems during the year ended December
31, 1995 related to the Mid-Tennessee Acquisition.
(4) Adjustment of interest expense for the year ended December 31, 1995 due to
the Recapitalization is summarized as follows:
<TABLE>
<S> <C>
Elimination of historical interest expense for debt retired
pursuant to the Recapitalization............................... $(18,871)
Interest and other expense related to debt incurred as assumed
by the Company in connection with the Recapitalization:
Interest on reducing revolving loans (8.40%).................. 7,939
Interest on term loans (9.75%)................................ 3,900
Interest on senior subordinated debt (8.87%).................. 266
Other agency and commitment fees.............................. 131
--------
Net decrease to pro forma interest expense.................. $ (6,635)
========
</TABLE>
The variable interest rate for the reducing revolving loans is the weighted
average effective rate at December 31, 1995 for all borrowings outstanding
at that date. For each 1/8% increment in the variable rate, interest
expense would increase by $117,000 for the period from January 1 through
December 31, 1995.
(5) Adjustment of interest expense due to the Transactions is summarized as
follows:
<TABLE>
<S> <C>
Elimination of the historical interest expense for debt of the
Mid-Tennessee Systems not being assumed......................... $(3,042)
Elimination of historical interest expense for debt of the RCT
Systems not being assumed....................................... (498)
Amortization of costs related to the Offering over 10 years...... 525
Accrued interest on Notes (11.125%).............................. 13,906
Elimination of interest expense related to reduction of
indebtedness under the Amended and Restated Credit Agreement in
the amount of $63,424 (8.40%)................................... (5,327)
Commitment fees and incremental interest on senior subordinated
debt............................................................ 384
-------
Net increase to pro forma interest expense....................... $ 5,948
=======
</TABLE>
(6) Reflects the elimination of income tax effect resulting from assuming the
Recapitalization occurred at the beginning of the period. No additional
income tax benefit has been recorded in this pro forma due to the
existence of losses for the period.
(7) Adjusted EBITDA/1/ was $23.9 million for the Company as Adjusted, $4.8
million for the Mid-Tennessee Systems, $1.1 million for the RCT Systems
and $30.1 million for the Company Pro Forma.
- --------
1. See footnote (b) on p. 17
38
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
MID- COMPANY
TENNESSEE RCT TRANSACTIONS PRO
ASSETS COMPANY SYSTEMS SYSTEMS ADJUSTMENTS FORMA
------ -------- --------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash..................... $ 318 $ 259 $ 103 $ (362)(1) $ 318
Subscriber accounts
receivable, net......... 885 147 58 -- 1,090
Other receivables........ 1,543 80 -- -- 1,623
Prepaid expenses and
deposits................ 924 220 166 -- 1,310
Property, plant and
equipment, net.......... 74,412 11,867 3,090 6,930 (2) 96,299
Franchise costs and other
intangible assets, net.. 159,963 9,008 85 41,970 (2) 216,276
5,250 (3)
-------- ------- ------ -------- --------
Total assets......... $238,045 $21,581 $3,502 $ 53,788 $316,916
======== ======= ====== ======== ========
<CAPTION>
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
- -------------------------
<S> <C> <C> <C> <C> <C>
Accounts payable and
accrued liabilities..... $ 5,868 1,451 $ 665 $ -- $ 7,984
Subscriber deposits and
prepayments............. 961 119 60 -- 1,140
Interest payable......... 91 20 47 (67)(1) 91
Deferred taxes payable... 21,127 -- -- -- 21,127
Notes payable............ 137,500 32,930 5,500 (38,430)(1)
125,000 (3)
(63,424)(3) 199,076
-------- ------- ------ -------- --------
Total liabilities........ 165,547 34,520 6,272 23,079 229,418
Redeemable partner's
interests............... 3,600 -- -- -- 3,600
Partners' capital
(deficit):
General partner......... (1,085) (101) -- 101 (4) (1,085)
Limited partners........ 69,421 (12,838) (2,770) 15,608 (4) 84,421
15,000 (4)
Preferred equity
interest................ 562 -- -- -- 562
-------- ------- ------ -------- --------
Total partners'
capital (deficit)... 68,898 (12,939) (2,770) 30,709 83,898
-------- ------- ------ -------- --------
Total liabilities and
partners' capital
(deficit)........... $238,045 $21,581 $3,502 $ 53,788 $316,916
======== ======= ====== ======== ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(1) Represents the elimination of cash of $362 not being purchased and notes
and interest payable of $38,430 and $67, respectively, not being assumed
pursuant to the Acquisitions.
(2) Management's preliminary allocation of purchase price for the Acquisitions
in accordance with the purchase method of accounting is as follows:
<TABLE>
<CAPTION>
MID-
TENNESSEE RCT
SYSTEMS SYSTEMS TOTAL
--------- ------- -------
<S> <C> <C> <C>
Purchase Price:
Purchase price................................ $62,000 $10,200 $72,200
Estimated fees and expenses................... 725 25 750
Net working capital deficit assumed........... (1,123) (501) (1,624)
------- ------- -------
Total....................................... $61,602 $ 9,724 $71,326
======= ======= =======
Allocated As Follows:
Estimated fair market value of property, plant
and equipment................................ $18,795 $ 3,092 $21,887
Estimated fair market value of franchise costs
and other intangible
assets....................................... 43,930 7,133 51,063
Net working capital deficit assumed........... (1,123) (501) (1,624)
------- ------- -------
Total....................................... $61,602 $ 9,724 $71,326
======= ======= =======
Recorded As Follows:
Existing net book value of property, plant and
equipment.................................... $11,867 $ 3,090 $14,957
Estimated increase in property, plant and
equipment to fair
market value*................................ 6,928 2 6,930
Existing net value of franchise costs and
other intangible assets...................... 9,008 85 9,093
Estimated increase in franchise costs and
other intangible assets*..................... 34,922 7,048 41,970
Net working capital deficit................... (1,123) (501) (1,624)
------- ------- -------
Total....................................... $61,602 $ 9,724 $71,326
======= ======= =======
</TABLE>
- --------
* Represents the estimated write-up in value of property, plant and
equipment and franchise costs and other intangible assets to fair market
value, based on estimates derived from management's experience related to
independent appraisal basis step-ups, in connection with the purchase
price allocation. For all other assets acquired and liabilities assumed,
net book values are estimated to approximate fair market values.
(3) Represents the issuance of the Notes in the principal amount of $125,000,
estimated fees and expenses associated with the Financing Plan of $5,250
and the reduction of $63,424 of indebtedness under the Amended and Restated
Credit Agreement.
(4) Represents the contribution of $15,000 of New Equity by the Investor Group
and the elimination of $15,709 of historical partners' deficits for each of
the Mid-Tennessee Systems and the RCT Systems.
40
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
THE COMPANY
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
The selected historical consolidated financial data set forth below for the
years ended December 31, 1993 and 1994 and for the eight months ended August
31, 1995 and the four months ended December 31, 1995 have been derived from,
and are qualified by reference to, the audited financial statements of the
Company included elsewhere in the Registration Statement of which this
Prospectus is a part. The selected historical consolidated financial data set
forth below for the years ended December 31, 1991 and 1992 have been derived
from the Company's audited financial statements not included herein. Because
of the Recapitalization, the Company's results of operations for the four
month period from September 1, 1995 to December 31, 1995 are not comparable to
results for prior periods. The selected historical consolidated financial data
set forth below should be read in conjunction with, and is qualified by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements of the
Company (including accompanying notes) included elsewhere in the Registration
Statement of which this Prospectus is a part.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
COMBINED
EIGHT FOUR YEAR
MONTHS MONTHS ENDED
ENDED ENDED DECEMBER 31,
1991 1992 1993 1994 8/31/95 12/31/95 1995(A)
-------- -------- -------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 32,879 $ 36,935 $ 41,470 $ 44,889 $ 32,907 $ 17,301 $ 50,208
Costs and Expenses:
Operating expense.... 11,005 12,270 13,717 15,676 11,344 6,130 17,474
Selling, general and
administrative
expense............. 4,387 4,908 5,665 6,090 4,568 2,486 7,054
Depreciation and
amortization........ 14,735 14,313 13,795 13,154 7,625 8,200 15,825
Management fees...... 1,643 1,846 2,073 2,244 1,645 606 2,251
Costs associated with
transfer of net
assets.............. -- -- -- -- 441 -- 441
Loss on disposal of
assets.............. 301 1,298 760 128 231 275 506
-------- -------- -------- -------- --------- --------- --------
Total costs and
expenses.......... 32,071 34,635 36,010 37,292 25,854 17,697 43,551
-------- -------- -------- -------- --------- --------- --------
Operating income
(loss)................ 808 2,300 5,460 7,597 7,053 (396) 6,657
Interest expense....... 18,757 19,222 18,283 18,008 14,619 4,252 18,871
-------- -------- -------- -------- --------- --------- --------
Loss before income
taxes, extraordinary
item and cumulative
effect of accounting
change................ (17,949) (16,922) (12,823) (10,411) (7,566) (4,648) (12,214)
Income tax expense
(benefit)............. -- -- -- 1,558 (1,558) (1,674) (3,232)
-------- -------- -------- -------- --------- --------- --------
Loss before
extraordinary item and
cumulative effect of
accounting change..... (17,949) (16,922) (12,823) (11,969) (6,008) (2,974) (8,982)
Extraordinary item--
Loss on early
retirement of debt.... -- -- -- -- 1,699 -- 1,699
Cumulative effect of
accounting change for
income taxes.......... -- -- 3,500 -- -- -- --
-------- -------- -------- -------- --------- --------- --------
Net loss............... $(17,949) $(16,922) $(16,323) $(11,969) $ (7,707) $ (2,974) $(10,681)
======== ======== ======== ======== ========= ========= ========
OTHER FINANCIAL DATA:
Capital expenditures
(excluding
acquisitions)......... $ 4,302 $ 7,917 $ 6,278 $ 6,280 $ 4,119 $ 3,360 $ 7,479
Depreciation and
amortization.......... 14,735 14,313 13,795 13,154 7,625 8,200 15,825
Adjusted EBITDA(b)..... 15,844 17,911 20,015 20,879 15,350 8,079 23,429
Total cash interest
expense............... 12,106 14,657 17,604 16,745 17,013 4,025 21,038
CASH FLOWS:
Operating activities... $ 3,111 $ 4,080 $ 3,060 $ 3,976 $ (3,172) $ 4,879 $ 1,707
Investing activities... (4,256) (7,704) (6,185) (6,302) 171,740 (178,114) (6,374)
Financing activities... 991 3,984 3,000 2,750 (164,939) 173,553 8,614
FINANCIAL RATIOS:
Ratio of earnings to
fixed charges(c)...... -- -- -- -- -- -- --
Adjusted EBITDA to
revenue............... 48.2% 48.5% 48.3% 46.5% -- -- 46.7%
OPERATING DATA:
Homes passed........... 149,421 155,013 158,723 165,740 -- -- 174,054
Basic subscribers...... 102,532 108,991 115,793 124,059 -- -- 132,271
Basic penetration...... 68.6% 70.3% 73.0% 74.9% -- -- 76.0%
Premium service
units................. 45,099 56,437 67,192 74,913 -- -- 80,385
Premium penetration.... 44.0% 51.8% 58.0% 60.4% -- -- 60.8%
Average monthly
revenue per basic
subscriber............ $ 28.55 $ 29.10 $ 30.75 $ 31.19 -- -- $ 32.65
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets........... $122,377 $114,074 $101,724 $ 95,210 -- $ 238,045 --
Total debt............. 153,827 160,449 163,766 166,833 -- 137,500 --
Redeemable partners'
interests and
detachable warrants... 2,739 2,739 2,739 2,739 -- 3,600 --
Total partners'
capital (deficit)..... (39,842) (56,764) (73,087) (85,057) -- 68,898 --
</TABLE>
41
<PAGE>
- --------
(a) Reflects the historical financial data of the Company for the eight months
ended August 31, 1995 and the four months ended December 31, 1995,
combined for convenience purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
consolidated financial statements of the Company.
(b) Adjusted EBITDA represents income (loss) before interest expense, income
taxes, depreciation and amortization, costs associated with the transfer
of net assets, loss on disposal of assets, extraordinary item and
cumulative effect of accounting changes. Industry analysts generally
consider Adjusted EBITDA to be an appropriate measure of the performance
of multi-channel television operations. Adjusted EBITDA is not presented
in accordance with generally accepted accounting principles and should not
be considered an alternative to, or more meaningful than, operating income
or operating cash flow as an indication of the Company's operating
performance.
(c) Earnings were inadequate to cover fixed charges by $18.8 million, $17.8
million, $13.2 million, $10.8 million and $12.6 million for the respective
years ended December 31, 1991, 1992, 1993, 1994 and 1995 and $7.8 million
and $4.8 million, respectively, for the eight months ended August 31, 1995
and the four months ended December 31, 1995. In calculating the ratio of
earnings to fixed charges, earnings consist of net loss before income
taxes, extraordinary item, cumulative effect of accounting change and
interest expense. Fixed charges consist of interest expense and the
portion of rental expense which, in Management's opinion, is
representative of the interest factor.
42
<PAGE>
THE MID-TENNESSEE SYSTEMS
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
The following selected historical financial data for the years ended
December 31, 1994 and 1995 were derived from, and are qualified by reference
to, the audited financial statements of Mid-Tennessee Systems included
elsewhere in the Registration Statement of which this Prospectus is a part.
The selected audited historical data set forth for the year ended December 31,
1993 have been derived from the audited financial statements of Mid-Tennessee
Systems not included herein. The selected unaudited historical data set forth
below for the years ended December 31, 1991 and 1992 have been derived from
the unaudited financial statements of the Mid-Tennessee Systems which, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
such periods. The information contained in this table should be read in
conjunction with and is qualified by reference to "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial
statements of the Mid-Tennessee Systems (including accompanying notes)
included elsewhere in the Registration Statement of which this Prospectus is a
part.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 8,353 $ 9,240 $10,091 $10,559 $11,657
Costs and Expenses:
Operating expense.............. 2,726 2,861 3,231 3,843 4,224
Selling, general and
administrative expense........ 1,153 1,383 1,515 1,713 2,005
Depreciation and amortization.. 4,477 4,500 4,487 4,349 4,136
Management fees................ 418 462 505 528 583
Costs associated with the
transfer of net assets........ -- -- -- -- 81
Loss on disposal of assets..... 159 43 108 105 8
------- ------- ------- ------- -------
Total costs and expenses..... 8,933 9,249 9,846 10,538 11,037
------- ------- ------- ------- -------
Operating income (loss).......... (580) (9) 245 21 620
Interest expense............... 3,164 2,592 2,397 2,632 3,042
------- ------- ------- ------- -------
Net loss....................... $(3,744) $(2,601) $(2,152) $(2,611) $(2,422)
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures (excluding
acquisitions)................... $ 1,081 $ 1,064 $ 1,735 $ 1,164 $ 1,629
Depreciation and amortization.... 4,477 4,500 4,487 4,349 4,136
Adjusted EBITDA(a)............... 4,056 4,534 4,840 4,475 4,845
Total cash interest expense...... 2,970 2,592 2,211 2,295 2,993
CASH FLOWS
Operating activities............. $ 892 $ 1,942 $ 2,481 $ 2,205 $ 1,988
Investing activities............. (1,081) (1,064) (1,668) (1,159) (1,617)
Financing activities............. 857 (310) (794) (1,160) (147)
FINANCIAL RATIOS:
Ratio of earnings to fixed
charges(b) -- -- -- -- --
Adjusted EBITDA to revenue....... 48.6% 49.1% 48.0% 42.4% 41.6%
OPERATING DATA:
Homes passed..................... 36,121 36,495 39,062 40,032 42,452
Basic subscribers................ 27,194 28,662 30,226 31,834 33,407
Basic penetration................ 75.3% 78.5% 77.4% 79.5% 78.7%
Premium service units............ 11,294 13,598 14,229 18,793 20,800
Premium penetration.............. 41.5% 47.4% 47.1% 59.0% 62.3%
Average monthly revenue per
basic subscriber................ $ 26.16 $ 27.57 $ 28.56 $ 28.36 $ 29.78
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets..................... 33,637 30,142 27,253 23,896 $21,581
Total debt....................... 34,266 34,020 33,631 32,812 32,930
Total division (deficit)......... (2,619) (5,284) (7,661) (10,432) (12,939)
</TABLE>
- --------
(a) Adjusted EBITDA represents income (loss) before interest expense, income
taxes, depreciation and amortization, costs associated with the transfer
of net assets, loss or disposal of assets, extraordinary item and
cumulative effect of accounting change. Industry analysts generally
consider Adjusted EBITDA to be an appropriate measure of the performance
of multi-channel television operations. Adjusted EBITDA is not presented
in accordance with generally accepted accounting principles and should not
be considered an alternative to, or more meaningful than, operating income
or operating cash flow as an indication of operating performance.
(b) Earnings were inadequate to cover fixed charges by $3.9 million, $2.8
million, $2.3 million, $2.8 million and $2.6 million for the respective
years ended December 31, 1991, 1992, 1993, 1994 and 1995.In calculating
the ratio of earnings to fixed charges, earnings consist of net loss
before income taxes, extraordinary item, cumulative effect of accounting
change and interest expense. Fixed charges consist of interest expense and
the portion of rental expense which, in Management's opinion, is
representative of the interest factor.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the results of operations and financial condition
of the Company and the Mid-Tennessee Systems covers periods prior to the
Transactions. Accordingly, the discussion and analysis of such periods do not
reflect the significant impact that the Transactions will have on the Company.
See "Unaudited Pro Forma Condensed Consolidated Financial Data." In addition,
the following discussion does not address the results of historical operations
or financial condition of the RCT Systems due to the relative immateriality of
such business.
Both the Company and the Mid-Tennessee Systems generate substantially all of
their revenues from monthly subscriber fees for basic, premium and other cable
television services (such as the rental of converters and remote control
devices) and from installation charges. The balance of the revenues generated
by the Company and the Mid-Tennessee Systems are attributable to various
ancillary sources, including the sale of advertising and commissions from home
shopping networks.
Since April 1, 1993, federal laws and regulations have limited the ability
of cable television operators to increase rates for certain subscriber
services. Under such rate regulations, cable operators generally can elect to
determine their rates based on a benchmark established by the FCC or a "cost
of service" filing with the FCC that justifies a rate above the benchmark.
Prior to this date, the Company's cable systems and the Mid-Tennessee Systems
were free to adjust cable service rates without obtaining federal or local
governmental approval. See "Legislation and Regulation in the Cable Television
Industry--Rate Regulation." In response to cable rate regulation, the Company
generally adjusted its regulated service rates on September 1, 1993 on a
revenue neutral basis in compliance with the FCC's rules and in anticipation
of supporting its rates through cost of service filings. In response to such
regulations, the Mid-Tennessee Systems reduced regulated service rates by an
average of 2.2% effective September 1, 1993 to comply with the FCC's benchmark
rules. Because of the FCC's interim freeze on regulated service rates
effective April 5, 1993 through May 15, 1994 and the FCC's adoption of its
modified benchmark methodology on May 15, 1994, the Company and the Mid-
Tennessee Systems generally maintained their rates at such levels through
early 1995. During the first seven months of 1995, the Company and the Mid-
Tennessee Systems implemented increases in basic and tier rates an average of
4.8% and 2.7%, respectively.
Over the past year, federal law has significantly deregulated the Company's
cable rates. The recently enacted 1996 Telecom Act deregulates the rates for
"small cable operators" for cable programming service tiers (this does not
include basic service). On April 5, 1996, the FCC issued a Notice of Proposed
Rulemaking and adopted interim rules under which the Company would qualify as
a "small cable operator." Management anticipates that it will qualify as a
small cable operator when the rulemaking is concluded and final rules are
issued. Even if it is determined that the Company's cable programming service
tiers are deregulated, regulation of basic service rates will continue.
Regarding the rate regulation of basic cable service (and cable programming
service tiers if the Company is determined to qualify as a "small cable
operator" under the 1996 Telecom Act), on June 5, 1995, the Federal
Communications Commission (the "FCC") issued an order (the "Small Systems
Order") adopting new rules to reduce the substantive and procedural burdens of
rate regulation applicable to small cable systems (serving 15,000 or fewer
subscribers) owned by cable companies which operate multiple systems serving
fewer than 400,000 subscribers. Under the Small Systems Order, the regulatory
benefits accruing to such systems remain effective even if such systems are
later acquired by MSOs which serve in excess of 400,000 subscribers. All of
the Systems qualify as "small cable systems" under the Small Systems Order,
except for the systems serving northeast Gwinnett County, Georgia and
Columbia, Tennessee, which had approximately 34,500 and 17,200 basic
subscribers, respectively, as of December 31, 1995, representing approximately
29% of the total basic subscribers in the Systems. The Company has applied to
the FCC to have the Columbia system characterized as a small system, but is
unable to predict the timing or outcome of such application. See "Legislation
and Regulation in the Cable Television Industry--Rate Regulation."
44
<PAGE>
Despite the negative impact of rate regulation, the Company and the Mid-
Tennessee Systems generated increases in revenues in each of the past three
years. These increases were achieved primarily through internal subscriber
growth and higher sales of premium units.
During the past three years, operating and selling, general and
administrative expenses for the Company and the Mid-Tennessee Systems have
increased significantly. Over this time period, such expenses also increased
as a percentage of the revenues of the Company and the Mid-Tennessee Systems
primarily as a result of regulatory pressure on cable rates, higher
programming costs and compliance costs associated with regulations relating
to, among other things, rates, subscriber service and maintenance standards.
Although the Company expects its operating and selling, general and
administrative expenses to continue to increase for the foreseeable future, it
believes that it will be able to recover such increases through higher
revenues resulting from subscriber growth and its ability to adjust its rates
under the FCC's existing cable rate regulations.
The Company and the Mid-Tennessee Systems have consistently reported net
losses due to a high level of depreciation and amortization associated with
the acquisitions of their respective cable systems and interest expense. The
Company expects to continue to experience net losses for the foreseeable
future primarily as a result of the interest expense associated with the Notes
and the Amended and Restated Credit Agreement and depreciation and
amortization charges relating to the Recapitalization and the Acquisitions.
Since 1988, Rifkin & Associates has provided the Company with program
purchasing and licensing, marketing, financial, engineering and other
administrative services. Prior to the Recapitalization, the Company paid
Rifkin & Associates an annual management fee for such services equal to 5.0%
of the Company's revenue.
In connection with the Recapitalization, the Company and Rifkin & Associates
entered into the Management Agreement which reduced the amount of such fee to
3.5% of the Company's revenue. Rifkin & Associates has provided similar
management services to the Mid-Tennessee Systems since 1985 for an annual
management fee equal to 5.0% of revenue. On March 1, 1996, in connection with
the consummation of the Mid-Tennessee Acquisition, the annual management fee
payable to Rifkin & Associates with respect to the Mid-Tennessee Systems was
reduced from 5% to 3.5% of revenue.
45
<PAGE>
HISTORICAL RESULTS OF OPERATIONS--THE COMPANY
The following table sets forth, for the periods indicated, certain statement
of operations and other data of the Company expressed in dollar amounts (in
thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1994 1995(A)
----------------- ----------------- -----------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue............... $ 41,470 100.0% $ 44,889 100.0% $ 50,208 100.0%
Costs and Expenses:
Operating expense... 13,717 33.1 15,676 34.9 17,474 34.8
Selling, general and
administrative
expense............ 5,665 13.7 6,090 13.6 7,054 14.0
Depreciation and
amortization....... 13,795 33.2 13,154 29.3 24,504 48.8
Management fees..... 2,073 5.0 2,244 5.0 1,757 3.5
Loss on disposal of
assets............. 760 1.8 128 0.3 506 1.0
-------- ----- -------- ----- -------- -----
Total costs and
expenses......... 36,010 86.8 37,292 83.1 51,295 102.1
-------- ----- -------- ----- -------- -----
Operating income
(loss)............... 5,460 13.2 7,597 16.9 (1,087) (2.1)
Interest expense.... 18,283 44.1 18,008 40.1 12,236 24.4
-------- ----- -------- ----- -------- -----
Loss before income
taxes and cumulative
effect of accounting
change............... (12,823) (30.9) (10,411) (23.2) (13,323) (26.5)
Income tax expense
(benefit)............ -- -- 1,558 3.5 (1,674) (3.3)
-------- ----- -------- ----- -------- -----
Loss before cumulative
effect of accounting
change............... (12,823) (30.9) (11,969) (26.7) (11,649) (23.2)
Cumulative effect of
accounting change for
income taxes......... 3,500 8.4 -- -- -- --
-------- ----- -------- ----- -------- -----
Net loss.......... $(16,323) (39.3)% $(11,969) (26.7)% $(11,649) (23.2)%
======== ===== ======== ===== ======== =====
OTHER DATA:
Adjusted EBITDA/1/.... $ 20,015 48.3% $ 20,879 46.5% $ 23,923 47.6%
======== ===== ======== ===== ======== =====
</TABLE>
- --------
(a) 1995 has been reflected on a pro forma basis to account for the
Recapitalization as if it had occurred on December 31, 1994.
1995 Compared to 1994
For financial statement purposes, the Recapitalization was accounted for
using the purchase method of accounting. Accordingly, the Recapitalization
resulted in the restatement of the Company's assets and liabilities to fair
market value as of September 1, 1995 to the extent of the new ownership
interests acquired by the Investor Group. In the discussion of operations
which follows, the Company's results of operations for 1995 are reflected on a
pro forma basis to account for the Recapitalization as if it had occurred on
December 31, 1994. Because of the Recapitalization, pro forma results of
operations for 1995 are not comparable to results for prior periods
principally in the following areas: (i) depreciation and amortization expense
in the post-Recapitalization financial statements reflect the restatement of
assets described above, (ii) interest expense in the post-Recapitalization
financial statements reflects the new debt structure of the Company and (iii)
results of operations for the period following the Recapitalization reflect a
reduction in management fees charged by Rifkin & Associates.
- --------
1. See footnote (b) on page 17.
46
<PAGE>
Revenue increased 11.8%, or approximately $5.3 million, to $50.2 million for
the year ended December 31, 1995 from $44.9 million for year ended December
31, 1994. This increase resulted primarily from growth in basic subscribers,
increases in basic and tier rates and higher sales of premium service units.
Approximately $3.9 million of the increase relates to basic, tier and
equipment revenue, and approximately $1.4 million relates to premium and
miscellaneous revenue. The number of basic subscribers in the Systems
increased 6.6% to approximately 132,300 at December 31, 1995 from
approximately 124,100 at December 31, 1994. This growth occurred primarily in
the Georgia and Tennessee systems, which added 4,600 (an increase of 10.5%)
and 2,800 (an increase of 6.2%) subscribers, respectively, reflecting the
favorable demographic trends in certain communities covered by such systems.
Average monthly revenue per subscriber increased 4.7% from $31.19 for the year
ended December 31, 1994 to $32.65 for 1995. Premium service units increased
7.3% to 80,400 as of December 31, 1995, from 74,900 as of December 31, 1994,
due in large part to the Company's promotion of discounted premium service
packages designed to enhance subscriber value and enable the Company to take
advantage of programming cost incentives based on premium service unit growth.
The Company's premium penetration increased to 60.8% from 60.4% between 1994
and 1995.
Operating expense, which includes costs related to programming, technical
personnel, franchise fees and repairs and maintenance, increased 11.5%, or
approximately $1.8 million, to $17.5 million for the year ended December 31,
1995 from $15.7 million in 1994, but decreased as a percentage of revenue to
34.8% from 34.9% due to the impact of rate increases effected in early 1995.
Approximately $1.6 million of the increase in operating expense was due to
higher programming costs resulting from rate increases by certain programming
vendors and growth in subscribers. The increase also reflects the termination
of certain programming cost incentives that generally were in effect through
the fourth quarter of 1994.
Selling, general and administrative expense, which includes expenses related
to on-site office and customer-service personnel, customer billing and postage
and marketing, increased 15.8%, or approximately $1 million, to $7.1 million
for the year ended December 31, 1995 from $6.1 million in 1994. As a
percentage of revenue, selling, general and administrative expense increased
to 14.1% for the year ended December 31, 1995 from 13.6% for the year ended in
1994. Approximately $500,000 of the increase resulted from the hiring and
training of additional on-site office personnel to promote the ongoing
compliance with recently enacted cable regulations which established customer
service standards and due to subscriber growth.
Depreciation and amortization expense of $24.5 million in 1995 increased
approximately $11.4 million from depreciation expense of $13.2 million in
1994. The increase in depreciation resulted primarily from increases of $6.3
million in 1994 and $7.5 million in 1995 in property, plant, and equipment, as
well as purchase accounting adjustments to the carrying value of certain fixed
assets related to the Recapitalization. The increase in amortization expense
resulted primarily from the full amortization of certain intangible assets as
of December 31, 1994, more than offset by purchase accounting adjustments to
the carrying value of certain intangible assets related to the
Recapitalization. As a percentage of revenue, depreciation and amortization
expense increased to 48.8% in 1995 from 29.3% in 1994.
Management fees decreased to $1.8 million in 1995 from $2.2 million in 1994,
as the increase in the Company's revenue between 1994 and 1995 was more than
offset by the pro forma reduction in such fees from 5.0% to 3.5% of revenue
effective December 31, 1994.
The loss on disposal of assets, primarily the write-off of replaced house
drops and rebuilt trunk and distribution equipment, increased to approximately
$500,000 in 1995 from approximately $100,000 in 1994.
Interest expense during 1995 decreased by approximately $5.8 million or
32.1% over 1994 and decreased as a percentage of revenue from 40.1% to 24.4%.
Interest expense from debt was based on an average debt balance of $138
million with an average interest rate of 8.9% and an average debt balance of
$165.3 million
47
<PAGE>
with an average interest rate of 10.6% for 1995 and 1994, respectively. This
decrease was primarily a result of the effects of the pro forma treatment of
the Recapitalization.
The Company is a "pass-through" entity for income tax purposes. All income
or loss flows through to the partners of the Company in accordance with the
Partnership Agreement. Income tax expense of approximately $1.6 million and an
income tax benefit of approximately $1.7 million recorded in 1994 and 1995,
respectively, relate to deferred income taxes recorded as a result of the non-
cash tax liability of the Company's corporate subsidiaries in conjunction with
the application of Financial Accounting Standard No. 109 (FAS 109),
"Accounting for Income Taxes." See Note 3 to the Company's Consolidated
Financial Statements.
As a result of the factors discussed above, net loss decreased 2.7%, or
approximately $300,000, in 1995 compared with 1994.
Adjusted EBITDA/1/ increased 14.6%, or approximately $3.0 million, to $23.9
million in 1995 from $20.9 million in 1994. As a percentage of revenue,
Adjusted EBITDA/1/ increased to 47.6% in 1995 from 46.5% in 1994 as the impact
of the Company's revenue growth was largely offset by the increase in selling,
general and administrative expense as a percentage of revenue.
1994 Compared to 1993
Revenue increased 8.2%, or approximately $3.4 million, to $44.9 million in
1994 from $41.5 million in 1993 primarily as a result of growth in basic
subscribers and increased premium penetration. Approximately $2.0 million of
the increase relates to basic, tier and equipment revenues and approximately
$1.4 million relates to premium and miscellaneous revenues. Basic subscribers
increased 7.1% to approximately 124,100 as of December 31, 1994 from
approximately 115,800 as of December 31, 1993, with the Georgia and Tennessee
systems adding 4,800 (an increase of 12.3%) and 2,000 (an increase of 4.7%)
basic subscribers, respectively. Average monthly revenue per basic subscriber
increased to $31.19 in 1994 from $30.75 in 1993. Premium service units
increased 11.5% to 74,900 as of December 31, 1994 from 67,200 as of December
31, 1993, again reflecting the Company's efforts to enhance premium
penetration through aggressive marketing of attractively priced premium
service packages. The Company's premium penetration increased to 60.4% in 1994
from 58.0% in 1993.
Operating expense increased 14.3%, or approximately $2 million, to $15.7
million in 1994 from $13.7 million in 1993. As a percentage of revenue,
operating expense increased to 34.9% in 1994 from 33.1% in 1993. Approximately
$1.1 million of the increase reflects higher programming costs due to
increases in the costs of the Company's existing programs, the addition of new
programming in response to the FCC's benchmark rules and costs related to
subscriber growth.
Selling, general and administrative expense increased 7.5%, or approximately
$400,000, to $6.1 million in 1994 from $5.7 million in 1993, reflecting
increased personnel expense of approximately $200,000 related primarily to
subscriber growth. As a percentage of revenue, selling, general and
administrative expense decreased slightly to 13.6% from 13.7% in 1993.
Depreciation expense of $5.7 million and amortization expense of $7.5
million decreased an aggregate of approximately $600,000 to $13.2 million in
1994 from depreciation expense of $5.5 million and amortization expense of
$8.3 million for an aggregate of $13.8 million in 1993. The increase in
depreciation expense resulted primarily from increases in certain fixed assets
of $6.3 million in each of 1994 and 1993. The decrease of amortization expense
resulted from the full amortization of certain intangible assets in 1993. As a
percentage of revenue, depreciation and amortization decreased to 29.3% in
1994 from 33.2% in 1993.
Management fees increased approximately $100,000 to $2.2 million in 1994
from $2.1 million in 1993 reflecting the Company's higher revenue.
The loss on disposal of assets, primarily the write-off of rebuilt trunk and
distribution equipment and replaced house drops, decreased to approximately
$100,000 in 1994 from approximately $800,000 in 1993.
- --------
1. See footnote (b) on page 17.
48
<PAGE>
Interest expense decreased approximately $300,000 to $18 million in 1994
from $18.3 million in 1993 due to an increase in the Company's borrowing
margins which was offset by lower rates. Interest expense from debt for 1994
was based on an average debt balance of $165.3 million with an average
interest rate of 10.6%, and for 1993 was based on an average debt balance of
$162.1 million with an average interest rate of 11.0%. As a percentage of
revenue, interest expense decreased to 40.1% in 1994 from 44.1% in 1993.
Total income tax expense, including the cumulative effect of a change in
accounting method, consisting entirely of deferred taxes, decreased
approximately $1.9 million, to $1.6 million in 1994 from $3.5 million in 1993.
This decrease is a result of the Company's adoption of FAS 109 effective
January 1, 1993. See Note 3 to the Company's Consolidated Financial
Statements.
Net loss decreased 26.7%, or approximately $4.4 million, from 1993 to 1994,
primarily as a result of the decrease in recorded income taxes and the
decrease in depreciation and amortization described above. As a percentage of
revenue, net loss decreased to 26.7% in 1994 from 39.4% in 1993.
Adjusted EBITDA/1/ increased 4.3%, or approximately $900,000, from 1993 to
1994 but declined as a percentage of revenue from 48.3% to 46.5% due to the
increase in operating expense as a percentage of revenue and the impact of the
FCC's rate freeze which was in effect during all of 1994.
RESULTS OF OPERATIONS--MID-TENNESSEE
The following table sets forth, for the periods indicated, certain statement
of operations and other data of the Mid-Tennessee Systems expressed in dollar
amounts (in thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995
---------------- ---------------- ----------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $10,091 100.0% $10,559 100.0% $11,657 100.0%
Costs and Expenses:
Operating expense.... 3,231 32.0 3,843 36.4 4,224 36.2
Selling, general and
administrative
expense............. 1,515 15.0 1,713 16.2 2,005 17.2
Depreciation and
amortization........ 4,487 44.5 4,349 41.2 4,136 35.5
Management fees...... 505 5.0 528 5.0 583 5.0
Costs associated with
transfer of net
assets.............. -- -- -- -- 81 0.7
Loss on disposal of
assets.............. 108 1.1 105 1.0 8 0.1
------- ----- ------- ----- ------- -----
Total costs and
expenses.......... 9,846 97.6 10,538 99.8 11,037 94.7
------- ----- ------- ----- ------- -----
Operating income
(loss)................ 245 2.4 21 0.2 620 5.3
Interest expense....... 2,397 23.8 2,632 24.9 3,042 26.1
------- ----- ------- ----- ------- -----
Net loss............... $(2,152) (21.3)% $(2,611) (24.7)% $(2,422) (20.8)%
======= ===== ======= ===== ======= =====
OTHER DATA:
Adjusted EBITDA........ $ 4,840 48.0% $ 4,475 42.4% $ 4,845 41.6%
======= ===== ======= ===== ======= =====
</TABLE>
1995 Compared to 1994
Revenue increased 10.4%, or approximately $1.1 million, to $11.7 million in
1995 from $10.6 million in 1994. This increase resulted primarily from
increases in basic and tier rates, growth in basic subscribers and higher
sales of premium units. Approximately $800,000 of the increase relates to
basic, tier and equipment revenue and $300,000 relates to premium and
miscellaneous revenue. The number of basic subscribers increased 4.9% to
approximately 33,400 at December 31, 1995 from approximately 31,800 at
December 31, 1994. Average monthly revenue per subscriber increased 5.0% to
$29.78 in 1995 from $28.36 in 1994. Premium service units increased 10.6% to
20,800 as of December 31, 1995 from 18,800 as of December 31, 1994, due in
large part to
- --------
1. See footnote (b) on p. 17.
49
<PAGE>
the Company's promotion of discounted premium service packages. Premium
penetration increased to 62.3% from 59.0% in 1995 and 1994, respectively.
Operating expense increased 9.9% to $4.2 million for 1995, from $3.8 million
for 1994. As a percentage of revenue, operating expense decreased to 36.2% in
1995 from 36.4% 1994. Substantially all of this change was due to increased
programming costs resulting from rate increases by certain programming vendors
and growth in subscribers. The termination in the fourth quarter of 1994 of
certain programming cost incentives also contributed to such increase. These
cost increases were offset by a decrease in contract labor which was a result
of performing additional maintenance functions through use of Company
personnel.
Selling, general and administrative expense increased 17.0% or approximately
$300,000 to $2 million in 1995 from $1.7 million in 1994. As a percentage of
revenue, selling, general and administrative expense increased to 17.2% in
1995 from 16.2% in 1994. This increase reflects higher personnel costs in the
approximate amount of $200,000 necessitated by the enactment of more stringent
customer service regulations and subscriber growth.
Depreciation expense was $1.9 million and amortization expense was $2.2
million for an aggregate of $4.1 million in 1995, compared to depreciation
expense of $1.8 million and amortization expense of $2.5 million for an
aggregate of $4.3 million in 1994. The increase in depreciation expense
resulted from increases in certain fixed assets of $1.6 million in 1995 and
$1.2 million in 1994. The decrease in amortization expense resulted from the
full amortization of certain intangible assets. As a percentage of revenue,
depreciation and amortization decreased to 35.5% in 1995 from 41.2% in 1994.
Costs associated with the transfer of net assets totalling approximately
$100,000 were incurred in 1995. Such costs related primarily to professional
fees and expenses.
Management fees, calculated at 5.0% of revenue for both periods increased in
direct proportion to revenue and were approximately $600,000 in 1995 and
$500,000 in 1994.
The loss on disposal of assets, primarily the write-off of replaced house
drops and rebuilt trunk and distribution equipment, decreased to nearly zero
from approximately $100,000 for 1995 and 1994, respectively.
Interest expense increased 15.6%, or approximately $400,000, to $3 million
in 1995 from $2.6 million in 1994, as a result of higher interest rates in
1995. Interest expense from debt for 1995 was based on an average debt balance
of $32.9 million with an average interest rate of 9.1%, and for 1994 was based
on an average debt balance of $33.2 million with an average interest rate of
7.7%. As a percentage of revenue, interest expense rose to 26.1% in 1995 from
24.9% in 1994.
As a result of the factors discussed above, net loss attributable to the
Mid-Tennessee Systems decreased 7.2%, or approximately $200,000, in 1995
compared with 1994.
Adjusted EBITDA/1/ increased 8.3%, or approximately $300,000, to $4.8
million in 1995 from $4.5 million in 1994. As a percentage of revenue,
however, Adjusted EBITDA/1/ decreased to 41.6% from 42.4% between 1994 and
1995, respectively, due primarily to the increased selling, general and
administrative expense described above.
1994 Compared to 1993
Revenue increased 4.6%, or approximately $500,000, to $10.6 million in 1994
from $10.1 million in 1993 as decreased basic subscriber rates in the systems
were more than offset by subscriber growth. Approximately $200,000 of the
increase relates to basic, tier and equipment revenue and $300,000 relates to
premium and miscellaneous revenue. Basic subscribers increased to
approximately 31,800 as of December 31, 1994, from approximately 30,200 as of
December 31, 1993. Average monthly revenue per basic subscriber, however,
decreased 0.7% to $28.36 in 1994 from $28.56 in fiscal 1993. The decrease in
average revenue per subscriber was a result of rate decreases implemented in
response to rate regulations.
Operating expense increased 18.9%, or approximately $600,000, to $3.8
million in 1994 from $3.2 million in 1993. As a percentage of revenue,
operating expense increased to 36.4% in 1994 from 32.0% in 1993. Approximately
$300,000 of such increase reflects higher programming costs due to increases
in the costs of the Company's existing programs, the addition of new
programming in response to the FCC's benchmark rules and costs related to
subscriber growth.
- --------
1. See footnote (b) on page 17.
50
<PAGE>
Selling, general and administrative expense increased 13.1%, or
approximately $200,000 to $1.7 million in 1994 from $1.5 million in 1993.
Selling, general and administrative expense, as a percentage of revenue,
increased to 16.2% in 1994 from 15.0% in 1993. Approximately $100,000 of such
increase reflect increased hiring and associated personnel costs relating to
the enactment of more stringent customer service regulations.
Management fees remained relatively stable at approximately $500,000 during
1993 and 1994.
Depreciation expense was $1.8 million and amortization expense was $2.5
million for an aggregate of $4.3 million in 1994 compared to depreciation
expenses of $1.8 million and amortization expense of $2.7 million for an
aggregate of $4.5 million in 1993. Depreciation expense remained flat, despite
increases in certain fixed assets of $1.2 million in 1994 and $1.7 million in
1993. The decrease in amortization expense was a result of certain intangible
assets reaching full amortization in 1993. As a percentage of revenue,
depreciation and amortization decreased to 41.2% in 1994 from 44.5% in 1993.
Interest expense increased approximately 9.8%, or $200,000, to $2.6 million
in 1994 from $2.4 million in 1993 because of increased interest rates.
Interest expense from debt for 1994 was based on an average debt balance of
$33.2 million with an average interest rate of 7.7%, and for 1993 was based on
an average debt balance of $33.8 million with an average interest rate of
7.1%. As a percentage of revenue, interest expense increased to 24.9% in 1994
from 23.8% in 1993.
The loss on disposal of assets, primarily the write-off of rebuilt trunk and
distribution equipment and replaced house drops, remained flat at
approximately $100,000 for 1993 and 1994.
Net loss increased 21.3%, or approximately $400,000, to $2.6 million in 1994
from $2.2 million in 1993, primarily as a result of the increase in interest
expense and increases in operating expense as described above. As a percentage
of revenue, net loss increased to 24.7% in 1994 from 21.3% in 1993.
Adjusted EBITDA/1/ decreased 7.5%, or approximately $300,000, to $4.5
million in 1994 from $4.8 million in 1993. As a percentage of revenue,
Adjusted EBITDA/1/ decreased to 42.4% in 1994 from 48.0% in 1993 due to the
increases in operating and selling, general and administrative expenses and
the reductions in regulated service rates implemented in response to cable
rate regulation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied upon cash generated by operations, borrowings and
equity contributions to fund capital expenditures, service its indebtedness
and finance its working capital needs. During the three years ended December
31, 1995, 1994 and 1993, net cash provided by operations (including changes in
working capital and, for 1995, taking into account an interest payment of
approximately $11.4 million made by a predecessor to the Company in connection
with the Recapitalization) of the Company was $2.4 million, $4 million, and
$3.1 million, respectively.
From December 31, 1994 to December 31, 1995, the Company's other receivables
increased from approximately $400,000 to $1.5 million, primarily as a result
of the establishment of a $1.0 million management fee escrow in conjunction
with the Recapitalization. For the same comparable period, interest payable
decreased approximately $3.8 million due primarily to the timing of payments.
Also, for the same comparable period, deferred taxes payable increased from
approximately $1.6 million to approximately $21.1 million as a result of the
step-up in asset basis related to the Recapitalization. There were no material
deviations in the foregoing balance sheet data between December 31, 1993 and
December 31, 1994.
In March 1995, the Company defaulted in the payment of $3.8 million due in
respect of certain subordinated debt. The Company's failure to make such
payment also constituted a default under the Company's other debt instruments,
including the Company's then existing bank credit facility. In order to
improve its liquidity and increase its financial flexibility, the Company
completed the Recapitalization in August 1995. In connection with the
Recapitalization, the Company obtained $41.6 million in new equity from the
Investor Group, made initial borrowings of $138 million under a new credit
facility and assumed $3 million of subordinated debt. The proceeds of such
debt and equity financings were used to refinance or repay all of the
Company's indebtedness and provide ongoing liquidity for the Company.
During the three years ended December 31, 1995, 1994 and 1993, net cash
provided from operations (including changes in working capital) of the Mid-
Tennessee Systems was approximately $1.9 million, $2.2 million and $2.5
million, respectively.
- --------
1. See footnote (b) on p. 17.
51
<PAGE>
The Company has increased its total consolidated debt to approximately
$199.1 million from $137.5 million at December 31, 1995. The Company has
unused commitments under the Amended and Restated Credit Agreement of
approximately $73.9 million, approximately $13.9 million of which is available
for general corporate purposes. Access to the remaining $60 million of
availability under the Amended and Restated Credit Agreement for general
corporate purposes or Permitted Acquisitions (as defined in the Amended and
Restated Credit Agreement) is subject to the Company's compliance with all
covenants in such facility and the Company's Total Funded Debt Ratio (defined
as the ratio of funded indebtedness of the Company to annualized Adjusted
EBITDA/1/ based on the most recent quarter) being below 6.25x. As of December
31, 1995, pro forma for the Transactions, the Company's Total Funded Debt
Ratio was 6.41x. See "Description of the Amended and Restated Credit
Agreement." Interest payments on the Notes and interest and principal payments
under the Amended and Restated Credit Agreement represent significant
liquidity requirements for the Company. The Amended and Restated Credit
Agreement provides for two term loan facilities in a total amount of $65
million. Term Loan A is in the amount of $25 million, matures on March 31,
2003 and begins amortizing on March 31, 2000. Term Loan B is in the amount of
$40 million, matures March 31, 2004 and begins amortizing March 31, 2002. The
Amended and Restated Credit Agreement also provides for an $80 million
reducing revolving facility with a final maturity date of March 31, 2003. The
revolving facility will be subject to permanent annual commitment reductions
commencing in 1997. Borrowings under the Amended and Restated Credit Agreement
will bear interest at floating rates and will require interest payments on
various dates depending upon the interest rate options selected by the
Company.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. The cable
television business requires substantial financing for construction, expansion
and maintenance of plant and the Company has committed substantial capital
resources to (i) expand its cable systems; (ii) conduct routine replacement of
cable television plant; and (iii) increase the channel capacity of certain
systems. On a pro forma basis after giving effect to the Acquisitions, the
Company would have spent $9.5 million on capital expenditures in 1995,
including approximately $400,000 of capital expenditures relating to the RCT
Systems. Such capital expenditures relate to routine replacement as well as
the upgrade and, in certain instances, expansion of trunk and distribution
equipment.
On a pro forma basis after giving effect to the Acquisitions, the Company
expects capital expenditures during 1996 and 1997 to total approximately $15.4
million and $21.6 million, respectively, $5.6 million and $11.9 million of
which relates to upgrading and rebuilding certain trunk and distribution
facilities and $9.8 million and $9.7 million of which represents anticipated
expenditures for expansion of trunk and distribution equipment, new customer
installation, new product launches, additional converters, studio and
advertising sales insertion equipment. Certain of such capital expenditures
relate to upgrades that have been or are expected to be mandated by the
Company's franchises in Gwinnett County and the City of Roswell. See "Risk
Factors--Significant Capital Expenditures."
The Company expects that cash flow from operating activities and available
borrowings will be sufficient to meet its debt service obligations,
anticipated capital expenditure requirements and working capital needs for the
next twelve months, as well as through the maturity date of the Notes.
The Amended and Restated Credit Agreement and the Indenture restrict, among
other things, the Company's and the Subsidiary Guarantors' ability to incur
additional indebtedness, incur liens, pay distributions or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. The Amended and Restated
Credit Agreement also requires the Company to maintain specified financial
ratios and satisfy certain financial condition tests. The obligations under
the Amended and Restated Credit Agreement are secured by (i) a pledge of all
of the equity interest of the Company's subsidiaries and (ii) subject to
certain exceptions, a perfected first priority security interest in all
tangible and intangible assets. Such restrictions and compliance tests,
together with the highly leveraged nature of the Company and the pledge of
substantially all of the Company's assets, could limit the Company's ability
to respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities. See "Risk
Factors--Restrictions Imposed by Terms of the Company's
- --------
1. See footnote (b) on page 17.
52
<PAGE>
Indebtedness," "Description of Amended and Restated Credit Agreement" and
"Description of Exchange Notes."
BUSINESS
GENERAL
The Company, through the Partnership and the Guarantors, owns, operates and
develops cable television systems in Georgia, Tennessee, Illinois and Michigan
(the "Other Systems"). Systems serving 45% of the Company's basic subscribers
as of December 31, 1995, pro forma for the Acquisitions, are located in
counties in Georgia and Tennessee with populations that grew at an average
compound annual rate of 4.0% from 1991 to 1995, according to data from Market
Statistics, Demographics USA 1995. Annual population growth over the same
period in Georgia, Tennessee and for the United States as a whole was 1.9%,
1.3% and 1.1%, respectively. Since commencing operations in 1989, the Company
has demonstrated an ability to take advantage of the favorable demographics in
its markets to increase its basic and premium subscribers through innovative
marketing, selective upgrades and extensions of its cable television systems
and superior customer service. As a result, the Other Systems have experienced
growth in homes passed, basic subscribers and Adjusted EBITDA/1/ between
January 1, 1991 and December 31, 1995 of 18.9%, 37.3% and 47.9%, respectively.
At December 31, 1995, the Other Systems passed approximately 174,100 homes and
served approximately 132,300 basic subscribers. RACC does not have any
operations, operating history, assets, revenues, properties or employees, and
was formed solely for the purpose as serving as a corporate co-issuer of the
Notes.
On March 1, 1996, the Company acquired the Mid-Tennessee Systems. In
addition, on April 1, 1996, the Company acquired the RCT Systems (the Mid-
Tennessee Systems and the RCT Systems being collectively referred to as the
"New Tennessee Systems"). The acquisition of the New Tennessee Systems, which
are proximate to the Other Tennessee Systems, furthers the Company's strategy
of clustering its cable systems to achieve economies of scale and operating
efficiencies. Rifkin & Associates has managed the New Tennessee Systems since
1986, and these systems have experienced growth in homes passed, basic
subscribers and Adjusted EBITDA/1/ between January 1, 1991 and December 31,
1995 of 12.3%, 21.7% and 10.4%, respectively. At December 31, 1995, the New
Tennessee Systems passed approximately 56,800 homes and served approximately
45,600 basic subscribers.
At December 31, 1995, pro forma for the Acquisitions, the Systems passed
approximately 230,800 homes and served approximately 177,900 basic
subscribers, at a basic penetration level of 77.1%. The Company is one of the
largest multiple system operators ("MSO") in Tennessee based on information
provided by the Tennessee Cable Television Association as of December 31,
1995. The Company believes that its strategy of clustering its cable systems
to achieve economies of scale and operating efficiencies will create
opportunities to improve customer service and marketing, reduce administrative
costs and deploy new technologies more cost-effectively. All of the Systems
have capacities of 30 or more channels.
For the year ended December 31, 1995, pro forma for the Acquisitions, the
Company had revenue of approximately $65.6 million, and Adjusted EBITDA/1/ of
approximately $30.1 million.
THE RECAPITALIZATION
In August 1995, the Company effected the Recapitalization in which the VS&A
Group acquired the interests of certain limited partners in RAP L.P. for
approximately $39.4 million in cash and invested approximately $41.6 million
in cash as new equity in the Partnership. In connection with the
Recapitalization, the Rifkin Group exchanged their then-existing limited
partnership interests in RAP L.P., which for purposes of the Recapitalization
were valued at approximately $9.1 million, for limited partnership interests
in the Partnership (the "Equity Rollover"). In addition, the Rifkin Trusts
invested $600,950 in cash as new equity in the Partnership. In connection with
the issuance of the Old Notes, in January, 1996, the Investor Group invested
$15 million in cash as additional equity in the Company (the "New Equity"). As
a result of these transactions, the VS&A Group and the Rifkin Group hold 89.2%
and 9.8% limited partnership interests in the Partnership, respectively, and
the General Partner continues to hold its 1% general partnership interest in
the Partnership. See "Principal Security Holders" and "Certain Relationships
and Related Transactions." Pursuant to the Recapitalization, the Partnership
also assumed from RAP L.P. a subordinated note in the principal amount of $3.0
million payable to Monroe M. Rifkin (the "Old Rifkin Note"). Finally, as part
of the Recapitalization the
- --------
1. See footnote (b) on p.17.
53
<PAGE>
fee payable by the Partnership to Rifkin & Associates for management services
was reduced from 5.0% to 3.5% of the Company's revenue.
BUSINESS STRATEGY
The Company's business strategy focuses on enhancing operational and
financial performance by: (i) consolidating operations of existing clustered
systems through strategic acquisitions; (ii) applying aggressive and
innovative subscriber acquisition and retention marketing techniques; (iii)
upgrading systems with state-of-the-art technology to enhance existing service
and to develop, on a cost-effective basis, new ancillary revenue streams; and
(iv) enhancing subscriber value by providing exceptional customer service.
Consolidating Operations/Strategic Acquisitions. The Company believes that
consolidating operations will increase Adjusted EBITDA/1/ by allowing for
operating efficiencies in such areas as administration, marketing, customer
service and advertising sales. The Company will also explore opportunities to
consolidate headends in order to reduce maintenance costs, as well as the cost
of adding new channels and implementing new technologies and services. The
Company intends to consolidate certain of the operations of the Mid-Tennessee
Systems with the Other Tennessee Systems and upon consummation of the RCT
Acquisition, the assets of the RCT Systems, with certain of the operations of
the Other Tennessee Systems. Future acquisition efforts are expected to focus
on acquiring systems in close proximity to existing systems or on systems of
sufficient size to serve as cores for new operating clusters. The Company will
also consider divestiture of systems on an opportunistic basis.
In determining whether to acquire a particular system, the Company
evaluates, among other things, (i) the size and strategic fit with the
Company's existing operations, (ii) the technical quality and anticipated
capital expenditure requirements, (iii) the potential for upgrading and
improving operations, (iv) the demographics of the market and (v) the existing
and potential competitive environment. Except for the RCT Acquisition, no
letters of intent have been executed and no definitive agreements have been
reached with respect to any acquisitions. Other possible acquisitions may
arise at any time. There can be no assurance, in any case, that the Company
will reach an agreement to acquire any additional systems or that it will
consummate any such acquisitions.
Innovative Marketing. The Company aggressively markets and promotes its
cable television systems with the objective of increasing penetration and
average revenue per subscriber. The Company actively markets its basic and
premium program packages through innovative marketing tactics that include
direct mail and telemarketing efforts targeted to specific subscriber and non-
subscriber demographic profiles, newspaper and television advertising and
door-to-door sales. In selected markets, the Company is also expanding its
sources of revenue from services such as pay-per-view and new services such as
the Sega Channel, a digital premium subscription service providing 50
different SEGA brand games delivered through cable to individual subscribers'
SEGA Genesis game units. In late 1995, the Company also entered into an agency
relationship with Sprint Communications Company, L.P. to market Sprint long
distance telephone services in certain markets.
System specific marketing plans and marketing budgets are developed jointly
between Rifkin & Associates and the Company's regional marketing staff. In
addition, the Company incorporates into marketing plans retention marketing
strategies such as subscriber value-building, employee training and growth-
related employee incentives to ensure that marketing investments are
maximized. Additional subscribers are also gained by cable plant extensions
built to new housing developments once adequate density is available.
System Enhancements. The Company is committed to maintaining and enhancing
the technical integrity and channel capacity of its cable systems as
demonstrated by the fact that all of the Systems have capacities of 30 or more
channels. Within the next five years, the Company intends to rebuild nearly
all of the Systems to a bandwidth between 450 MHz and 750 MHz. Additionally,
the Company also is committed to extending its distribution system to keep
pace with the growth in the communities it serves as well as making continuous
investments that improve picture quality and plant reliability.
The Company is progressively utilizing advances in technology to upgrade its
cable plant. The utilization of fiber optics and addressable technology (the
computerized authorization of individual converters or receivers to
- --------
1. See footnote (b) on p. 17.
54
<PAGE>
descramble and receive specifically authorized video, audio or data signals
that have been scrambled for security purposes) in these rebuilds will improve
technical reliability, enhance picture quality and increase channel capacity
to offer new products and services, all of which will increase subscriber
satisfaction and position the Company for a competitive future.
Subscriber Value. The Company uses a high quality, well-trained staff of
customer service representatives and local field technicians to provide
exceptional customer service. To this end, the Company continues to invest
resources in training its customer service representatives and field
technicians. In addition, the Company regularly evaluates the programming
offered by its systems in order to offer its subscribers innovative packages
of basic and premium services, including locally originated programming.
THE CABLE TELEVISION INDUSTRY
A cable television system receives television, radio and data signals at its
headend facility that are transmitted by broadcasting stations, microwave
relay systems and communications satellites. These signals are then
electronically processed and distributed, primarily through coaxial and, in
some instances, fiber optic cable, to subscribers who pay a fee to receive
some or all of these signals.
Cable television systems generally consist of four principal operating
components. The first component, known as the headend facility, receives
television and radio signals and other programming and information by means of
special antennae, microwave relays and satellite earth stations. The second
component, the distribution network, which originates at the headend and
extends throughout the system's service area, typically consists of coaxial or
fiber optic cables placed on utility poles or buried underground, and
associated electronic equipment. The third component of the system is a drop
cable, which extends from the distribution network into each subscriber's home
and connects the distribution system to the subscriber's television set. The
fourth component, a converter, is the home terminal device that converts the
services available on the cable system to channels which can be displayed by
the user's television set. In addition, this component may serve as a
descrambler to permit reception of limited-distribution services by authorized
viewers.
Cable systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to nonexclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
Cable television systems offer subscribers various levels or "tiers" of
basic cable services consisting of off-air television signals of network,
independent and educational programming from local broadcasters, a limited
number of television signals from so-called superstations originating from
distant cities, various satellite-delivered, non-broadcast channels (such as
Cable News Network ("CNN"), the USA Network ("USA"), Entertainment and Sports
Programming Network ("ESPN"), The Discovery Channel and Turner Network
Television ("TNT")), certain programming originated locally by the cable
system such as public, governmental and educational access programs and
informational displays featuring news, weather, stock market and financial
reports and public service announcements. For an extra monthly charge, cable
systems also typically offer premium television services to their subscribers.
These services, such as Home Box Office ("HBO"), Showtime, The Disney Channel
("Disney") and certain regional sports networks, are satellite-delivered
channels consisting principally of feature films, live sporting events,
concerts and other special entertainment features, usually presented without
commercial interruption for which a separate per channel or per event charge
may be levied.
Generally, a subscriber pays an initial installation charge and fixed
monthly fees for basic and premium television services and for other services,
including the rental of converters and remote control devices. Monthly service
fees constitute the primary source of revenues for cable television systems.
Cable systems also generate revenues from additional fees paid by subscribers
for pay-per-view programming of movies and special events and from the sale of
available advertising spots on advertiser-supported programming. Cable systems
also offer to their subscribers home shopping services which pay the systems a
share of revenues from sales of products in the systems' service areas.
55
<PAGE>
SYSTEMS
The Systems consist of four geographic clusters: Georgia, Tennessee,
Illinois and Michigan.
Georgia Systems. The table below sets forth certain information with respect
to the Georgia Systems.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes Passed.................... 51,174 53,781 55,489 60,898 66,307
Basic Subscribers............... 32,152 35,935 39,451 44,290 48,925
Basic Penetration............... 62.8% 66.8% 71.1% 72.7% 73.8%
Average Monthly Revenue per
Subscriber..................... $30.31 $31.79 $33.01 $33.61 $35.44
</TABLE>
The Georgia Systems have been managed by Rifkin & Associates since 1985. On
a combined basis, these systems consisted of approximately 1,400 miles of
distribution plant, passed approximately 66,300 homes and served approximately
48,900 basic subscribers who purchased approximately 34,700 premium units as
of December 31, 1995. From January 1, 1991 through December 31, 1995, homes
passed and basic subscribers grew at a compound annual growth rate of 5.8% and
11.1%, respectively.
The Georgia Systems serve unincorporated areas in northeast Gwinnett County
and certain incorporated communities therein, including the cities of
Lawrenceville, Duluth, Suwanee, Buford, Sugar Hill, Dacula and Resthaven. In
addition, the Georgia Systems serve the City of Roswell and Mountain Park in
Fulton County. All of the communities served by the Georgia Systems are
suburbs of Atlanta. Since 1985, Gwinnett County's population has grown at a
compound annual rate of over 5.7%, according to the Atlanta Regional
Commission (the "ARC"), which tracks growth for road development and other
governmental uses. The ARC estimates that Gwinnett County's population will
continue to grow from approximately 410,000 in 1994 to approximately 541,000
by the year 2000, which implies a compound annual growth rate of 4.7%.
According to the ARC, the population of the census tracts within the Company's
Gwinnett County service area is projected to grow through the year 2000 at a
compound annual growth rate of 5.0%. The Roswell system serves a population of
54,000 and, according to United States 1990 Census data, residents of Roswell
had one of the highest per capita incomes in the Atlanta metropolitan area.
The Northeast Gwinnett system is designed to 450 MHz with 61 channels of
programming. In 1995, the Northeast Gwinnett system added 97 miles of new
cable plant, passing approximately 5,400 new homes. The system added
approximately 4,600 new cable subscribers during 1995. There are several large
multi-use developments being constructed. These include Sugarloaf Farms, a
2,500 home development that includes retail and light industrial business and
a golf course; a 2,000 home development in Suwanee, and a third development of
1,500 homes recently started in the county area north of Lawrenceville.
Franchises were renewed in 1995 for terms of 15 years in areas served in
unincorporated areas of Gwinnett County, and the incorporated communities of
Suwanee, Duluth and Sugar Hill and in early 1996 for the City of Roswell. The
franchises in Lawrenceville, Dacula and Buford expire in 1998, 2000 and 2004,
respectively. The recently completed franchise renewals with Gwinnett County
and the City of Roswell require an upgrade of the such systems to 750 MHz
capacity by December 31, 1999.
The Roswell system is located in north Fulton County and serves the
communities of Roswell and Mountain Park. The City of Roswell is located 18
miles north of Atlanta and is mainly a residential community with retail trade
as its primary industry. The Roswell system is designed to 450 MHz with 61
channels of programming.
On January 1, 1996, combined basic and tier rates in the Northeast Gwinnett
and Roswell systems were increased from $26.28 per month to $27.75 per month.
Premium programming services offered on an a la carte basis in both systems
range in price from $5.95 to $10.95 per month; both systems also offer these
premium services packaged together at discounted rates.
The Georgia Systems generate revenue from the sale of cable advertising
carried on its systems through participation in Cable Advertising of Metro
Atlanta, an advertising sales network serving cable operators in
56
<PAGE>
greater Atlanta. While such revenue has not been material to date, the Company
believes that advertising will constitute a growing source of revenue in the
future.
Revenue for the year ended December 31, 1995 was $19.8 million compared to
$16.9 million for the same period ended December 31, 1994 (an increase of
17.4%). System Cash Flow (defined as system Adjusted EBITDA/1/ plus management
fees) for the year ended December 31, 1995 was $10 million compared to $8.3
million for the year ended December 31, 1994 (an increase of 20.1%). System
Cash Flow margin was 50.3% and 49.2% for the years ended December 31, 1995 and
1994, respectively.
Other Tennessee Systems. The table below sets forth certain information with
respect to the Other Tennessee Systems.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes Passed.................... 49,063 52,490 54,463 55,717 58,289
Basic Subscribers............... 39,908 41,524 43,296 45,313 48,128
Basic Penetration............... 81.3% 79.1% 79.5% 81.3% 82.6%
Average Monthly Revenue per
Subscriber..................... $26.20 $27.91 $29.85 $30.30 $31.45
</TABLE>
The Other Tennessee Systems have been managed by Rifkin & Associates since
1984. On a combined basis, these systems consisted of approximately 1,560
miles of distribution plant, passed approximately 58,300 homes and served
approximately 48,100 basic subscribers who purchased approximately 25,400
premium units as of December 31, 1995. From January 1, 1991 through December
31, 1995, homes passed and basic subscribers grew at a compound annual growth
rate of 3.8% and 4.8%, respectively.
The Other Tennessee Systems serve the communities of Columbia, Cookeville,
Paris and Tullahoma located in central Tennessee, proximate to Nashville.
Columbia, the largest of the Other Tennessee Systems, is located in Maury
County, approximately 40 miles south of Nashville along Interstate 65.
Columbia is the largest of the systems and has experienced rapid growth over
the past decade, largely as a result of the construction of the General Motors
Saturn plant in Spring Hill, a community served by the Columbia system, and
related business formation. Columbia has a broad-based economy with an
emphasis on automobile manufacturing, light industry, services and
agriculture. According to the Tennessee State Planning Office, the population
in this area has increased at a compound annual growth rate of 3.5% from 1990
to 1995. The Company believes that growth will continue as new home
construction expands. In addition to Spring Hill, the Columbia system also
serves the City of Columbia and unincorporated portions of Maury, Lawrence and
Williamson counties, pursuant to separate franchise agreements. Of the five
franchises comprising the Columbia system, all have been renewed in recent
years, with the earliest expiration scheduled for 2001.
The Columbia system is designed to 450 MHz with 60 channels of capacity and
is expected to be upgraded to 750 MHz. Additionally, the Company intends to
activate a reverse path within the Columbia distribution plant in 1996, which
will enable two-way communication on the system. The Company believes this
will create new business opportunities for impulse pay-per-view ordering, high
speed data networking and Internet access.
The Cookeville system is located in Putnam County, 70 miles east of
Nashville and is the second largest of the Other Tennessee Systems. Tennessee
Technological University (enrollment of approximately 8,300 students) and a
TRW manufacturing facility that produces automobile air bags are located in
Cookeville. The local economy is broadly based and has grown substantially
over the years due to its prime location along Interstate 40 between Nashville
and Knoxville. The Cookeville system serves Cookeville, Algood, Baxter and
surrounding Putnam and White Counties. Of these five franchises, all have been
recently renewed with terms that expire beginning in 2005, with the exception
of Algood, which expires in May 1996. The Company anticipates that the Algood
franchise will be renewed. The Company has commenced the rebuild of the
Cookeville system from its current design of 330 MHz with 40 channel capacity
to 750 MHz capacity.
The Tullahoma system is located 65 miles southeast of Nashville in Coffee
County and is within 75 miles of Chattanooga, Tennessee and Huntsville,
Alabama. The system serves the City of Tullahoma and the
- --------
1. See footnote (b) on p. 17.
57
<PAGE>
unincorporated portions of Coffee, Franklin and Moore counties. The current
population of Tullahoma is approximately 17,000 and Tullahoma is home to the
Arnold Engineering Development Center, which employs approximately 3,500
persons. All four of the franchises have been renewed with the earliest
expiration in 2002. The Company intends to rebuild the Tullahoma plant from
its current design of 330 MHz with 40 channel capacity to 750 MHz capacity.
The Paris system is located in Henry County, 90 miles west of Nashville. The
Paris system serves the City of Paris and unincorporated portions of Henry
County. The two franchises which comprise the Paris system were recently
renewed, with terms that expire in 2002. The system is designed to 330 MHz
with 40 channels of capacity.
On January 1, 1996, combined basic and tier rates in the Other Tennessee
Systems were increased from a range of $23.80 to $25.27 per month to a range
of $25.95 to $26.75 per month. Premium programming services offered on an a la
carte basis range in price from $4.95 to $10.95 per month; these premium
services are also packaged together at discounted rates.
During the fourth quarter of 1995, the Company introduced two new products
in Columbia using addressable technology. A six channel new product tier,
which includes the Disney Channel, is offered at $5.95 per month.
Additionally, new pay-per-view services are being launched, offering movies
that range in price from $3.95 to $4.95 and special events at prices ranging
from $19.95 to $39.95. A third new product, the Sega Channel, is to be
introduced in 1996.
Revenue for 1995 was $17.6 million compared to $16.1 million for 1994 (an
increase of 9.5%). System Cash Flow for 1995 was $9.4 million compared to $8.7
million for 1994 (an increase of 7.9%). System Cash Flow margin was 53.4% for
1995 and 54.2% for 1994.
The Illinois Systems. The table below sets forth certain information with
respect to the Illinois Systems.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes Passed.................... 35,728 35,209 35,209 35,320 35,469
Basic Subscribers............... 21,439 22,109 23,091 23,987 24,269
Basic Penetration............... 60.0% 62.8% 65.6% 67.9% 68.4%
Average Monthly Revenue per
Subscriber..................... $26.60 $27.82 $29.62 $29.57 $30.63
</TABLE>
The Illinois Systems have been managed by Rifkin & Associates since December
1985. On a combined basis, these systems consisted of approximately 608 miles
of distribution plant, passed approximately 35,500 homes and served
approximately 24,300 basic subscribers who purchased approximately 13,600
premium units as of December 31, 1995. From January 1, 1991 through December
31, 1995, homes passed in the Illinois Systems were relatively constant while
basic subscribers grew at a compound annual growth rate of 2.9%.
The Illinois Systems serve communities in southern Illinois. These
communities generally receive poor off-air reception from St. Louis and
require cable service to receive high quality broadcast signals. Nearly 60% of
the subscribers are in the Mt. Vernon and Centralia systems.
The communities served by the Illinois Systems enjoy relatively self-
sufficient economies, based primarily on agriculture and growing commercial
development along Interstate 64. Restaurants and hotels are numerous in these
interstate communities and support a growing cable advertising sales business
in the Mt. Vernon and Centralia areas.
The Mt. Vernon and Centralia systems are located approximately 90 miles east
of St. Louis, Missouri. The Mt. Vernon system, which is the largest of the
Illinois Systems, is designed to 450 MHz with 60 channel capacity and is
expected to be upgraded to 550 MHz. The Centralia system is the second largest
of the Illinois Systems and is designed to 300 MHz with 35 channel capacity
and is expected to be upgraded to 550 MHz.
58
<PAGE>
The Sparta, Sesser, Steeleville, Cairo and Nashville systems are designed to
450 MHz with 60 channel capacity. The Tamms, Woodlawn and Prairie du Rocher
systems are designed to 330 MHz with 41 channel capacity. Among the other
Illinois Systems, all of which are designed to 330 MHz with 40 channel
capacity, are the third and fourth largest systems, Chester and McLeansboro,
which are expected to be upgraded to 550 MHz.
One franchise, affecting only about 100 subscribers, expires in August 1996.
Franchises serving approximately 8,900 subscribers expire in 1997 and 1998. No
other franchises expire until 2001. The Company expects that all such
franchises will be renewed.
On January 1, 1996, combined basic and tier rates in the Illinois Systems
were increased from a range of $20.36 to $26.55 per month to a range of $22.80
to $26.95 per month. Premium programming services offered on an a la carte
basis range in price from $7.95 to $9.95 per month; these premium services are
also packaged together at discounted rates.
Revenue for the year ended December 31, 1995 was $8.9 million compared to
$8.4 million for 1994 (an increase of 6.2%). System Cash Flow for the year
ended December 31, 1995 was $4.5 million compared to $4.3 million in 1994 (an
increase of 3.0%). System Cash Flow margin was 50.5% for the year ended
December 31, 1995 and 52.1% for the year ended December 31, 1994.
Michigan Systems. The table below sets forth certain information with
respect to the Michigan Systems.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes Passed.................... 13,456 13,533 13,562 13,805 13,989
Basic Subscribers............... 9,033 9,423 9,955 10,469 10,949
Basic Penetration............... 67.1% 69.6% 73.4% 75.8% 78.3%
Average Monthly Revenue per
Subscriber..................... $26.18 $27.43 $28.46 $28.87 $30.18
</TABLE>
The Michigan Systems have been managed by Rifkin & Associates since December
1985. On a combined basis, these systems consisted of 359 miles of
distribution plant, passed approximately 14,000 homes and served approximately
10,900 basic subscribers who purchased approximately 6,800 premium units as of
December 31, 1995. From January 1, 1991 through December 31, 1995, homes
passed and basic subscribers grew at a compound annual growth rate of 2.3% and
5.5%, respectively.
The Michigan Systems serve the cities of Bad Axe, Bridgeport/Frankenmuth,
Gagetown, Harbor Beach and Reese. The Bridgeport/Frankenmuth system, which is
located between the industrial cities of Flint and Saginaw, represents
approximately two-thirds of the subscribers served by the Michigan Systems.
Bridgeport is home to numerous manufacturing plants which support the
automobile industry. The other communities served by the Michigan Systems have
economies based primarily on tourism.
The Bridgeport/Frankenmuth and Reese systems have shown moderately steady
housing growth, which the Company believes will continue. Over 15,000 General
Motors employees live in the area surrounding Bridgeport. Tourism is the key
industry in Frankenmuth, as the town's Bavarian atmosphere and numerous shops
and restaurants attract approximately three million visitors each year. The
Bridgeport/Frankenmuth system is designed to 400 MHz with 54 channel capacity
and is expected to be upgraded to 550 MHz.
The Bad Axe, Gagetown and Harbor Beach systems located in the "thumb" area
of the state are also located in communities based on tourist economies,
relying heavily on the summer and winter sports of the Lake Huron region. The
Bad Axe area supports automobile manufacturers in Flint and Detroit with
numerous parts and machine shops. The Bad Axe system is designed to 354 MHz
with a 44 channel capacity. The Gagetown system is designed to 330 MHz with 40
channel capacity, and the Harbor Beach system is designed to 318 MHz with 38
channel capacity. The Company intends to rebuild all of these systems to 550
MHz capacity.
59
<PAGE>
Franchise agreements that represent in excess of 80% of the Michigan Systems
subscribers expire after the year 2000.
On January 1, 1996, combined basic and tier rates in the Michigan Systems
were increased from a range of $21.86 to $25.00 per month to a range of $23.45
to $26.50 per month. Premium programming services offered on an a la carte
basis range in price from $5.95 to $12.95 per month; these premium services
are also packaged together at discounted rates.
Revenue for the year ended December 31, 1995 was $3.9 million compared to
$3.5 million for 1994 (an increase of 9.6%). System Cash Flow for the year
ended December 31, 1995 was $1.9 million compared to $1.8 million for 1994 (an
increase of 5.7%). System Cash Flow margin was 48.1% for the year ended
December 31, 1995, and 49.9% for the year ended December 31, 1994.
Mid-Tennessee Systems. The table below sets forth certain information with
respect to the Mid-Tennessee Systems.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes Passed.................... 36,121 36,495 39,062 40,032 42,448
Basic Subscribers............... 27,194 28,662 30,226 31,834 33,407
Basic Penetration............... 75.3% 78.5% 77.4% 79.5% 78.7%
Average Monthly Revenue per
Subscriber..................... $26.16 $27.57 $28.56 $28.36 $29.78
</TABLE>
The Mid-Tennessee Systems have been managed by Rifkin & Associates since
1986. On a combined basis, the Mid-Tennessee Systems consisted of
approximately 1,260 miles of distribution plant, passed approximately 42,500
homes and served approximately 33,400 basic subscribers who purchased
approximately 20,800 premium units as of December 31, 1995. From January 1,
1991 through December 31, 1995, homes passed and basic subscribers grew at a
compound annual growth rate of 3.5% and 5.1%, respectively.
The McMinnville system is the largest system in the group. A major new
thoroughfare is being built through McMinnville from Cookeville to
Lawrenceburg, to service the heavy increase in highway traffic in the area.
The Company expects the construction of the new thoroughfare to spur economic
development in this area. McMinnville has seen the recent addition of a major
Bridgestone tire plant, and the Company anticipates support business to the
automobile industry will continue to develop. The McMinnville cluster of
systems operates pursuant to 17 separate franchise agreements, none of which
expire prior to 1997. Substantially all of the McMinnville system is designed
to 330 MHz with 40 channel capacity. The Company intends to rebuild certain
portions of the McMinnville system to 750 MHz.
The Lebanon system is located in the City of Lebanon, approximately 30 miles
east of Nashville. The Lebanon system operates under nine separate franchise
agreements. All of the franchises will expire between 1999 and 2008. The
Lebanon system, substantially all of which is currently designed to 312 MHz
with 37 channel capacity, is scheduled to be rebuilt to 750 MHz.
The Hickory Hill System operates pursuant to five separate franchise
agreements, the earliest of which expires in 1997. This system is designed to
330 MHz with 40 channel capacity.
On February 1, 1996, the Company implemented rate increases in the Mid-
Tennessee Systems that will result in combined basic and tier rates ranging
from $23.95 to $27.15 per month. Premium programming services offered on an a
la carte basis in these systems range in price from $4.95 to $10.95 per month;
these premium services are also packaged together at discounted rates.
Revenue for the year ended December 31, 1995 was $11.7 million compared to
$10.6 million for 1994 (an increase of 10.4%). System Cash Flow for the year
ended December 31, 1995 was $5.3 million compared to $5
60
<PAGE>
million for 1994 (an increase of 6.9%). System Cash Flow margin was 45.9% for
the year ended December 31, 1995 and 47.4% for the year ended December 31,
1994.
RCT Systems. The table below sets forth certain information with respect to
the RCT Systems.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Homes Passed.................. 14,616 14,692 14,692 14,692 14,320(1)
Basic Subscribers............. 11,997 12,020 12,064 12,058 12,230
Basic Penetration............. 82.0% 81.8% 82.1% 82.0% 85.4%
Average Monthly Revenue per
Subscriber................... $22.08 $23.13 $23.23 $23.95 $25.40
</TABLE>
- --------
(1) Adjusted to reflect the results of an audit of the homes passed database
and therefore not comparable to prior periods.
The RCT Systems have been managed by Rifkin & Associates since 1986. On a
combined basis, these systems consisted of approximately 272 miles of
distribution plant, passed approximately 14,300 homes and served approximately
12,200 basic subscribers who purchased approximately 7,100 premium units as of
December 31, 1995. From January 1, 1991 through December 31, 1995, basic
subscribers grew at a compound annual growth rate of 1.3%.
The RCT Systems are located in south central Tennessee proximate to the
Company's Columbia system and serve the communities of Pulaski, Lawrenceburg
and Fayetteville. These communities enjoy diverse employment in manufacturing,
farming and light industry. Homes in this area generally receive limited off-
air reception and require cable to receive high quality broadcast signals and
a greater variety of television programming.
These three systems operate pursuant to six separate municipal or county
franchises. All six have been recently renewed, with expirations in the years
2004-2007. These systems are presently designed to 450 MHz with 60 channel
capacity.
On February 1, 1996, combined basic and tier rates in the RCT Systems were
increased from a range of $13.86 to $21.36 per month to a range of $13.86 to
$22.95 per month. Premium programming services offered on an a la carte basis
range in price from $4.95 to $9.95 per month; these premium services are also
packaged together at a discounted rate.
Revenue for the year ended December 31, 1995 was $3.7 million compared to
$3.5 million for 1994 (an increase of 6.8%). System Cash Flow was $1.3 million
and $1.2 million, respectively, for the years ended December 31, 1995 and
1994. Systems Cash Flow margin was 34.6% for the year ended December 31, 1995,
and 34.1% for the year ended December 31, 1994. The results of operations of
the RCT Systems reflect the impact of an overbuild in Fayetteville. See
"Business--Competition."
PROGRAMMING AND SERVICE OFFERINGS
Programming. Rifkin & Associates has various contracts to obtain basic and
premium programming for the Systems from program suppliers whose compensation
is typically based on a fixed fee per subscriber. The Systems select basic,
tier and premium programming based on the demographics in the market, national
research on the perceived value of the programming, requests from subscribers,
the available channel capacity in each system, the cost of the networks and
the availability of local advertising spots.
Some program suppliers provide volume discount pricing structures or offer
marketing support to the Systems. In particular, Rifkin & Associates
negotiated programming agreements for the Systems with premium service
suppliers that offer cost incentives under which premium service unit prices
decline as certain premium
61
<PAGE>
service growth thresholds are met. The Systems' successful marketing of
multiple premium service packages emphasizing subscriber value has enabled the
Systems to take advantage of such cost incentives.
The Systems have 144 retransmission consents with 51 commercial broadcast
stations. None of these consents require direct payment of fees for carriage;
however, in some cases the Systems have entered into agreements with certain
stations to carry satellite-delivered cable programming which is affiliated
with the network carried by such stations. These agreements are required to be
renewed before December 31, 1996. There can be no assurance that such
agreements can or will be renewed under similar terms. See "Legislation and
Regulation in the Cable Television Industry."
Since 1988 Rifkin & Associates has been a member of a programming consortium
consisting of small to mid-size independent cable television operators
serving, in the aggregate, over three million cable subscribers. The
consortium was formed to help create efficiencies in the areas of securing and
administering programming contracts, as well as to establish more favorable
programming rates and contract terms for small to mid-size operators.
Currently, approximately 65% of the Systems' programming contracts are
negotiated directly with the networks by Rifkin & Associates; the remaining
35% are negotiated through the consortium. The Systems' programming contracts
are generally for a fixed period of time (three to ten years) and are subject
to negotiated renewal. As existing contracts expire, Rifkin & Associates
intends to negotiate the renewals through the programming consortium.
The Systems' cable programming costs have increased in recent years and are
expected to continue to increase due to carriage of additional networks,
increased costs to produce or purchase cable programming, system acquisitions,
inflationary increases and other factors. However, the Company is committed to
minimizing these increases. Aside from renewing expired programming contracts
through the programming consortium, in certain target markets the Company will
launch new and more expensive networks on new product tiers. In these markets,
the Company will pay the programming suppliers for only those subscribers who
are willing to bear an additional cost for the service rather than paying for
the entire subscriber base who may or may not find value in the programming.
In addition, the Company plans to replace more expensive networks with lower
priced product of similar content and quality. Although there can be no
assurances, the Company believes it will continue to have access to cable
programming services at reasonable prices.
Service Offerings. The Systems typically offer a choice of two tiers of
basic cable television programming service: a broadcast programming tier
(consisting generally of broadcast network and public television programming
available "over-the-air" in the franchise community and "superstation" signals
such as WTBS and WGN) and a satellite programming tier (consisting primarily
of satellite delivered services such as CNN, USA, ESPN, The Discovery Channel
and TNT). Approximately 93% of the subscribers in the Systems subscribed to
both tiers of service as of December 31, 1995.
The Systems also offer premium programming services (e.g., HBO, Disney,
Cinemax, Showtime) on both on an a la carte basis and as part of discounted
premium service packages. Premium packages are designed to generate
incremental premium cash flow as well as enhance the perceived value of the
Systems' cable service. The Systems have successfully promoted innovative
premium service packages. Overall premium service penetration has increased
significantly in the Systems where such packages have been introduced.
Currently, the systems in Georgia and Columbia, Tennessee offer movie and
event pay-per-view. The other Systems offer pay-per-view on an event only
basis.
Expanded Service Offerings. New product tiers, which include programming
options that are not available on the basic or satellite tier, are currently
being developed by the Company. A new product tier will typically contain four
to six programming services offered on either an a la carte ($1 to $4 per
channel) or a package basis ($5.95 including equipment rental). Signals are
secured by addressable technology. In conjunction with the roll out of
addressable technology and new product tiers, the Company will be accelerating
the roll-out of pay per view in select markets. In addition, the Company is
currently introducing the Sega Channel in systems where research indicates a
strong subscriber propensity to purchase this new service. To further enhance
revenue,
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<PAGE>
additional programs and products under development include the launch of new
home shopping services, Internet access and an agency relationship with Sprint
Communication Company L.P. pursuant to which the Company has begun marketing
Sprint long distance telephone services in certain Systems, including Paris,
Mt. Vernon, Lebanon and Fayetteville, in return for a percentage of the long
distance revenue generated by Sprint from the Company's subscribers and
certain marketing support relating to the Company's products and services.
SYSTEMS OPERATIONS
Systems Operations. The Company acquires, operates and develops cable
television systems based on the principle of increasing operating cash flow
while maintaining a high standard of technical and customer service.
The Company has a decentralized and locally responsive management structure
which provides significant management experience and stability to every
region. Annual operating budget preparation, strategic planning and capital
expenditure allocation decisions are made jointly between Rifkin & Associates
and the Company's systems managers to ensure that local needs are properly
weighted with maximizing investor returns. Day to day operating decisions are
made by experienced local system managers who are knowledgeable about and
responsive to the specific needs of the Company's subscribers. The Company
believes that this management structure enhances the effectiveness of customer
service efforts and assists in the maintenance of good relations with
franchise authorities. Local system managers are rewarded for attaining
operating goals through incentive and bonus plans based on predefined
qualitative and quantitative measures of system-specific performance.
The Company believes that providing excellent customer and technical service
is essential in an increasingly competitive environment. To accomplish
service-related objectives, the Company places a special emphasis on exceeding
the FCC and National Cable Television Association ("NCTA") customer service
standards. In addition to adhering to federally-mandated customer service
standards the Company has implemented additional programs, including an on-
time guarantee for installation and repair appointments, designed to enhance
customer satisfaction.
As part of the focus on service-related initiatives, the Company is
committed to fostering the personal and professional growth of its employees,
which includes a strong commitment to and investment in training. The
Company's employees receive training in customer service, sales and subscriber
retention skills from outside professionals and qualified management
personnel. Technical employees are encouraged to enroll in courses available
from the National Cable Television Institute and attend regularly scheduled
on-site seminars conducted by equipment manufacturers to keep pace with the
latest technological developments in the cable television industry. The
Company believes that training programs, coupled with strong growth-oriented
bonus and incentive plans for front line and managerial staff: (i) enhance the
overall level of subscriber satisfaction; (ii) improve the quality of
workmanship in the field which results in fewer service calls from
subscribers; (iii) lowers service-related expenses; and (iv) strengthens the
effectiveness of marketing programs.
MARKETING
The Company aggressively markets and promotes its cable television systems
with the objective of increasing penetration and average revenue per
subscriber. The Company actively markets its basic and premium program
packages through innovative marketing tactics that include direct mail and
telemarketing efforts targeted to specific subscriber and non-subscriber
demographic profiles, newspaper and television advertising and door-to-door
sales. Each of the Company's customer service centers is supported by a
Marketing Director who coordinates marketing and door-to-door campaigns
throughout the geographic region. The Marketing Director also ensures that the
Company is providing high quality sales and service by supervising and
training direct sales representatives and assessing picture and service
quality within the Company's cable systems. In general, customer service
representatives will follow up by telephone contact with the subscriber
following a new installation, to assess the quality of the installation and
the overall service the subscriber is receiving and to assure subscriber
satisfaction. Customer service representatives are also trained to market
upgrades in service to existing subscribers. Each customer service center is
supported by a Director of Training, who works closely
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<PAGE>
with the Operations and Marketing Departments to ensure that all employees are
informed of current rates, programming packages and promotions.
The Systems utilize a contract third-party service for monthly customer
billing based on modern computer technology and utilizing software developed
specifically for the cable television industry. Billing statements are printed
and mailed directly to subscribers, who have approximately 15 days after
receipt of the statement to remit payment to the central payment processing
center. If after 30 days a subscriber has not made a payment, the subscriber
is charged a late payment fee. After 35 days, if the subscriber has not made a
payment, a "Past Due Invoice" is generated. In general, the Systems
aggressively pursue collection of past due amounts by telephoning the
subscriber at 40 days past due and attempting to collect payments through
field technicians at 45 days past due. If this final attempt to collect
payment fails, the subscriber is then disconnected. A final statement is sent
within a week after disconnection, and, approximately 15 days thereafter, the
account is referred to a collection agency. This approach to accounts
receivable and collections has resulted in bad debt expense for the Systems
consistently averaging less than 1.0% of its revenue.
TECHNOLOGY AND ENGINEERING
At December 31, 1995, the Systems maintained over 5,500 miles of cable
distribution plant that passed nearly 231,000 homes. The following table sets
forth certain information with regard to the channel capacities of the Systems
as of December 31, 1995.
<TABLE>
<CAPTION>
54 OR
30 TO 53 MORE
CHANNELS CHANNELS TOTAL
-------- -------- -------
<S> <C> <C> <C>
Other Systems:
Number of systems........................... 19 9 28
Percent of total Other Systems.............. 67.9% 32.1% 100.0%
Miles of plant.............................. 1,649 2,318 3,967
Subscribers................................. 53,655 78,616 132,271
New Tennessee Systems:
Number of systems........................... 11 3 14
Percent of total New Tennessee Systems...... 78.6% 21.4% 100.0%
Miles of plant.............................. 1,264 272 1,536
Subscribers................................. 33,407 12,230 45,637
All Systems:
Number of Systems........................... 30 12 42
Percent of Systems.......................... 71.4% 28.6% 100.0%
Miles of plant.............................. 2,913 2,590 5,503
Subscribers................................. 87,062 90,846 177,908
</TABLE>
The Company continually monitors and evaluates new technological
developments to optimize existing assets and to anticipate the introduction of
new services and program delivery capabilities. The use of fiber optic cable
as a transportation medium is playing a major role in enhancing channel
capacity and improving the performance and reliability of cable television
systems. Fiber optic cable is capable of carrying hundreds of video, data and
voice channels. The Company has implemented and intends to continue to use
fiber optic technology in conjunction with its system rebuilds and upgrades.
In the future, by interconnecting headends of adjacent systems with one master
facility, the Company can reduce the number of headends, lower maintenance
costs and add new channels more cost effectively. The Company generally plans
to reduce the number of headends through consolidation to take advantage of
these efficiencies.
The Company intends to explore the use of digital compression technology to
enhance the current channel capacities of its cable systems. This technology
is expected to allow five to ten channels to be carried in the space of one
analog channel. Digital signals not only offer the potential for allowing
cable television systems to carry more programming but also for improving the
quality and reliability of the television signals carried. This
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<PAGE>
technology may also allow cable systems to offer additional products and
services, including video game channels like the Sega Channel. Although the
Company believes that the use of digital technology in the future offers the
potential for the Company to increase channel capacity in a more cost
efficient manner than rebuilding systems with higher capacity distribution
plant, digital compression technology is still in the developmental stage and
is not yet widely implemented by cable system operators. There can be no
assurance as to whether or when such technology can or will be implemented by
the Company and, if it can be implemented, whether such technology will result
in significant cost savings over alternative methods of expanding channel
capacities of the Company's systems.
SUBSCRIBER AND COMMUNITY RELATIONS
In order to succeed in a competitive environment, the Company recognizes the
need to meet and exceed the increasing demands and expectations of its
subscribers and communities. Through subscriber newsletters, surveys and focus
groups, the Company is able to identify and respond to the needs of current
and prospective subscribers in a system-specific fashion. These means of
communication, as well as cross-channel spots and billing messages, permit the
Company to position itself as a leading provider of advanced information and
entertainment services. This continuous interaction and two-way communication
is critical to instilling the level of loyalty needed to obtain and retain
subscribers in today's marketplace.
The Company is dedicated to developing strong community relations in the
locations served by its cable television systems and believes that good
relations with its local franchise authorities are primarily a result of
effective communications by the Company's local management with local
authorities. The Company also believes that consistent, high quality
performance of its local staff is important to maintain good community
relations. To improve the effectiveness of staff interaction with the
Company's subscribers, the Company has ongoing training programs for its field
and customer service staff.
The Company also places a high priority on using its facilities and position
in the community to the benefit of the towns and cities served by its cable
television systems. This commitment is especially apparent in the area of
education, as each of the Systems has initiated a localized version of the
Company's Project TEACH program. Project TEACH assists area schools by
supplementing their classroom curricula with cable-delivered educational
services and related equipment. In addition, the Systems contribute to the
communities they serve through production and carriage of locally-originated
programming, covering issues and events important to area residents and
otherwise under served by local media. Ongoing support and interest in the
community is continuously demonstrated through the involvement of the Systems'
personnel in local causes, including promotions designed to raise money and
supplies for persons in need.
FRANCHISES
Cable television systems are generally constructed and operated under
nonexclusive franchises granted by local governmental authorities. These
franchises typically contain many requirements, which include time limitations
on commencement and completion of construction, conditions of service, system
channel capacity, nature of programming, the provision of free cable service
to schools and certain other public institutions and the maintenance of
insurance and indemnity bonds. The provisions of local franchises are subject
to federal regulation under the Cable Acts. See "Legislation and Regulation in
the Cable Television Industry."
The Systems' franchises provide for the payment of fees to the issuing
authority. Annual franchise fees imposed on the Systems range up to 5% of
gross revenues generated by a system. In substantially all of the Systems,
franchise fees are passed through to the subscribers directly as an addition
to the rates for cable television service. The 1984 Cable Act prohibits
franchising authorities from imposing franchise fees in excess of 5% of gross
revenues and also permits the cable system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
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The table below categorizes the Systems' franchises by date of expiration
and presents the approximate number and percentage of basic service
subscribers for each category of franchises as of December 31, 1995.
<TABLE>
<CAPTION>
YEAR OF
FRANCHISE NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE
EXPIRATION FRANCHISES TOTAL RANCHISES SUBSCRIBERS OF TOTAL SUBSCRIBERS
---------- ---------- --------------- ----------- --------------------
<S> <C> <C> <C> <C>
1996-1998.... 24 21.2% 27,342 15.4%
1999-2001.... 14 12.4% 25,543 14.4%
After 2001... 75 66.4% 125,023 70.2%
Total.... 113 100.0% 177,908 100.0%
</TABLE>
No single franchise represents more than 10.4% of total subscribers of the
Systems, and the largest five franchises represent less than 34.0% of total
subscribers of the Systems.
The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process where franchise renewal will not be unreasonably withheld or,
if renewal is withheld, the franchise authority must pay the operator the
"fair market value" for the system covered by such franchise but no value will
be allocated to the franchise itself. In addition, the 1984 Cable Act
establishes comprehensive renewal procedures that 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.
The Company believes that it generally has good relationships with its
franchising authorities. Neither the Company nor any other entity controlled
by Mr. Rifkin has ever had a franchise revoked or failed to have a franchise
renewed. In addition, all of the franchises of the Company and such other
entities eligible for renewal have been renewed or extended at or prior to
their stated expirations, and no material franchise community has refused to
consent to a franchise transfer to the Company or any such predecessor.
COMPETITION
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment, such as off-air television broadcast
programming, newspapers, movie theaters, live sporting events, interactive
computer programs and home video products, including videotape cassette
recorders/players. The extent to which cable service is competitive depends,
in part, upon the cable system's ability to provide a greater variety of
programming at a reasonable price to consumers than that available off-air or
through other alternative delivery sources. See "Legislation and Regulation in
the Cable Television Industry."
The 1996 Telecom Act now allows local telephone companies to provide a wide
variety of video services competitive with services provided by cable systems
and to provide cable services directly to subscribers. See "Legislation and
Regulation in the Cable Television Industry." Cable systems could be placed at
a competitive disadvantage if the delivery of video programming services by
local telephone companies becomes widespread because cable systems are
required to obtain local franchises to provide cable service and must comply
with a variety of obligations under such franchises. Issues of cross-
subsidization by local telephone companies pose strategic disadvantages for
cable operators seeking to compete with local telephone companies providing
video services. Additionally, the 1992 Cable Act ensures that telephone
company providers of video services will have access to acquire all
significant cable programming services. Although the Company cannot predict
the likelihood of success of any video programming ventures by local telephone
companies or the impact on the Company of such competitive ventures, it is
likely such ventures will result in significant new competition.
A significant competitive impact is expected from medium power and higher
power direct broadcast satellites ("DBS") that use higher frequencies to
transmit signals that can be received by dish antennas much smaller in size
than traditional home satellite dishes ("HSDs"). One consortium, comprised of
cable operators and a satellite company, commenced operation in 1990 on a
medium-power DBS satellite system and currently provides service consisting of
approximately 65 channels of programming, including cable satellite signals
and
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pay-per-view services. Three other DBS operators, DirecTV, a subsidiary of GM
Hughes Electronics, United States Satellite Broadcasting, a subsidiary of
Hubbard Broadcasting, Inc., and EchoStar Communications Corporation offer
video services that can be received by HSDs that measure approximately
eighteen inches in diameter. Additionally, such DBS operators have acquired
the right to distribute all of the significant cable television programming
services. It is expected that at least one more high power DBS provider will
enter the market in the next year.
DBS has advantages and disadvantages as an alternative means of distributing
video signals to the home. Among the advantages are that the capital
investment (although initially high) for the satellite and uplinking segment
of a DBS system is fixed and does not increase with the number of subscribers
receiving satellite transmissions; that DBS is not currently subject to local
regulation of service and prices or required to pay franchise fees; and that
the capital costs for the ground segment of a DBS system (the reception
equipment) are directly related to and limited by the number of service
subscribers. DBS's disadvantages presently include limited ability to tailor
the programming package to the interests of different geographic markets, such
as providing local news, other local origination services and local broadcast
stations; signal reception being subject to line of sight angles; and
intermittent interference from atmospheric conditions and terrestrially
generated radio frequency noise.
Although the effect of competition from these DBS services cannot be
specifically measured or predicted, it is clear there has been significant
growth in DBS subscribers and the Company assumes that such DBS competition
will be substantial in the near future as developments in technology continue
to increase satellite transmitter power, and decrease the cost and size of
equipment needed to receive these transmissions. Further, the extensive
national advertising of DBS programming packages, including certain sports
packages not available on cable television systems, will likely continue the
rapid growth in DBS subscribers.
Cable systems generally operate pursuant to franchises granted on a
nonexclusive basis. The 1992 Cable Act gives local franchise authorities
control over basic cable service rates, prohibits franchise authorities from
unreasonably denying requests for additional franchises, and permits franchise
authorities to operate cable systems. See "Legislation and Regulation in the
Cable Television Industry." It is possible that a franchising authority might
grant a second franchise to another cable company containing terms and
conditions more favorable than those afforded the Systems. Well-financed
businesses from outside the cable industry (such as the public utilities which
own the poles on which cable is attached) may become competitors for
franchises or providers of competing services. The 1996 Telecom Act eliminates
certain federal restrictions on utility holding companies and thus frees all
utility companies to now provide cable services. See "Legislation and
Regulation in the Cable Television Industry." In general, a cable system's
financial performance will be adversely impacted where a competing cable
service exists (referred to in the cable industry as an "overbuild"). Although
the Systems' franchises are non-exclusive, and in certain of its service areas
there are multiple franchisees, currently there are only two instances where
competing franchisees have actually overbuilt the Systems.
In one small section in Gwinnett County, another franchised cable operator
with duplicate cable plant can provide cable service to approximately 1,000 of
the Northeast Gwinnett system's homes passed. In the Tennessee Systems,
franchise authorities in Fayetteville and Pulaski awarded a competing
franchise in 1989 to Triangle Communications ("Triangle"). While Triangle has
never initiated construction within the Pulaski franchise area, approximately
50 miles of plant, covering almost the entire city of Fayetteville, has slowly
been completed by Triangle over the last four years. Management believes that
as of December 31, 1995, the Triangle system passed approximately 3,300 homes
in Fayetteville and had approximately 500 cable subscribers compared to the
Company's 2,600 subscribers in Fayetteville.
Additionally, in August 1995, Metro Cable, Inc., ("Metro Cable"), a start up
company, submitted to Gwinnett County a franchise application to build and
operate a cable television system in Gwinnett County. The principals of Metro
Cable are local to Gwinnett County and the northeastern Georgia area and have
experience in the construction and operation of cable television systems.
Management believes that Metro Cable does not
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have any active business operations. The Company cannot predict the outcome or
timing of Gwinnett County's decision on the Metro Cable application.
The Company is not aware of any company or person that is actively seeking a
cable franchise from local franchise authorities for areas presently served by
the Systems other than Metro Cable in Gwinnett County, Georgia.
Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment
complexes and other private residential developments. The operators of these
SMATV systems often enter into exclusive agreements with apartment building
owners or homeowners' associations. Due to the widespread availability of
reasonably priced earth stations, SMATV systems now offer both improved
reception of local television stations and many of the same satellite-
delivered program services offered by franchised cable systems. Various states
have enacted laws to assure franchised cable systems access to private
residential complexes. These laws have been challenged in the courts with
varying results. Additionally, the 1984 Cable Act gives a franchised cable
operator the right to use existing compatible easements within its franchise
area; however, there have been conflicting judicial decisions interpreting the
scope of this right, particularly with respect to easements located entirely
on private property. The ability of the Company to compete for subscribers in
communities served by SMATV operators is uncertain.
The availability of reasonably priced home satellite dish earth stations
("HSD") may enable individual households to receive many of the satellite-
delivered program services formerly available only to cable subscribers.
Furthermore, the 1992 Cable Act contains provisions, which the FCC has
implemented with regulations, to enhance the ability of HSD owners and other
cable competitors to purchase certain satellite-delivered cable programming at
competitive costs. The Company is unable to estimate the extent to which
private HSDs represent competition in its franchise areas.
Cable television systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service ("MMDS") which
use low-power microwave frequencies to transmit video programming over-the-air
to subscribers. The 1992 Cable Act ensures that MMDS operators have access to
acquire all significant cable television programming services. Although there
are MMDS operators who are authorized to provide or are providing broadcast
and satellite programming to subscribers in areas served by the Company's
cable systems, such competition is not yet significant. Recent investments in,
or acquisitions of, MMDS companies by local phone companies are likely to
substantially increase the competitive impact of MMDS services in selected
markets throughout the country. Additionally, the FCC has proposed to allocate
frequencies in the 28 GHz band for a new multichannel wireless video service
similar to MMDS. The Company is unable to predict whether wireless video
distribution services, such as DBS and MMDS, will have a material impact on
its future operations.
In August 1995, Heartland Wireless Communications ("HWC") launched an MMDS
wireless television system in southeast Illinois near the community of
McLeansboro. The signal pattern of the MMDS operation covers a radius of
approximately 35 miles. The Illinois systems that could be affected by this
signal pattern are McLeansboro, Mt. Vernon, Wayne City, Woodlawn, Grayville
and Sesser/Valier. Collectively, these systems have approximately 10,500 basic
subscribers. Depending on the headend serving a particular community, these
systems offer between 31 and 53 basic channels for between $24.91 and $26.95
per month. HWC's basic package currently consists of 26 basic channels,
including three local broadcast channels and 23 cable satellite channels, for
$24.95 per month. Three premium channels are priced at $9.95 each per month,
or offered in two channel discounted packages for $5.00 per channel per month.
The Company believes that HWC has had no material effect on the Illinois
systems.
An MMDS operator filed an application in September 1992 to provide service
in the Bad Axe, Michigan area and has constructed a 200 foot tower
approximately two miles from Bad Axe. The Company's Bad Axe cable system
currently offers 35 channels of basic programming for $23.45, compared to 24
channels, including six off-air signals, offered for $18.50 by the MMDS
operator. Another MMDS operator has been operational for over three years near
Bridgeport. Currently, this MMDS operator has programmed 24 channels,
including seven
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off-air channels, for $22.21, compared to the Company's Bridgeport system's 48
basic channels for $26.50. The Company does not believe that either MMDS
operator has had a material effect on the Michigan Systems.
In December 1995, Wireless One, Inc. began operating an MMDS wireless
television system in Manchester, Tennessee near the Company's Tullahoma and
McMinnville systems. Depending on the headend serving each community, these
systems offer between 33 and 36 basic channels for between $24.45 and $26.85
per month. Wireless One, Inc. currently offers a basic service package
consisting of 20 channels, including five local broadcast channels and fifteen
cable satellite channels, for $19.95 per month and one premium channel, HBO,
at $9.95 per month. Due to the hilly and wooded topography in the area, the
Tullahoma and McMinnville systems are not currently affected by the signal
pattern of this MMDS operator. To date, this MMDS operation has had no
material impact on either of these Tennessee systems.
Other new technologies may become competitive with non-entertainment
services that cable television systems can offer. The FCC has authorized
television broadcast stations to transmit textual and graphic information
useful both to consumers and to businesses. The FCC also permits commercial
and non-commercial FM stations to use their subcarrier frequencies to provide
non-broadcast services including data transmissions. The FCC established an
over-the-air Interactive Video and Data Service that will permit two-way
interaction with commercial and educational programming along with
informational and data services. The expansion of fiber optic systems by
telephone companies and other common carriers will provide facilities for the
transmission and distribution of video programming, data and other non-video
services. The FCC has held spectrum auctions for licenses to provide personal
communications services ("PCS"). PCS could enable license holders, including
cable operators, to provide voice and data 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 industry.
EMPLOYEES
At December 31, 1995, the Systems had approximately 285 full-time employees
and 15 part-time employees, none of whom are subject to a collective
bargaining agreement. The Company considers its relations with its employees
to be good. In addition, Rifkin & Associates, which is responsible for
providing management services to the Company, employs 50 persons. See "Certain
Relationships and Related Transactions--Management Agreement."
PROPERTIES
In connection with its operation of cable television systems, the Company
owns or leases real property for signal reception sites (antenna towers and
headends), microwave facilities and business offices. The Company believes
that its properties, both owned and leased, are in good condition and are
suitable and adequate for the Company's business operations.
The Systems' distribution plant generally is attached to utility poles under
pole rental agreements with local public utilities, although in some areas the
plant is buried in underground ducts or trenches. The physical components of
the Systems require maintenance and periodic upgrading to keep pace with
technological advances.
LEGAL PROCEEDINGS
Other than customary administrative proceedings incidental to the conduct of
its business, the Company is not involved in any other pending legal
proceedings. The Company does not believe that any of these administrative
proceedings will have a material adverse effect on its financial condition or
results of operations or cash flows.
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LEGISLATION AND REGULATION IN THE CABLE TELEVISION INDUSTRY
REGULATION AND LEGISLATION
The operation of cable television systems is extensively regulated by the
FCC, by some state governments and by most local governments. On February 8,
1996, the President signed into law the Telecommunications Act of 1996 ("1996
Telecom Act"). This new law will alter federal, state and local laws and
regulations regarding telecommunications providers and cable television
service providers, including the Company. The discussion below will first
summarize the 1996 Telecom Act and then review the pre-existing federal cable
television regulation as revised by the 1996 Telecom Act.
THE TELECOMMUNICATIONS ACT OF 1996
The following is a summary of certain provisions of the 1996 Telecom Act
which could materially affect the growth and operation of the cable television
industry and the cable and telecommunications services provided by the
Company. There are numerous rulemakings to be undertaken by the FCC which will
interpret and implement the provisions discussed below. It is not possible at
this time to predict the outcome of such rulemakings.
Cable Rate Regulation. Rate regulation of the Company's cable television
services ("Regulated Services") is divided between the FCC and local units of
government such as states, counties or municipalities. The FCC's jurisdiction
extends to the cable programming service tier ("CPST"), which consists largely
of satellite-delivered programming (excluding basic tier programming and
programming offered on a per channel or per program basis). Local units of
governments (commonly, referred to as local franchising authorities or "LFAs")
are primarily responsible for regulating rates for the basic tier of cable
service ("BST"), which will typically contain at least the local broadcast
stations and Public Access, Educational and Government ("PEG") channels.
Equipment rates are also regulated by LFAs. The FCC retains appeal
jurisdiction from LFA decisions. Cable services offered on a per channel or
per program only basis remain unregulated.
The 1996 Telecom Act eliminates CPST rate regulation for small cable
operators. If the small cable operator offered only a single tier of basic
service (with no CPST) as of December 31, 1994, that basic service tier would
also be deregulated. The 1996 Telecom Act defines a "small cable operator" as
an operator that directly or through an affiliate serves in the aggregate
fewer than one percent of all subscribers in the United States and is not
affiliated with any entity or entities whose gross annual revenues in the
aggregate exceed $250,000,000. Further, the 1996 Telecom Act provides that the
deregulation for small cable operators will only be applicable in franchise
areas where the operator serves fewer than 50,000 cable subscribers. On April
5, 1996, the FCC issued a Notice of Proposed Rulemaking and adopted interim
rules under which the Company would qualify as a "small cable operator."
Management anticipates that it will qualify as a small cable operator when the
rulemaking is concluded and final rules are issued. Regardless, the Company's
BST rates remain subject to LFA regulation under the 1996 Telecom Act.
Existing law precludes all rate regulation wherever a cable operator faces
"effective competition." The 1996 Telecom Act expands the definition of
effective competition to include any franchise area where a local exchange
carrier (or affiliate) provides video programming services to subscribers by
any means other than through direct broadcast satellite (DBS). There is no
penetration minimum for the local exchange carrier to qualify as an effective
competitor, but it must provide "comparable" programming services in the
franchise area.
Under the 1996 Telecom Act the Company will be allowed to aggregate, on a
franchise, system regional or company level, its equipment costs into broad
categories, such as converter boxes, regardless of the varying levels of
functionality of the equipment within each such broad category. The 1996
Telecom Act will allow the Company to average together costs of different
types of converters (including non-addressable, addressable, and digital). The
statutory changes will also facilitate the rationalizing of equipment rates
across jurisdictional boundaries. These favorable cost-aggregation rules do
not apply to the limited equipment used by "BST-only" subscribers.
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Cable Uniform Rate Requirements. The 1996 Telecom Act immediately relaxes
the "uniform rate" requirements by specifying such requirements do not apply
where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about "predatory"
pricing may be made to the FCC. Upon a prima facie showing that there are
reasonable grounds to believe that the discounted price is predatory, the
cable system operator will have the burden of proving otherwise.
System Sales. The 1996 Telecom Act eliminates the existing three-year
holding requirement with respect to the sale of cable television systems.
Cable System Definition. The 1996 Telecom Act changes the definition of a
"cable system" so that competitive providers of video services will only be
regulated and franchised as a cable system if they use public rights-of-way.
Cable Pole Attachments. Under the 1996 Telecom Act investor-owned utilities
must make poles and conduits available to cable systems under delineated
terms. Electric utilities are given the right to deny access to particular
poles on a nondiscriminatory basis for lack of capacity, safety, reliability,
and generally accepted engineering purposes. The current method for
determining rates charged by telephone and utility companies for cable
delivery of cable and non-cable services will continue for five years.
However, the FCC will establish a new formula for poles used by cable
operators for telecommunications services which will result in higher pole
rental rates for cable operators. Any increases pursuant to this formula may
not begin for 5 years and will be phased in over years 5 through 10 in equal
increments. This new FCC formula does not apply in states which certify they
regulate pole rents. Pole owners must impute pole rentals to themselves if
they offer telecommunications or cable services. Cable operators need not pay
future "makeready" on poles currently contracted if the makeready is required
to accommodate the attachments of another user, including the pole owner.
Cable Entry into Telecommunications. The 1996 Telecom Act declares that no
state or local laws or regulations may prohibit or have the effect of
prohibiting the ability of any entity to provide any interstate or intrastate
telecommunications service. States are authorized to impose "competitively
neutral" requirements regarding universal service, public safety and welfare,
service quality, and consumer protection. The 1996 Telecom Act further
provides that cable operators and affiliates providing telecommunications
services are not required to obtain a separate franchise from LFAs for such
services. The 1996 Telecom Act prohibits LFAs from requiring cable operators
to provide telecommunications service or facilities as a condition of a grant
of a franchise, franchise renewal, or franchise transfer, except that LFAs can
seek "institutional networks" as part of such franchise negotiations.
The 1996 Telecom Act clarifies that traditional cable franchise fees may
only be based on revenues related to the provision of cable television
services. However, when cable operators provide telecommunications services,
LFAs may require reasonable, competitively neutral compensation for management
of the public rights-of-way.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
telephone company-cable cross-ownership ban and the FCC's video dialtone
regulations. This will allow LECs, including the Bell Operating Companies, to
compete with cable operators both inside and outside their telephone service
areas. If an LEC provides video via radio waves, it is subject to Title III
broadcast jurisdiction. If an LEC provides common carrier channel service it
is subject to Title II common carrier jurisdiction. An LEC providing video
programming to subscribers is otherwise regulated as a cable operator
(including franchising, leased access, and customer service requirements),
unless the LEC elects to provide its programming via an "open video system."
LEC owned programming services will also be fully subject to program access
requirements.
The 1996 Telecom Act replaces the FCC's video dialtone rules with an "open
video system" ("OVS") plan by which LECs can provide cable service in their
telephone service area. LECs complying with FCC OVS
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regulations will receive relaxed oversight. The 1996 Telecom Act requires the
FCC to act on any such OVS certification within ten days of its filing. Only
the program access, negative option billing prohibition, subscriber privacy,
EEO, PEG, must-carry and retransmission consent provisions of the
Communications Act of 1934 will apply to LEC provided OVS. Franchising, rate
regulation, consumer service provisions, leased access and equipment
compatibility will not apply. Cable copyright provisions will apply to
programmers, using OVS. LFAs may require OVS operators to pay "franchise fees"
only to the extent that the OVS provider or its affiliates provide cable
services over the OVS. OVS operators will be subject to LFA general right-of-
way management regulations. Such fees may not exceed the franchise fees
charged to cable operators in the area, and the OVS provider may pass through
the fees as a separate subscriber bill item.
The 1996 Telecom Act requires the FCC to adopt, within six months,
regulations prohibiting an OVS operator from discriminating among programmers,
and ensuring that OVS rates, terms, and conditions for service are reasonable
and nondiscriminatory. Further, the FCC is to adopt regulations prohibiting an
LEC-OVS operator, or its affiliates, from occupying more than one third of the
system's activated channels when demand for channels exceeds supply, although
there are no numeric limits. The 1996 Telecom Act also mandates OVS
regulations governing channel sharing; extending the FCC's sports exclusivity,
network non-duplication, and syndex regulations; and controlling the
positioning of programmers on menus and program guides. The 1996 Telecom Act
does not require LECs to use separate subsidiaries to provide incidental
interLATA video or audio programming services to subscribers or for their own
programming ventures.
While there remains a general prohibition on LEC buyouts of cable systems
(any ownership interest exceeding 10 percent), cable operator buyouts of LEC
systems, and joint ventures between cable operators and LECs in the same
market, the 1996 Telecom Act provides exceptions. A rural exemption permits
buyouts where the purchased system serves an area with fewer than 35,000
inhabitants outside an urban area. Where a LEC purchases a cable system, that
system plus any other system in which the LEC has an interest may not serve
10% or more of the LEC's telephone service area. Additional exceptions are
also provided for such buyouts. The 1996 Telecom Act also provides the FCC
with the power to grant waivers of the buyout provisions in cases where (1)
the cable operator or LEC would be subject to undue economic distress; (2) the
system or facilities would not be economically viable; or (3) the
anticompetitive effects of the proposed transaction are clearly outweighed by
the effect of the transaction in meeting community needs. The LFA must approve
any such waiver.
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating
authority. It is anticipated that large utility holding companies will become
significant competitors to both cable television and other telecommunications
providers.
Cross-Ownership; Must Carry. The 1996 Telecom Act eliminates broadcast/cable
cross-ownership restrictions (including broadcast network/cable restrictions),
but leaves in place FCC regulations prohibiting local cross-ownership between
television stations and cable systems. The FCC is empowered by the 1996
Telecom Act to adopt rules to ensure carriage, channel positioning and non-
discriminatory treatment of non-affiliated broadcast stations by cable systems
affiliated with a broadcast network. The satellite master antenna television
and multichannel multipoint distribution system cable cross-ownership
restrictions have been eliminated for cable operators subject to effective
competition.
The 1996 Telecom Act preserves must carry rights for local television
broadcasters, and clarifies that the geographic scope of must carry is to be
based on commercial publications which delineate television markets based on
viewing patterns. The FCC is directed to grant or deny market modification
requests within 120 days of such must carry petition being filed with the FCC.
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Cable Equipment Compatibility, Scrambling Requirements. The 1996 Telecom Act
directs an FCC equipment compatibility rulemaking emphasizing that (1) narrow
technical standards, mandating a minimum degree of common design among
televisions, VCRs, and cable systems, and relying heavily on the open
marketplace, should be pursued; (2) competition for all converter features
unrelated to security descrambling should be maximized; and (3) adopted
standards should not affect unrelated telephone and computer features. The
1996 Telecom Act directs the FCC to adopt regulations which assure the
competitive availability of converters ("navigation devices") from vendors
other than cable operators. The 1996 Telecom Act provides that the FCC's rules
may not impinge upon signal security concerns or theft of service protections.
Waivers will be possible where the cable operator shows the waiver is
necessary for the introduction of new services. Once the equipment market
becomes competitive, FCC regulations in this area will be terminated.
The 1996 Telecom Act requires cable operators, upon subscriber request, to
fully scramble or block at no charge the audio and video portion of any
channel not specifically subscribed to by a household. Further, the 1996
Telecom Act provides that sexually explicit programming must be fully
scrambled or blocked. If the cable operator cannot fully scramble or block its
signal, it must restrict transmission to those hours of the day when children
are unlikely to view the programming. However, on March 7, 1996, a federal
district court temporarily stayed the 1996 Telecom Act scrambling requirements
for sexually explicit programming.
PRE-EXISTING FEDERAL REGULATION
The 1984 and 1992 Cable Acts, both of which amended the 1934 Communications
Act, establish a national policy to guide the development and regulation of
cable television systems. The vast majority of the regulation created by the
1984 and 1992 Cable Acts remains unchanged by the 1996 Telecom Act.
Rate Regulation. Prior to the 1992 Cable Act, most of the Company's cable
systems were free to adjust cable service rates without obtaining local
governmental approval. The 1992 Cable Act authorizes rate regulation for
certain cable communications services and equipment in communities that are
not subject to "effective competition" as statutorily defined. A substantial
number of all cable television systems are now subject to rate regulation for
basic cable service and equipment by local officials under the oversight of
the FCC, which has prescribed detailed guidelines for such rate regulation.
Cities desiring to regulate these rates must certify to the FCC that they
intend to regulate the rates, have the ability to do so and will comply with
the FCC guidelines. The 1992 Cable Act also required the FCC to resolve
complaints about rates for non-basic cable programming services (other than
programming offered on a per channel or per program basis) and to reduce any
such rates found to be unreasonable. As discussed above, the 1996 Telecom Act
eliminates such tier rate regulation for "small cable operators". On April 5,
1996, the FCC issued a Notice of Proposed Rulemaking and adopted interim rules
under which the Company would qualify as a "small cable operator." Management
anticipates that it will qualify as a small cable operator when the rulemaking
is concluded and final rules are issued. Regardless, basic service rate
regulation remains in place. Cable services offered on a per channel (a la
carte) or on a per program (pay-per-view) basis are not subject to rate
regulation by either franchise authorities or the FCC.
On April 1, 1993 the FCC adopted a benchmark methodology as the principal
method of regulating rates for Regulated Services. Cable operators with rates
above the allowable level under the FCC's benchmark methodology may justify
such rates using a cost-of-service methodology. As of September 1, 1993, cable
operators subject to rate regulation whose then current rates were above FCC
benchmark levels were required, absent a successful cost-of-service showing,
to reduce those rates to the benchmark level or by up to 10% of the rates in
effect on September 30, 1992, whichever reduction was less, adjusted for
equipment costs and for inflation and channel modifications occurring
subsequent to September 30, 1992. Effective May 15, 1994, the FCC modified its
benchmark methodology to require reductions of up to 17% of the rates for
Regulated Services in effect on September 30, 1992, adjusted for inflation,
channel modifications, equipment costs and increases in certain operating
costs. The FCC's modified benchmark regulations were designed to cause an
additional 7% reduction in the rates for Regulated Services on top of any rate
reductions implemented under the FCC's initial benchmark regulations.
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The FCC's initial "going-forward" regulations limited rate increases for
Regulated Services to an inflation-indexed amount plus increases for channel
additions and certain external costs beyond the cable operator's control, such
as franchise fees, taxes and increased programming costs. Under these
regulations, cable operators are entitled to take a 7.5% markup on certain
programming cost increases. On November 10, 1994, the FCC modified these
regulations and instituted a three-year flat fee markup for changes relating
to new channels added to the cable programming service tier. As of January 1,
1995, cable operators may charge subscribers for channels added to the cable
programming service tier after May 14, 1994 at a monthly rate of up to $.20
per added channel, but may not make adjustments to monthly rates totaling more
than $1.20 plus an additional $.30 for programming license fees per subscriber
over the first two years of the three-year period. Cable operators may charge
an additional $.20 plus the cost of the programming in the third year (1997)
for one additional channel added in that year. Operators must make a one-time
election to use either the $.20 per channel adjustment or the 7.5% markup on
programming cost increases for all channels added after December 31, 1994,
until December 31, 1996, after which time the 7.5% mark-up would not be
available on increases in programming costs for added channels. The FCC is
currently considering whether to modify or eliminate the regulation allowing
operators to receive the 7.5% markup on increases in existing programming
license fees.
In September 1995, the FCC adopted procedures that also permit cable
operators to increase rates to cover the costs of significant capital
expenditures for system upgrades in certain circumstances.
On November 10, 1994, the FCC adopted regulations permitting cable operators
to create new product tiers ("NPT") that will not be subject to rate
regulation if certain conditions are met. These conditions require that the
NPT be made up of channels not previously carried on the cable system, that
the NPT must be affirmatively marketed to subscribers and that the fundamental
nature of the basic and cable programming service tiers not be changed by the
cable operator desiring to implement the NPT service. The FCC also revised its
previously adopted policy and concluded that packages of a la carte services
are subject to rate regulation by the FCC as cable programming service tiers.
Because of the uncertainty created by the FCC's prior a la carte package
guidelines, the FCC allowed cable operators, under certain circumstances, to
treat previously offered a la carte packages as NPT services.
Franchise authorities are empowered to regulate the rates charged for
additional outlets and for the installation, lease and sale of equipment used
by subscribers to receive the basic service tier, such as converter boxes and
remote control units. The FCC's rules require franchise authorities to
regulate these rates on the basis of actual cost plus a reasonable profit as
defined by the FCC. Cable operators required to reduce rates may also be
required to refund overcharges with interest.
Rate reductions are not required where a cable operator can demonstrate that
rates for Regulated Services are justified and reasonable using benchmark or
cost-of-service guidelines. On November 24, 1993, the FCC ruled that operators
choosing to justify above-benchmark rates through a cost-of-service submission
must do so for all Regulated Services. On February 22, 1994, the FCC adopted
interim cost-of-service regulations establishing, among other things, an
industry-wide 11.25% after tax rate of return on an operator's allowable rate
base and a rebuttable presumption that acquisition costs above original
historic book value of tangible assets should be excluded from the allowable
rate base. On December 15, 1995, the FCC adopted final cost of service rules
that are generally more favorable to cable operators than the interim rules in
the area of calculation of rate base, among others.
The Company believes that it has materially complied with provisions of the
1992 Cable Act, including its rate setting provisions promulgated by the FCC
on April 1, 1993. However, in jurisdictions which have chosen not to certify,
refunds covering a one-year period on basic service may be ordered if the
Company is regulated at a later date and is unable to justify its rates
through a benchmark or cost-of-service filing. The amount of refunds, if any,
which may be payable by the Company in the event that these systems' rates are
successfully challenged by franchise authorities is not currently estimable.
During the years ended December 31, 1994 and 1995, the Company paid total
cumulative rate refunds of approximately $4,000 and $0, respectively, to its
cable subscribers as a result of rate orders issued by one franchise
authority. Additional rate proceedings are pending before local
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franchise authorities, which could result in additional refunds to
subscribers. Additionally, there are rate complaints currently pending at the
FCC concerning certain of the Company's cable programming service tiers. The
Company has filed cost-of-service showings supporting the tier rates charged
in those systems where tier rate complaints were filed with the FCC. If the
FCC determines that the Company's cable programming service tier rates are
unreasonable, it has the authority to order the Company to reduce such rates
and to refund to subscribers any overcharges occurring from the filing date of
the rate complaint at the FCC. In addition, in some cases the FCC has entered
into "social contracts" with cable operators to provide an alternative
resolution of pending rate complaints based on the cable operator agreeing to
refunds for subscribers, some future rate restrictions and other commitments
by the cable operator.
On June 5, 1995 the FCC issued a new order concerning small systems. In the
Order, the FCC amended its definition of small cable entities to encompass a
broader range of cable systems that are eligible for special rate and
administrative treatment. Specifically, the FCC amended its definitions so
that systems serving 15,000 or fewer subscribers that are owned by small cable
companies of 400,000 or fewer subscribers are eligible to elect small system
cost-of-service relief.
In conjunction with the new definitions, the FCC developed a new, simplified
cost-of-service form, Form 1230, that involves a very simple, five element
calculation based on a system's costs. The elements include: total operating
expenses, net rate base, rate of return, channel count and subscribers. These
five elements are used in a relatively uncomplicated computation on the Form
1230 to generate a per channel rate that will be presumed reasonable if it is
no more than $1.24 per channel. To disapprove such a rate, the franchise
authority will have the burden of showing that the cable operator did not
reasonably interpret and allocate its cost and expense data in determining the
operating expense, net rate base, and rate of return figures claimed by the
operator in calculating its permitted rate. This new optional mechanism
replaces most other forms, used to compute rates, that have been previously
filed or will be required if a system becomes regulated in the future.
Because all but two of the Systems meet both of the small system criteria
outlined above, the Company has elected to justify its rates based on the new
Form 1230. The exceptions are the Company's Northeast Gwinnett, Georgia and
Columbia, Tennessee systems, representing approximately 29% of the total basic
subscribers in the Systems as of December 31, 1995. Rate proceedings remain
pending with respect to such systems which could result in additional refunds
as described above. In the small systems that are currently regulated, the
Company's rates are all below its maximum permitted rates as calculated by the
new mechanism mentioned above, assuming the FCC approves the Company's Form
1230 filings. Also, because the Company's requested maximum permitted rates
are all below $1.24 per channel, it must be presumed, by the regulating
entity, that its current rates are reasonable, assuming the FCC approves the
Company's Form 1230 filings. Also, the Company has not, during the applicable
period of rate regulation, charged rates higher than its current rates.
Therefore, assuming the FCC approves the Company's Form 1230 filings, it must
also be presumed that during the time period that the Company's rates in small
systems have been subject to regulations, its rates have not, at any time,
exceeded a reasonable level. The Company has applied to the FCC for
characterization of the Columbia system as a small system, and such
application is currently pending. The Company is unable to predict the timing
or outcome of such application.
In June 1995, a federal appellate court generally upheld the lawfulness of
the FCC's benchmark methodology. The Company cannot predict at this time the
final outcome of the pending FCC rulemakings, the recent legislation or the
impact of any adverse judicial or administrative decisions on the Company's
systems or business.
"ANTI-BUY THROUGH" PROVISIONS
The 1992 Cable Act also requires cable systems to permit subscribers to
purchase video programming offered by the operator on a per channel or a per
program basis without the necessity of subscribing to any tier of service,
other than the basic service tier, unless the system's lack of addressable
converter boxes or other technological limitations does not permit it to do
so. The statutory exemption for cable systems that do not have
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the technological capability to offer programming in the manner required by
the statute is available until a system obtains such capability, but not later
than December 2002. The upgrades that would be required for cable systems to
obtain such capability, depending upon the systems' technical configuration,
may involve substantial expenditures. The FCC may waive such time periods, if
deemed necessary. Most of the Company's cable systems do not have the
technological capability to offer programming in the manner required by the
statute and currently are exempt from complying with the requirement.
MUST CARRY/RETRANSMISSION CONSENT
The 1992 Cable Act contains broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years to require a cable system to carry the station, subject to certain
exceptions, or to attempt to negotiate for payments from the cable operator
for "retransmission consent" to carry the station. A television station for
which retransmission consent is required may refuse to grant such consent or
may require substantial payments or other concessions by the cable operator in
exchange for granting consent for carriage on the cable system. The deletion
of a network or other popular broadcast station for which retransmission
consent is not obtained could result in a loss of cable subscribers. A cable
system generally is required to devote up to one-third of its activated
channel capacity for the mandatory carriage of local commercial television
stations. Local non-commercial television stations are also given mandatory
carriage rights; however, such stations are not given the option to negotiate
retransmission consent for the carriage of their signals by cable systems.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for commercial satellite-
delivered independent "superstations" such as WTBS), commercial radio stations
and certain low power television stations carried by such systems after
October 6, 1993. On April 8, 1993, a special three-judge federal district
court issued a decision upholding the constitutional validity of the mandatory
signal carriage requirements. In June 1994, the United States Supreme Court
vacated this decision and remanded it to the district court to determine,
among other matters, whether the statutory carriage requirements are necessary
to preserve the economic viability of the broadcast industry. In December 1995
the district court upheld the constitutionality of the must-carry rules and
the case has again been appealed to the Supreme Court and accepted for review.
As a result of the mandatory carriage rules, some of the Company's systems
have been required to carry television broadcast stations that otherwise would
not have been carried and have caused displacement of possibly more attractive
programming. The retransmission consent rules have resulted in the deletion of
certain local and distant television broadcast stations which various
Company's systems were carrying. To the extent retransmission consent fees
must be paid for the continued carriage of certain television stations, the
Company's cost of doing business will increase, and although the FCC's current
Going Forward Rules allow for pass-through of such increases, there can be no
assurance that such fees can be recovered through rate increases.
DESIGNATED CHANNELS
The 1984 and 1992 Cable Acts permit franchise authorities to require cable
operators to set aside certain channels for public, educational and
governmental access programming. The 1984 and 1992 Cable Acts also require a
cable system with 36 or more channels to designate a portion of its channel
capacity (up to 15% in some cases) for commercial leased access by third
parties to provide programming that may compete with services offered by the
cable operator. The FCC has adopted rules regulating the terms, conditions and
maximum reasonable rate a cable operator may charge for commercial use of the
designated channel capacity. Such rules are currently under reconsideration at
the FCC and revisions could make leased access a more attractive option for
third-party programmers.
FRANCHISE PROCEDURES
The 1984 Cable Act affirms the right of franchise authorities (state or
local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions and prohibits non-grandfathered cable
systems from operating without a franchise in such jurisdictions. The 1992
Cable Act encourages competition
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with existing cable systems by (i) allowing municipalities to operate their
own cable systems without franchises; (ii) preventing franchise authorities
from granting exclusive franchises or from unreasonably refusing to award
additional franchises covering an existing cable system's service area; and
(iii) prohibiting (with limited exceptions) the common ownership of cable
systems and co-located MMDS or SMATV systems. In January 1995 the FCC adopted
regulations which permit cable operators to own and operate SMATV systems
within their franchise area, provided that such operation is consistent with
local cable franchise requirements. The 1984 Cable Act also provides that in
granting or renewing franchises, local authorities may establish requirements
for cable-related facilities and equipment, but not for video programming or
information services other than in broad categories. Among the more
significant provisions of the 1984 Cable Act is a limitation on the payment of
franchise fees to 5% of cable system revenues and the opportunity for the
cable operator to obtain modification of franchise requirements by the
franchise authority or judicial action if warranted by changed circumstances.
The Company's franchises typically provide for payment of fees to franchise
authorities in the range of 3% to 5% of "revenues" (as defined by each
franchise agreement). In addition to such franchise fees, cable operators are
subject to other fees payable to local franchise authorities and other
governmental entities including, for example, payments to support public,
educational and governmental access channels, FCC regulatory fees, and various
taxes which some government entities have imposed on cable operators.
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act makes
certain changes to the renewal process which could make it easier for a
franchise authority to deny renewal. Moreover, even if the franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. The Company believes that it has generally met the terms of its
franchises and has provided quality levels of service, and it anticipates that
its future franchise renewal prospects generally will be favorable.
Various courts have considered whether franchise authorities have the legal
right to limit franchise awards to a single cable operator and to impose
certain substantive franchise requirements (i.e., access channels, universal
service and other technical requirements). These decisions have been somewhat
inconsistent and, until the United States Supreme Court rules definitively on
the scope of cable operators' First Amendment rights, the legality of the
franchising process, generally, and of various specific franchise requirements
is likely to be in a state of flux.
OWNERSHIP LIMITATIONS
As described above, the 1996 Telecom Act substantially revises the cable
broadcast cross-ownership rules. Additionally, the 1992 Cable Act permits
state or local franchising authorities to adopt certain restrictions on the
ownership of cable systems. Pursuant to the 1992 Cable Act, the FCC adopted
rules prescribing national subscriber limits and limits on the number of
channels that can be occupied on a cable system by a video programmer in which
the cable operator has an attributable interest.
POLE ATTACHMENT
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities can demonstrate that they
adequately regulate pole attachment rates. In the absence of state regulation,
the FCC administers pole attachment rates through the use of a formula that it
has devised. In some cases, utility companies have increased pole attachment
fees for cable systems that have installed fiber optic cables and that are
using such cables for the distribution of non-video services. The FCC
concluded that, in the absence of state regulation, it has jurisdiction to
determine whether utility companies have justified their demand for additional
rental fees. As described above,
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the 1996 Telecom Act will impose requirements that in five years could
substantially increase cable operators' pole attachment rates.
OTHER STATUTORY PROVISIONS
The 1992 Cable Act also precludes video programmers affiliated with cable
companies from favoring cable operators over competitors and requires such
programmers to sell their programming to other multichannel video
distributors. This provision limits the ability of cable program suppliers
affiliated with cable companies to offer exclusive programming arrangements to
cable companies. The Communications Act also includes provisions, among
others, concerning horizontal and vertical ownership of cable systems,
subscriber service, subscriber privacy, commercial leased access channels,
marketing practices, equal employment opportunity, franchise renewal and
transfer, award of franchises, obscene or indecent programming and regulation
of technical standards and equipment compatibility. The FCC has adopted
regulations implementing many of these new statutory provisions.
The 1984 and 1992 Cable Acts as well as FCC regulations include significant
equal employment opportunity requirements for cable operators. Cable operators
are required to establish an EEO program directed against discrimination on
the basis of age, race, color, religion, national origin or sex. Cable
operators are required to file annual EEO reports with the FCC and the FCC is
required to certify cable operators' compliance with the EEO requirements each
year. Failure of a cable operator to comply with EEO requirements can result
in substantial sanctions and penalties.
OTHER FCC REGULATIONS
In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as equal employment opportunity, syndicated
program exclusivity, network program non-duplication, registration of cable
systems, maintenance of various records and public inspection files, microwave
frequency usage, lockbox availability, origination cablecasting and
sponsorship identification, antenna structure notification, marking and
lighting, carriage of local sports programming, rules governing political
broadcasts, limitations on advertising contained in non-broadcast children's
programming, consumer protection and subscriber service, leased commercial
access, ownership of home wiring, indecent programming, programmer access to
cable systems, programming agreements, technical standards, consumer
electronics equipment compatibility and DBS implementation. The FCC has the
authority to enforce its 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.
The 1992 Cable Act and the FCC's rules implementing it generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local franchise authorities. The Company will continue to develop strategies
to minimize the adverse impact of the FCC's regulations and the other
provisions of the 1992 Cable Act on the Company's business. However, no
assurances can be given that the Company will be able to develop and
successfully implement such strategies to minimize the adverse impact of the
FCC's rate regulations or the 1992 Cable Act on the Company's business.
COPYRIGHT
Cable television systems are subject to federal copyright licensing covering
carriage of television and radio broadcast signals. In exchange for filing
certain reports and contributing a percentage of their revenues to a federal
copyright royalty pool, cable operators can obtain blanket permission to
retransmit copyrighted material on broadcast signals. The nature and amount of
future payments for broadcast signal carriage cannot be predicted at this
time. The possible simplification, modification or elimination of the
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect the Company's ability to obtain suitable programming
and could substantially
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increase the cost of programming that remained available for distribution to
the Company's subscribers. The Company cannot predict the outcome of this
legislative activity. In addition, the cable industry has been involved in
licensing disputes with music licensing organizations, the resolution of which
will result in increased payments by cable operators for music licensing fees.
STATE AND LOCAL REGULATION
Cable systems are subject to state and local regulation, typically imposed
through the franchising process because a cable television system uses local
streets and rights-of-way. Regulatory responsibility for essentially local
aspects of the cable business such as franchisee selection, billing practices,
system design and construction, and safety and consumer protection remains
with either state or local officials and, in some jurisdictions, with both.
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 franchisee fails to comply with material
provisions. Non-compliance by the cable operator with franchise provisions may
also result in monetary penalties. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally
contains provisions governing cable service rates, franchise fees, franchise
term, system construction and maintenance obligations, system channel
capacity, design and technical performance, customer service standards,
franchise renewal, sale or transfer of the franchise, territory of the
franchisee, indemnification of the franchising authority, use and occupancy of
public streets and types of cable services provided. A number of states
subject 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. Attempts in other states to regulate cable
television systems are continuing and can be expected to increase.
The foregoing does not purport to describe all present and proposed federal,
state and local regulations and legislation affecting the cable industry.
Other existing federal regulations, copyright licensing, and, in many
jurisdictions, state and local franchise requirements, are currently the
subject 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 the impact on the cable communications industry or the Company
can be predicted at this time.
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MANAGEMENT
GENERAL PARTNER
The General Partner of the Partnership is Rifkin Acquisition Management,
L.P., a Colorado limited partnership that is controlled by Monroe M. Rifkin.
As General Partner, it has responsibility for the overall management of the
business and operations of the Company. The Company has entered into a
Management Agreement with Rifkin & Associates. See "Management--Rifkin &
Associates."
ADVISORY COMMITTEE
The Advisory Committee of the Partnership consults with and advises the
General Partner with respect to the business and affairs of the Company and
any subsidiary thereof. Without the prior approval of the Advisory Committee,
the General Partner cannot amend the Company's budget in any material respect,
materially increase capital expenditures in any fiscal year, amend or waive
any provision of the Management Agreement, or adopt or amend the management
incentive plan provided for by the Partnership Agreement. The Advisory
Committee consists of one designee of the General Partner, three designees of
VS&A, two designees of Greenwich Street Capital Partners, one designee of IEP
Holdings I LLC and one designee of PaineWebber Capital, Inc. Members of the
Advisory Committee are not compensated for their services, but are reimbursed
for all reasonable out-of-pocket expenses incurred by them in performing
services relating to the Company. The members of the Advisory Committee are
Monroe M. Rifkin, Jeffrey T. Stevenson, S. Gerard Benford, John S. Suhler,
Nicholas E. Somers, Alfred C. Eckert III, David H. Morse and Dhananjay Pai.
The Advisory Committee has adopted a policy of having Mr. Rifkin abstain from
any Advisory Committee votes that may present a conflict of interest between
Mr. Rifkin and the Company. In addition, the Partnership Agreement requires
that Mr. Rifkin first present to the Partnership any acquisition opportunities
of cable television systems that are similar and reasonably contiguous to the
Companys' Systems. See "Risk Factors--Conflicts of Interest; Affiliate
Transactions" and "The Partnership Agreement--Investment Opportunities."
EXECUTIVE COMPENSATION
General. No employee of the Company is an executive officer of the Company.
Services of the executive officers and other employees of Rifkin & Associates
are provided to the Company, and the Company pays Rifkin & Associates a fee
pursuant to the Management Agreement for such services. The executive officers
and other employees of Rifkin & Associates who provide services to the Company
are compensated in their capacity as executive officers of Rifkin & Associates
and therefore receive no compensation from the Company except as provided by
the Equity Incentive Plan described below. Rifkin & Associates engages in
certain management services for other affiliates of Monroe M. Rifkin. No
portion of the management fee paid by the Company is allocated to specific
employees for the services performed by Rifkin & Associates for the Company.
The general partner of the Company receives no compensation for its services
to the Company in such capacity. See "Certain Relationships and Related
Transactions--Management Agreement with Rifkin & Associates."
Equity Incentive Plan. Certain of Rifkin & Associates' executive officers
and certain key employees of the Company, upon approval by the Advisory
Committee, are eligible to participate in the Company's Equity Incentive Plan
(the "Plan"). Plan participants in the aggregate, have the right to receive
(i) cash payments of up to 2.0% of the aggregate value of all partnership
interests of the Company (the "Maximum Incentive Percentage"), based upon the
achievement of certain annual Operating Cash Flow (as defined in the Plan)
targets for the Company for each of the calendar years 1996 through 2000, and
(ii) an additional cash payment equal to up to 0.5% of the aggregate value of
all partnership interests of the Company (the "Additional Incentive
Percentage"), based upon the achievement of certain cumulative Operating Cash
Flow targets for the Company for the five-year period ended December 31, 2000.
Subject to the achievement of such annual targets and the satisfaction of
certain other criteria based on the Company's operating performance, up to 20%
of the Maximum Incentive Percentage will vest in each such year; provided,
that in certain events vesting may accelerate. Payments under the Plan are
subject to certain restrictive covenants contained in the Notes. See
"Description of Exchange Notes."
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No amounts are payable under the Plan except upon (i) the sale of
substantially all of the assets or partnership interests of the Company or
(ii) termination of a Plan participant's employment with Rifkin & Associates
or the Company, as applicable, due to (a) the decision of the Advisory
Committee to terminate such participant's employment due to disability, (b)
the retirement of such participant with the Advisory Committee's approval or
(c) the death of such Participant. The value of amounts payable pursuant to
clause (i) above will be based upon the aggregate net proceeds received by the
holders of all of the partnership interests in the Company, as determined by
the Advisory Committee, and the amounts payable pursuant to clause (ii) above
will be based upon the Enterprise Value determined at the time of such
payment. For purposes of the Plan, Enterprise Value generally is defined as
Operating Cash Flow for the immediately preceding calendar year times a
specified multiple and adjusted based on the Company's working capital.
RIFKIN & ASSOCIATES
The Company has entered into a Management Agreement with Rifkin & Associates
with respect to the day-to-day management and operation of the Company's cable
television systems. The principal offices of Rifkin & Associates are located
at 360 South Monroe Street, Suite 600, Denver, Colorado, 80209, and the
telephone number is (303) 333-1215.
RACC
RACC does not have any operations, and accordingly does not have any
management personnel other than its corporate officers.
DIRECTOR AND EXECUTIVE OFFICERS OF RIFKIN & ASSOCIATES; ADVISORY COMMITTEE OF
THE COMPANY
Monroe M. Rifkin is the sole director of Rifkin & Associates. The executive
officers of Rifkin & Associates and the members of the Advisory Committee are
listed below.
RIFKIN & ASSOCIATES
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Monroe M. Rifkin........ 65 Director, Chairman and Chief Executive Officer
Jeffrey D. Bennis....... 38 President and Chief Operating Officer
Charles R. Morris III... 49 Vice President
Stephen E. Hattrup...... 43 Senior Vice President--Operations
Dale D. Wagner.......... 46 Senior Vice President--Finance and Administration
Paul A. Bambei.......... 41 Vice President--Operations
Suzanne M. Cyman........ 36 Vice President--Marketing/Programming
Kathryn L. Hale......... 46 Vice President--Controller
Catherine G. Hicks...... 39 Vice President--Tax
Bruce A. Rifkin......... 38 Vice President--Operations and Advertising Sales
Peter N. Smith.......... 46 Vice President--Engineering
Jeffrey P. Kramp........ 38 Managing Director, International Division
ADVISORY COMMITTEE
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
S. Gerard Benford....... 57
Alfred C. Eckert III.... 48
David H. Morse.......... 34
Dhananjay Pai........... 33
Monroe M. Rifkin........ 65
Nicholas E. Somers...... 33
Jeffrey T. Stevenson.... 35
John S. Suhler.......... 52
</TABLE>
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EXECUTIVE OFFICERS
Monroe M. Rifkin is a cable television industry executive with over 30 years
of industry experience. He founded Rifkin & Associates in 1982 and has served
as its Chairman and Chief Executive Officer since that time. Prior to that, he
founded American Television and Communications Corporation ("ATC") in 1968 and
served as its Chief Executive Officer from 1968 to 1982 and as its Chairman
from 1974 to 1982. Mr. Rifkin served as a board member of the National Cable
Television Association from 1968 to 1984 and as its Chairman from 1983 to
1984.
Jeffrey D. Bennis has been President and Chief Operating Officer of Rifkin &
Associates since April 1994. Prior thereto, Mr. Bennis served as Vice
President--Marketing/Programming of Rifkin & Associates from July 1991 to
March 1994. Mr. Bennis was elected to the boards of directors of National
Cable Television Association and C-Span in May 1995. Prior to joining Rifkin &
Associates, Mr. Bennis was with Clairol Inc., a subsidiary of Bristol-Myers
Squibb Company, from June 1980 to June 1991, where he most recently served as
Director of Marketing for the Hair Care and Skin Care Divisions. Mr. Bennis is
the son-in-law of Monroe M. Rifkin.
Charles R. Morris III has been Vice President of Rifkin & Associates since
1983. Mr. Morris became President of Rifkin Enterprises, the development
division of Rifkin & Associates, in 1985. Prior to joining Rifkin &
Associates, Mr. Morris was employed by ATC from 1974 to 1982 in various
capacities, including Senior Vice President--Corporate Development.
Stephen E. Hattrup has been Senior Vice President--Operations of Rifkin &
Associates since May 1994. He joined Rifkin & Associates in September 1988 as
Vice President--Operations and served in that position until May 1994. Prior
to joining Rifkin & Associates, Mr. Hattrup was employed by ATC from 1982 to
1988 in various positions, including Vice President and Treasurer.
Dale D. Wagner is Senior Vice President--Finance and Administration of
Rifkin & Associates, a position he has held since May 1994. From January 1986
until May 1994, Mr. Wagner was Vice President--Finance of Rifkin & Associates.
Prior to joining Rifkin & Associates, Mr. Wagner was employed by ATC from 1981
to 1986 in various positions including Vice President--Finance and
Administration for ATC's National Division. Prior to joining ATC, Mr. Wagner
was employed by Cable Com-General, Inc. in various capacities, including Vice
President--Finance for that company's cable television division.
Paul A. Bambei has served as Vice President--Operations of Rifkin &
Associates since January 1987. Mr. Bambei was Vice President--Marketing of
Rifkin & Associates from March 1984 until December 1986. Prior to joining
Rifkin & Associates, Mr. Bambei was employed by ATC from 1974 to 1984 in
various capacities in marketing and operations.
Suzanne Cyman has been Vice President--Marketing/Programming of Rifkin &
Associates since July 1994. Prior thereto, Ms. Cyman held positions as Vice
President--Marketing at Vista Cablevision from May 1988 until September 1992
and Fanch Communications from September 1992 until December 1994.
Kathryn L. Hale is Vice President--Controller of Rifkin & Associates, a
position she has held since July 1991. Prior thereto, Ms. Hale was the
Controller of Rifkin & Associates from March 1986 to July 1991. Prior to
joining Rifkin & Associates, Ms. Hale was employed by ATC in various financial
management positions from 1981 to 1986.
Catherine G. Hicks has been Vice President--Tax of Rifkin & Associates since
July 1991. Prior thereto, Ms. Hicks served as Director--Tax from October 1985
to July 1991.
Bruce A. Rifkin is Vice President--Operations and Advertising Sales, a
position he has held since January 1994. Mr. Rifkin joined Rifkin & Associates
in 1988 as Director--Advertising Sales. Prior to joining Rifkin & Associates,
Mr. Rifkin was employed in commercial real estate management and development.
Bruce A. Rifkin is a son of Monroe M. Rifkin.
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Peter N. Smith has served as Vice President--Engineering of Rifkin &
Associates since March 1984. Prior to joining the Company, Mr. Smith was
employed by ATC from 1973 to 1984 in various engineering capacities, including
Vice President--Engineering of the National Division.
Jeffrey P. Kramp has served as Managing Director of Rifkin & Associates'
International Division since May 1995 and as President and Chief Executive
Officer of InterComm Holdings, L.L.C., a Rifkin & Associates international
affiliate, since October 1995. Prior to joining Rifkin & Associates in May
1995, Mr. Kramp served as President of The Windom Group, Inc., a company he
founded which offered investment banking and consulting services to the
telecommunications industry. From 1989 to 1993, Mr. Kramp served as President
and Chief Operating Officer of Vista Cablevision, Inc.
ADVISORY COMMITTEE
S. Gerard Benford has served as Executive Vice President of VS&A
Communications Partners, L.P. since 1990. Since November 1994, Mr. Benford has
also been Executive Vice President of VS&A Communications Partners II, L.P.
and General Partner of VS&A Equities II L.P. Mr. Benford has been Vice
President of VS&A RAP, Inc. since August 1995.
Alfred C. Eckert III has served as President of Greenwich Street Capital
Partners, Inc. since January 1994. Since 1991, Mr. Eckert has been a general
partner of Greycliff Partners. From 1984 to 1991, Mr. Eckert was a general
partner of Goldman, Sachs & Co.
David H. Morse has been employed by ING Equity Partners, L.P., I, the parent
organization of IEP Holdings I LLC, or its predecessors and their affiliates
since 1993 and currently serves as Partner responsible for originating,
structuring and managing equity and debt investments. From August 1989 to
February 1993, Mr. Morse worked in the Corporate Finance Group of General
Electric Capital Corporation most recently as a Vice President. From 1984
through 1987, Mr. Morse worked at Chemical Bank in New York City most recently
as Assistant Treasurer. Mr. Morse also serves as a director of Reid Plastics,
Inc.
Dhananjay M. Pai is President of PaineWebber Capital Inc., which is a
principal investment affiliate of PaineWebber Incorporated. Mr. Pai is also a
First Vice President of PaineWebber Incorporated. Before joining PaineWebber
in April 1990, Mr. Pai was a Vice President in the Mergers and Acquisitions
Department at Drexel Burnham Lambert Inc.
Nicholas E. Somers has served as a Managing Director of Greenwich Street
Capital Partners, Inc. since December 1993. Mr. Somers worked at Smith Barney
in the Investment Banking Division from June 1993 to December 1993. Prior to
that, he spent five years at Morgan Stanley in the Mergers & Acquisitions and
Corporate Finance Departments from June 1988 to June 1993.
Jeffrey T. Stevenson has been the President of VS&A Communications Partners,
L.P. since 1989. Since November 1994 he has served as President of VS&A
Communications Partners II, L.P. and General Partner of VS&A Equities II, L.P.
Mr. Stevenson has been President of VS&A RAP, Inc. since August 1995.
John S. Suhler has been the President and Co-Chief Executive Officer of
Veronis, Suhler & Associates Inc. since October 1981. He has served as a
General Partner of VS&A Equities, L.P. since March 1987. VS&A Equities, L.P.
is the general partner of VS&A Communications, L.P. Mr. Suhler is also a
founding General Partner of VS&A Equities II, L.P., a position he has held
since November 1994. VS&A Equities II, L.P. is the general partner of VS&A
Communications Partners II, L.P.
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PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information, as of March 31, 1996,
concerning the beneficial ownership of partnership interests in the Company
owned by each person known by the Company to own beneficially more than five
percent interests and by the executive officers of Rifkin & Associates as a
group. It is anticipated that such percentages may change as a result of the
contributions of the New Equity.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNERS PERCENTAGE
-------------------- ----------
<S> <C>
VS&A Communications Partners II, L.P......................... 28.7(1)
350 Park Avenue
New York, NY 10022
Greenwich Street (RAP) Partners I, L.P....................... 27.5
388 Greenwich Street
New York, NY 10003
IEP Holdings I LLC........................................... 22.0
135 E. 57th Street
New York, NY 10002
PaineWebber Capital, Inc..................................... 11.0
1285 Avenue of the Americas
New York, NY 10019
Monroe M. Rifkin............................................. 8.0(2)
360 S. Monroe Street
Denver, CO 80209
Other executive officers of Rifkin & Associates as a group (5 2.4
persons)....................................................
</TABLE>
- --------
(1) Includes a 0.4% interest held by VS&A RAP, Inc., a wholly-owned subsidiary
of VS&A Communications Partners II, L.P.
(2) Includes a 7.0% limited partnership interest held by Mr. Rifkin and the
Rifkin Trusts. Mr. Rifkin is a co-trustee of such trusts and exercises
shared voting power with respect to the interests held therein. Also
includes a 1.0% general partnership interest held by the General Partner.
The beneficial ownership of such interest is attributed to Mr. Rifkin by
virtue of his ownership of 80% of the voting stock of the general partner
of the General Partner.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT WITH RIFKIN & ASSOCIATES
Rifkin & Associates manages the Company's cable systems pursuant to the
Management Agreement among the Company, Rifkin Tennessee Ltd., Cable Equities
of Colorado, Ltd. (collectively, the "Owners") and Rifkin & Associates, as
manager. Rifkin & Associates serves as the central manager for the Owners and
provides, among other services, operational management direction; accounting;
monthly revenue collection and bill payment; programming negotiation and
related services; marketing and public relations assistance; engineering
assistance; and strategic planning. Under the terms of the Management
Agreement, the Company pays an annual management fee to Rifkin & Associates
equal to 3.5% of the Company's gross revenues and reimburses certain costs.
The Company has established a $1 million escrow account for the payment of any
management fees to Rifkin & Associates in the event that payment of management
fees would otherwise be prohibited by the Amended and Restated Credit
Agreement or any other loan agreement of the Company or any subsidiary. The
aggregate management fees paid by the Company to Rifkin & Associates for the
years ended December 31, 1995, 1994 and 1993 were $1.8 million, $2.2 million
and $2.1 million, respectively. In addition, the Company accrued but did not
pay $483,000 of management fees during the same period that were prohibited by
certain provisions of the Company's prior credit facility. Pursuant to the
Partnership Agreement, the Company is required to pay such accrued management
fees to Rifkin & Associates in 24 equal monthly installments. These
installments commenced on October 1, 1995. Neither Rifkin & Associates nor any
of its affiliated entities may compete with the Company in offering cable
television or competing services in any geographic area in which the Company
holds a cable television franchise or operates a cable television system.
The Management Agreement will continue in effect with respect to each cable
television system owned by the Company, including the Mid-Tennessee Systems
and the RCT Systems, for the duration of the Company's cable television
franchise for that system and any extension or renewal of such franchise,
unless earlier terminated. The Management Agreement may be terminated by the
Owners if the General Partner is removed pursuant to the Partnership Agreement
as a result of Mr. Rifkin's death or disability or his failure to serve as
Chief Executive Officer or exercise active control over day-to-day operations
of the General Partner or the Company, provided, however, that the Management
Agreement may not be terminated prior to September 1, 2000 if such removal is
the result of Mr. Rifkin's death or disability. If the Management Agreement is
terminated other than as a result of the removal of the General Partner as
described above (other than as a result of Mr. Rifkin's death or disability),
or for cause (if Rifkin & Associates takes action which causes substantial
detriment to the cable systems), then the Company is obligated to make a
severance payment of $500,000 to Rifkin & Associates.
SERVICES TO BE RENDERED BY VS&A
Pursuant to the Partnership Agreement and subject to the approval of the
Advisory Committee, VS&A will provide management and media industry advisory
services to the Company from time to time with respect to debt and equity
funding and the evaluation of potential acquisitions. VS&A will be paid
reasonable compensation not to exceed $50,000 in any year in consideration for
such services and is reimbursed for all reasonable out-of-pocket expenses
incurred by it in connection therewith. No amounts were paid pursuant to this
provision during 1995.
SENIOR SUBORDINATED DEBT HELD BY MONROE M. RIFKIN
Until January 1996, the Company had outstanding senior subordinated debt
(the "Old Rifkin Note") of $3 million payable to Monroe M. Rifkin, Chairman
and Chief Executive Officer of Rifkin & Associates. Aggregate interest
payments made by the Company in respect of the Old Rifkin Note were $200,000
and $364,000 in 1994 and 1995, respectively. On January 26, 1996, in
connection with the Old Notes Offering, the Company amended and restated the
Old Rifkin Note and issued a new Note to Mr. Rifkin (the "New Rifkin Note").
The New Rifkin Note bears a rate of interest and has a scheduled maturity
identical to that of the Exchange Notes and ranks pari passu with the Notes.
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The New Rifkin Note contains no covenants other than the obligation to pay
principal and interest thereon. Events of default under the New Rifkin Note
are limited to the failure to pay principal and interest thereunder, and a
right to accelerate the Rifkin Note upon an acceleration of the Notes. Any
rescission of acceleration by the Trustee or the holders of the Notes operates
to rescind acceleration of the New Rifkin Note provided that there is no then
existing payment default under the Rifkin Note. In the event of any
redemption, defeasance or other retirement for value of the Notes or any
portion thereof prior to their scheduled maturity, Mr. Rifkin shall have the
right to require the Company to redeem, defease or retire the New Rifkin Note
to the same extent as the Notes, subject to the limitations in the Indenture
regarding restricted payments. See "Description of Exchange Notes--Covenants."
Except for any redemption, repurchase or retirement of the New Rifkin Note
by the Company as described above, Mr. Rifkin has agreed for as long as any
Notes are outstanding not to sell, transfer, pledge, hypothecate, encumber, or
otherwise dispose of the New Rifkin Note, provided that Mr. Rifkin may
transfer the New Rifkin Note to any trust controlled by him or any corporation
wholly and directly owned by him.
SUBORDINATED DEBT HELD BY CHARLES MORRIS III
On September 1, 1995, the Company repaid $2 million of outstanding
subordinated debt (the "Morris Debt") held by Charles R. Morris III, Vice
President of Rifkin & Associates. Interest on the Morris Debt was calculated
at three points over LIBOR. Aggregate interest payments made by the Company in
respect of the Morris Debt were $133,000 and $184,000 in 1994 and 1995,
respectively.
ACQUISITIONS OF AFFILIATED CABLE SYSTEMS; FEE PAID TO RIFKIN & ASSOCIATES
On March 1, 1996, the Company acquired for approximately $62 million
(including approximately $1.1 million of assumed liabilities), which remains
subject to certain post-closing adjustments, the Mid-Tennessee Systems, which
were owned by Mid-Tennessee Cable Limited Partnership ("MTCLP"), an affiliate
of the Company and Rifkin & Associates. Prior to that acquisition, the general
partner of MTCLP owned 99.999% of the partnership interests in MTCLP. Monroe
M. Rifkin controls the ultimate general partner of such general partner. Prior
to the Mid-Tennessee Acquisition, based on the acquisition price therefor, Mr.
Rifkin and entities controlled by Mr. Rifkin beneficially owned in the
aggregate approximately 15.1% of the partnership interests in the Mid-
Tennessee Systems. The Company paid to Rifkin & Associates a fee of
approximately $619,000 in connection with the assignment of a right of first
refusal to acquire the Mid-Tennessee Systems.
On April 1, 1996, the Company acquired for approximately $10.2 million
(including approximately $500,000 of assumed liabilities), which remains
subject to certain post-closing adjustments, the RCT Systems which were owned
by Rifkin Cablevision of Tennessee, Ltd., ("RTCL") an affiliate of the Company
and Rifkin & Associates. Monroe M. Rifkin controls the ultimate general
partner of RCTL. Prior to the RCT Acquisition, based upon the acquisition
price therefor, Mr. Rifkin and entities controlled by Mr. Rifkin beneficially
own approximately 3.4% of the partnership interests in RCTL. The purchase
price for the RCT Systems was reached through negotiations with an
unaffiliated majority limited partner. See "Prospectus Summary--Acquisitions
and Financing Plan."
CERTAIN RELATIONSHIPS WITH LEGAL COUNSEL
Baker & Hostetler, Denver, Colorado, has acted as legal counsel to the
Company in connection with the Old Notes Offering and is acting as legal
counsel to the Company in connection with the Exchange Offer and may from time
to time be engaged by the Company with respect to other matters. A partner of
Baker & Hostetler is a son of Monroe M. Rifkin.
CERTAIN FEES TO THE VS&A GROUP
In connection with the Recapitalization and in satisfaction of certain
investment banking, financial advisory and equity commitment fees, the Company
paid $1,640,000 to Veronis Suhler & Associates Inc., $200,000 to ING Equity
Partners and $100,000 to PaineWebber Capital, Inc., and the cash consideration
paid by Greenwich in exchange for its limited partnership interest in the
Company was reduced by $250,000.
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CERTAIN OTHER RELATIONSHIPS
The Company, the Subsidiary Guarantors and the Initial Purchasers entered
into a Purchase Agreement pursuant to which the Company sold to the Initial
Purchasers all of the Old Notes (the "Purchase Agreement"). The net proceeds
to the Company of the Old Notes Offering were $121.5 million before deducting
expenses of approximately $650,000. PaineWebber Incorporated, one of the
Initial Purchasers, is an affiliate of PaineWebber Capital, Inc. which holds
an 11.0% limited partnership interest in the Company.
THE PARTNERSHIP AGREEMENT
The following is a summary of certain material terms of the Second Amended
and Restated Limited Partnership Agreement of the Company dated August 31,
1995, as amended (the "Partnership Agreement"). The summary is qualified in
its entirety by reference to the full text of the Partnership Agreement, a
complete copy of which may be obtained from the Company.
ORGANIZATION
The Company was formed as a limited partnership known as Rifkin Acquisition
Partners, L.P. pursuant to the provisions of the Colorado Uniform Limited
Partnership Act of 1981 on December 27, 1988. On August 31, 1995, the Company
registered as a limited liability limited partnership by filing a registration
statement with the Secretary of State of Colorado pursuant to the Colorado
Revised Statutes, and the name of the Company was accordingly changed to
Rifkin Acquisition Partners, L.L.L.P. The purpose of the Company is to (i)
hold and operate directly, or indirectly through its ownership interests in
its subsidiaries, cable television systems, (ii) acquire and operate other
cable television systems in accordance with the terms of the Partnership
Agreement, and (iii) conduct all activities incidental to the ownership and
operation of the Company's assets.
Pursuant to a Purchase and Contribution Agreement dated August 10, 1995, all
of the limited partners of the Company other than Monroe M. Rifkin, the Rifkin
Trusts and the Rifkin Group sold their interests to the VS&A Group. The Rifkin
Group, the General Partner and the VS&A Group then entered into the
Partnership Agreement on August 31, 1995.
PREFERRED INTEREST
In connection with the Recapitalization, the VS&A Group received a preferred
equity interest in return for an approximate $583,000 capital contribution
(the "Preferred Interest"). Prior to any distributions by the Company to its
partners (other than certain tax distributions), the Company will redeem the
Preferred Interest by making a distribution to the VS&A Group in an amount
equal to the Preferred Interest plus a return thereon at the rate of 9.5% per
annum.
DURATION
Under the Partnership Agreement, the Company will be dissolved upon the
earlier of: (i) December 31, 2008, (ii) the election by the General Partner to
dissolve the Company upon the approval of limited partners holding at least
75% of the limited partnership interests and the prior affirmative vote of
each of: VS&A, Greenwich and ING Equity Partners, L.P., I ("ING") (such
affirmative vote is hereinafter referred to as the "Requisite Additional
Partner Approval"), (iii) the termination of the Company's business as a
result of the sale or other disposition by the Company and each of its
subsidiaries of all or substantially all of its business and assets, or (iv)
the bankruptcy, dissolution or liquidation of the General Partner, unless the
Company is continued upon an election of the remaining partners.
CONTROL OF OPERATIONS
The Partnership Agreement provides that the General Partner shall manage the
business and affairs of the Company, subject to the terms and provisions of
the Partnership Agreement. The Partnership Agreement provides for an Advisory
Committee consisting of one designee of the General Partner, three designees
of
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VS&A, two designees of Greenwich, one designee of IEP Holdings I LLC, a
subsidiary of ING, and one designee of PaineWebber Capital, Inc. The
Partnership Agreement provides that the General Partner shall keep the members
of the Advisory Committee informed on a timely basis regarding all significant
matters relating to the Company and its subsidiaries and that the Advisory
Committee shall meet at least quarterly. Further, the Partnership Agreement
provides that the Advisory Committee shall act by a majority of its voting
members, provided that no action may be taken by the Advisory Committee
without the Requisite Additional Partner Approval, except that if any of such
partners transfers any portion of its interest in the Company (except to an
affiliate as provided in the Partnership Agreement) so that after such
transfer its and its affiliates' aggregate percentage will be less than 21%,
then such affirmative vote of such Partner's designees will no longer be
required.
The Partnership Agreement provides that the General Partner shall not,
without the prior approval of the Advisory Committee, (i) amend the budget in
any material respect, (ii) in any fiscal year, cause the Company or any
subsidiary to (a) incur capital expenditures that exceed by more than $500,000
in the aggregate the amount set forth in the budget for that year or (b)
otherwise take any action that is inconsistent in any material respect with
the provisions in the budget for that year, or (iii) amend or waive any
provision of the Management Agreement or adopt or amend the Plan. See
"Management--Executive Compensation--Equity Incentive Plan."
VOTING RIGHTS
When a vote is required under the Partnership Agreement, each partner is
entitled to vote based upon that partner's percentage as set forth in the
Partnership Agreement. The General Partner is prohibited from taking any of
the following actions without first obtaining the Requisite Additional Partner
Approval and the approval of partners whose partnership percentages aggregate
more than 75%: (i) causing the Company or any subsidiary to merge or
consolidate with or into any other entity; (ii) causing the Company to make
any distributions (or determinations with respect to distributions to cover
anticipated tax liabilities) to its partners; (iii) amending the certificate
of limited partnership of the Company; (iv) admitting any new partners to the
Company; (v) causing the Company to dissolve, liquidate or seek protection
under any applicable insolvency law; (vi) causing the Company or any
subsidiary to engage in any transaction with any of the partners or their
respective affiliates, except as provided in the Partnership Agreement or the
Management Agreement; (vii) causing the Company or any subsidiary to acquire
any assets (except in the ordinary course of business) or any interest in any
other business; (viii) causing the Company or any subsidiary to sell or
otherwise dispose of all or substantially all of its assets; (ix) causing the
Company or any subsidiary to incur any indebtedness for borrowed money or
grant any security interest or lien on any assets or property of the Company
or any subsidiary other than pursuant to capitalized leases or indebtedness in
connection with the purchase of equipment secured by such equipment in the
ordinary course of business; (x) making any capital call or determining the
terms upon which any additional partners are admitted to the Company, or
accepting any additional capital contribution; (xi) amending any of the credit
or security agreements entered into by the Company or its subsidiaries or the
escrow agreement covering escrowed management fees pursuant to the Partnership
Agreement; or (xii) taking any action other than in the ordinary course of
business of the Company.
SALE OF THE SYSTEMS
Upon the earlier of August 31, 1999 (or earlier if certain Sale Events
described below have occurred), and, provided partners whose interests
aggregate at least 75%, determine that the sale of all of the Company's cable
systems is in the best interest of the Company and the Requisite Additional
Partner Approval has been obtained, then the General Partner shall take all
such action as may be necessary or appropriate to effect the sale to an
unrelated third party of all such systems. For purposes of the Partnership
Agreement, a Sale Event shall be deemed to have occurred if (i) the Company
defaults in the payment when due, after any applicable grace period, of an
amount payable by the Company (other than to an affiliate) under any
indebtedness for borrowed money, (ii) the Advisory Committee reasonably
determines that an event has occurred that has resulted or will result in a
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material adverse change in the Company's business, (iii) Monroe M. Rifkin dies
or becomes disabled or otherwise ceases to serve as Chief Executive Officer
and exercise active control over the day-to-day operations of the General
Partner of the Company or (iv) Monroe M. Rifkin and the Rifkin Trusts cease to
directly own at least 80% of the equity interests of the general partner of
the General Partner or to indirectly own at least 64.96% of the General
Partner.
After August 31, 2004, the General Partner may give notice to the limited
partners that it intends to commence efforts to cause the Company to sell all
of its cable systems. If such notice is given, and subject to having first
obtained the Requisite Additional Partner Approval, partners whose partnership
percentages aggregate more than 75% shall have the right to cause the Company
to purchase all but not less than all of the partnership interests in the
Company owned by each of the General Partner, Monroe M. Rifkin and the Rifkin
Trusts (collectively, the "Rifkin Partners") and any member of the Rifkin
Group that requests to sell its interest, and to require the Rifkin Partners
and the electing members of the Rifkin Group to sell those interests, for a
purchase price equal to the fair market value of those interests. If the
partners fail to exercise such right, the General Partner may, without the
consent of the Advisory Committee or any limited partner, cause the Company to
sell all of its cable systems.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The Partnership Agreement provides that the Advisory Committee may remove
the General Partner and elect a new general partner if (i) Monroe M. Rifkin
dies or becomes disabled (unless arrangements are made to replace him as the
chief executive officer of the general partner of the General Partner that are
satisfactory to the Advisory Committee) or otherwise ceases to serve as chief
executive officer and exercise active control over the day-to-day operations
of the General Partner and the Company or (ii) for any reason Monroe M. Rifkin
and the Rifkin Trusts cease to directly own at least 80% of the equity
interests of the general partner of the General Partner or to indirectly own
at least 64.96% of the equity interests of the General Partner. In addition,
the Advisory Committee may remove the General Partner for cause and elect a
new general partner. For this purpose "cause" is defined as a material breach
of the General Partner's fiduciary duties to the limited partners or any act
by the General Partner, Rifkin & Associates or Monroe M. Rifkin constituting
fraud, gross negligence or intentional violation of a material provision of
the Partnership Agreement.
ESCROW FOR MANAGEMENT FEES
Pursuant to the Partnership Agreement, $1 million was placed in escrow to
cover management fees payable to Rifkin & Associates pursuant to the
Management Agreement in the event that payment of such fees is prohibited
under any loan agreement to which the Company is or becomes a party.
ASSIGNMENT OF COMPANY INTERESTS
Under the Partnership Agreement, except with the consent of the General
Partner and partners whose percentage interests aggregate more than 75%, which
consent may be withheld by any partner in its sole discretion, no partner may
sell, transfer, assign, pledge, grant a security interest in or otherwise
dispose of or encumber all or any portion of its interest in the Company. Each
limited partner may, however, transfer at any time all or any portion of its
interest in the Company to an affiliate of such partner.
PUT RIGHTS
The Partnership Agreement provides that, if Monroe M. Rifkin dies or becomes
disabled and as a result the General Partner is removed pursuant to the
Partnership Agreement and the Management Agreement is terminated, Mr. Rifkin
(or his personal representative) shall have the option, exercisable by notice
given to the partners within 270 days thereafter, to sell, and require the
other Rifkin Partners to sell, and the Company to purchase, all of the
partnership interests owned by such partners and any member of the Rifkin
Group that
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requests to sell its interest, for a purchase price equal to the fair market
value of those interests determined by appraisal in accordance with the
procedure described in the Partnership Agreement. The Partnership Agreement
further provides, that if Mr. Rifkin dies or becomes disabled, Mr. Rifkin (or
his personal representative) shall have the option, exercisable by notice
given to the partners at any time within 270 days after Mr. Rifkin's death or
disability (except that if Mr. Rifkin dies or becomes disabled prior to August
31, 2000, the option may not be exercised until August 31, 2000 and then by
notice given to the partners within 270 days after August 31, 2000) to sell,
and require the Rifkin Partners to sell, and the Partnership to purchase, up
to 50% of the partnership interests owned by each of such partners and by any
member of the Rifkin Group that requests to sell its interest, for a purchase
price equal to the fair market value of those interests determined by
appraisal in accordance with the Partnership Agreement. The obligation of the
Partnership to purchase such interests is expressly subject to the limitations
in the Indenture governing restricted payments. See "Description of the
Exchange Notes--Covenants."
INVESTMENT OPPORTUNITIES
The Partnership Agreement provides that if Monroe M. Rifkin learns of any
opportunity to acquire any cable television system that is similar to the
systems owned directly or indirectly by the Company and reasonably contiguous
to any area in which the Company holds a cable television franchise or
operates a cable system, he shall inform the other limited partners and shall
provide them with all financial and other information available to him
concerning such system, and if after obtaining the Requisite Additional
Partner Approval, partners whose percentages aggregate more than 75% determine
to pursue the opportunity, Rifkin shall try to arrange for the acquisition of
that system by the Company unless he reasonably determines that the Company is
unable to acquire the system because it will not have the resources to do so
either from borrowings or capital contributions.
INDEMNIFICATION
Under the Partnership Agreement, the Company shall indemnify and hold
harmless the General Partner and each of the limited partners and their
respective partners and affiliates, and all of the members of the Advisory
Committee, from and against any loss, liability, damage or expense incurred or
suffered by any of them by reason of any acts or omissions or alleged acts or
omissions arising out of their activities on behalf of the Company or in
connection with the business or operations of the Company, provided that the
acts or omissions or the alleged acts or omissions upon which the action or
threatened action, proceeding or claim is based were not performed or omitted
fraudulently or in bad faith by the indemnified party.
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DESCRIPTION OF AMENDED AND RESTATED CREDIT AGREEMENT
As part of the Financing Plan, the Company and its principal subsidiaries
entered into the Amended and Restated Credit Agreement dated March 1, 1996
with First Union National Bank of North Carolina, as lender and administrative
agent, and a group of other lenders party thereto (collectively the
"Lenders"). The Amended and Restated Credit Agreement establishes a seven year
reducing revolving loan facility in the initial aggregate commitment amount of
$80 million (the "Reducing Revolving Facility"), a seven year term loan in the
aggregate principal amount of $25 million (the "Term Loan A") and an eight
year term loan in the aggregate principal amount of $40 million (the "Term
Loan B", and together with the Reducing Revolving Facility and the Term Loan
A, the "Facilities").
AVAILABILITY AND REPAYMENT
Subject to compliance with the terms of the Amended and Restated Credit
Agreement, up to $20 million of the Reducing Revolving Facility is available
for working capital and capital expenditure needs. Access to the remaining $60
million is subject to compliance with all covenants and the Company's Total
Funded Debt Ratio (defined as the ratio of all funded indebtedness of the
Company on a consolidated basis to consolidated annualized EBITDA based on the
most recent quarter) being below 6.25x. Amounts borrowed under this remaining
$60 million may be used for general corporate purposes and Permitted
Acquisitions, provided the Company satisfies certain requirements.
Commencing March 31, 1997, availability under the Reducing Revolving
Facility will decrease by $7.5 million per year through December 31, 1998; by
$14.5 million per year through December 31, 2002; and all remaining
outstanding loans under the Reducing Revolving Facility will be due and
payable on March 31, 2003.
The Term Loan A is subject to annual principal reductions in aggregate
amounts of $7.5 million commencing March 31, 2000 through December 31, 2002,
with all remaining outstanding loans under the Term Loan A due and payable on
March 31, 2003.
The Term Loan B is subject to annual principal reductions of $2 million, $18
million and $20 million payable on March 31 of 2002, 2003 and 2004,
respectively. All remaining outstanding loans under the Term Loan B will be
due and payable on March 31, 2004.
SECURITY; GUARANTY
Obligations under the Facilities, including a guaranty given by the
Company's principal subsidiaries, will be secured by all of the Company's and
its subsidiaries' significant assets, a first priority pledge of the capital
stock and/or partnership interests of the Company and its subsidiaries, a
negative pledge on other assets of the Company and its significant
subsidiaries, and a security assignment of any inter-company notes.
INTEREST
At the Company's election, the interest rates per annum applicable to the
Reducing Revolving Facility and the Term Loan A will be a fluctuating rate of
interest measured by reference either to (a) an adjusted London inter-bank
offered rate ("LIBOR") plus a borrowing margin or (b) the base rate of the
administrative agent for the Facilities (the "Base Rate") (which is based on
the administrative agent's published prime rate) plus a borrowing margin. The
applicable borrowing margin for such loans will vary, based upon the Company's
Total Funded Debt Ratio, from .25% to 1.75% with respect to Base Rate loans
and from 1.25% to 2.75% with respect to LIBOR loans. The Term Loan B bears
interest at a fixed rate of 9.75% per annum. Amounts under the Facilities not
paid when due bear interest at a default rate of 2.0% above the otherwise
applicable rate or the Base Rate as applicable.
FEES
The Company has agreed to pay certain fees with respect to the Facilities
including (i) annual commitment fees in respect of the Reducing Revolving
Facility in the amount of 1/2 of 1% on the average available commitment plus
of 1% on the average unavailable commitment under such Reducing Revolving
Facility, (ii) upfront amendment fees and (iii) agent, arrangement and other
similar fees.
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COVENANTS
The Amended and Restated Credit Agreement contains a number of covenants
that, among other things, restrict the ability of the Company and its
subsidiaries to pay principal on the Notes, dispose of assets, incur
additional indebtedness, incur guarantee obligations, prepay other
indebtedness, pay dividends, create liens on assets, make investments, loans
or advances, make acquisitions, engage in mergers or consolidations, change
the business conducted by the Company, or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. In addition,
under the Amended and Restated Credit Agreement the Company is required to
comply with specified financial ratios and tests, including minimum interest
coverage and fixed charge coverage ratios, minimum debt service coverage tests
and maximum funded debt ratios.
The Amended and Restated Credit Agreement also contains provisions that
prohibit any modification of the Indenture in any manner adverse to the
Lenders under the Facilities and that will limit the Company's ability to
refinance the Notes without the consent of such Lenders.
EVENTS OF DEFAULT
The Amended and Restated Credit Agreement contains customary events of
default including nonpayment of principal, interest or fees, violation of
covenants, inaccuracy of representations or warranties in any material
respect, cross default and cross acceleration to certain other indebtedness,
bankruptcy, material judgments and liabilities and change of control.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued, and the Old Notes were issued, under an
indenture (the "Indenture"), dated as of January 15, 1996, by and among the
Company and RACC, as the Issuers, the Subsidiary Guarantors and Marine Midland
Bank, as Trustee (the "Trustee"). The terms of the Exchange Notes are the same
in all respects (including principal amount, interest rate, maturity, security
and ranking) as the terms of the Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Exchange Notes (1) are freely
transferrable by holders thereof (except as provided below) and (ii) are not
entitled to certain registration rights and certain additional interest
provisions which are applicable to the Old Notes under the Registration Rights
Agreement. The Exchange Notes will be issued under the Indenture governing the
Old Notes. References to the Company under the heading "Description of
Exchange Notes" refer to Rifkin Acquisition Partners, L.L.L.P. only.
The following is a summary of certain provisions of the Exchange Notes and
the Indenture. This summary does not purport to be complete and is subject to
the detailed provisions of, and is qualified in its entirety by reference to,
the Exchange Notes and the Indenture. A copy of the proposed form of Indenture
may be obtained from the Issuers or the Initial Purchasers. The definitions of
certain terms used in the following summary are set forth below under "--
Certain Definitions." Reference is made to the Indenture for the full
definition of all such terms, as well as any other capitalized terms used
herein for which no definition is provided. Unless the context otherwise
requires, all references herein to the "Notes" shall include the Old Notes and
the Exchange Notes.
MATURITY AND INTEREST
The Notes are general unsecured joint and several obligations of the Company
and RACC limited in aggregate principal amount to $125,000,000 and mature on
January 15, 2006. Interest on the Notes accrues at the rate of 11 1/8% per
annum and is payable semi-annually in arrears on January 15 and July 15 in
each year, commencing on July 15, 1996, to holders of record on the
immediately preceding January 1 and July 1, respectively. Interest on the
Exchange Notes accrues from the most recent date to which interest has been
paid or, if no interest has been paid, from the Issue Date. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Exchange Notes will bear interest from January 26, 1996. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest in the Old Notes
accrued from January 26, 1996, to the date of the issuance of the Exchange
Notes. Interest on the Exchange Notes is payable semi-annually in arrears on
January 15 and July 15 of each year, commencing on July 15, 1996, accruing
from January 26, 1996, at a rate of 11-1/8% per annum.
Principal of, premium, if any, and interest on the Notes is payable at the
office or agency of the Issuers maintained for such purpose within the City of
New York or, at the option of the Issuers, payment of interest may be made by
check mailed to the holders of the Notes at their respective addresses as set
forth in the register of holders of the Notes. Initially Bankers Trust Company
acts as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar,
which is the Registrar's corporate trust office. The Issuers may change any
Paying Agent and Registrar without notice to the Holders. The Issuers will pay
principal (and premium, if any) on the Notes at the Paying Agent's corporate
office in New York, New York. The Exchange Notes will be issued in fully
registered form, without coupons, and in denominations of $1,000 and integral
multiples thereof.
RANKING AND SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, to the extent and in the manner provided
in the Indenture, to the prior payment in full in cash of all Senior Debt of
the Issuers, whether outstanding on the Issue Date or incurred thereafter. As
of December 31, 1995, after giving pro forma effect to the Transactions, the
Issuers on a consolidated basis would have had outstanding approximately $71.1
million of Senior Debt, $3 million of Indebtedness ranking pari passu with the
Notes and no Indebtedness ranking junior to Notes, and would have had the
ability, subject to certain conditions and limitations, to incur approximately
$73.9 million of additional Senior Debt under the incurrence test in the
Senior Credit Agreement. The Indenture will, subject to certain financial
tests, permit the Issuers and their
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Subsidiaries to incur additional Indebtedness, including Senior Debt. See "--
Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Equity Interests."
Upon any payment or distribution of cash, securities or other property of
the Issuers to creditors or upon any liquidation, dissolution or winding up of
the Issuers, or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Issuers or their property or securities,
the holders of any Senior Debt of the Issuers are entitled to receive payment
in full in cash or Cash Equivalents of all Obligations due in respect of such
Senior Debt (including Post-Petition Interest at the rate specified in the
agreements governing such Senior Debt) before the holders of the Notes will be
entitled to receive any payment or distribution with respect to the Notes.
The Issuers also may not make any payment (other than any payments made
pursuant to the provisions described under "--Defeasance" or "--Redemption--
Special Redemption") upon or in respect of the Notes if (i) a default in the
payment of the principal of, premium, if any, or interest on, any Designated
Senior Debt occurs and is continuing, whether at maturity or at a date fixed
for prepayment or by declaration of acceleration or otherwise, or (ii) the
Trustee has received written notice (a "Payment Blockage Notice") from the
representative of any holders of Designated Senior Debt that a nonpayment
default has occurred and is continuing with respect to such Designated Senior
Debt that permits such holders to accelerate the maturity of such Designated
Senior Debt. Payments on the Notes shall resume (and all past due amounts on
the Notes, with interest thereon as specified in the Indenture, shall be paid)
(i) in the case of a payment default in respect of any Designated Senior Debt,
on the date on which such default is cured or waived in writing, and (ii) in
the case of a nonpayment default in respect of any Designated Senior Debt, on
the earlier of (a) the date on which such nonpayment default is cured or
waived, or (b) 179 days after the date on which the Payment Blockage Notice
with respect to such default was received by the Trustee, in each case, unless
the maturity of any Designated Senior Debt has been accelerated and the
Company has defaulted with respect to the payment of such Designated Senior
Debt. During any consecutive 365-day period, the aggregate number of days in
which payments due on the Notes may not be made as a result of nonpayment
defaults on Designated Senior Debt (a "Payment Blockage Period") shall not
exceed 179 days, and there shall be a period of at least 186 consecutive days
in each consecutive 365-day period when such payments are not prohibited. No
event or circumstance of which the holders of Designated Senior Debt have
knowledge that creates a default under any Designated Senior Debt that (i)
gives rise to the commencement of a Payment Blockage Period or (ii) exists at
the commencement of or during any Payment Blockage Period shall be made the
basis for the commencement of any subsequent Payment Blockage Period unless
such default has been cured or waived for a period of not less than 90
consecutive days following the commencement of the initial Payment Blockage
Period. A holder of Notes by his acceptance of Notes agrees to be bound by
such provisions and authorizes and expressly directs the Trustee, on his
behalf, to take such action as may be necessary or appropriate to effectuate
the subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
As a result of the subordination provisions described above, in the event of
liquidation or insolvency, holders of the Notes may recover less ratably than
creditors holding Senior Debt of the Issuers or trade creditors of the
Issuers. In such circumstances, funds which would otherwise be payable to the
holders of the Notes will be paid to the holders of the Senior Debt to the
extent necessary to pay the Senior Debt in full in cash and the Issuers may be
unable to meet their obligations fully with respect to the Notes.
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes. See "--
Defeasance."
SUBSIDIARY GUARANTEES
The Issuers' payment obligations under the Notes are jointly and severally
guaranteed on a senior subordinated basis by the Subsidiary Guarantors. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are
unconditional and absolute, irrespective of any invalidity, illegality,
unenforceability of any Note or the Indenture or any extension, compromise,
waiver or release in respect of any obligation of the Issuers or any other
Subsidiary Guarantor under any Note or the Indenture, or any modification or
amendment of or supplement to the Indenture.
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The obligations of any Subsidiary Guarantor under its Subsidiary Guarantee
are subordinated, to the same extent as the obligations of the Issuers in
respect of the Notes, to the prior payment in full in cash or Cash Equivalents
of all Senior Debt of such Subsidiary Guarantor, which include any guarantee
issued by such Subsidiary Guarantor of any Senior Debt, including Indebtedness
represented by guarantees under the Senior Credit Agreement. As of December
31, 1995, after giving pro forma effect to the Transactions, the Subsidiary
Guarantors would have had no Senior Debt outstanding (excluding guarantees of
Senior Debt of the Issuers). The obligations of each Subsidiary Guarantor
under its Subsidiary Guarantee is limited to the extent necessary to provide
that such Subsidiary Guarantee does not constitute a fraudulent conveyance
under applicable law. Each Subsidiary Guarantor that makes a payment or
distribution under its Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor so long as the exercise of
such right does not impair the rights of holders of Notes under any Subsidiary
Guarantee. See "Risk Factors--Fraudulent Conveyance." A Subsidiary Guarantor
shall be released and discharged from its obligations under its Subsidiary
Guarantee under certain limited circumstances. See "--Covenants--Limitation on
Guarantees of Indebtedness by Subsidiaries" and "--Merger, Consolidation and
Sale of Assets."
REDEMPTION
Mandatory Redemption. The Notes are not subject to any mandatory sinking
fund redemption prior to maturity. However, as described below, the Issuers
may be obligated, under certain circumstances, (a) to make an offer to
purchase all outstanding Notes at a redemption price of 101% of the principal
amount thereof, plus accrued interest to the date of purchase, upon a Change
of Control and/or (b) to make an offer to purchase all or a portion of the
Notes with the Net Proceeds of Asset Sales at a redemption price of 100% of
the principal amount, plus accrued interest to the date of purchase. See "--
Special Redemption", "Change of Control" and "Covenants--Limitation or Asset
Sales," respectively.
Optional Redemption. Except as set forth below, the Notes are not redeemable
at the Issuers' option prior to January 15, 2001. Thereafter, the Notes are
subject to redemption at the option of the Issuers in whole or in part at any
time at the redemption prices (expressed as percentages of the principal
amount of the Notes) set forth below, plus accrued and unpaid interest to the
date of redemption, if redeemed during the twelve-month period beginning on of
the years indicated below.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................... 105.563%
2002.......................... 104.172
2003.......................... 102.781
2004.......................... 101.391
2005 and thereafter........... 100.000
</TABLE>
Optional Redemption Upon a Public Equity Offering or Strategic Equity
Investment. At any time prior to January 15, 1999 the Issuers may redeem up to
25% of the aggregate principal amount of the Notes originally issued, with the
net proceeds of one or more Public Equity Offerings or Strategic Equity
Investments, at a redemption price equal to 111 1/8% of the principal amount
thereof, together with accrued and unpaid interest to the date of redemption;
provided, however, that after any such redemption the aggregate principal
amount of the Notes outstanding must equal at least 75% of the aggregate
principal amount of the Notes originally issued. Notice of redemption pursuant
to this paragraph shall be mailed to holders of the Notes not later than 60
days following the consummation of the Public Equity Offering or Strategic
Equity Investment.
Selection and Notice. If less than all of the Notes are to be redeemed at
any time, selection of the Notes to be redeemed is required to be made by the
Issuers in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not listed on a securities exchange, on a pro rata basis, by lot or by any
other method as the Trustee shall deem fair and appropriate; provided that
Notes redeemed in part shall only be redeemed in integral multiples of $1,000.
Notices of any optional or mandatory redemption shall be mailed by the Trustee
by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at such holder's
registered address; provided that notice of any redemption described under "--
Special Redemption" shall be mailed not less than five business days prior to
the redemption date. If any Note is to be redeemed in part only, the notice of
redemption
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that relates to such Note shall state the portion of the principal amount
thereof to be redeemed, and the Trustee shall authenticate and mail to the
holder of the original Note a new Note in principal amount equal to the
unredeemed portion of the original Note promptly after the original Note has
been canceled. On and after the redemption date, interest will cease to accrue
on Notes or portions thereof called for redemption.
ESCROW OF PROCEEDS
Pursuant to the Pledge Agreement by and among the Issuers and the Trustee
(the "Pledge Agreement"), the Issuers caused to be deposited simultaneously
with the closing of the Old Notes Offering $125,000,000 plus an amount equal
to the interest thereon at a rate of 11 1/8% per annum to the Special
Redemption Date. Such amount was held by the Trustee pursuant to the Pledge
Agreement as collateral to secure the obligations of the Issuers under the
Notes. Pursuant to the Pledge Agreement, such funds were released by the
Trustee to the Company concurrently with the consummation of the Mid-Tennessee
Acquisition and the effectiveness of the Amended and Restated Credit
Agreement.
CHANGE OF CONTROL
In the event of a Change of Control (as defined), the Issuers are required
to make an offer to purchase all of the Notes outstanding at a purchase price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest to the date of repurchase, in accordance with the terms
set forth below (a "Change of Control Offer").
Within 30 days following the occurrence of any Change of Control, the
Issuers are required to mail to each holder of Notes at such holder's
registered address a notice stating: (i) that a Change of Control has occurred
and that such holder has the right to require the Issuers to repurchase all or
a portion (equal to $1,000 principal amount or an integral multiple thereof)
of such holder's Notes at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest to the
date of purchase (the "Change of Control Purchase Date"), which shall be a
business day, specified in such notice, that is not earlier than 30 days or
later than 60 days from the date such notice is mailed, (ii) the amount of
accrued and unpaid interest as of the Change of Control Purchase Date, (iii)
that any Note not tendered will continue to accrue interest, (iv) that, unless
the Issuers defaults in the payment of the purchase price for the Notes
payable pursuant to the Change of Control Offer, any Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date, (v) the procedures, consistent with
the Indenture, to be followed by a holder of Notes in order to accept a Change
of Control Offer or to withdraw such acceptance, and (vi) such other
information as may be required by the Indenture and applicable laws and
regulations.
On the Change of Control Purchase Date, the Issuers are required to (i)
accept for payment all Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent the aggregate
purchase price of all Notes or portions thereof accepted for payment and any
accrued and unpaid interest on such Notes as of the Change of Control Purchase
Date, and (iii) deliver or cause to be delivered to the Trustee all Notes
tendered pursuant to the Change of Control Offer. The Paying Agent shall
promptly mail to each holder of Notes or portions thereof accepted for payment
an amount equal to the purchase price for such Notes plus any accrued and
unpaid interest thereon, and the Trustee is required to promptly authenticate
and mail to such holder of Notes accepted for payment in part a new Note equal
in principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part is required to be promptly returned
to the holder of such Note. On and after a Change of Control Purchase Date,
interest will cease to accrue on the Notes or portions thereof accepted for
payment, unless the Company defaults in the payment of the purchase price
therefor. The Issuers are required to announce the results of the Change of
Control Offer to holders of the Notes on or as soon as practicable after the
Change of Control Purchase Date.
The Senior Credit Agreement prohibits the Company from repurchasing any
Notes pursuant to a Change of Control Offer prior to repayment in full of the
Senior Bank Debt under the Senior Credit Agreement. Any additional credit
agreements or other agreements relating to Senior Debt to which the Issuers
become party to may contain similar restrictions and provisions. Moreover, the
Senior Credit Agreement contains a "change of control" provision that is
similar in most respects to the provision in the Indenture relating to a
Change of Control, and the occurrence of such a "change of control" would
constitute a default under the Senior Credit Agreement.
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In the event that a Change of Control occurs at a time when the Issuers are
prohibited from repurchasing the Notes by the Senior Credit Agreement or any
other agreement governing Senior Debt of the Issuers, the Issuers are required
to seek either to repay such Senior Debt or to obtain the requisite consents
of the holders of such Senior Debt to commence a Change of Control Offer to
repurchase the Notes in accordance with the terms of the Indenture. If the
Issuers are unable to obtain such consents and/or repay all such Senior Debt,
the Issuers will remain prohibited from repurchasing any Notes and, as a
result, the Issuers may not commence a Change of Control Offer to repurchase
the Notes within 30 days of the occurrence of the Change of Control, which
would constitute an Event of Default under the Indenture. The Issuers' failure
to commence such a Change of Control Offer would also constitute an event of
default under the Senior Credit Agreement which would permit the lenders
thereunder to accelerate all of the Issuers' Senior Bank Debt under the Senior
Credit Agreement. If a Change of Control were to occur, there can be no
assurance that the Issuers would have sufficient assets to first satisfy their
obligations under the Senior Credit Agreement or other agreements relating to
Senior Debt, if accelerated, and then to repurchase all of the Notes that
might be delivered by holders seeking to accept a Change of Control Offer.
With respect to the sale of assets, the phrase "all or substantially all" as
used in the Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under relevant law and
is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of a person and therefore it may be unclear whether a Change of Control
has occurred and whether the Notes are subject to a Change of Control Offer.
The Issuers are required to comply with the applicable tender offer rules,
including the requirements of Rule 14e-1 under the Exchange Act, and all other
applicable securities laws and regulations in connection with any Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Issuers are required to comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations under
the "Change of Control" provisions of the Indenture by virtue thereof.
COVENANTS
Limitation on Incurrence of Indebtedness and Issuance of Disqualified Equity
Interests. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, create, incur, assume or directly or
indirectly guarantee or in any other manner become directly or indirectly
liable, contingently or otherwise, for ("incur") any Indebtedness (including
Acquired Debt) or issue any Disqualified Equity Interests; provided, however,
that the Company or any Subsidiary may incur Indebtedness or issue
Disqualified Equity Interests if, at the time of and immediately after giving
pro forma effect to such incurrence of Indebtedness or issuance of
Disqualified Equity Interests and the application of the proceeds therefrom,
(i) no Default or Event of Default has occurred and is continuing and (ii) the
Debt to Operating Cash Flow Ratio of the Company and its Subsidiaries is (A)
less than 6.75:1 for the period prior to June 30, 1998, and (B) less than
6.5:1 thereafter.
The foregoing limitations will not apply to the incurrence of any of the
following, each of which shall be given independent effect (collectively,
"Permitted Indebtedness"):
(a) Senior Bank Debt arising under the Senior Credit Agreement;
(b) Indebtedness of any Subsidiary consisting of a guarantee of the Company's
indebtedness under the Senior Credit Agreement;
(c) Indebtedness of the Company and its Subsidiaries outstanding on the
Issue Date;
(d) Indebtedness of the Company represented by the Notes and the Exchange
Notes and Indebtedness of any Subsidiary Guarantor represented by a Subsidiary
Guarantee;
(e) Indebtedness owed by any Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary, or owed by the Company to any Wholly Owned
Subsidiary; provided that any such Indebtedness shall be at all times held by
a Person which is either the Company or a Wholly Owned Subsidiary of the
Company; and provided, further, that upon either (a) the transfer or other
disposition of any such Indebtedness to a Person other than the Company or
another Wholly Owned Subsidiary or (b) the sale, lease, transfer or other
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disposition of shares of Equity Interests (including by consolidation or
merger) of any such Wholly Owned Subsidiary to a Person other than the Company
or another Wholly Owned Subsidiary, the incurrence of such Indebtedness shall
be deemed to be an incurrence that is not permitted by this clause (e);
(f) guarantees by any Subsidiary of Senior Debt of the Company, provided that
the covenant described under "--Covenants--Limitation on Guarantees of
Indebtedness by Subsidiaries" is complied with;
(g) Indebtedness arising with respect to Interest Rate Agreement Obligations
incurred for the purpose of fixing or hedging interest rate risk with respect
to any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding;
(h) Purchase Money Indebtedness and Capital Lease Obligations which do not
exceed, as determined in accordance with GAAP, $5,000,000 in the aggregate at
any one time outstanding;
(i) any Indebtedness incurred in connection with or given in exchange for the
renewal, extension, substitution, refunding, defeasance, refinancing or
replacement of any Indebtedness described in clauses (c) and (d) above
("Refinancing Indebtedness"); provided that (a) the principal amount of such
Refinancing Indebtedness shall not exceed the principal amount of the
Indebtedness so renewed, extended, substituted, refunded, defeased, refinanced
or replaced (plus the premiums paid in connection therewith (which shall not
exceed the stated amount of any premium or other payment required to be paid
in connection with such a refinancing pursuant to the terms of the
Indebtedness being renewed, extended, substituted, refunded, defeased,
refinanced or replaced) and the expenses incurred in connection therewith);
(b) with respect to Refinancing Indebtedness of any Indebtedness other than
Senior Debt, the Refinancing Indebtedness shall have a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of
the Indebtedness being renewed, extended, substituted, refunded, defeased,
refinanced or replaced; and (c) with respect to Refinancing Indebtedness of
Indebtedness other than Senior Debt incurred by (1) the Company, such
Refinancing Indebtedness shall rank no more senior, and shall be at least as
subordinated in right of payment to the Notes as the Indebtedness being
renewed, extended, substituted, refunded, defeased, refinanced or replaced,
and (2) a Subsidiary Guarantor, such Refinancing Indebtedness shall rank no
more senior, and shall be at least as subordinated, in right of payment to the
Subsidiary Guarantee as the Indebtedness being renewed, extended, substituted,
refunded, defeased, refinanced or replaced; and
(j) Indebtedness (including Senior Bank Debt in addition to that permitted
under clauses (a) and (b) of this paragraph) of the Company in addition to
that described in clauses (a) through (i) above, and any renewals, extensions,
substitutions, refinancings or replacements of such Indebtedness, so long as
the aggregate principal amount of all such Indebtedness incurred pursuant to
this clause (j) does not exceed $10,000,000 at any one time outstanding.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined by the Board of
Directors of the Company, whose determination shall be conclusive and
evidenced by a board resolution), (i) no Default or Event of Default (and no
event that, after notice or lapse of time, or both, would cause or permit any
Indebtedness of the Company or its Subsidiaries to become due prior to the
scheduled maturity thereof) shall have occurred and be continuing or would
occur as a consequence thereof, provided, however, that this clause (i) shall
not be applicable to any Restricted Payment in respect of the New Rifkin Note,
(ii) the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph under "--Covenants--Limitation on Incurrence
of Indebtedness and Issuance of Disqualified Equity Interests" and (iii) the
aggregate amount of all Restricted Payments made after the Issue Date shall
not exceed the sum of (a) an amount equal to the Company's Cumulative
Operating Cash Flow less 140% of the Company's Cumulative Consolidated
Interest Expense, plus (b) the aggregate amount of all net cash proceeds
received by the Company, either (1) as capital contributions to the Company
after the Issue Date other than the New Equity or (2) from the issuance and
sale (other than to a Subsidiary) of Equity Interests (other than Disqualified
Equity Interests), plus (c) the aggregate net proceeds received by the Company
from the issuance (other than to a Subsidiary of the Company) after the Issue
Date of its Equity Interests (other than Disqualified Equity Interests) upon
the conversion of, or exchange for, Indebtedness of the Company to the extent
that such
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proceeds or amounts are not used to redeem, repurchase, retire or otherwise
acquire Equity Interests or any Indebtedness of the Company or any Subsidiary
pursuant to clause (ii) of the next paragraph or make Investments pursuant to
clause (iv) of the next paragraph (excluding (A) the net proceeds from
issuance and sale of Equity Interests financed, directly or indirectly, using
funds borrowed from the Company or any of its Subsidiaries until and to the
extent such borrowing is repaid and (B) the net proceeds from the issuance and
sale of Equity Interests the proceeds of which are used to redeem the Notes)
plus (d) in the case of the disposition or repayment of an Investment
constituting a Restricted Payment made after the Issue Date, an amount (to the
extent such amount has not been included in Cumulative Operating Cash Flow)
equal to the lesser of: (i) the return of capital with respect to such
Investment and (ii) the cost of such Investment, in either case, less the cost
of the disposition of such Investment.
The foregoing provisions do not prohibit, so long as there is no Default or
Event of Default continuing, the following actions (collectively, "Permitted
Payments"):
(i) the payment of any distribution on Equity Interests within 60 days after
the date of declaration thereof, if at such declaration date such payment
would have been permitted under the Indenture, and such payment shall be
deemed to have been paid on such date of declaration for purposes of clause
(iii) of the preceding paragraph;
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests or any Indebtedness of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary) of Equity Interests of the Company (other than any Disqualified
Equity Interests);
(iii) the payment of any dividend or distribution on Equity Interests of the
Company to the extent necessary to permit the direct or indirect beneficial
owners of such Equity Interests to pay federal and state income tax
liabilities arising from income of the Company and attributable to them solely
as a result of the Company (and any intermediate entity through which such
holder owns such Equity Interests) being a partnership or similar pass-through
entity for federal income tax purposes;
(iv) any Investment made out of net proceeds of the substantially concurrent
issue and sale (other than to a Subsidiary of the Company) of Equity Interests
(other than Disqualified Equity Interests);
(v) payments pursuant to the Equity Incentive Plan permitted by the covenant
described under "--Covenants--Limitation on Transactions with Affiliates."
In determining the aggregate amount of Restricted Payments permitted under
this covenant Permitted Payments made pursuant to clauses (i) or (iv) shall be
included and Permitted Payments pursuant to clause (ii), (iii) and (v) of this
paragraph shall be excluded.
Limitation on Asset Sales. The Indenture provides that the Company will not,
and will not permit any Subsidiary to, make any Asset Sales unless (i) the
Company or such Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value (as evidenced
by a resolution of the Company's Board of Directors set forth in an Officer's
Certificate delivered to the Trustee) of the assets or other property sold or
disposed of in the Asset Sale, and (ii) at least 75% of such consideration is
in the form of cash or Cash Equivalents.
Notwithstanding the immediately preceding paragraph, the Company and its
Subsidiaries are permitted to consummate an Asset Sale without complying with
such paragraph if (i) the Company or the applicable Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets sold or otherwise disposed of (as
evidenced by a resolution of the Company's Board of Directors set forth in an
Officer's Certificate delivered to the Trustee), (ii) at least 75% of the
consideration for such Asset Sale constitutes assets or property of a kind
usable by the Company and its Subsidiaries in accordance with the covenant
described under "--Covenants--Conduct of Business" and (iii) at the time of
such Asset Sale and after giving pro forma effect thereto, the Company would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to
the first paragraph of the covenant described under "--Covenants--Limitation
on Incurrence of Indebtedness and Issuance of Disqualified Equity Interests";
provided that any consideration not constituting assets or property of a kind
usable by the Company and its Subsidiaries in the business conducted by them
on the date of such Asset Sale received by the Company or any of its
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Proceeds subject to the provisions
of the two succeeding paragraphs.
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Within 180 days after any Asset Sale, the Company may elect to apply the Net
Proceeds from such Asset Sale to (a) repay Senior Debt of the Company and,
except for Senior Bank Debt, permanently reduce any related commitment, and/or
(b) commit in writing to the Trustee to make an investment in or acquire
assets or property of a kind usable by the Company and its Subsidiaries in the
businesses conducted by them on the date of such Asset Sale or a business
reasonably related thereto and consummate such investment or acquisition
within 270 days after such Asset Sale, provided, however, that if at any time
any non-cash consideration received by the Company or any Subsidiary of the
Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash, then such conversion or
disposition shall be deemed to constitute Net Proceeds hereunder and shall be
applied in accordance with clauses (a) and/or (b) above. Pending the final
application of any such Net Proceeds, the Company may temporarily invest such
Net Proceeds in any manner permitted by the Indenture. Any Net Proceeds from
an Asset Sale not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds."
As soon as practical, but in no event later than 10 business days after any
date (an "Asset Sale Offer Trigger Date") that the aggregate amount of Excess
Proceeds exceeds $5,000,000, the Issuers are required to commence an offer to
purchase the maximum principal amount of Notes and other Indebtedness of the
Company that ranks pari passu in right of payment with the Notes (to the
extent required by the instrument governing such other Indebtedness) that may
be purchased out of the Excess Proceeds (an "Asset Sale Offer"). Any Notes and
other Indebtedness to be purchased pursuant to an Asset Sale Offer are
required to be purchased pro rata based on the aggregate principal amount of
Notes and such other pari passu Indebtedness outstanding and all Notes shall
be purchased at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. To the extent that any Excess Proceeds remain after completion of an
Asset Sale Offer, the Company may use the remaining amount for general
corporate purposes and the amount of Excess Proceeds shall be reset at zero.
In the event that the Issuers are prohibited under the terms of any agreement
governing outstanding Senior Debt of the Company from repurchasing Notes with
Excess Proceeds pursuant to an Asset Sale Offer as set forth in the first
sentence of this paragraph, the Company shall promptly use all Excess Proceeds
to permanently reduce such outstanding Senior Debt.
Within 30 days following any Asset Sale Offer Trigger Date, the Issuers are
required to mail to each holder of Notes at such holder's registered address a
notice stating: (i) that an Asset Sale Trigger Date has occurred and that the
Issuers are offering to purchase the maximum principal amount of Notes that
may be purchased out of the Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase (the "Asset Sale Offer Purchase Date"), which
shall be a business day, specified in such notice, that is not earlier than 30
days or later than 60 days from the date such notice is mailed, (ii) the
amount of accrued and unpaid interest as of the Asset Sale Offer Purchase
Date, (iii) that any Note not tendered will continue to accrue interest, (iv)
that, unless the Issuers default in the payment of the purchase price for the
Notes payable pursuant to the Asset Sale Offer, any Notes accepted for payment
pursuant to the Asset Sale Offer shall cease to accrue interest after the
Asset Sale Offer Purchase Date, (v) the procedures, consistent with the
Indenture, to be followed by a holder of Notes in order to accept an Asset
Sale Offer or to withdraw such acceptance, and (vi) such other information as
may be required by the Indenture and applicable laws and regulations.
On the Asset Sale Offer Purchase Date, the Issuers are required to (i)
accept for payment the maximum principal amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer that can be purchased out of Excess
Proceeds from such Asset Sale, (ii) deposit with the Paying Agent the
aggregate purchase price of all Notes or portions thereof accepted for payment
and any accrued and unpaid interest on such Notes as of the Asset Sale Offer
Purchase Date, and (iii) deliver or cause to be delivered to the Trustee all
Notes tendered pursuant to the Asset Sale Offer. If less than all Notes
tendered pursuant to the Asset Sale Offer are accepted for payment by the
Issuers for any reason consistent with the Indenture, selection of the Notes
to be purchased by the Issuers are required to be in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that Notes accepted for payment in part shall only be purchased in
integral multiples of $1,000. The Paying Agent shall promptly mail to each
holder of Notes or portions thereof accepted for payment an amount equal to
the purchase price for such Notes plus any accrued
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and unpaid interest thereon, and the Trustee is required to promptly
authenticate and mail to such holder of Notes accepted for payment in part a
new Note equal in principal amount of any unpurchased portion of the Notes,
and any Note not accepted for payment in whole or in part is required to be
promptly returned to the holder of such Note. On and after an Asset Sale Offer
Purchase Date, interest will cease to accrue on the Notes or portions thereof
accepted for payment, unless the Issuers default in the payment of the
purchase price therefor. The Issuers are required to announce the results of
the Asset Sale Offer to holders of the Notes on or as soon as practicable
after the Asset Sale Purchase Date.
The Issuers are required to comply with the applicable tender offer rules,
including the requirements of Rule 14e-l under the Exchange Act, and all other
applicable securities laws and regulations in connection with any Asset Sale
Offer.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien (other than Permitted Liens) on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign
or convey any right to receive income therefrom to secure any Indebtedness;
provided that in addition to creating Permitted Liens on its properties or
assets, (i) the Company may create any Lien upon any of its properties or
assets (including, but not limited to, any Equity Interests of its
Subsidiaries) if the Notes are equally and ratably secured thereby, and (ii) a
Subsidiary Guarantor may create any Lien upon any of its properties or assets
(including, but not limited to, any Equity Interests of its Subsidiaries) if
the Notes are equally and ratably secured thereby; provided, however, that if
(a) the Company creates any Lien on its assets to secure any Subordinated
Indebtedness of the Company, the Lien securing such Subordinated Indebtedness
shall be subordinated and junior to the Lien securing the Notes with the same
or lesser priorities as the Subordinated Indebtedness shall have with respect
to the Notes, and (b) a Subsidiary Guarantor creates any Lien on its assets to
secure any Subordinated Indebtedness of such Subsidiary Guarantor, the Lien
securing such Subordinated Indebtedness shall be subordinated and junior to
the Lien securing the Subsidiary Guarantee of such Subsidiary Guarantor with
the same or lesser priorities as the Subordinated Indebtedness shall have with
respect to the Subordinated Guarantee.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Subsidiary to (i) pay dividends or make any other
distributions to the Company or any other Subsidiary on its Equity Interests
or with respect to any other interest or participation in, or measured by, its
profits, or pay any Indebtedness owed to the Company or any other Subsidiary,
(ii) make loans or advances to the Company or any other Subsidiary, or (iii)
transfer any of its properties or assets to the Company or any other
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (a) the Senior Credit Agreement, the Notes and the Indenture or
other Indebtedness of the Company or its Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings thereof; provided that
such amendments, restatements, renewals, replacement or refinancings are no
more restrictive in the aggregate with respect to such dividend and other
payment restrictions than those contained in the Senior Credit Agreement
immediately prior to any such amendment, restatement, renewal, replacement or
refinancing, (b) applicable law, (c) any instrument governing indebtedness or
Equity Interests of an Acquired Person acquired by the Company or any of its
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred by such Acquired Person in connection
with or in contemplation of such acquisition); provided that such restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Acquired Person, (d) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (e) Purchase Money Indebtedness for property
acquired in the ordinary course of business that only imposes restrictions on
the property so acquired, (f) an agreement for the sale or disposition of the
Equity Interests or assets of any Subsidiary; provided that such restriction
is only applicable to such Subsidiary or assets, as applicable, and any sale
or disposition otherwise will be permitted under the covenant described under
"--Covenants--Limitation on Asset Sales," and provided, further, that such
restriction or encumbrance shall be effective only for a period from the
execution and delivery of such agreement through a termination date not later
than 270 days after such execution and delivery, (g) Refinancing Indebtedness
permitted under the Indenture; provided that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more restrictive in
the aggregate than those contained in the agreements governing the
Indebtedness being refinanced immediately prior to such refinancing or (h) the
Indenture.
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Limitation on Transactions with Affiliates. The Company and each Subsidiary
are prohibited from directly or indirectly entering into or suffering to exist
any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the Company (other than the Company or Wholly
Owned Subsidiary) unless (i) such transaction or series of transactions is on
terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than would be available in a comparable transaction in arm's-
length dealings with an unrelated third party, and (ii) (a) with respect to
any transaction or series of transactions involving aggregate payments in
excess of $1,000,000, the Company delivers an Officer's Certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the members of the Board of
Directors of the Company (and approved by a majority of the Independent
Directors or, in the event there is only one Independent Director, by such
Independent Director), and (b) with respect to any transaction or series of
transactions involving aggregate payments in excess of $5,000,000, an opinion
as to the fairness to the Company or such Subsidiary from a financial point of
view issued by an investment banking firm of national standing.
Notwithstanding the foregoing, this provision will not apply to (A) employment
agreements or compensation or employee benefit arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder), (B) the Management
Agreement with Rifkin & Associates as in effect on the Issue Date, including
any amendment or extension thereof that does not increase the amount of or
accelerate the timing of payment thereunder, provided that the annual amount
of the management fee may be increased to a level no greater than 5% of
revenues of the Company, if, giving pro forma effect to such fee for the
latest fiscal quarter for which financial statements are available ending not
more than 135 days prior to the date such fee is increased, the Company could
incur $1.00 of additional indebtedness on the last day of such fiscal quarter
under the debt incurrence test in the Indenture described in the first
paragraph under "--Covenants--Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Equity Interest, (C) payments to VS&A not to exceed
$50,000 in any year for monitoring and other services pursuant to the
Partnership Agreement as in effect on the Issue Date, (D) payments to General
Partner of certain deferred management fees pursuant to the Partnership
Agreement as in effect on the Issue Date, (E) the Purchase Agreement, (F) any
payments made under the Equity Incentive Plan (on the terms of such plan as in
effect as of the Issue Date), provided that such payments do not exceed (i)
$150,000 in any year or (ii) an aggregate amount of $1,000,000 from the Issue
Date through the date of such payment; (G) payments on the Rifkin Note, (H)
the fee of $620,000 payable to Rifkin & Associates in connection with the
assignment of a right of first refusal to acquire the Mid-Tennessee Systems,
and (I) any transaction entered into by or among the Company or one of its
Wholly Owned Subsidiaries with one or more Wholly Owned Subsidiaries of the
Company.
Limitation on Incurrence of Senior Subordinated Indebtedness. The Indenture
provides that (i) the Issuers will not, directly or indirectly, incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinated or junior in right of payment to any Senior Debt of the
Issuers and senior in any respect in right of payment to the Notes, and (ii)
the Company will not, directly or indirectly, permit any Subsidiary Guarantor
to incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinated or junior in right of payment to its Senior
Debt and senior in any respect in right of payment to its Subsidiary
Guarantee.
Limitation on Guarantees of Indebtedness by Subsidiaries. The Indenture
provides that in the event that any Subsidiary, directly or indirectly,
guarantees any Indebtedness of the Company other than the Notes (the "Other
Indebtedness") the Company shall cause such Subsidiary to concurrently
guarantee (an "Additional Guarantee") the Company's Obligations under the
Indenture and the Notes to the same extent that such Subsidiary guaranteed the
Company's Obligations under the Other Indebtedness (including waiver of
subrogation, if any); provided that if such Other Indebtedness is (i) Senior
Debt, the Additional Guarantee shall be subordinated in right of payment to
the guarantee of such Other Indebtedness, in the same manner and to the same
extent as the Subsidiary Guarantees are subordinated to Senior Debt pursuant
to the subordination provisions of the Indenture, and such Additional
Guarantee shall be on the same terms and subject to the same conditions as the
Initial Guarantees given under the Indenture, (ii) Senior Subordinated
Indebtedness, the
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Additional Guarantee shall be pari passu in right of payment with the
guarantee of the Other Indebtedness, or (iii) Subordinated Indebtedness, the
Additional Guarantee shall be senior in right of payment to the guarantee of
the Other Indebtedness, provided, however, that each subsidiary issuing an
Additional Guarantee will be automatically and unconditionally released and
discharged from its obligations under such Additional Guarantee upon the
release or discharge of the guarantee of the Other Indebtedness that resulted
in the creation of such Additional Guarantee, except (i) a discharge or
release by, or as a result of, any payment under the guarantee of such Other
Indebtedness by such Additional Guarantor or (ii) a discharge or release of an
Initial Guarantee or a guarantee given pursuant to the Senior Credit
Agreement.
Limitation on Subsidiary Equity Interests. The Indenture provides that the
Company will not permit any Subsidiary of the Company to issue any Equity
Interests, except for (i) Equity Interests issued to and held by the Company
or a Wholly Owned Subsidiary, and (ii) Equity Interests issued by a Person
prior to the time (a) such Person becomes a Subsidiary, (b) such Person merges
with or into a Subsidiary or (c) a Subsidiary merges with or into such Person;
provided that such Equity Interests are not issued by such Person in
anticipation of the type of transaction contemplated by clauses (a), (b) or
(c).
Future Subsidiary Guarantors. If the Company or any of its Subsidiaries
transfers or causes to be transferred, in one transaction or a series of
related transactions, any property to any Subsidiary that is not a Guarantor,
or if the Company or any of its Subsidiaries shall organize, acquire or
otherwise invest in another Subsidiary having total assets with a book value
in excess of $500,000, then such transferee or acquired or other Subsidiary
shall (i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Subsidiary is
required to unconditionally guarantee all of the Company's obligations under
the Notes and the Indenture on the terms set forth in the Indenture and (ii)
deliver to the Trustee an opinion of counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Subsidiary. Thereafter, such Subsidiary shall be a Guarantor for all purposes
of the Indenture.
Provision of Financial Statements. The Indenture provides that, whether or
not the Issuers are then subject to Section 13(a) or 15(d) of the Exchange
Act, the Issuers will file with the Commission, so long as any Notes are
outstanding, the annual reports, quarterly reports and other periodic reports
which the Issuers would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) if the Issuers were so subject, and
such documents shall be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so subject. The
Company is also required to in any event (i) within 15 days of each Required
Filing Date, (a) transmit by mail to all holders of Notes, as their names and
addresses appear in the Note register, without cost to such holders and (b) to
file with the Trustee copies of the annual reports, quarterly reports and
other periodic reports which the Company would have been required to file with
the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the
Company were subject to such Sections and (ii) if filing such documents by the
Company with the Commission is prohibited under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective holder at the
Company's cost.
Conduct of Business. The Indenture provides that the Company and its
Subsidiaries may not, directly or indirectly, engage in any business other
than the transmission of video, voice or data over cable television facilities
and any other activity reasonably related to such activities.
Limitation on Conduct of Business of Rifkin Acquisition Capital Corp. The
Indenture provides that RACC will not acquire any operating assets or other
properties or conduct any businesses other than to serve as Issuer and obligor
of the Notes.
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MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that neither of the Issuers shall consolidate or
merge with or into (whether or not such Issuer is the Surviving Person), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person unless (i) the Surviving Person is a
corporation, limited partnership, limited liability company, or limited
liability limited partnership organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the
Surviving Person (if other than such Issuer) assumes all the obligations of
such Issuer under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) at the time
of and immediately after such Disposition, no Default or Event of Default
shall have occurred and be continuing; and (iv) the Surviving Person will (A)
have Consolidated Net Worth (immediately after giving effect to the
Disposition on a pro forma basis) equal to or greater than the Consolidated
Net Worth of the Company immediately preceding the transaction, and (B) at the
time of such Disposition and after giving pro form effect thereto, the
Surviving Person would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described under
"--Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Equity Interests."
Subject to the requirements of the immediately preceding paragraph, the
Indenture provides that in the event of a sale of all or substantially all of
the assets of any Subsidiary Guarantor or all of the Equity Interests of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, then the
Surviving Person of any such merger or consolidation, or such Subsidiary
Guarantor, if all of its Equity Interests is sold, shall be released and
relieved of any and all obligations under the Subsidiary Guarantee of such
Subsidiary Guarantor if (i) the person or entity surviving such merger or
consolidation or acquiring the Equity Interests of such Subsidiary Guarantor
is not a Subsidiary of the Company, and (ii) the Net Proceeds from such sale
are used after such sale in a manner that complies with the provisions of the
covenant described under "--Covenants--Limitation on Asset Sales" concerning
the disposition of Net Proceeds from an Asset Sale. Except as provided in the
preceding sentence, the Indenture provides that no Subsidiary Guarantor shall
consolidate with or merge with or into another Person, whether or not such
Person is affiliated with such Subsidiary Guarantor and whether or not such
Subsidiary Guarantor is the Surviving Person, unless (i) the Surviving Person
is a corporation, limited partnership, limited liability company, or limited
liability limited partnership organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the
Surviving Person (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) at the time of and immediately after such Disposition, no
Default or Event of Default shall have occurred and be continuing; and (iv)
the Surviving Person will have Consolidated Net Worth (immediately after
giving pro form effect to the Disposition) equal to or greater than the
Consolidated Net Worth of such Subsidiary Guarantor immediately preceding the
transaction; provided, however, that clause (iv) of this paragraph shall not
be a condition to a merger or consolidation of a Subsidiary Guarantor if such
merger or consolidation only involves the Company and/or one or more Wholly
Owned Subsidiaries of the Company.
The Indenture provides that in the event of any transaction (other than a
lease) described in and complying with the conditions listed in the
immediately preceding paragraphs in which an Issuer or any Subsidiary
Guarantor is not the Surviving Person and the Surviving Person is to assume
all the obligations of such Issuer or any such Subsidiary Guarantor under the
Notes and the Indenture pursuant to a supplemental indenture, such Surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of, such Issuer or such Subsidiary Guarantor, as the case may be,
and such Issuer or such Subsidiary Guarantor, as the case may be, shall be
discharged from its obligations under the Indenture, the Notes or its
Subsidiary Guarantee, as the case may be.
EVENTS OF DEFAULT
The Indenture provides that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest on any Note
(whether or not prohibited by the subordination provisions of the Indenture);
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(ii) a default in the payment when due of principal on any Note (whether or
not prohibited by the subordination provisions of the Indenture), whether upon
maturity, acceleration, optional or mandatory redemption, required repurchase
or otherwise;
(iii) failure to perform or comply with any covenant, agreement or warranty
in the Notes or the Indenture described herein under "--Change of Control,"
"--Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Equity Interests," "--Covenants--Limitation on Restricted
Payments," "--Covenants--Limitation on Asset Sales," and "Merger,
Consolidation and Sale of Assets;"
(iv) failure to perform or comply with any other covenant, agreement or
warranty in the Notes or the Indenture for 30 days after written notice
thereof has been given to the Issuers by the Trustee or to the Issuers and the
Trustee by the holders of at least 25% in aggregate principal amount of the
then outstanding Notes;
(v) the occurrence of one or more defaults under any agreements, indentures
or instruments under which the Company, any Subsidiary Guarantor or any other
Subsidiary then has outstanding Indebtedness in excess of $5,000,000 in the
aggregate and, if not already matured at its final maturity in accordance with
its terms, such Indebtedness shall have been accelerated;
(vi) except as permitted by the Indenture, any Subsidiary Guarantee shall
for any reason cease to be, or be asserted in writing by any Subsidiary
Guarantor or either Issuer not to be, in full force and effect, and
enforceable, subject to the limitations on the amount of each Subsidiary
Guarantee contained therein, in accordance with its terms;
(vii) one or more judgments, orders or decrees for the payment of money in
excess of $5,000,000, either individually or in the aggregate (net of amounts
covered by reputable and creditworthy insurance company, or by bond, surety or
similar instrument) shall be entered against the Company, and Subsidiary
Guarantor or any other Subsidiary or any of their respective properties and
which judgments, orders or decrees are not paid, discharged, bonded or stayed
for a period of 60 days after their entry;
(viii) any holder or holders of at least $5,000,000 in aggregate principal
amount of Indebtedness of the Company, any Subsidiary Guarantor or any other
Subsidiary, after a default under such Indebtedness shall notify the Trustee
of the intended sale or disposition of any assets of the Company or any
Subsidiary Guarantor with an aggregate fair market value (as determined in
good faith by the Company's Board of Directors) of at least $500,000 that have
been pledged to or for the benefit of such holder or holders to secure such
Indebtedness or shall commence proceedings, or take any action (including by
way of setoff), to retain in satisfaction of such Indebtedness or to collect
on, seize, dispose of or apply in satisfaction of such Indebtedness, such
assets of the Company, any Subsidiary Guarantor or any other Subsidiary
(including funds on deposit or held pursuant to lock-box and other similar
arrangements) which continues for five business days after notice has been
given to the Company and the representative of such Indebtedness and the
Senior Bank Debt;
(ix) there shall have been the entry by a court of competent jurisdiction of
(a) a decree or order for relief in respect of the Company, any Subsidiary
Guarantor or any other Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (b) a decree or order adjudging the Company,
any Subsidiary Guarantor or any other Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company, any Subsidiary Guarantor or any other Subsidiary under
any applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Company, any Subsidiary Guarantor or any other Subsidiary or of any
substantial part of their respective properties, or ordering the winding up or
liquidation of their affairs, and any such decree or order for relief shall
continue to be in effect, or any such other decree or order shall be unstayed
and in effect, for a period of 60 days; or
(x) (a) the Company, any Subsidiary Guarantor or any other Subsidiary
commences a voluntary case or proceeding under any applicable Bankruptcy Law
or any other case or proceeding to be adjudicated bankrupt or insolvent, (b)
the Company, any Subsidiary Guarantor or any other Subsidiary consents to the
entry of a decree or order for relief in respect of the Company, such
Subsidiary Guarantor or such Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or to the commencement of any bankruptcy
or insolvency case or proceeding against it, (c) the Company, any Subsidiary
Guarantor or any other Subsidiary files a petition or answer or consent
seeking reorganization or relief under any applicable federal or state law,
(d)
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the Company, any Subsidiary Guarantor or any other Subsidiary (x) consents to
the filing of such petition or the appointment of or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company, such Subsidiary Guarantor or such Subsidiary
or of any substantial part of their respective property, (y) makes an
assignment for the benefit of creditors or (z) admits in writing its inability
to pay its debts generally as they become due or (e) the Company, any
Subsidiary Guarantor or any other Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (x).
If any Event of Default (other than as specified in clauses (ix) or (x) of
the preceding paragraph) occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the then outstanding Notes
may, and the Trustee at the request of such holders shall, after five business
days' prior notice to the representative of the Senior Bank Debt declare all
the Notes to be due and payable immediately. In the case of an Event of
Default arising from the events specified in clauses (ix) or (x) of the
preceding paragraph, the principal of, premium, if any, and any accrued and
unpaid interest on all outstanding Notes shall ipso facto become immediately
due and payable without further action or notice.
The holders of a majority in aggregate amount of the Notes then outstanding
by notice to the Trustee may on behalf of the holders of all of the Notes
waive any existing Default or Event of Default and its consequences under the
Indenture except (i) a continuing Default or Event of Default in the payment
of the principal of, or premium, if any, or interest on, the Notes (which may
only be waived with the consent of each holder of Notes affected) or (ii) in
respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note
outstanding. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal, premium or interest)
if it determines that withholding notice is in their interest.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND PARTNERS
The Indenture provides that no past, present or future director, officer,
employee, incorporator, stockholder or limited or general partner of the
Issuers or any of their subsidiaries shall have any liability for any
obligation of the Issuers or any of their subsidiaries under the Indenture or
the Notes or for any claim based on, in respect of, or by reason of, any such
obligation or the creation of any such obligation. Each Holder by accepting a
Note waives and releases such Persons from all such liability and such waiver
and release is part of the consideration for the issuance of the Notes.
DEFEASANCE
The Indenture provides that (i) the Issuers will be discharged from any and
all obligations in respect of the Notes and the Subsidiary Guarantors will be
released from their Subsidiary Guarantees ("defeasance") or (ii) the payment
of the Notes may not be accelerated upon an Event of Default specified in
clauses (iii), (iv), (v), (vi) (vii) or (viii) of "--Events of Default"
("covenant defeasance"), in either case (i) or (ii) upon irrevocable deposit
with the Trustee, in trust, of money and/or U.S. government obligations which
will provide money in an amount sufficient in the opinion of a nationally
recognized accounting firm to pay the principal of, premium, if any, and each
installment of interest, if any, on the Notes. With respect to covenant
defeasance under clause (ii), the obligations under the Indenture (other than
the covenants that are the subject of such covenant defeasance) and the Events
of Default (other than the Event of Default specified above) shall remain in
full force and effect. Such trust may only be established if, among other
things, (i) (a) with respect to defeasance, the Issuers have received from, or
there has been published by, the Internal Revenue Service a ruling or there
has been a change
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in applicable federal income tax law, which in the Opinion of Counsel provides
that holders of the Notes will not recognize gain or loss for federal income
tax purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount, in the same manner and at
the same time as would have been the case if such deposit, defeasance and
discharge had not occurred, or (b) with respect to covenant defeasance, the
Issuers have delivered to the Trustee an Opinion of Counsel to the effect that
holders of the Notes will not recognize gain or loss for federal income tax
purposes as a result of such deposit and covenant defeasance and will be
subject to federal income tax on the same amount, in the same manner and at
the same time as would have been the case if such deposit and covenant
defeasance had not occurred; (ii) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof (and,
unless concurrently with such deposit notice shall have been given of
redemption of all of the Notes on a date within 60 days of such deposit, no
Default or Event of Default specified in clauses (ix) or (x) of the first
paragraph under "Events of Default" shall have occurred at any time during the
period ending on the 91st day after the date of such deposit in trust); (iii)
the Issuers have delivered to the Trustee an Opinion of Counsel to the effect
that such deposit shall not cause the Trustee or the trust so created to be
subject to the Investment Company Act of 1940; and (iv) certain other
customary conditions precedent shall have been satisfied.
TRANSFER AND EXCHANGE
The registered holder of a Note will be treated as the Owner of it for all
purposes. A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. Neither the Issuers, on the one hand, nor the
Registrar, on the other hand, shall be required to issue, register the
transfer of or exchange any Note (i) during a period beginning at the opening
of business on the day that the Trustee receives notice of any redemption from
the Issuers and ending at the close of business on the day the notice of
redemption is sent to holders, (ii) selected for redemption, in whole or in
part, except the unredeemed portion of any Note being redeemed in part may be
transferred or exchanged, and (iii) during a Change of Control Offer or an
Asset Sale Offer if such Note is tendered pursuant to such Change of Control
Offer or Asset Sale Offer and not withdrawn.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture or the Notes
may be amended or supplemented with the written consent of the holders of at
least a majority in aggregate principal amount of the then outstanding Notes,
and any existing Default or Event of Default or compliance with any provision
of the Indenture or the Notes may be waived with the consent of the holders of
a majority in principal amount of the then outstanding Notes.
Without the consent of each holder affected, an amendment or waiver shall
not: (i) reduce the principal amount of the Notes whose holders must consent
to an amendment, supplement or waiver, (ii) reduce the principal of or change
the fixed maturity of any Note, or alter the provisions with respect to the
redemption of the Notes in a manner adverse to the holders of the Notes, (iii)
reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a Default or Event of Default in the payment of principal of,
premium, if any, or interest on, the Notes (except that holders of at least a
majority in aggregate principal amount of the then outstanding Notes may (a)
rescind an acceleration of the Notes that resulted from a non-payment default,
and (b) waive the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of holders of Notes to receive payments of principal
of, or premium, if any, or interest on, the Notes, (vii) waive a redemption
payment with respect to any Note, (viii) make any change to the subordination
provisions of the Indenture that adversely affects holders, or (ix) make any
change in the foregoing amendment and waiver provisions.
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Notwithstanding the foregoing without consent of any holder of Notes, the
Issuers, Subsidiary Guarantors and the Trustee may amend or supplement the
Indenture or the Notes (i) to cure any ambiguity, defect or inconsistency,
(ii) to provide for uncertificated Notes in addition to or in place of
certificated Notes, (iii) to provide for the assumption of the Issuers'
obligations to holders of the Notes in the event of any Disposition involving
either Issuer in which such Issuer is not the Surviving Person, (iv) to make
any change that would provide any additional rights or benefits to the holders
of the Notes or that does not adversely affect the interests of any such
holder, or (v) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
THE TRUSTEE
In the event that the Trustee becomes a creditor of either Issuer, the
Indenture contains certain limitations on the rights of the Trustee to obtain
payment of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee, or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
has occurred and has not been cured, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. The Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY; DELIVERY AND FORM
Old Notes initially purchased by qualified institutional buyers were
initially represented by a single, global Note in registered form, registered
in the name of a nominee of The Depository Trust Company ("DTC"), as
depository. The Exchange Notes exchanged for Old Notes represented by the
global Note will be represented by one or more global Exchange Notes in
registered form (the "Global Note"), registered in the name of the nominee of
DTC. Exchange Notes issued to non-qualified institutional buyers in exchange
for Old Notes held by such investors will be issued only in certificated, full
registered, definitive form ("Certificated Notes"). Except as described
herein, Exchange Notes in the form of Certificated Notes will not be issued in
exchange for the global Exchange Note(s) or interests therein.
Global Note. The Company expects that upon the issuance of the Global Note,
DTC or its custodian will credit, on its book-entry registration and transfer
system, the respective principal amount of Exchange Notes of the individual
beneficial interest represented by such Global Note to the accounts of Persons
who have accounts with such depositary. Ownership of beneficial interests in
the Global Note will be limited to Persons who have accounts with DTC
("participants") or Persons who hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee (with respect to interests of participants) and the records of
participants (with respect to interests of Persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and Exchange Notes. No beneficial owner of an
interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and premium, if any, and interest on, the
Global Note will be made to DTC or its nominee, as they case may be, as the
registered owner thereof. Neither the Company, the Trustee nor any
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Paying Agent will have any responsibility for liability for any aspect of the
record relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
record relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
The Company expects that transfers between participants in DTC will be
effected in the ordinary way in accordance with DTC rules and will be settled
in clearinghouse funds. If a holder requires physical delivery of a
Certificated Note for any reason, including to sell Notes to Persons in states
which require physical delivery of such Notes or to pledge such Notes, such
holder must transfer its interest in the Global Note in accordance with the
normal procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interest in the Global Note is credited
and only in respect of such portion of the aggregate principal amount of
Exchange Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Notes or
the Indenture, DTC will exchange the Global Note for Certificated Notes, which
it will distribute to its participants.
To the Company's knowledge, DTC is a limited purpose trust company 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 Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers
(including the Initial Purchasers), banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC customarily agrees to the foregoing procedures in order to
facilitate transfers of interest in global notes among participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, or if the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in definitive registered form, Certificated Notes will be issued in
exchange for the Global Note. All Certificated Notes issued pursuant to the
Indenture will be issued in fully registered form, without coupons, in minimum
denominations of $250,000 and integral multiples of $1,000 above that amount.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for the full definition of all such terms, as well as
any other terms used herein for which no definition is provided.
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"Acquired Debt" means with respect to any specified Person, Indebtedness of
any other Person (the "Acquired Person") existing at the time the Acquired
Person merges with or into, or becomes a Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of,
the Acquired Person merging with or into, or becoming a Subsidiary of, such
specified Person.
"Additional Guarantee" means any guarantee of the Issuers' obligations under
the Indenture and the Notes issued after the Issue Date as described in "--
Covenants--Limitation on Guarantees of Indebtedness by Subsidiaries."
"Additional Guarantor" means any Subsidiary of the Company that guarantees
the Issuers' obligations under the Indenture and the Notes issued after the
Issue Date as described in "--Covenants--Limitation on Guarantees of
Indebtedness by Subsidiaries" and "--Covenants--Future Subsidiary Guarantors."
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with") of any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through
the ownership of voting securities, by agreement or otherwise. For purposes of
the provisions described under "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitations on Asset Sales" only,
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Equity Interests (on a fully
diluted basis) of the Company or of rights or warrants to purchase such Voting
Equity Interests (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Sale" means, (i) any sale, lease, conveyance or other disposition by
the Company or any Subsidiary of any assets (including by way of a sale-and-
leaseback) other than in the ordinary course of business (provided that the
sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company shall not be an "Asset Sale" but instead shall be
governed by the provisions of the Indenture described under "--Merger,
Consolidation and Sale of Assets"), or (ii) the issuance or sale of Equity
Interests of any Subsidiary, in each case, whether in a single transaction or
a series of related transactions, to any Person (other than to the Company or
a Wholly Owned Subsidiary) for Net Proceeds in excess of $500,000.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors, or any amendment to, succession to or change in any such
law.
"Board of Directors" means the board of directors, advisory committee,
management committee or similar governing body or any authorized committee
thereof responsible for the management of the business and affairs of any
Person.
"Capital Lease Obligation" of any Person means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease for property leased by such Person that would at such time be
required to be capitalized on the balance sheet of such Person in accordance
with GAAP.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition, issued, fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit,
time deposits, overnight bank deposits, bankers' acceptances and repurchase
agreements issued by a Qualified Issuer having maturities of 270 days or less
from the date of acquisition, (c) commercial paper of an issuer rated at least
A-1 by Standard & Poor's Rating Group Division of McGraw Hill Incorporated or
P-1 by Moody's Investors Service, Inc., or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, and having maturities of 270 days or
less from the date of acquisition, and (d) money market accounts or funds with
or issued by Qualified Issuers.
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"Change of Control" means the occurrence of any of the following events: (a)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have beneficial ownership of all shares that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the voting power of the total outstanding Voting Interests of
the Company or the General Partner; (b) the Company or the General Partner
consolidates with, or merges with or into, another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any Person, or any Person consolidates with, or merges with
or into, the Company or the General Partner, in any such event pursuant to a
transaction in which the outstanding Voting Interest of the Company or General
Partner are converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting
Interests of the Company or the General Partner is converted into or exchanged
for (A) Voting Interests (other than Disqualified Equity Interests) of the
surviving or transferee person or (B) cash, securities and other property in
an amount that could be paid by the Company as a Restricted Payment under the
Indenture and (ii) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than Permitted Holders, is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed
to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
Voting Interests of the surviving or transferee; (c) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company or the General Partner (together with
any new directors whose election to such Board of Directors was approved by a
vote of 66 % of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of
such Board of Directors then in office; or (d) the admission of any Person as
a general partner of the Company after which the General Partner does not have
the sole power to take all of the actions which the General Partner is
entitled to or required to take under the Partnership Agreement, as in effect
on the Issue Date; provided, however, no "change of control" will be deemed to
have occurred hereunder to the extent that (i) such "change of control" would
be solely caused by events affecting the General Partner (including, but not
limited to, the death or disability of Monroe M. Rifkin or his withdrawal from
the business of the General Partner or the removal or change of control of the
General Partner), and (ii) after the occurrence of such an event affecting the
General Partner, and for a period of one year thereafter, (A) at least 70% of
the limited partnership interests of the Company are held by the same Persons
in equal or greater amounts as were held by such Persons prior to such event
affecting the General Partner and (B) VS&A Communications Partners II L.P.
shall hold an equal or greater share of the partnership interests of the
Company as it held prior to the event affecting the General Partner.
"Company" means Rifkin Acquisition Partners, L.L.L.P., a Colorado limited
liability partnership, unless and until a successor replaces it in accordance
with the Indenture and thereafter means such successor.
"Consolidated Interest Expense" means, with respect to any period, the sum
of (i) the interest expense of the Company and its Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP
consistently applied, including, without limitation, (a) amortization of debt
discount, (b) the net payments, if any, under interest rate contracts
(including amortization of discounts), (c) the interest portion of any
deferred payment obligation and (d) accrued interest, plus (ii) the interest
component of the Capital Lease Obligations paid, accrued and/or scheduled to
be paid or accrued by the Company during such period, and all capitalized
interest of the Company and its Subsidiaries, in each case as determined on a
consolidated basis in accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP consistently applied, adjusted, to
the extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains but not extraordinary losses
(less all fees and expenses relating thereto),
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(ii) the portion of net income (or loss) of the Company and its Subsidiaries
allocable to interests in unconsolidated Persons except to the extent of the
amount of dividends or distributions actually paid to the Company or its
Subsidiaries by such other Person during such period, (iii) net income (or
loss) of any Person combined with the Company or any of its Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (iv) net gain but not losses (less all fees and expenses relating
thereto) in respect of dispositions of assets (including, without limitation,
pursuant to sale and leaseback transactions) other than in the ordinary course
of business, or (v) the net income of any Subsidiary (other than a Subsidiary
Guarantor) to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income to the Company is not at the
time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its Equity
Interest Holders.
"Consolidated Net Worth" means, with respect to any Person on any date, the
equity of the holders of the Equity Interests (excluding any Disqualified
Equity Interests) of such Person and its Subsidiaries as of such date,
determined on a consolidated basis in accordance with GAAP consistently
applied.
"Consolidated Total Indebtedness" means, with respect to any Person, on any
date, without duplication, the aggregate outstanding principal amount of
Indebtedness of such Person and its Subsidiaries.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from the Issue Date to the end of
the Company's most recently ended full fiscal quarter prior to such date,
taken as a single accounting period.
"Cumulative Operating Cash Flow" means, as at any date of determination, the
positive cumulative Operating Cash Flow realized during the period commencing
on the Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of determination for which consolidated
financial information of the Company is available or, if such cumulative
Operating Cash Flow for such period is negative, the negative amount by which
cumulative Operating Cash Flow is less than zero.
"Debt to Operating Cash Flow Ratio" means, as to any Person, the ratio of
(i) the Consolidated Total Indebtedness of such Person as of the date of
calculation (the "Determination Date") to (ii) four times the Operating Cash
Flow of such Person for the latest fiscal quarter for which financial
information is available ending not more than 135 days prior to the
transaction or event giving rise to the need to calculate the Debt to
Operating Cash Flow Ratio (such period, the "Measurement Period").
For purposes of this definition, the Consolidated Total Indebtedness of the
Person as of the Determination Date shall be the amount of Consolidated Total
Indebtedness as would appear on a balance sheet of the Company prepared in
accordance with GAAP at the Determination Date and adjusted as if the
Indebtedness giving rise to the need to perform such calculation had been
incurred and the proceeds therefrom had been applied on the Determination
Date. For purposes of calculating Operating Cash Flow of the Company for the
Measurement Period immediately prior to the relevant Determination Date, (I)
any Person that is a Subsidiary on such Determination Date (or would become a
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such ratio) will be deemed to have been a
Subsidiary at all times during such Measurement Period, (II) any Person that
is not a Subsidiary on such Determination Date (or would cease to be a
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such ratio) will be deemed not to have been a
Subsidiary at any time during such Measurement Period, and (III) if the
Company or any Subsidiary shall have in any manner (x) acquired (including
through an asset acquisition or the commencement of activities constituting
such operating business) or (y) disposed of (including by way of an Asset Sale
or the termination or discontinuance of activities constituting such operating
business) of any operating business during the Measurement Period or after the
end of such Measurement Period and on or prior to the Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP as if,
in the case of an asset acquisition or the commencement of activities
constituting such operating business, all such transactions had been
consummated on the first day of such Measurement Period and, in the case of an
Asset Sale or termination or discontinuance of activities constituting such
operating
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business, all such transactions had been consummated prior to the first day of
such Measurement Period; provided, however, that such pro forma adjustment
shall not give effect to the Operating Cash Flow of any acquired Person to the
extent that such Person's net income would be excluded pursuant to clause (v)
of the definition of Consolidated Net Income.
"Default" means any event that is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Designated Senior Debt" means (i) the Senior Bank Debt, and (ii) any other
Senior Debt of the Company permitted to be incurred under the Indenture the
principal amount of which is $25,000,000 or more at the time of the
designation of such Senior Debt as "Designated Senior Debt" by the Company in
a written instrument delivered to the Trustee.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such
Person is the Surviving Person) or the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of such Person's
assets.
"Disqualified Equity Interests" means any Equity Interests that, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof (other than upon a change of
control of the Company in circumstances where the holders of the Notes would
have similar rights), in whole or in part on or prior to the stated maturity
of the Notes.
"Equity Interest" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited,
of such Person, including any Preferred Equity Interests.
"Equity Market Capitalization" of any Person means the aggregate market
value of the outstanding Equity Interests (other than Preferred Equity
Interests and excluding any such Equity Interests held in treasury by such
Person) of such Person. For purpose of this definition the "market value" of
any such Equity Interests shall be (i) the average of the high and low sale
prices, or if no sales are reported, the average of the closing bid and ask
prices, as reported in the composite transactions or the principal national
securities exchange on which such Equity Interests is listed or admitted to
trading or, if such Equity Interests is not listed or admitted to trading on a
national securities exchange, as reported by NASDAQ, for each trading day in a
20 consecutive day period ending not more than 45 days prior to the date such
Person commits to make an investment in the Equity Interests of the Company or
(ii) if such Equity Interests is not listed as admitted for trading on any
national securities exchange or NASDAQ, the fair market value of the common
equity capital of such Person as determined by the written opinion of an
investment banking firm of national standing delivered to the Trustee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means a series of notes having terms substantially
identical to the Notes issued pursuant to an exchange offer for the Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"General Partner" means Rifkin Acquisition Management, L.P., a Colorado
limited partnership.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture or similar instrument, (ii) all Capital
Lease Obligations of such Person, (iii) all obligations of such Person in
respect of letters of credit or bankers' acceptances issued or created for the
account of such Person, (iv) all Interest Rate Agreement Obligations of such
Person, (v) all liabilities secured by any Lien on any property owned by such
Person even if such Person has not assumed or otherwise become liable for the
payment thereof to the extent of the value of the property subject to such
Lien, (vi) all obligations to purchase, redeem, retire, or otherwise acquire
for value any Equity Interests of such Person, or any warrants, rights or
options to acquire such Equity Interests, now or hereafter outstanding, (vii)
to the extent not included in (vi), all Disqualified Equity Interests issued
by such Person, valued at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends thereon, and (viii)
to the extent not otherwise included, any guarantee by such Person of any
other Person's indebtedness or other obligations described in clauses (i)
through (vii) above. "Indebtedness" of the Company and its Subsidiaries shall
not include current trade payables incurred in the ordinary course of business
and payable in accordance with customary practices, and non-interest bearing
installment obligations and accrued liabilities incurred in the ordinary
course of business which are not more than 90 days past due. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Equity
Interests which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Equity Interests as if such
Disqualified Equity Interests were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by the fair market value of, such
Disqualified Equity Interests, such fair market value is to be determined in
good faith by the board of directors of the issuer of such Disqualified Equity
Interests.
"Independent Director" means a member of the Board of Directors of an Issuer
other than a Person (i) who (apart from being a director of an Issuer or any
Subsidiary) is an employee, associate or Affiliate of the Issuer or a
Subsidiary or has held any such position during the previous five years, or
(ii) who is a director, employee, associate or Affiliate of another party to
the transaction in question.
"Initial Guarantees" means the guarantees of the Issuers' obligations under
the Indenture and the Notes by the Initial Guarantors.
"Initial Guarantors" means Cable Equities of Colorado, Ltd.,
Rifkin/Tennessee, Ltd., Cable Equities of Colorado Management Corp., Cable
Equities, Inc. and FNI Management Corp.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Interest Rate Agreement Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreement, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates of such Person) in the form of
loans, Guarantees, advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in any asset and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
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"Net Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate cash proceeds received by such Person and/or its Affiliates in
respect of such Asset Sale, which amount is equal to the excess, if any, of
(i) the cash received by such Person and/or its Affiliates (including any cash
payments received by way of deferred payment pursuant to, or monetization of,
a note or installment receivable or otherwise, but only as and when received)
in connection with such Asset Sale, over (ii) the sum of (a) the amount of any
Indebtedness that is secured by such asset and which is required to be repaid
by such Person in connection with such Asset Sale, plus (b) all fees,
commissions and other expenses incurred by such Person in connection with such
Asset Sale, plus (c) provision for taxes, including income taxes, attributable
to the Asset Sale or attributable to required prepayments or repayments of
Indebtedness with the proceeds of such Asset Sale, plus (d) a reasonable
reserve for the after-tax cost of any indemnification payments (fixed or
contingent) attributable to seller's indemnities to purchaser in respect of
such Asset Sale undertaken by the Company or any of its Subsidiaries in
connection with such Asset Sale plus (e) if such Person is a Subsidiary, any
dividends or distributions payable to holders of minority interests in such
Subsidiary from the proceeds of such Asset Sale.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Operating Cash Flow" means, with respect to any period, the Consolidated
Net Income of the Company and its Subsidiaries for such period, plus (i)
extraordinary net losses and net losses realized on any sale of assets during
such period, to the extent such losses were deducted in computing Consolidated
Net Income, plus (ii) provision for taxes based on income or profits, to the
extent such provision for taxes was included in computing such Consolidated
Net Income, and any provision for taxes utilized in computing the net losses
under clause (i) hereof, plus (iii) Consolidated Interest Expense of the
Company and its Subsidiaries for such period, plus (iv) depreciation,
amortization and all other non-cash charges (other than non-cash charges which
represent accruals or reserves for cash charges in future periods), to the
extent such depreciation, amortization and other non-cash charges were
deducted in computing such Consolidated Net Income (including amortization of
goodwill and other intangibles).
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee.
"Permitted Holders" means (a) Monroe M. Rifkin; (b) VS&A Communications
Partners II, L.P., a Delaware limited partnership, and its Affiliates; (c) any
Person controlled by any of the Persons described in clauses (a) and (b); and
(d) (i) the spouse or children of the Person named in clause (a) and any trust
for the benefit of any such Person or such Person's spouse or children,
provided that, with respect to any such trust, such Person retains, as trustee
or by some other means, the sole authority to vote any Voting Interests owned
by such trust, and (ii) such Person's executor, administrator and heirs. For
purposes of this definition, "control," as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities or by contract or otherwise.
"Permitted Investments" means (i) any Investment in the Company, a
Subsidiary Guarantor or any Wholly Owned Subsidiary; (ii) any Investment in
Cash Equivalents; (iii) any Investment in a Person (an "Acquired Person") if,
as a result of such Investment, (a) the Acquired Person becomes a Wholly Owned
Subsidiary of the Company, or (b) the Acquired Person either (1) is merged,
consolidated or amalgamated with or into the Company, a Subsidiary Guarantor
or one of its Wholly Owned Subsidiaries and the Company, a Subsidiary
Guarantor or such Wholly Owned Subsidiary is the Surviving Person, or (2)
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company, a Subsidiary Guarantor or one of its Wholly Owned
Subsidiaries; (iv) Investments in accounts receivable acquired in the ordinary
course of business; (v) any securities received in connection with an Asset
Sale that complies with the covenant described under "--Covenants--Limitation
on Asset Sales"; (vi) any Interest Rate Agreement Obligation permitted
pursuant to the second paragraph of the covenant described under "--
Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Equity Interests"; and (vii) any Guarantee issued by any
Subsidiary of the Company in respect of Senior Debt and any Subsidiary
Guarantee.
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"Permitted Liens" means (i) Liens on assets or property of the Company that
secure Senior Debt of the Company and Liens on assets or property of a
Subsidiary that secure Senior Debt of such Subsidiary, in each case to the
extent such Senior Debt is permitted under the provisions of the covenant
described under "--Covenants--Limitation on Incurrence of Indebtedness and
Issuance of Disqualified Equity Interests"; and provided that the provisions
described under "--Covenants--Limitations on Guarantees of Indebtedness by
Subsidiaries" are complied with; (ii) Liens securing Indebtedness of a Person
existing at the time that such Person is merged into or consolidated with the
Company or a Subsidiary, provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of such Person; (iii) Liens on property acquired by
the Company or a Subsidiary, provided that such Liens were in existence prior
to the contemplation of such acquisition and do not extend to any other
property; (iv) Liens arising from Capital Lease Obligations permitted under
the Indenture; (v) Liens arising from Purchase Money Indebtedness permitted
under the Indenture; (vi) Liens in respect of Interest Rate Agreement
Obligations permitted under the Indenture; (vii) Liens in favor of the Company
or any Wholly Owned Subsidiary; (viii) Liens in favor of the Trustee pursuant
to the Pledge Agreement; (ix) Liens incurred, or pledges and deposits in
connection with, workers' compensation, unemployment insurance and other
social security benefits, and leases, appeal bonds and other obligations of
like nature incurred by the Company or any Subsidiary in the ordinary course
of business; (x) Liens imposed by law, including, without limitation,
mechanics', carriers', warehousemen's, materialmen's, suppliers' and vendors'
Liens, incurred by the Company or any Subsidiary in the ordinary course of
business; (xi) Liens for ad valorem, income or property taxes or assessments
and similar charges which either are not delinquent or are being contested in
good faith by appropriate proceedings for which the Company has set aside on
its books reserves to the extent required by GAAP; and (xii) zoning
restrictions, easements, minor restrictions on the use of real property, minor
irregularities in title thereto and other Liens that do not secure the payment
of money or the performance of an obligation and that do not in the aggregate
materially detract from the value of a property or asset of, or materially
impair its use in the business of, the Company or any Subsidiary;
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" means that certain Pledge Agreement dated as of January
31, 1996 by and among the Company and the Trustee providing for, among other
things, the escrow of Net Proceeds of the Offering of the Notes hereunder as
described in "Escrow of Proceeds."
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person
in accordance with and at the contract rate (including, without limitation,
any rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing such Indebtedness, whether or not, pursuant
to applicable law or otherwise, the claim for such interest is allowed as a
claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interests" as applied to the Equity Interests of any
Person, means Equity Interests of any class or classes (however designated)
which is preferred as to the payment of dividends or distributions, or as to
the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of such Person, over Equity Interests of any other class of such
Person.
"Public Equity Offering" means an underwritten public offering of Equity
Interests (other than Disqualified Equity Interests) of the Company pursuant
to an effective registration statement filed under the Securities Act, the net
proceeds of which (after deducting any underwriting discounts and commissions)
exceed $25 million.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Subsidiaries incurred in connection with the purchase of property or assets
for the business of the Company and its Subsidiaries.
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"Qualified Issuer" means (A) any lender that is a party to the Senior Credit
Agreement; and (B) any commercial bank (i) which has capital and surplus in
excess of $250,000,000, and (ii) the outstanding short-term debt securities of
which are rated at least A-1 by Standard & Poor's Rating Group Division of
McGraw Hill Incorporated or at least P-1 by Moody's Investors Service, Inc.,
or carry an equivalent rating by a nationally recognized rating agency if both
the two named ratings agencies cease publishing ratings of investments.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) any dividend or other distribution declared
or paid on any Equity Interests of the Company or any of its Subsidiaries
(other than dividends or distributions payable solely in Equity Interests
(other than Disqualified Equity Interests) of the Company or such Subsidiary
or dividends or distributions payable to the Company or any Wholly Owned
Subsidiary); (ii) any payment to purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company or any Subsidiary or
other Affiliate of the Company (other than any Equity Interests owned by the
Company or any Wholly Owned Subsidiary); or (iii) any payment to purchase,
redeem, defease or otherwise acquire or retire for value the Rifkin Note or
any Indebtedness that is subordinated in right of payment to the Notes other
than a purchase, redemption, defeasance or other acquisition or retirement for
value that is paid for with the proceeds of Refinancing Indebtedness that is
permitted under the covenant described under "--Covenants--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Equity Interests."
"Rifkin Note" means the Senior Subordinated Promissory Note made by the
Company in favor of Monroe M. Rifkin in the principal amount of $3,000,000 due
January 15, 2006, as in effect on the Issue Date and on the date hereof.
"Senior Bank Debt" means (i) the Indebtedness outstanding or arising under
the Senior Credit Agreement up to a maximum principal amount of $145,000,000
at any one time outstanding, less (a) any repayments of principal of the term
loans thereunder, (b) scheduled reductions of commitments to make revolving
loans thereunder and (c) the amount of Net Proceeds of Asset Sales applied to
repay principal of Senior Bank Debt; (other than repayment of revolving
borrowings under the Amended Senior Credit Agreement that do not reduce any
commitment thereunder pending application of such Net Proceeds pursuant to the
"Limitation on Asset Sales" covenant) provided that (i) the maximum principal
amount of Senior Bank Debt permitted hereunder shall not be reduced below
$50,000,000; (ii) all Obligations (other than Obligations in respect of
principal of Indebtedness thereunder) incurred by or owing to the holders of
such Indebtedness outstanding or arising under the Senior Credit Agreement
(including, but not limited to, all fees and expenses of counsel and all other
charges, fees and expenses); and (iii) Interest Rate Agreement Obligations
relating to Senior Bank Debt required pursuant to the Senior Credit Agreement
and provided further that any amount refunded, replaced or refinanced under
the Senior Credit Agreement shall not be deemed to be Senior Bank Debt to the
extent that the proceeds from such refunding replacement or refinancing are
greater than the aggregate borrowing available to the Company under the Senior
Credit Agreement at the time of such refunding, a replacement or refinancing.
"Senior Credit Agreement" means the Amended and Restated Credit Agreement,
among the Company, its principal Subsidiaries, First Union National Bank of
North Carolina, as administrative agent and as lender, Bankers Trust Company,
as syndication agent and as lender, and the other lenders named therein as the
same may be amended, modified, renewed, refunded, replaced or refinanced from
time to time, including (i) any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced
or refinanced from time to time, and (ii) any notes, guarantees, collateral
documents, instruments and agreements executed in connection with any such
amendment, modification renewal, refunding, replacement or refinancing.
"Senior Debt" means (A) with respect to the Company, the principal of and
interest (including Post-Petition Interest) on, and all other amounts owing in
respect of, (i) Senior Bank Debt and all other Obligations arising under the
Senior Credit Agreement, (ii) any other Indebtedness permitted to be incurred
by the Company under the terms of the Indenture (including, but not limited
to, reasonable fees and expenses of counsel and all
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other charges, fees and expenses incurred in connection with such
Indebtedness), unless the instrument creating or evidencing such Indebtedness
or pursuant to which such Indebtedness is outstanding expressly provides that
such Indebtedness is on a parity with or subordinated in right of payment to
the Notes, and (B) with respect to any Subsidiary Guarantor, the principal of
and interest (including Post-Petition Interest) on, and all other amounts
owing in respect of, (i) such Subsidiary Guarantor's obligations in respect of
the Senior Bank Debt, including its obligations as a guarantor thereof, and
(ii) any other Indebtedness permitted to be incurred by such Subsidiary
Guarantor under the terms of the Indenture (including, but not limited to,
reasonable fees and expenses of counsel and all other charges, fees and
expenses incurred in connection with such Indebtedness), unless the instrument
creating or evidencing such Indebtedness or pursuant to which such
Indebtedness is outstanding expressly provides that such Indebtedness is on a
parity with or subordinated in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor. Notwithstanding the foregoing, Senior Debt shall
not include (i) any Indebtedness for federal state, local or other taxes, (ii)
any Indebtedness among or between the Company, any Subsidiary and/or their
Affiliates, (iii) any Indebtedness incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business or any
Obligations in respect of any such Indebtedness, (iv) any Indebtedness that is
incurred in violation of the Indenture, (v) Indebtedness evidenced by the
Notes or the Subsidiary Guarantees, or (vi) Indebtedness of a Person that is
expressly subordinate or junior in right of payment to any other Indebtedness
of such Person.
"Special Redemption Date" means June 14, 1996.
"Special Redemption Notice Date" means May 31, 1996.
"Senior Subordinated Indebtedness" means (A) with respect to the Company,
all Indebtedness of the Company other than Senior Debt and Subordinated
Indebtedness, and (B) with respect to each Subsidiary Guarantor, all
Indebtedness of such Subsidiary Guarantor. Notwithstanding the foregoing,
Senior Subordinated Indebtedness shall not include any Indebtedness of the
type referred to in clause (i), (ii), (iii) and (iv) at the end of the
definition of Senior Debt.
"Strategic Equity Investment" means the issuance and sale of Equity
Interests (other than Disqualified Equity Interests) of or the Company for net
cash proceeds of at least $25,000,000 to a Person engaged primarily in the
business of transmitting video, voice or data over cable television or
telephone facilities or any business reasonably related thereto that has an
Equity Market Capitalization of at least $750,000,000.
"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor of the type referred to in clause (A)(ii) or (B)(ii) of
the definition of Senior Debt if the instrument creating or evidencing such
Indebtedness or pursuant to which such Indebtedness is outstanding expressly
provides that such Indebtedness is (A) if incurred by the Company,
subordinated in right of payment to the Notes, or (B) if incurred by a
Subsidiary Guarantor, subordinated in right of payment to the Subsidiary
Guarantee of such Subsidiary Guarantor.
"Subsidiary" of any Person means (i) any corporation more than 50% of the
outstanding Voting Interests of which is owned or controlled, directly or
indirectly, by such Person or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries thereof, or (ii)
any limited partnership of which such Person or any Subsidiary of such Person
is a general partner, or (iii) any other Person (other than a corporation or
limited partnership) in which such Person or one or more other Subsidiaries of
such Person, or such person and one or more other Subsidiaries thereof,
directly or indirectly, has more than 50% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to direct or
cause the direction of the policies, management and affairs thereof.
Notwithstanding the foregoing, an Unrestricted Subsidiary of the Company shall
not be deemed a Subsidiary of the Company under the Indenture, other than for
the purpose of the definition of Unrestricted Subsidiary, unless the Company
shall have designated an Unrestricted Subsidiary as a "Subsidiary" in the
manner provided in the definition of Unrestricted Subsidiary.
"Subsidiary Guarantees" means the Initial Guarantees and any Additional
Guarantees.
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"Subsidiary Guarantors" means the Initial Guarantors and any Additional
Guarantors.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two business days prior to the
date fixed for redemption of the Notes following a Change of Control (or, if
such Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining Weighted
Average Life to Maturity of the Notes; provided, however, that is the Weighted
Average Life to Maturity of the Notes is not equal to the constant maturity of
a United States Treasury security for which a weekly average yield is given,
the Treasury Rate, shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given, except that if the
Weighted Average Life to Maturity of the Notes is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means a Subsidiary of the Company designated as
such by the Company (a) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of which (i) is guaranteed by the Company or any
other Subsidiary of the Company, (ii) is recourse to or obligates the Company
or any other Subsidiary of the Company in any way or (iii) subjects any
property or asset of the Company or any other Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, (b) which has no Indebtedness or any other obligation that, if in
default in any respect (including a nonpayment default), would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Subsidiary to declare a default on such other indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity, (c) with which the Company or any other Subsidiary of the Company
has no contract, agreement, arrangement, understanding or is subject to an
obligation of any kind, whether written or oral, other than a transaction on
terms no less favorable to the Company or any other Subsidiary of the Company
than those which might be obtained at the time from persons who are not
Affiliates of the Company, and (d) with which neither the Company nor any
other Subsidiary of the Company has any obligation (other than by the terms of
the Indenture) (i) to subscribe for additional shares of Equity Interests or
other equity interest therein or (ii) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve
certain levels of operating results; provided, however, that in no event shall
any Subsidiary Guarantor be an Unrestricted Subsidiary. The Company may
designate an Unrestricted Subsidiary as a Subsidiary by written notice to the
Trustee under the Indenture, provided, however, that the Company shall not be
permitted to designate any Unrestricted Subsidiary as a Subsidiary unless (A)
after giving pro forma effect to such designation, the Company would be
permitted to incur $1.00 of additional Indebtedness (other than Indebtedness
permitted under the second paragraph of the covenant described under "--
Covenants--Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Equity Interests") under the Indenture and (B) any Indebtedness
or Liens of such Unrestricted Subsidiary would be permitted to be incurred by
a Subsidiary of the Company under the Indenture. A designation of an
Unrestricted Subsidiary as a Subsidiary may not thereafter be rescinded.
"Voting Equity Interests" of a Person means Capital Equity Interests of such
Person of the class or classes pursuant to which the holders thereof have the
general vetoing power under ordinary circumstances to elect at least a
majority of the Board of Directors (irrespective of whether or not at the time
stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, with
(b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment, by (ii) the then
outstanding aggregate principal amount of such Indebtedness.
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"Wholly Owned Subsidiary" means any Subsidiary with respect to which all of
the outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company or a Surviving Person
of any Disposition involving the Company, as the case may be.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF NOTES
The summary is based on current law and certain proposed regulations and is
for general information only. Forthcoming legislative, regulatory, judicial or
administrative changes or interpretations could affect the federal income tax
consequences to holders of Notes. The tax treatment of a holder may vary
depending upon whether the holder is a cash-method or accrual-method taxpayer
and upon the holder's particular status. For example, certain holders,
including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers and foreign persons may be subject to special
rules not discussed below.
Exchange Offer
The exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer
will not be treated as a taxable exchange for federal income tax purposes
because, other than the fact that the Exchange Notes will be registered, the
terms of the Exchange Notes will be identical in all material respects to the
terms of the Old Notes. The holder must continue to include stated interest in
income as if the exchange had not occurred.
Sale or Other Disposition of Notes
A holder of a Note will have a tax basis in the Note equal to the holder's
purchase price for the Note. A holder of a Note will generally recognize gain
or loss on the sale, exchange, redemption or retirement of the Note equal to
the difference (if any) between the amount realized from such sale, exchange,
redemption or retirement and the holder's basis in the Note. Such gain or loss
will generally be long-term capital gain (except to the extent attributable to
market discount) or loss if the Note has been held more than one year.
Backup Withholding
A noncorporate holder of Notes that either (a) is (i) a citizen or resident
of the United States, (ii) a partnership or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof or (iii) an estate or trust the income of which is subject to United
States federal income taxation regardless of its source or (b) is not
described in the preceding clause (a), but whose income from interest with
respect to the Notes or proceeds from the disposition of the Notes is
effectively connected with such holder's conduct of a United States trade or
business, and that receive interest with respect to the Notes or proceeds from
the disposition of the Notes will generally not be subject to backup
withholding on such payments or distributions if it certifies, under penalty
of perjury, that it has furnished a correct Taxpayer Identification Number
("TIN") and it is not subject to backup withholding either because it has not
been notified by the Service that is subject to backup withholding or because
the Service has notified it that it is no longer subject to backup
withholding. Such certification may be made on an Internal Revenue Service
Form W-9 or substantially similar form. However, backup withholding will apply
to such a holder if the holder (i) fails to furnish its TIN, (ii) furnishes an
incorrect TIN, (iii) is notified by the Service that it has failed to properly
report payments of interest or dividends or (iv) under certain circumstances,
fails to make such certification.
The Issuers will withhold (at a rate of 31%) all amounts required by law to
be withheld from reportable payments made and with respect to the Notes. Any
amounts withheld from a payment to a holder under the backup withholding rules
will be allowed as a credit against such holder's United States federal income
tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the Service.
Holders of the Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such
an exemption, if available.
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THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF
NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF
HOLDING, EXCHANGING OR SELLING THE NOTES INCLUDING THE APPLICATION AND EFFECT
OF ANY FEDERAL, STATE,LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN
APPLICABLE TAX LAWS.
OLD NOTES' REGISTRATION RIGHTS
The Issuers, the Subsidiary Guarantors and the Initial Purchasers entered
into a registration rights agreement dated as of January 31, 1996 (the
"Registration Rights Agreement") pursuant to which each of the Issuers and the
Subsidiary Guarantors agreed, for the benefit of the holders, that it would,
at its own cost, (i) within 75 days after the original issue date (the "Issue
Date"), file the Registration Statement with the Commission with respect to
this Exchange Offer for the Exchange Notes, which will have terms
substantially identical in all material respects to the Old Notes (except that
the Exchange Notes will not contain terms with respect to transfer
restrictions), (ii) use their best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act
within 135 days after the Issue Date and (iii) use its best efforts to
consummate the Exchange Offer within 165 days after the Issue Date. Upon the
Registration Statement being declared effective, the Issuers and the
Subsidiary Guarantors will offer the Exchange Notes (and the related
guarantees) in exchange for surrender of the Old Notes (and the related
guarantees). The Issuers and the Subsidiary Guarantors will keep the Exchange
Offer open for not less than 20 business days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Notes, and will comply with Regulation 14E and Rule 13e-4 under
the Exchange Act (other than the filing requirements of Rule 13e-4). For each
of the Old Notes surrendered pursuant to the Exchange Offer, the holder who
surrendered such Old Note will receive an Exchange Note having a principal
amount at maturity equal to that of the surrendered Old Note. Interest on each
Exchange Note will accrue from the last interest payment date on which
interest was paid on the Old Note surrendered in exchange therefor or, if no
interest has been paid on such Note, from the Issue Date. Under existing
Commission interpretations, the Exchange Notes (and the related guarantees)
would be freely transferable by holders thereof other than affiliates of the
Issuers and the Subsidiary Guarantors after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of
business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of the Issuers or the Subsidiary Guarantors, as such terms are
interpreted by the Commission; provided that broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer will have a
prospectus delivery requirement with respect to resales of such Exchange
Notes. The Commission has taken the position that the Participating Broker-
Dealers may fulfill their prospectus delivery requirements with respect to the
Exchange Notes (other than a resale of an unsold allotment from the original
sale of the Notes) with the prospectus contained in the Exchange Offer
Registration Statement. The Issuers and the Subsidiary Guarantors have agreed
for a period of 180 days after consummation of the Exchange Offer to make
available a prospectus meeting requirements of the Securities Act to
Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of such
Exchange Notes.
Each holder who wishes to exchange its Old Notes for Exchange Notes in the
Exchange Offer will be required to represent that any Exchange Notes to be
received by it will be acquired in the ordinary course of its business and
that at the time of the commencement of the Exchange Offer it has no
arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an affiliate of the Issuers or the Subsidiary Guarantors.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the applicable Exchange Notes. If the holder is a broker-dealer that 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,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
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In the event that applicable interpretations of the staff of the Commission
do not permit the Issuers and the Subsidiary Guarantors to effect such an
Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 165 days after the Issue Date, or, under certain
circumstances, if the Initial Purchasers shall so request (the date of any
such request being referred to herein as the "Shelf Notice Request Date"),
each of the Issuers and the Subsidiary Guarantors, jointly and severally, will
at their cost, (a) as promptly as practicable, file a Shelf Registration
Statement, (b) use its best efforts to cause such Shelf Registration Statement
to be declared effective under the Securities Act and (c) use its best efforts
to keep effective such Shelf Registration Statement until the earlier of three
years after the Issue Date and such time as all of the applicable Old Notes
have been sold thereunder. The Issuers will, in the event of the filing of a
Shelf Registration Statement, provide to each holder of the Old Notes copies
of the prospectus which is a part of such Shelf Registration Statement, notify
each such holder when such Shelf Registration Statement has become effective
and take certain other actions as are required to permit unrestricted resales
of the Old Notes. A holder that sells its Old Notes pursuant to a Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
Although the Issuers and the Subsidiary Guarantors intend that this
Registration Statement will become effective, there can be no assurance that
it will become effective. If the Issuers and the Subsidiary Guarantors fail to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional interest (the
"Additional Interest") shall become payable with respect to the Old Notes as
follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 75 days following the Issue Date, Additional
Interest shall accrue on the Old Notes over and above the stated interest at a
rate of 0.50% per annum for the first 90 days commencing on the 76th day after
the Issue Date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement is not declared effective
within 135 days following the Issue Date or the Shelf Registration Statement
is not declared effective within the later of (A) 135 days following the Issue
Date and (B) 30 days following the Shelf Notice Request Date, Additional
Interest shall accrue on the Old Notes over and above the stated interest at a
rate of 0.50% per annum for the first 90 days commencing on the 136th day
after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day period;
or
(iii) if (A) the Issuers and the Subsidiary Guarantors have not exchanged
all Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 165 days after the Issue Date or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the third anniversary of
the Issue Date (unless all the Old Notes have been sold thereunder), then
Additional Interest shall accrue on the Notes over and above the stated
interest at a rate of 0.50% per annum for the first 90 days commencing on (x)
the 166th day after the Issue Date with respect to the Notes validly tendered
and not exchanged by the Issuers, in the case of (A) above, or (y) the day the
Exchange Offer Registration Statement ceases to be effective or usable for its
intended purpose in the case of (B) above, or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above, such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; provided, however, that the
Additional Interest rate on the Old Notes may not exceed in the aggregate 2.0%
per annum; and provided further, that (1) upon the filing of the Exchange
Offer Registration Statement or Shelf Registration Statement (in the case of
clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of (ii)
above), or (3) upon the exchange of Exchange Notes for all Old Notes tendered
(in the case of clause (iii)(A) above), or upon the effectiveness of the
Exchange Offer Registration Statement which had ceased to remain effective in
the case of clause (iii)(B) above, or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) above), Additional Interest on the Old Notes as a result of
such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
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Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment
dates as the Old Notes. The amount of Additional Interest will be determined
by multiplying the applicable Additional Interest rate by the principal amount
of the Old Notes multiplied by a fraction, the numerator of which is the
number of days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which will be available upon request to the Issuers.
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OLD NOTES TRANSFER RESTRICTIONS
Because the following restrictions will apply to any Old Notes held by
holders who do not participate in the Exchange Offer, holders of Old Notes are
advised to consult legal counsel prior to making any offer, resale, pledge or
transfer of any of the Old Notes.
None of the Old Notes have been registered under the Securities Act and they
may not be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act. Accordingly, the Old Notes were sold only (A) to a limited number of
"qualified institutional buyers" (as defined in Rule 144A) ("QIBs") in
compliance with Rule 144A, (B) to a limited number of other institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) ("Accredited Investors") that, prior to their purchase of
any Old Notes, delivered to the Initial Purchasers a letter containing certain
representations and agreements, and (C) outside the United States to person
other than U.S. persons ("foreign purchasers," which term shall include
dealers or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)) in reliance upon Regulation S under the Securities Act ("Regulation
S"). As used herein, the terms "United States" and "U.S. person" have the
meanings given to them in Regulation S.
Each purchaser of Old Notes has been deemed to have represented and agreed
as follows:
1. It purchased the Old Notes for its own account or an account with respect
to which it exercises sole investment discretion and that it and any such
account is either (A) a QIB, and is aware that the sale to it was made in
reliance on Rule 144A, (B) an Accredited Investor, or (C) a foreign purchaser
that is outside the United States (or a foreign purchaser that is a dealer or
other fiduciary as referred to above).
2. It acknowledged that the Old Notes (and the related guarantees) have not
been registered under the Securities Act and that they may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons except as set forth below.
3. It shall not resell or otherwise transfer any of such Old Notes within
three years after the original issuance of the Old Notes except (A) to the
Company or any of its subsidiaries, (B) inside the United States to a QIB in
compliance with Rule 144A, (C) inside the United States to an Accredited
Investor that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker dealer) 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), (D) outside the United States in compliance with Rule 904 under the
Securities Act, (E) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available), or (F) pursuant to an
effective registration statement under the Securities Act.
4. It agreed that it will give to each person to whom it transfers the Old
Notes notice of any restrictions on transfer of such Old Notes.
5. It understands that all of the Old Notes bear, and if not exchanged
pursuant to the Exchange Offer will continue to bear, a legend substantially
to the following effect unless otherwise agreed by the Issuers and the holder
thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT
AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 501(a)(1),
(2), (3), OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY
OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE
UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR
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TO SUCH TRANSFER FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER
DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE AND THE ISSUERS SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT.
6. It shall not sell or otherwise transfer such Old Notes to, and each
purchaser represented and covenanted that it did not acquire the Old Notes for
or on behalf of, and will not transfer the Old Notes to, any pension or
welfare plan (as defined in Section 3 of the Employee Retirement Income
Security Act of 1974 ("ERISA"), except that such a purchase for or on behalf
of a pension or welfare plan shall be permitted:
a. to the extent such purchase is made by or on behalf of a bank collective
investment fund maintained by the purchaser in which, at any time while the
Old Notes are held by the purchaser, no plan (together with any other plans
maintained by the same employer or employee organization) has an interest in
excess of 10% of the total assets in such collective investment fund and the
conditions of Section III of Prohibited Transaction Class Exemption 91-38
issued by the Department of Labor are satisfied;
b. to the extent such purchase is made by or on behalf of an insurance
company pooled separate account maintained by the purchaser in which, at any
time while the Old Notes are held by the purchaser, no plan (together with any
other plans maintained by the same employer or employee organization) has an
interest in excess of 10% of the total of all assets in such pooled separate
account and the conditions of Section III of Prohibited Transaction Class
Exemption 90-1 issued by the Department of Labor are satisfied;
c. to the extent such purchase is made on behalf of a plan by (i) an
investment adviser registered under the Investment Advisers Act of 1940 that
had as of the last day of its most recent fiscal year total assets under its
management and control in excess of $50,000,000 and had stockholders' or
partners' equity in excess of $750,000, as shown in its most recent balance
sheet prepared in accordance with generally accepted accounting principles,
(ii) a bank as defined in Section 202(a)(2) of the Investment Advisers Act of
1940 with equity capital in excess of $1,000,000 as of the last day of its
most recent fiscal year, (iii) an insurance company which is qualified under
the laws of more than one state to manage, acquire or dispose of any assets of
a plan, which insurance company has, as of the last day of its most recent
fiscal year, net worth in excess of $1,000,000 and which is subject to
supervision and examination by a state authority having supervision over
insurance companies, or (iv) a savings and loan association, the accounts of
which are insured by the Federal Savings and Loan Insurance Corporation, that
has made application for and been granted trust powers to manage, acquire or
dispose of assets of a plan by a State or Federal authority having supervision
over savings and loan associations, which savings and loan association has, as
of the last day of its most recent fiscal year, equity capital or net worth in
excess of $1,000,000 and, in any case, such investment adviser, bank,
insurance company or savings and loan is otherwise a qualified professional
asset manager, as such term is used in Prohibited Transaction Exception 84-14
issued by the Department of Labor, and the assets of such plan when combined
with the assets of other plans established or maintained by the same employer
(or affiliate thereof) or employee organization and managed by such investment
adviser, bank, insurance company or savings and loan do not represent more
than 20% of the total client assets managed by such investment adviser, bank,
insurance company or savings and loan and the conditions of Section I of such
exemption are otherwise satisfied; or
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d. to the extent such plan is a governmental plan (as defined in Section 3
of ERISA) which is not subject to the provisions of Title I of ERISA or
Section 4975 of the Internal Revenue Code.
7. It acknowledged that the Trustee for the Old Notes will not be required
to accept for registration of transfer any Old Notes acquired by it, except
upon presentation of evidence satisfactory to the Issuers and the Trustee that
the restrictions set forth herein have been complied with.
8. It acknowledged that the Issuers, the Initial Purchasers and others will
rely upon the truth and accuracy of the foregoing acknowledgements,
representations and agreements and agreed that if any of the acknowledgements,
representations or agreements deemed to have been made by its purchase of the
Old Notes are no longer accurate, it shall promptly notify the Issuers and the
Initial Purchasers. If it acquired the Old Notes as a fiduciary or agent for
one or more investor accounts, it represented that it has sole investment
discretion with respect to each such account and it has full power to make the
foregoing acknowledgements, representations and agreements on behalf of each
account.
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PLAN OF DISTRIBUTION
Based on interpretation by the Staff set forth in no-action letters issued
to third parties, the Issuers believe that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder
which is (i) an affiliate of the Issuers, (ii) a broker-dealer who acquired
Old Notes directly from the Issuers or (iii) a broker-dealer who acquired Old
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in
the Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of such Exchange Notes. To date, the Staff has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an exchange of
securities such as the exchange pursuant to the Exchange Offer (other than a
resale of an unsold allotment from the sale of the Old Notes to the Initial
Purchasers) with the prospectus contained in the Registration Statement.
Pursuant to the Registration Rights Agreement, the Issuers have agreed to
permit Participating Broker Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such Exchange Notes. The Issuers have agreed that, for a
period of 180 days after the Exchange Date, they will make this Prospectus,
and any amendment or supplement to this Prospectus, available to any broker-
dealer that requests such documents in the Letter of Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations to the Issuers as set forth in "The Exchange Offer--Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Old Notes that were acquired by it as a result of market-making activities
or other trading activities will be required to acknowledge that it will
deliver a prospectus in connection with any resale by it of such Exchange
Notes.
The Issuers 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 at 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 on 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 Letter of Transmittal states 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.
The Issuers have agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concession of any brokers or dealers and will
indemnify holders of the Notes (including any brokers-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the Registration Rights Agreement.
EXPERTS
The financial statements of Rifkin Acquisition Partners, L.L.L.P. as of
December 31, 1995 and for the four months ended December 31, 1995, the
financial statements of Rifkin Acquisition Partners, L.P. as of December 31,
1994 and for the eight months ended August 31, 1995 and for the years ended
December 31, 1994 and 1993,
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the financial statements of Mid-Tennessee Systems as of December 31, 1994 and
1995 and the years ended December 31, 1994 and 1995, the balance sheet of
Rifkin Acquisition Management, L.P. as of December 31, 1995 and the balance
sheet of Rifkin Acquisition Capital Corp. as of January 24, 1996 included in
this Prospectus have been so included in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Issuers by Baker &
Hostetler, Denver, Colorado. A partner of Baker & Hostetler is a son of Monroe
M. Rifkin and has a beneficial interest in the Issuers through two of the
Rifkin Trusts.
129
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rifkin Acquisition Partners, L.L.L.P
Rifkin Acquisition Partners, L.P.
Reports of Independent Accountants....................................... F-2
Consolidated Balance Sheet............................................... F-4
Consolidated Statement of Operations..................................... F-5
Consolidated Statement of Cash Flows..................................... F-6
Consolidated Statement of Partners' Capital (Deficit).................... F-7
Notes to Consolidated Financial Statements............................... F-8
Rifkin Acquisition Capital Corp.
Report of Independent Accountants........................................ F-16
Balance Sheet............................................................ F-17
Notes to Balance Sheet................................................... F-18
Rifkin Acquisition Management, L.P.
Report of Independent Accountants........................................ F-19
Balance Sheet............................................................ F-20
Notes to Balance Sheet................................................... F-21
Mid-Tennessee CATV, L.P.
Report of Independent Accountants........................................ F-22
Balance Sheet............................................................ F-23
Statement of Operations.................................................. F-24
Statement of Cash Flows.................................................. F-25
Statement of Division Deficit............................................ F-26
Notes to Financial Statements............................................ F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Rifkin Acquisition Partners, L.L.L.P.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of partners' capital (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Rifkin Acquisition Partners, L.L.L.P. and its subsidiaries (the "Company") at
December 31, 1995 and the results of their operations and their cash flows for
the four months then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
As explained in Note 1 to the financial statements, effective September 1,
1995, Rifkin Acquisition Partners, L.P. and its subsidiaries (the
"Partnership") transferred substantially all of its net assets to the Company.
The Company has recorded the assets and liabilities transferred at their
estimated fair values at September 1, 1995. Accordingly, the consolidated
financial statements of the Company are not comparable to those of the
Partnership.
Price Waterhouse LLP
Denver, Colorado
March 22, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Rifkin Acquisition Partners, L.P.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of partners' capital (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Rifkin Acquisition Partners, L.P. and its subsidiaries (the "Partnership") at
December 31, 1994 and the results of their operations and their cash flows for
the eight months ended August 31, 1995 and the two years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As explained in Note 1 to the financial statements, effective September 1,
1995, the Partnership transferred substantially all of its net assets to
Rifkin Acquisition Partners, L.L.L.P. and its subsidiaries (the "Company").
The Company has recorded the assets and liabilities transferred at estimated
fair values at September 1, 1995. Accordingly, the consolidated financial
statements of the Company are not comparable to those of the Partnership.
As explained in Note 2 to the financial statements, the Partnership changed
its method of accounting for income taxes in 1993.
Price Waterhouse LLP
Denver, Colorado
December 20, 1995
F-3
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
RAP L.P. COMPANY
12/31/94 12/31/95
------------ ------------
<S> <C> <C>
ASSETS
Cash................................................................................................ $ 1,196,651 $ 318,020
Subscriber accounts receivable, net of allowance for doubtful accounts of $279,918 in 1994 and
$292,626 in 1995................................................................................... 900,899 884,908
Other receivables................................................................................... 359,702 1,542,667
Prepaid expenses and other.......................................................................... 1,068,062 924,229
Property, plant and equipment at cost:
Cable television transmission and distribution systems and related equipment...................... 66,663,093 73,994,528
Land, buildings, vehicles and furniture and fixtures.............................................. 3,462,164 3,159,116
------------ ------------
70,125,257 77,153,644
Less accumulated depreciation....................................................................... (25,928,498) (2,741,453)
------------ ------------
Net property, plant and equipment............................................................... 44,196,759 74,412,191
Franchise costs and other intangible assets, net of accumulated amortization of $43,848,022 in 1994
and $5,128,754 in 1995............................................................................. 47,487,827 159,963,395
------------ ------------
Total assets.................................................................................... $ 95,209,900 $238,045,410
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable and accrued liabilities............................................................ $ 4,254,264 $ 5,867,584
Subscriber deposits and prepayments................................................................. 1,033,082 961,528
Interest payable.................................................................................... 3,848,879 91,273
Deferred taxes payable.............................................................................. 1,558,000 21,127,000
Notes payable....................................................................................... 166,833,371 137,500,000
------------ ------------
Total liabilities............................................................................... 177,527,596 165,547,385
Commitments (Note 7)
Redeemable partners' interests and detachable warrants.............................................. 2,739,000 3,600,000
Partners' capital (deficit)
General partner................................................................................... (554,220) (1,085,311)
Limited partners.................................................................................. (84,502,476) 69,421,043
Preferred equity interest......................................................................... -- 562,293
------------ ------------
Total partners' capital (deficit)............................................................... (85,056,696) 68,898,025
------------ ------------
Total liabilities and partners' capital (deficit)............................................... $ 95,209,900 $238,045,410
- --------------------------------------------------
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
RAP L.P. COMPANY
------------------------------------------ --------------
YEAR ENDED YEAR ENDED 8 MONTHS ENDED 4 MONTHS ENDED
12/31/93 12/31/94 8/31/95 12/31/95
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
REVENUE:
Service............................................................ $ 39,543,240 $ 42,423,453 $30,954,441 $16,316,638
Installation and other............................................. 1,927,315 2,465,573 1,952,807 983,924
------------ ------------ ----------- -----------
Total revenue.................................................... 41,470,555 44,889,026 32,907,248 17,300,562
COSTS AND EXPENSES:
Operating expense.................................................. 13,717,076 15,675,912 11,343,736 6,129,887
Selling, general and administrative expense........................ 5,665,432 6,090,102 4,568,081 2,486,389
Depreciation and amortization...................................... 13,795,504 13,154,400 7,624,784 8,199,945
Management fees.................................................... 2,073,158 2,244,121 1,645,191 605,503
Costs associated with the transfer of net assets................... -- -- 441,216 -
Loss on disposal of assets......................................... 759,790 128,228 231,051 275,311
------------ ------------ ----------- -----------
Total costs and expenses......................................... 36,010,960 37,292,763 25,854,059 17,697,035
------------ ------------ ----------- -----------
Operating income (loss)............................................ 5,459,595 7,596,263 7,053,189 (396,473)
Interest expense................................................... 18,282,665 18,007,725 14,618,957 4,251,616
------------ ------------ ----------- -----------
Loss before income taxes, extraordinary item, and cumulative effect
of accounting change.............................................. (12,823,070) (10,411,462) (7,565,768) (4,648,089)
Income tax expense (benefit)....................................... -- 1,558,000 (1,558,000) (1,674,000)
------------ ------------ ----------- -----------
Loss before extraordinary item and cumulative effect of accounting
change............................................................ (12,823,070) (11,969,462) (6,007,768) (2,974,089)
Extraordinary item--Loss on early retirement of debt............... -- -- 1,699,322 --
Cumulative effect of accounting change for income taxes............ 3,500,000 -- -- --
------------ ------------ ----------- -----------
Net loss........................................................... $(16,323,070) $(11,969,462) $(7,707,090) $(2,974,089)
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
RAP L.P. COMPANY
------------------------------------------ --------------
YEAR ENDED YEAR ENDED 8 MONTHS ENDED 4 MONTHS ENDED
12/31/93 12/31/94 8/31/95 12/31/95
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $(16,323,070) $(11,969,462) $ (7,707,090) $ (2,974,089)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization..................................... 13,795,504 13,154,400 7,624,784 8,199,945
Amortization of deferred loan costs............................... 468,365 468,365 312,243 111,037
Loss on disposal of fixed assets.................................. 759,790 128,228 231,051 275,311
Cumulative effect of accounting change for income taxes........... 3,500,000 -- -- --
(Increase) decrease in subscriber accounts receivables............ (52,152) (133,187) 149,258 (133,267)
Increase in other receivables..................................... (77,697) (28,754) (30,206) (152,759)
(Increase) decrease in prepaid expenses and other................. 17,013 (348,849) (69,650) 213,483
Increase in accounts payable and accrued liabilities.............. 820,316 469,151 448,954 1,164,367
Increase (decrease) in subscriber deposits and prepayment......... 19,646 (63,061) 170,457 (242,011)
Increase (decrease) in deferred taxes payable..................... -- 1,558,000 (1,558,000) (1,674,000)
Increase (decrease) in interest payable........................... (184,679) 424,300 (3,848,879) 91,273
Amortization of original debt discount and accretion of interest.. 317,161 317,161 1,105,269 --
------------ ------------ ------------ -------------
Net cash provided by operating activities........................ 3,060,197 3,976,292 (3,171,809) 4,879,290
------------ ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Initial cash acquisition cost, net of cash acquired (Note 1)...... -- -- -- (173,447,115)
Net proceeds due to recapitalization.............................. -- -- 175,797,491 --
Additions to property, plant and equipment........................ (6,278,278) (6,279,791) (4,119,335) (3,360,037)
Additions to cable television franchises, net of retirements and
changes in other intangible assets............................... -- (102,556) 29,087 (326,335)
Net proceeds from the sale of assets.............................. 93,241 80,750 32,521 19,777
Management fee escrow............................................. -- -- -- (1,000,000)
------------ ------------ ------------ -------------
Net cash provided by (used in) in investing activities........... (6,185,037) (6,301,597) 171,739,764 (178,113,710)
------------ ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt...................................... 14,000,000 13,000,000 4,000,000 138,500,000
Deferred loan costs............................................... -- -- -- (3,147,989)
Payments of long-term debt........................................ (11,000,000) (10,250,000) (168,938,640) (4,000,000)
Partners' capital contributions................................... -- -- -- 42,200,429
------------ ------------ ------------ -------------
Net cash provided by (used in) financing activities.............. 3,000,000 2,750,000 (164,938,640) 173,552,440
------------ ------------ ------------ -------------
Net increase (decrease) in cash.................................... (124,840) 424,695 3,629,315 318,020
Cash at beginning of period........................................ 896,796 771,956 1,196,651 --
------------ ------------ ------------ -------------
Cash at end of period.............................................. $ 771,956 $ 1,196,651 $ 4,825,966 $ 318,020
============ ============ ============ =============
Interest paid is as follows: $ 17,604,046 $ 16,744,898 $ 17,012,943 $ 4,024,306
- --------------------------------------------------
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED GENERAL LIMITED
RAP L.P. EQUITY INTEREST PARTNER PARTNER TOTAL
- -------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit at De-
cember 31, 1992........ $ -- $ (271,294) $(56,492,870) $(56,764,164)
Net loss................ -- (163,231) (16,159,839) (16,323,070)
-------- ----------- ------------ ------------
Partners' deficit at De-
cember 31, 1993........ -- (434,525) (72,652,709) (73,087,234)
Net loss................ -- (119,695) (11,849,767) (11,969,462)
-------- ----------- ------------ ------------
Partners' deficit at De-
cember 31, 1994........ -- (554,220) (84,502,476) (85,056,696)
Net loss................ -- (77,071) (7,630,019) (7,707,090)
-------- ----------- ------------ ------------
Partners' deficit at Au-
gust 31, 1995.......... $ -- $ (631,291) $(92,132,495) $(92,763,786)
======== =========== ============ ============
- --------------------------------------------------------------------------------
<CAPTION>
COMPANY
- -------
<S> <C> <C> <C> <C>
Partners' capital con-
tributions............. $583,112 $(1,055,570) $ 72,344,572 $ 71,872,114
Net loss................ (20,819) (29,741) (2,923,529) (2,974,089)
-------- ----------- ------------ ------------
Partners' capital (defi-
cit) at December 31,
1995................... $562,293 $(1,085,311) $ 69,421,043 $ 68,898,025
======== =========== ============ ============
</TABLE>
The Partners' capital accounts for financial reporting purposes vary from the
tax capital accounts.
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND TRANSFER OF NET ASSETS
General Information
Rifkin Acquisition Partners, L.P. ("RAP L.P.") was formed on December 16,
1988, pursuant to the laws of the State of Colorado, for the purpose of
acquiring and operating cable television (CATV) systems. On September 1, 1995,
RAP L.P. registered as a limited liability limited partnership, Rifkin
Acquisition Partners, L.L.L.P. (the "Partnership"), pursuant to the laws of
the State of Colorado. Rifkin Acquisition Management, L.P., an affiliate of
Rifkin & Associates, Inc. (Note 6), was the general partner of RAP L.P. and is
the general partner of the Partnership ("General Partner"). The Partnership
and its subsidiaries are hereinafter referred to on a consolidated basis as
the "Company."
The Partnership operates under a limited liability limited partnership
agreement (the "Partnership Agreement") which establishes contribution
requirements, enumerates the rights and responsibilities of the partners and
advisory committee, provides for allocations of income, losses and
distributions, and defines certain items relating thereto.
The Partnership Agreement provides that net income or loss, certain defined
capital events, and cash distributions, all as defined in the Partnership
Agreement, are generally allocated 99% to the limited partners and 1% to the
general partner.
Transfer of Net Assets
On September 1, 1995, unrelated third party investors purchased for
approximately $39 million the interest of certain limited partners in RAP L.P.
and contributed approximately $42 million in direct equity for an approximate
89% limited partner interest resulting in a total basis therein of $81
million. In addition, existing RAP L.P. limited and general interests were
carried over and $600,000 contributed for 10% and 1%, respectively (the
"Carryover Interests"). The Carryover Interests had negative basis of
approximately $6.1 million. Also, $138 million of debt was borrowed.
Further, on September 1, 1995, RAP L.P. was renamed Rifkin Acquisition
Partners, L.L.L.P. and a new basis of accounting was established. The proceeds
of the new debt and equity were used to retire existing debt and pay interest
and penalties of approximately $176 million, and to pay agency, bank, and
legal fees of approximately $5 million. The Company has recorded the assets
and liabilities transferred at their estimated fair values at September 1,
1995 adjusted for the Carryover Interests. Accordingly, the consolidated
financial statements of the Company are not comparable to those of RAP L.P.,
which are based upon its historical costs. The investment in RAP, L.P. and
resultant paydown of debt has been reflected in the statement of cash flows as
of August 31, 1995.
The acquisition was recorded using the purchase method of accounting as
follows (dollars in thousands):
<TABLE>
<S> <C>
Cash paid to RAP L.P. .................................................. $175,797
Acquisition costs....................................................... 2,476
Cash acquired........................................................... (4,826)
--------
Cash acquisition cost................................................... 173,447
Adjusted for: Working capital assumed................................... 3,627
Non-cash transactions--
Interests of RAP L.P. purchased directly by investors........... 39,401
Conveyance of debt.............................................. 3,000
Reduction due to accounting for Carryover Interests............. (6,129)
--------
Total acquisition cost.................................................. $213,346
========
Allocation:
Property, plant and equipment........................................... $ 74,095
Franchise cost and other intangible assets.............................. 139,251
--------
$213,346
========
</TABLE>
F-8
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. GENERAL INFORMATION AND TRANSFER OF NET ASSETS--(CONTINUED)
The allocation of the total acquisition cost to property, plant and equipment
and franchise cost and other intangible assets was calculated based on values
established by independent appraisal reduced for the adjustment arising from
the effect of the Carryover Interests.
The following table presents unaudited pro forma operating results as if the
transfers of assets and step up in bases had occurred on the first day of the
period presented:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
12/31/94 12/31/95
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total Revenue... $ 44,889 $ 50,208
Net Loss........ $ (15,268) $ (11,649)
</TABLE>
The pro forma results are based upon certain assumptions and estimates which
the Company believes are reasonable. The pro forma results do not purport to be
indicative of results that actually would have been obtained had the transfer
occurred on January 1, 1995, nor are they intended to be a projection of future
results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the following
entities:
.Rifkin Acquisition Partners, .Cable Equities, Incorporated (CEI)
L.L.L.P. .FNI Management Corp. (FNI)
.Cable Equities of Colorado .Rifkin/Tennessee, Ltd. (RTL)
Management Corp. (CEM)
.Cable Equities of Colorado, Ltd.
(CEC)
Revenue and Programming
Subscriber fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the
subscriber.
Advertising and Promotion Expenses
Advertising expenses are charged to income during the year in which they are
incurred. Promotion expenses are charged to income over the period of the
promotional campaign.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, which in the
case of assets constructed, includes amounts for material, labor, overhead and
interest, if applicable.
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings................................................... 27-30 years
Cable television transmission and distribution systems and
related equipment.......................................... 2-15 years
Vehicles and furniture and fixtures......................... 3- 5 years
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
Franchise Costs
Franchise costs are amortized using the straight-line method over the
remaining lives of the franchises as of the date they were acquired, ranging
from two months to twenty years. The carrying value of franchise costs is
F-9
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
assessed for recoverability by management based on an analysis of future
expected cash flows from the underlying operations of the Company. Management
believes that there has been no impairment thereof as of December 31, 1995.
Other Intangible Assets
Certain loan costs of the Partnership and RAP L.P. have been deferred and
are amortized to interest expense over the remaining term of the related debt.
The net amounts remaining at December 31, 1994 and 1995 were $1,264,999 and
$3,036,952, respectively.
Redeemable Partner's Interests
The Partnership Agreement provides that if a certain partner dies or becomes
disabled, that partner (or his personal representative) shall have the option,
exercisable by notice given to the partners at any time within 270 days after
his death or disability (except that if that partner dies or becomes disabled
prior to August 31, 2000, the option may not be exercised until August 31,
2000 and then by notice by that partner or his personal representative given
to the partners within 270 days after August 31, 2000) to sell, and require
the General Partner and certain trusts controlled by that partner to sell, and
the Partnership to purchase, up to 50% of the partnership interests owned by
any of such partners and certain current and former members of management of
Rifkin & Associates, Inc. that requests to sell its interest, for a purchase
price equal to the fair market value of those interests determined by
appraisal in accordance with the Partnership Agreement. Accordingly, the
current fair value of such partnership interests have been reclassified
outside of partners' capital.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification of Financial Statement Presentation
Certain reclassifications have been made to the previous years' financial
statements to conform with the 1995 financial statement presentation.
Accounting Change
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of," which requires losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement No. 121 in the first quarter of 1996 and, based
on current circumstances, does not believe the effect of adoption will be
material.
F-10
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES
Although neither the Partnership nor RAP L.P. are taxable entities, three
corporations (the "subsidiaries") are included in the consolidated financial
statements. The subsidiaries are required to pay taxes on their taxable
income, if any.
The following represents a reconciliation of pre-tax losses as reported in
accordance with generally accepted accounting principles and the losses
attributable to the partners and included in their individual income tax
returns:
<TABLE>
<CAPTION>
RAP L.P. COMPANY
--------------------------------------- -----------
8 MONTHS 4 MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
12/31/93 12/31/94 8/31/95 12/31/95
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Pre tax loss as reported............................................... $(12,823,070) $(10,411,462) $(7,565,768) $(4,648,089)
(Increase) decrease due to:
Separately taxed book results of corporate subsidiaries.............. 3,862,800 2,944,600 2,915,600 3,163,000
Effect of different depreciation and amortization methods for tax and
book purposes....................................................... (1,207,000) (1,625,000) (75,400) 5,249,000
Other.................................................................. (256,830) 348,962 (161,332) 86,489
- -------------------------------------------------- ------------ ------------ ----------- -----------
Tax loss attributable to the partners.................................. $(10,424,100) $ (8,742,900) $(4,886,900) $ 3,850,400
============ ============ =========== ===========
</TABLE>
RAP L.P. adopted the requirements of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, as of January 1, 1993, which
required RAP L.P. to change from the deferred method to the liability method
of accounting for income taxes for the subsidiaries and recorded a $3,500,000
charge for the cumulative effect of its adoption. No additional provision for
income taxes was required for the year ended December 31, 1993, since the tax
calculation resulted in a tax asset. At that point in time, the earnings
history of the subsidiaries indicated that realization of the tax asset would
more likely than not be impaired, therefore, the net deferred tax asset of
$808,000 was fully reserved.
As a result of the transfer of net assets on September 1, 1995 (Note 1), the
book value of the net assets was increased to reflect their fair market value
at that date. In connection with this revaluation, a deferred income tax
liability in the amount of $22,801,000 was established to provide for future
taxes payable on the revised valuation of the net assets. A deferred tax
benefit of $1,674,000 was recognized for the four months ended December 31,
1995, reducing the liability to $21,127,000.
Deferred tax assets (liabilities) are comprised of the following at December
31, 1994 and 1995:
<TABLE>
<CAPTION>
RAP L.P. COMPANY
----------- ------------
12/31/94 12/31/95
----------- ------------
<S> <C> <C>
Deferred tax assets resulting from loss
carryforwards................................ $ 4,166,000 $ 6,812,000
Deferred tax liabilities resulting from
depreciation and amortization................ (5,724,000) (27,939,000)
----------- ------------
Net deferred tax asset (liability)............ $(1,558,000) $(21,127,000)
=========== ============
</TABLE>
F-11
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES--(CONTINUED)
As of December 31, 1995, the subsidiaries have net operating loss
carryforwards ("NOLs") for income tax purposes of $18,099,000, substantially
all of which are limited. The NOLs will expire at various times between the
years 2000 and 2019. As a result, the Company has had no current tax expense
or benefit for the periods presented.
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
subsidiaries generally would be entitled to reduce their future federal income
tax liabilities by carrying the unused NOLs forward for a period of 15 years
to offset their future income taxes. The subsidiaries' ability to utilize any
NOLs in future years may be restricted, however, in the event the subsidiaries
undergo an "ownership change" as defined in Section 382 of the Code. In the
event of an ownership change, the amount of NOLs attributable to the period
prior to the ownership change that may be used to offset taxable income in any
year thereafter generally may not exceed the fair market value of the
subsidiary immediately before the ownership change (subject to certain
adjustments) multiplied by the applicable long-term, tax exempt rate announced
by the Internal Revenue Service for the date of the ownership change. One of
the subsidiaries underwent an ownership change on September 1, 1995 pursuant
to Section 382 of the Code. As such, the NOLs of the subsidiary are subject to
limitation from that date forward. It is the opinion of management that the
NOLs will be released from this limitation prior to their expiration dates
and, as such, have not been limited in its calculation of deferred taxes.
The provision for income tax expense (benefit) differs from the amount which
would be computed by applying the statutory federal income tax rate of 35% to
pre-tax income before extraordinary loss and change in accounting method as a
result of the following:
<TABLE>
<CAPTION>
RAP L.P. COMPANY
------------------------------------- -----------
8 MONTHS 4 MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
12/31/93 12/31/94 8/31/95 12/31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax (benefit) computed at statutory rate................................. $(4,488,075) $(3,644,012) $(2,648,019) $(1,626,831)
Increase (reduction) due to:
Tax benefit for non-corporate loss....................................... 3,136,078 2,613,396 1,627,602 519,781
Increase/(decrease) in valuation allowance due to NOL carryforwards...... 808,000 1,712,000 (493,000) --
Permanent differences between financial statement income and taxable
income.................................................................. 186,500 853,234 80,300 --
State income tax, net of federal benefit................................. (333,400) (270,698) (196,710) (120,850)
Other.................................................................... 690,897 294,080 71,827 (446,100)
----------- ----------- ----------- -----------
Income tax expense (benefit)............................................. $ -- $ 1,558,000 $(1,558,000) $(1,674,000)
- --------------------------------------------------
=========== =========== =========== ===========
</TABLE>
4. NOTES PAYABLE
Concurrent with the transfer of net assets of September 1, 1995, RAP L.P.'s
debt with a total balance at that date of $162,700,000 and accrued interest of
$11,400,000 (of which $3,800,000 was in default) was paid in full. In
addition, RAP L.P. incurred a $1,700,000 prepayment penalty in conjunction
with the retirement of this debt and recorded it as an extraordinary item.
Also on September 1, 1995, the Company obtained a new term loan and reducing
revolving loan with a financial institution. The term loan is $40,000,000,
which requires varying annual payments commencing on
F-12
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. NOTES PAYABLE--(CONTINUED)
March 31, 2002 and continuing through March 31, 2004. Certain mandatory
prepayments may also be required, commencing for fiscal 1997, based on the
Company's cash flow calculations. Optional prepayments are allowed, subject to
certain restrictions. The term loan bears an interest rate of 9.75% and is
payable quarterly. At December 31, 1995, fair value of such debt approximated
its carrying value.
The reducing revolving loan provides for borrowing up to $105,000,000 at the
discretion of the Company and will continue to decrease annually during its
term with changes over the five years following December 31, 1995 as follows:
1996--$500,000 reduction per quarter, 1997--$1,000,000 reduction per quarter,
1998--$1,250,000 reduction per quarter, 1999--$3,000,000 reduction per quarter
and 2000 --$4,500,000 reduction per quarter. Any unpaid balance is due March
31, 2003. Borrowing under the revolving loan at December 31, 1995 amounted to
$94,500,000. Interest is payable quarterly and is generally the bank's prime
rate plus .25% to 1.50% or LIBOR plus 1.50% to 2.75%. The specific rate is
dependent upon the senior funded debt ratio which is recalculated quarterly.
The weighted average effective interest rate at December 31, 1995 was 8.40%.
The reducing revolving loan includes a commitment fee of 1/2% per annum on the
unborrowed balance. At December 31, 1995, fair value of such debt approximated
its carrying value.
Both the term loan and the reducing revolving loan are secured. The related
loan agreement contains covenants limiting additional indebtedness,
dispositions of assets, investments in securities, distributions to partners,
management fees and capital expenditures. In addition, the Company must
maintain certain financial levels and ratios. At December 31, 1995, the Company
was in compliance with these covenants.
The Company also has $3,000,000 of senior subordinated debt, conveyed from
RAP L.P., payable to a Rifkin Partner. The principal amount is due September
30, 2003. Interest is payable quarterly at an interest rate of LIBOR plus 3.0%.
The interest rate at December 31, 1995 was 8.87%. At December 31, 1995, fair
value of such debt approximated its carrying value. At August 31,1995,
$2,000,000 of the $5,000,000 Senior Subordinated Series A debt was paid in
conjunction with the transfer of net assets (Note 1). The remaining $3,000,000
was converted to the Senior Subordinated note payable.
Based on the outstanding debt as of December 31, 1995 the minimum aggregate
maturities for the five years following 1995 are $0 in 1996 and 1997, $500,000
in 1998, $12,000,000 in 1999 and $18,000,000 in 2000.
The old revolving credit agreement included a commitment fee of 1/2% per
annum on the unborrowed balance of the facility.
F-13
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Debt consisted of the following:
<TABLE>
<CAPTION>
RAP L.P. COMPANY
------------ ------------
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Reducing revolving loan (see above description)... $ -- $ 94,500,000
Term loan (see above description)................. -- 40,000,000
Senior Secured Notes due March 31, 1996 bearing
interest at 11.42%. Interest is payable semi-an-
nually on March 31 and September 30 of each
year............................................. 52,000,000 --
Term Note payable to a bank, due in varying quar-
terly installments commencing March 31, 1994 and
continuing through March 31, 1996. The interest
rate is variable and is redetermined periodically
from a variety of interest calculation methods.
Interest is payable monthly or quarterly depend-
ing on the interest method for the applicable
borrowing period. The effective interest rate at
December 31, 1994 was 7.34%...................... 22,750,000 --
Revolving credit agreement, due March 31, 1996,
providing for borrowing up to $25,000,000 at the
discretion of the Partnership. Interest payment
and calculation options are consistent with those
available under the Term Note payable to a bank.
The effective interest rate at December 31, 1994
was 7.60%........................................ 22,000,000 --
Senior Subordinated Term Note, Series A, payable
to a bank, due March 31, 1997. The interest rate
is variable and is redetermined periodically from
a variety of interest calculation methods. Inter-
est is generally payable quarterly from the date
of the applicable interest rate election. The ef-
fective interest rate at December 31, 1994 was
8.93%............................................ 15,897,999 --
Senior Subordinated Notes, Series A, payable to
continuing owners, due 1997. Interest is payable
and calculated in a manner consistent with the
Senior Subordinated Term Note, Series A renamed
Senior Subordinated Debt (see above descrip-
tion)............................................ 5,000,000 3,000,000
Senior Subordinated Notes, Series B, due 1997. The
notes bear interest at 13.5%. Interest due on the
notes was deferred and added to the principal
balance until March 31, 1992. Interest payments
began September 30, 1992 and are payable semi-an-
nually on March 31 and September 30 of each
year............................................. 14,496,732 --
Subordinated Discount Notes, unsecured, due 1999.
The notes bear interest at 14%. All interest was
deferred and added to the principal balance until
May 12, 1992. Interest payments began September
30, 1992 and are payable semi-annually on March
31 and September 30 of each year................. 34,688,640 --
------------ ------------
$166,833,371 $137,500,000
============ ============
</TABLE>
5. WARRANTS
The Senior Subordinated Notes Series A, the Senior Subordinated Notes Series
B and the Subordinated Discount Notes of the Partnership were issued with
detachable warrants to purchase up to a total of 17.25% special limited partner
interests in RAP L.P. on a fully-diluted basis for a nominal amount of
consideration. The warrants contained a put feature which allowed the holder to
require RAP L.P. to purchase the warrant at its current fair market value at
any time after May 1, 1994.
The warrants were valued at $2,739,000 at date of issuance and that value was
recorded as a separate account outside of partners' capital as of December 31,
1994. There has been no increase in the fair value of the warrants since the
date of issuance. The recorded values of the related borrowings were reduced by
a corresponding amount and such discounts were accreted over the term of the
debt. The warrants were retired on September 1, 1995. Accordingly, at December
31, 1995, these warrants were no longer outstanding.
6. RELATED PARTY TRANSACTIONS
RAP L.P. was operated under a management agreement the ("old agreement") with
Rifkin & Associates, Inc. (Rifkin). The management agreement, which ended
August 31, 1995, provided that Rifkin act as manager of RAP L.P.'s CATV
systems, and be entitled to annual compensation of 5.0% of RAP L.P.'s revenues.
A new management agreement effective September 1, 1995, provides that Rifkin
act as manager of the Company's CATV systems, and be entitled to an annual
compensation of 3.5% of its revenue. Expenses incurred pursuant to the
management agreement with Rifkin are disclosed on the Consolidated Statements
of Operations.
Accrued management fees at December 31, 1995, include deferred management
fees of $402,732.
F-14
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTIONS--(CONTINUED)
The Company paid approximately $2,200,000 to certain limited partners or
affiliates thereof for assistance in connection with the transfer of net
assets described in Note 1.
7. COMMITMENTS AND RENTAL EXPENSE
The Company leases and RAP L.P. leased certain real and personal property
under noncancelable operating leases expiring through the year 2037. Future
minimum lease payments under such noncancelable leases as of December 31, 1995
are: $247,267 in 1996; $232,914 in 1997; $209,372 in 1998; $187,726 in 1999;
$156,277 in 2000; and $623,666 thereafter, totaling $1,657,222.
Total rental expense and the amount included therein which pertains to
cancelable pole rental agreements were as follows for the periods indicated:
<TABLE>
<CAPTION>
TOTAL CANCELABLE
RENTAL POLE RENTAL
PERIOD EXPENSE EXPENSE
------ -------- -----------
<S> <C> <C>
RAP L.P.
--------
Year Ended December 31, 1993............................ $790,577 $414,103
Year Ended December 31, 1994............................ $797,799 $422,886
Eight Months Ended August 31, 1995...................... $527,802 $292,293
COMPANY
-------
Four Months Ended December 31, 1995..................... $261,491 $149,847
</TABLE>
8. CABLE REREGULATION
On September 14, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the Cable Act). On April 1, 1993, the
Federal Communications Commission (FCC) adopted, with effect from September 1,
1993, rules for implementing regulation of CATV subscriber rates. On March 30,
1994, the FCC released revised rate regulation rules relating to the
implementation of the Cable Act (the Rules). The Rules included a number of
significant changes to the Cable Act with the intent of achieving a further
overall reduction in cable rates. Management, using its best interpretation of
the Rules, developed cost-of-service showings for its systems, which support
rates in excess of those in place.
On June 5, 1995, the FCC released additional revisions to the Rules. The
Rules were amended to redefine a small cable system and provide small operator
rate relief. Accordingly, the FCC implemented a streamlined cost-of-service
calculation form for use by small cable systems. All but two of the Company's
cable systems meet the revised definition of a small cable system. The Company
has performed the required calculations for the applicable systems and has
filed the form where appropriate. All resulting calculations supported rates
in excess of the current rates.
On February 8, 1996, the 1996 Telecom Act was signed into law. The total
effects of the new law are, at this time, still unknown. However, one
provision of the law further redefines a small cable system and exempts these
systems from rate regulation on the upper tiers of cable service. Management
anticipates that it will qualify as a small operator when the rulemaking is
completed and final rules are issued.
F-15
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SUBSEQUENT EVENTS
On January 26, 1996, the Company completed a private placement to
institutional investors of $125,000,000 11 1/8% Senior Subordinated Notes due
2006 (the "Notes"). Proceeds from the issuance of the Notes were used to
acquire the operating assets of additional cable systems in Tennessee and to
reduce debt on the Company's revolving loan facility.
On March 1, 1996, the Company purchased certain operating assets, the Mid-
Tennessee Systems, from an affiliate of the General Partner for an aggregate
price of $62,000,000 (including approximately $1.1 million of assumed
liabilities).
Currently, the Company is also negotiating to purchase other net operating
assets, which are also located in Tennessee, from another affiliate of the
General Partner. See Note 11.
On March 1, 1996, the Company signed an amendment to its existing debt
agreement with the financial institution discussed in Note 4. The amendment
reduces the existing reducing revolving loan facility from $105,000,000 to
$80,000,000. On that date, the Company also paid down $66,000,000 of the
previous revolving loan and converted the remaining $25,000,000 outstanding to
an additional term loan.
10. SUMMARIZED FINANCIAL INFORMATION
Cable Equities of Colorado Management Corp., Cable Equities Inc., Cable
Equities of Colorado, Ltd., FNI Management Corp. and Rifkin/Tennessee, Ltd.
(collectively, the "Guarantors"), are all wholly-owned subsidiaries of the
Company and, together with RACC, constitute all of the Partnership's direct and
indirect subsidiaries. Each of the Guarantors provide a full, unconditional,
joint and several guaranty of the obligations under the Notes discussed in Note
8. Separate financial statements of the Guarantors are not presented because
management has determined that they would not be material to investors.
F-16
<PAGE>
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. SUMMARIZED FINANCIAL INFORMATION--(CONTINUED)
The following tables present summarized financial information of the
Guarantors on a combined basis as of December 31, 1994 and 1995 and for the
years ended December 31, 1993 and 1994, and the eight months ended August 31,
1995 and the four months ended December 31, 1995. In conjunction with the
Reorganization discussed in Note 1, certain assets previously owned by the
Guarantors were transferred to the Partnership. The following information has
been retroactively adjusted to give effect to such transfers.
<TABLE>
<CAPTION>
RAP L.P. COMPANY
------------ ------------
12/31/94 12/31/95
------------ ------------
<S> <C> <C>
BALANCE SHEET
Cash............................................................... $ 125,445 $ 243,797
Accounts and other receivables, net................................ 1,033,531 1,131,030
Prepaid expenses................................................... 793,486 602,038
Property, plant and equipment net.................................. 33,874,083 57,796,186
Franchise costs and other intangible assets, net................... 56,987,503 130,007,213
Accounts payable and accrued liabilities........................... (15,075,282) (4,707,285)
Other liabilities.................................................. (894,100) (1,159,285)
Deferred taxes payable............................................. (1,558,000) (21,127,000)
Notes payable...................................................... (137,187,528) (121,437,500)
(Equity) deficit................................................... 61,900,862 (41,349,194)
<CAPTION>
RAP L.P. COMPANY
------------------------------------------ --------------
YEAR ENDED YEAR ENDED 8 MONTHS ENDED 4 MONTHS ENDED
12/31/93 12/31/94 8/31/95 12/31/95
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Total revenue...................................................... $ 30,123,525 $ 32,993,677 $ 24,500,604 $ 12,956,900
Total costs and expenses........................................... (26,803,528) (28,084,308) (19,576,065) (13,278,953)
Interest expense................................................... (14,738,263) (14,532,058) (12,921,627) (3,804,440)
Income tax (expense) benefit....................................... -- (1,558,000) 1,558,000 1,674,000
------------ ------------ ------------ ------------
Net loss before cumulative effect of change in accounting
principles........................................................ (11,418,266) (11,180,689) (6,439,088) (2,452,493)
Cumulative effect change in accounting for income taxes............ (3,500,000) -- -- --
- -------------------------------------------------- ------------ ------------ ------------ ------------
Net loss........................................................... $(14,918,266) $(11,180,689) $ (6,439,088) $ (2,452,493)
============ ============ ============ ============
</TABLE>
11. SUBSEQUENT EVENT (UNAUDITED)
On April 1, 1996, the Company purchased certain net operating assets, the RCT
Systems, from an affiliate of the General Partner for an aggregate purchase
price of $10,200,000 (including approximately $500,000 of assumed liabilities).
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Rifkin Acquisition Capital Corp.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Rifkin Acquisition Capital Corp.
("RAC") at January 24, 1996 in conformity with generally accepted accounting
principles. This balance sheet is the responsibility of RAC's management; our
responsibility is to express an opinion on this balance sheet based on our
audit. We conducted our audit of this balance sheet in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall balance sheet presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
January 24, 1996
F-18
<PAGE>
RIFKIN ACQUISITION CAPITAL CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 24,
1996
-----------
<S> <C>
ASSETS
Cash............................................................... $1,000
------
Total Assets................................................... $1,000
======
STOCKHOLDER'S EQUITY
Stockholder's Equity
Common Stock; $1.00 par value; 10,000 shares authorized, 1000
shares issued and outstanding................................... $1,000
------
Total Stockholder's equity..................................... $1,000
======
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-19
<PAGE>
RIFKIN ACQUISITION CAPITAL CORP.
NOTES TO BALANCE SHEET
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Rifkin Acquisition Capital Corp. ("RAC"), a Colorado corporation, was formed
on January 24, 1996, as a wholly-owned subsidiary of Rifkin Acquisition
Partners, L.L.L.P. (the "Partnership") for the purpose of co-issuing, with the
Partnership, $125.0 million in Senior Subordinated Notes to be used to repay
advances under the Partnership's term debt and to fund the Partnership's
expected acquisitions of certain cable television systems. RAC does not and is
not expected to have operations other than that which is related to its purpose
as co-issuer.
2. SUBSEQUENT EVENTS
RAC co-issued with the Partnership $125.0 million in Senior Subordinated
Notes of which approximately $63.2 million was used to repay advances under the
Amended and Restated Credit Agreement. The remaining proceeds, together with
the expected capital contributions to the Partnership of $15.0 million, are
expected to fund the Partnership's acquisition of certain cable television
systems.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Rifkin Acquisition Management, L.P.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Rifkin Acquisition Management,
L.P. ("RAM") at December 31, 1995 in conformity with generally accepted
accounting principles. This balance sheet is the responsibility of RAM's
management; our responsibility is to express an opinion on this balance sheet
based on our audit. We conducted our audit of this balance sheet in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the balance sheet,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall balance sheet presentation. We believe
that our audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
March 22, 1996
F-21
<PAGE>
RIFKIN ACQUISITION MANAGEMENT, L.P.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Investment in Rifkin Acquisition Partners, L.L.L.P................. $724,980
--------
Total Assets................................................... $724,980
========
PARTNERS' CAPITAL
Partners' capital.................................................. $724,980
--------
Total partners' capital........................................ $724,980
========
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-22
<PAGE>
RIFKIN ACQUISITION MANAGEMENT, L.P.
NOTES TO BALANCE SHEET
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Rifkin Acquisition Management, L.P. ("RAM") was formed on December 16, 1988,
pursuant to the laws of the state of Colorado, for the sole purpose of serving
as the General Partner of Rifkin Acquisition Partners, L.P. (the
"Partnership"), a partnership which operates cable television systems. On
September 1, 1995, a new partnership was established with RAM as the General
Partner, Rifkin Acquisition Partners, L.L.L.P. (the "Limited Partnership"), to
which the Partnership's net assets were transferred. RT Investments Corp., an
affiliate of Rifkin & Associates, Inc., is the General Partner of RAM.
RAM operates under a Limited Partnership Agreement (the "Agreement") which
establishes contribution requirements, enumerates the rights and
responsibilities of the partners, provides for allocations of income, losses
and distributions and defines certain items relating thereto.
The Agreement provides that net income or loss, certain defined capital
events, and cash distributions, all as defined in the Agreement, are generally
allocated 18.8% to the Limited Partners and 81.2% to the General Partner.
Income Taxes
RAM is not an income tax paying entity. Accordingly, no provision is made for
income taxes since the effects of operations are reportable by its partners on
their income tax returns.
2. EQUITY INVESTEE
Effective September 1, 1995, the Partnership transferred its net assets to
the Limited Partnership. The Limited Partnership has recorded the assets and
liabilities transferred at their estimated fair values at September 1, 1995.
RAM has a minority general partnership interest (1%) in the Limited
Partnership. This investment is accounted for under the equity method. The
major components of the equity method investees' combined balance sheet as of
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
(IN THOUSANDS)
<S> <C>
Cash..................................................... $ 318
Accounts receivable, net, other receivables and
prepaids................................................ 3,352
Property, plant and equipment, net....................... 74,412
Franchise costs and other intangible assets, net......... 159,963
--------
Total assets........................................... $238,045
========
Accounts payable, accrued liabilities and other
liabilities............................................. $ 6,920
Deferred taxes........................................... 21,127
Notes Payable............................................ 137,500
--------
Total liabilities...................................... 165,547
Redeemable partner's interests........................... 3,600
Partners' capital........................................ 68,898
--------
Total liabilities and partners' capital................ $238,045
========
</TABLE>
The notes payable of the Limited Partnership are only secured by its assets
with no recourse to RAM as general partner.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Mid-Tennessee CATV, L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of division deficit and of cash flows present fairly, in all
material respects, the financial position of Mid-Tennessee Systems (A division
of Mid-Tennessee CATV, L.P. (the "Partnership")) at December 31, 1994 and 1995,
and the results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the division's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
March 15, 1996
F-24
<PAGE>
MID-TENNESSEE SYSTEMS
(A DIVISION OF MID-TENNESSEE CATV, L.P.)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash............................................... $ 35,481 $ 258,963
Subscriber accounts receivable, net of allowance
for doubtful accounts of $58,664 in 1994 and
$63,487 in 1995................................... 136,584 146,826
Other receivables.................................. 49,914 80,002
Prepaid expenses and deposits...................... 226,656 219,706
Property, plant and equipment at cost:
Cable television transmission and distribution
systems and related equipment................... 19,468,863 20,580,993
Land, buildings, vehicles and furniture and
fixtures........................................ 1,143,430 1,414,482
------------ ------------
20,612,293 21,995,475
Less accumulated depreciation.................... (8,435,425) (10,128,676)
------------ ------------
Net property, plant and equipment.............. 12,176,868 11,866,799
Franchise costs and other intangible assets, net of
accumulated amortization of $12,999,080 in 1994
and $13,218,010 in 1995........................... 11,270,707 9,008,420
------------ ------------
Total assets....................................... $ 23,896,210 $ 21,580,716
============ ============
LIABILITIES AND DIVISION DEFICIT
Accounts payable and accrued liabilities........... $ 1,178,980 $ 1,450,620
Subscriber deposits and prepayments................ 139,559 118,639
Interest payable (Note 2).......................... 197,914 20,051
Advances from Mid-Tennessee CATV, L.P. (Note 2).... 32,811,902 32,930,449
------------ ------------
Total liabilities.............................. 34,328,355 34,519,759
Commitments and contingencies (Notes 2 and 3)
Division deficit (Note 1).......................... (10,432,145) (12,939,043)
------------ ------------
Total liabilities and division deficit............. $ 23,896,210 $ 21,580,716
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
MID-TENNESSEE SYSTEMS
(A DIVISION OF MID-TENNESSEE CATV, L.P.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
REVENUE:
Service............................................ $10,106,146 $11,138,716
Installation and other............................. 453,345 518,484
----------- -----------
Total revenue.................................... 10,559,491 11,657,200
COSTS AND EXPENSES:
Operating expense.................................. 3,843,176 4,224,506
Selling, general and administrative expense........ 1,713,544 2,086,128
Depreciation and amortization...................... 4,349,033 4,136,199
Management fees.................................... 527,961 582,796
Loss on disposal of assets......................... 105,249 7,799
----------- -----------
Total costs and expenses......................... 10,538,963 11,037,428
----------- -----------
Operating income..................................... 20,528 619,772
Interest expense (Note 2)............................ 2,631,429 3,041,720
----------- -----------
Net loss............................................. $(2,610,901) $(2,421,948)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
MID-TENNESSEE SYSTEMS
(A DIVISION OF MID-TENNESSEE CATV, L.P.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(2,610,901) $(2,421,948)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 4,349,033 4,136,199
Amortization of deferred loan costs.............. 45,761 45,761
Loss on disposal of assets....................... 105,249 7,799
Increase in subscriber accounts receivable....... (7,549) (10,242)
Increase in other receivables.................... (19,673) (30,088)
Decrease (increase) in prepaid expenses and
other........................................... (71,328) 6,950
Increase in accounts payable and accrued
liabilities..................................... 136,716 271,640
Decrease in subscriber deposits and prepayment... (13,211) (20,920)
Increase (decrease) in interest payable.......... 110,049 (177,863)
Increase in deferred interest included in
advances (Note 2)............................... 180,908 180,907
----------- -----------
Net cash provided by operating activities...... 2,205,054 1,988,195
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment......... (1,163,644) (1,629,445)
Proceeds from sale of assets....................... 4,845 15,640
Additions to other intangible assets, net of
refranchises...................................... -- (3,598)
----------- -----------
Net cash used in investing activities.......... (1,158,799) (1,617,403)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Mid-Tennessee CATV, L.P. (Note 2).... 2,177,448 2,177,448
Repayments to Mid-Tennessee CATV, L.P. (Note 2).... (3,177,953) (2,239,808)
Net change in intercompany receivable/payable (Note
1)................................................ (159,815) (84,950)
----------- -----------
Net cash used in financing activities.......... (1,160,320) (147,310)
----------- -----------
Net increase (decrease) in cash...................... (114,065) 223,482
Cash at beginning of period.......................... 149,546 35,481
----------- -----------
Cash at end of period................................ $ 35,481 $ 258,963
=========== ===========
Interest paid is as follows (Note 2):................ $ 2,294,731 $ 2,992,914
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
MID-TENNESSEE SYSTEMS
(A DIVISION OF MID-TENNESSEE CATV, L.P.)
STATEMENT OF DIVISION DEFICIT
<TABLE>
<S> <C>
Division deficit at December 31, 1993............................ $ (7,661,429)
Net loss......................................................... (2,610,901)
Net change in intercompany receivable/payable.................... (159,815)
------------
Division deficit at December 31, 1994............................ (10,432,145)
Net loss......................................................... (2,421,948)
Net change in intercompany receivable/payable.................... (84,950)
------------
Division deficit at December 31, 1995............................ $(12,939,043)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
MID-TENNESSEE SYSTEMS
(A DIVISION OF MID-TENNESSEE CATV, L.P.)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information
Mid-Tennessee Systems (a division of Mid-Tennessee CATV, L.P.) is comprised
of three cable television (CATV) systems in Tennessee which operate under the
names of Hickory Hill Cablevision, Lebanon Cablevision and the McMinnville
Cablevision cluster. Mid-Tennessee CATV, L.P. (the "Partnership") was formed
September 26, 1989, as a limited partnership under the laws of the State of
Delaware for the purpose of acquiring and operating cable television systems.
Rifkin/MT Management, L.P., an affiliate of Rifkin & Associates, Inc. (Note 2),
is the general partner of the Partnership (the "General Partner").
On February 17, 1995, a major investor in the Partnership exercised its
option to force the formation of a Liquidation Committee for the purpose of an
orderly sale of the assets of the Partnership. The Liquidation Committee
received offers from several unrelated third parties for the Mid-Tennessee
CATV, L.P. operating assets. The General Partner then elected to exercise its
right of first refusal with respect to the net assets of the Mid-Tennessee
Systems. Subsequent to December 31, 1995, the General Partner assigned its
rights to an affiliate, Rifkin Acquisition Partners, L.L.L.P. ("RAP") which has
purchased substantially all of the net assets of Mid-Tennessee Systems. The
remaining operating assets of the Partnership were sold to an unrelated third
party. (Note 6)
Basis of Presentation
The accompanying financial statements present Mid-Tennessee Systems as if it
had existed as a company separate from the Partnership. The statements include
the historical assets, liabilities, revenues, and expenses that are directly
related to Mid-Tennessee Systems' business.
Mid-Tennessee Systems' financial statements include all the direct costs of
operating its business. General and administrative expenses specifically
incurred by the Mid-Tennessee Systems cable systems were included, while costs
which were not incurred specifically for any of the Partnership's cable systems
were allocated to Mid-Tennessee Systems based on Mid-Tennessee Systems' total
assets as a percentage of the Partnership's total assets. Management believes
the foregoing allocations were made on a reasonable basis. Nonetheless, the
financial information included herein may not necessarily reflect the financial
position and results of operations of Mid-Tennessee Systems in the future, or
reflect what the financial position or results of Mid-Tennessee Systems'
operations would have been as a separate stand-alone entity.
Revenue and Programming
Subscriber fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the
subscriber.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, which in the
case of assets constructed includes amounts for material, labor, overhead and
interest, if applicable.
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................................................. 27-30 years
Cable television transmission and distribution systems and
related equipment......................................... 2-15 years
Vehicles and furniture and fixtures........................ 3- 5 years
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
F-29
<PAGE>
MID-TENNESSEE SYSTEMS
(A DIVISION OF MID-TENNESSEE CATV, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Franchise Costs
The costs to acquire cable television franchises are capitalized and
amortized using the straight-line method over the remaining lives at
acquisition date of the franchises, ranging from three to seventeen years. The
carrying value of franchise costs is assessed for recoverability by management
based on an analysis of expected future cash flows from the underlying
operations of the Partnership. Management believes that there has been no
impairment thereof as of December 31, 1995.
Income Taxes
The Partnership is not an income tax paying entity. Accordingly, no
provision is made for income taxes since the effects of Mid-Tennessee Systems'
operations are reportable by the Partnership's partners on their income tax
returns.
Advances from Mid-Tennessee CATV, L.P.
The indebtedness of the Partnership is secured by its partnership interests
in the underlying assets, including Mid-Tennessee Systems, and accordingly, a
portion of the Partnership's debt has been allocated to Mid-Tennessee Systems
as advances (Note 2).
Cash
The balances included are for amounts specifically identified as cash of
Mid-Tennessee Systems and amounts not specific to any of the Partnership's
cable systems which were allocated based on Mid-Tennessee Systems' assets as a
percent of the Partnership's total assets.
Division Deficit
The division deficit account consists of accumulated earnings/losses as well
as any intercompany payable/receivable balance due to/from the Partnership
resulting from cash transfers. The Company has no set payment terms for inter-
Company balance and no interest is charged thereon. As of December 31, 1994
and 1995, and throughout 1994 and 1995, amounts outstanding as intercompany
payable/receivables were not significant.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassification of Financial Statement Presentation
Certain reclassifications have been made to the 1994 financial statements to
conform with the 1995 financial statement presentation.
Accounting Change
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of," which requires losses to be
F-30
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS EXCHANGE OFFER TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR THE INITIAL PURCHASERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY THE EXCHANGE NOTES IN ANY JURISDICTION WHERE OR, TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE
DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Notice to Investors...................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 26
The Exchange Offer....................................................... 27
Capitalization........................................................... 35
Unaudited Pro Forma Condensed Consolidated Financial Data................ 36
Selected Historical Financial Data....................................... 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 44
Business................................................................. 53
Legislation and Regulation in the Cable Television Industry.............. 70
Management............................................................... 80
Principal Security Holders............................................... 84
Certain Relationships and Related Transactions........................... 85
The Partnership Agreement................................................ 87
Description of Amended and Restated Credit Agreement..................... 91
Description of Exchange Notes............................................ 93
Certain United States Federal Income Tax Consequences.................... 121
Old Notes Registration Rights............................................ 122
Old Notes Transfer Restrictions.......................................... 125
Plan of Distribution..................................................... 128
Experts.................................................................. 128
Legal Matters............................................................ 129
Index to Financial Statements............................................ F-1
</TABLE>
================================================================================
================================================================================
---------------
PROSPECTUS
---------------
$125,000,000
[LOGO OF RIFKIN APPEARS HERE]
RIFKIN ACQUISITION
PARTNERS, L.L.L.P.
RIFKIN ACQUISITION
CAPITAL CORP.
OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF ITS 11 1/8% SENIOR SUBORDINATED
NOTES DUE 2006 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR EACH
$1,000 PRINCIPAL AMOUNT OF ITS OUTSTANDING 11 1/8% SENIOR SUBORDINATED NOTES
DUE 2006
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BANKERS TRUST COMPANY
BY FACSIMILE:
(212 ) 250-6392
CONFIRMATION BY TELEPHONE:
(212) 250-6763
BY MAIL/HAND DELIVERY/OVERNIGHT DELIVERY:
BANKERS TRUST COMPANY
CORPORATE TRUST AND AGENCY GROUP
FOUR ALBANY STREET
NEW YORK, NEW YORK 10006
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the Prospectus contained in this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Exchange Notes registered
hereby, all of which expenses, except for the Commission registration fee are
estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- --------
<S> <C>
Securities and Exchange Commission registration fee.............. $43,104
Accounting fees and expenses..................................... 50,000
Legal fees and expenses.......................................... 40,000
Printing and engraving fees and expenses......................... 60,000
Blue sky fees and expenses....................................... 5,000
Exchange Agent fees and expenses................................. 3,500
Miscellaneous expenses........................................... 10,000
--------
Total........................................................ $211,604
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Partnership Agreement, the Company will indemnify and hold
harmless Rifkin Acquisition Management, L.P., a Colorado limited partnership,
and the Partnership's general partner ("RAM") and each of its limited partners
and their respective partners and affiliates, and all of the members of the
Advisory Committee, from and against any loss, liability, damage or expense
incurred or suffered by any of them by reason of any acts or omissions or
alleged acts or omissions arising out of their activities on behalf of the
Company or in connection with the business or operations of the Company,
provided that the acts or omissions or the alleged acts of omissions upon
which action or threatened action, proceeding or claim is based were not
performed or omitted fraudulently or in bad faith by the indemnified party.
As provided in the Articles of Incorporation of Rifkin Acquisition Capital
Corp. ("RACC") and R/T Investments Corp., the general partner of RAM, which is
the general partner of the Partnership ("R/T"), RACC or R/T may eliminate or
limit the personal liability of a director to RACC or R/T or to its
shareholders for monetary damages for breach of fiduciary duty as a director;
except that such provision shall not eliminate or limit the liability of a
director to RACC or R/T or to its shareholders for monetary damages for: Any
breach of the director's duty of loyalty to RACC or R/T or to its
shareholders; acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; acts specified in Section 7-108-403
of the Colorado Business Corporation Act; or any transaction from which the
director derived an improper personal benefit. No such provisions eliminate or
limit the liability of a director to RACC or R/T or to its shareholders for
monetary damages for any act or omission occurring prior to the date when such
provision becomes effective.
The following subparagraphs briefly describe indemnification provisions for
directors, officers and controlling persons of RACC or R/T against liability,
including liability under the Securities Act.
1. Under provisions of the By-Laws of RACC or R/T and the Colorado Business
Corporation Act (the "Code"), each person who is or was a director or officer
of RACC or R/T will be indemnified by RACC or R/T as a matter of right
summarized as follows:
(a) Under Colorado law, a person who is wholly successful on the merits
in defense of a suit or proceeding brought against him by reason of the
fact that he is a director or officer of RACC or R/T shall be indemnified
against reasonable expenses (including attorneys' fees) incurred in
connection with such suit or proceeding.
II-1
<PAGE>
(b) Except as provided in subparagraph (c) below, a director may be
indemnified under such law against both (1) reasonable expenses (including
attorneys' fees), and (2) judgments, penalties, fines and amounts paid in
settlement, if he acted in good faith and reasonably believed, in the case
of conduct in his official capacity as a director, that his conduct was in
RACC's or R/T's best interests, or in all other cases that his conduct was
not opposed to the best interests of RACC or R/T, and with respect to any
criminal action, he had no reasonable cause to believe his conduct was
unlawful, but RACC or R/T may not indemnify the director if the director is
found liable to RACC or R/T or is found liable on the basis that personal
benefit was improperly received by the director in connection with any suit
or proceeding charging improper personal benefit to the director;
(c) In connection with a suit or proceeding by or in the right of RACC or
R/T, indemnification is limited to reasonable expenses incurred in
connection with the suit or proceeding, but RACC or R/T may not indemnify
the director if the director was found liable to RACC or R/T; and
(d) Officers of RACC or R/T will be indemnified to the same extent as
directors as described in (a), (b) and (c) above.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Issuers
pursuant to the foregoing provisions, or otherwise, the Issuer have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended (the "Securities Act") and is, therefore, unenforceable.
Reference is made to the Purchase Agreement, a copy of which is or will be
filed as Exhibit 2.4 hereto, which provides for indemnification of the
directors and officers of the Registrants against certain liabilities,
including those arising under the Securities Act, the Securities Exchange Act
of 1934, as amended or otherwise in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrants have issued securities without
registration under the Securities Act as follows:
In August 1995, the Partnership assumed a subordinated note in the principal
amount of $3 million payable to Monroe M. Rifkin (the "Old Rifkin Note").
Interest on the Old Rifkin Note was calculated at three points over LIBOR. On
January 26, 1996, in connection with the Old Notes Offering, the Company
amended and restated the Old Rifkin Note and issued a new Note to Mr. Rifkin
(the "New Rifkin Note"). The New Rifkin Note bears a rate of interest and has
a scheduled maturity identical to that of the Exchange Notes and ranks pari
passu with the Notes.
In August 1995, Cable Equities, Inc. issued 1,000 shares of its Common Stock
to Cable Equities of Colorado Management Corp.
On January 24, 1996, RACC issued 1,000 shares of its Common Stock, par value
$1.00 per share to the Partnership for $1,000.
The foregoing securities were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act since no public offering
was involved and the securities had been taken for investment and not with a
view to distribution.
On January 26, 1996, the Partnership and RACC sold $125,000,000 principal
amount of 11 1/8%. Senior subordinated Notes due 2004 (the "Old Notes") to BT
Securities Corporation, Smith Barney Inc., First Union Capital Markets Corp.
and Paine Webber Incorporated (the "Initial Purchasers"). Such transaction was
exempt from the registration requirements of the Securities Act in reliance on
Section 4(2) of the Securities Act on the basis that such transaction did not
involve a public offering. In accordance with the agreement pursuant to which
the Initial Purchasers purchased the Old Notes, the Initial Purchaser agreed
to offer and sell the Old Notes only to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) or a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) of Regulation D under the Securities Act).
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1* Asset Sale Agreement dated as of January 2, 1996, between Mid-
Tennessee Cable Limited Partnership and Rifkin/MT Management, L.P.
2.2* Assignment and Assumption Agreement dated January 2, 1996 between
Rifkin Acquisition Partners, L.L.L.P. and Rifkin/MT Management, L.P.
2.3* Amended and Restated Purchase and Sale Agreement dated March 29, 1996
by and between Rifkin Cablevision of Tennessee, Ltd. and Rifkin
Acquisition Partners, L.L.L.P.
2.4* Purchase Agreement dated January 31, 1996 among BT Securities
Corporation, Smith Barney Inc., First Union Capital Markets Corp.,
Paine Webber Incorporated, Rifkin Acquisition Partners, L.L.L.P.,
Rifkin Acquisition Capital Corp., Cable Equities of Colorado, Ltd.,
Rifkin/Tennessee, Ltd., Cable Equities of Colorado Management Corp.,
Cable Equities, Inc., and FNI Management Corp.
3.1* Certificate of Limited Partnership and Registration Statement of
Rifkin Acquisition Partners, L.L.L.P.
3.2* Second Amended and Restated Limited Partnership Agreement of Rifkin
Acquisition Partners, L.L.L.P. dated August 31, 1995 as amended.
3.3* Articles of Incorporation of Rifkin Acquisition Capital Corp.
3.4* Bylaws of Rifkin Acquisition Capital Corp.
3.5* Articles of Incorporation of RT Investments Corp.
3.6* Bylaws of RT Investments Corp.
3.7* Amended and Restated Agreement of Limited Partnership of Rifkin
Acquisition Management, L.P. dated May 12, 1989, as amended.
3.8* Certificate of Limited Partnership of Rifkin Acquisition Management,
L.P.
3.9* Articles of Incorporation of Cable Equities of Colorado Management
Corp.
3.10* Bylaws of Cable Equities of Colorado Management Corp.
3.11* Charter of FNI Management Corp.
3.12* Bylaws of FNI Management Corp.
3.13* Certificate of Limited Partnership of Cable Equities of Colorado, Ltd.
3.14* Second Amended and Restated Agreement of Limited Partnership of Cable
Equities of Colorado, Ltd. dated May 12, 1989, as amended.
3.15* Articles of Incorporation of Cable Equities, Inc.
3.16* Bylaws of Cable Equities, Inc.
3.17* Certificate of Limited Partnership for Rifkin/Tennessee, Ltd.
3.18* Second Amended and Restated Certificate and Agreement of Limited
Partnership of Rifkin/Tennessee, Ltd.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1* Indenture dated January 15, 1996 among Rifkin Acquisition Partners,
L.L.L.P., Rifkin Acquisition Capital Corp., as Issuers, Cable Equities
of Colorado Management Corp., FNI Management Corp., Cable Equities of
Colorado, Ltd., Cable Equities, Inc. and Rifkin/Tennessee, Ltd., as
Subsidiary Guarantors, and Marine Midland Bank, as Trustee related to
the 11 1/8% Senior Subordinated Notes due 2006 (including form of
certificate to be delivered in connection with transfers to the
institutional accredited investors)
4.2* Registration Rights Agreement dated as of January 31, 1996 among
Rifkin Acquisition Partners, L.L.L.P., Rifkin Acquisition Capital
Corp., Cable Equities of Colorado Management Corp., FNI Management
Corp., Cable Equities of Colorado, Ltd., Cable Equities, Inc.,
Rifkin/Tennessee, Ltd., BT Securities Corporation, Smith Barney Inc.,
First Union Capital Markets Corp. and PaineWebber Incorporated
4.3* Pledge Agreement dated as of January 31, 1996 made by Rifkin
Acquisition Partners, L.L.L.P. and Rifkin Acquisition Capital Corp. to
Marine Midland Bank
4.4 Amended and Restated Promissory Note dated January 31, 1996 in the
principal amount of $3,000,000 payable by Rifkin Acquisition Partners
to Monroe M. Rifkin (pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K, the Registrants are not filing Exhibit 4.4 with this Registration
Statement. The Registrants agree to furnish a copy of Exhibit 4.4 to
the Securities and Exchange Commission upon request)
4.5* Amended and Restated Credit Agreement among Rifkin Acquisition
Partners, L.L.L.P., as Borrower, the several banks and other financial
institutions from time to time parties thereto, First Union National
Bank of North Carolina, as administrative agent and Bankers Trust
Company, as syndication agent.
4.6* 11 1/8% Senior Subordinated Note due 2006 in the principal sum of
$118,750,000 payable by Rifkin Acquisition Partners, L.L.L.P. and
Rifkin Acquisition Capital Corp. to Cede & Co. or registered assigns.
4.7* 11 1/8% Senior Subordinated Note due 2006 in the principal sum of
$4,250,000 payable by Rifkin Acquisition Partners, L.L.L.P. and Rifkin
Acquisition Capital Corp. to Cede & Co. or registered assigns.
4.8* 11 1/8% Senior Subordinated Note due 2006 in the principal sum of
$2,000,000 payable to Rifkin Children Trust III or registered assigns.
5.1* Legal Opinion of Baker & Hostetler concerning the legality of the 11
1/8% Senior Subordinated Notes due 2006
10.1* Amended and Restated Management Agreement dated August 31, 1995 among
Rifkin Acquisition Partners, L.P., Rifkin/Tennessee, Ltd., Cable
Equities of Colorado, Ltd. and Rifkin & Associates, Inc., as amended
by the Amendment of Management Agreement dated as of January 26, 1996
among Rifkin Acquisition Partners, L.L.L.P., Rifkin/Tennessee, Ltd.,
Cable Equities of Colorado, Ltd. and Rifkin & Associates, Inc.
10.2* Franchise Agreement to Provide Cable and Noncable Services between
County of Gwinnett and Cable Equities of Colorado, Ltd. dated December
5, 1995.
10.3* Franchise Agreement to Provide Cable and Noncable Services between
City of Roswell, Georgia and Cable Equities of Colorado, Ltd. dated
February 5, 1996.
10.4* Ordinance of City of Columbia, Tennessee granting Rifkin/Tennessee,
Ltd. the right to erect, maintain and operate a cable television
system in the City of Columbia, Tennessee passed and adopted January
3, 1991.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5* Cable Television Franchise Ordinance between Rifkin/Tennessee, Ltd.
and City of Cookeville passed January 19, 1995.
10.6* Form of Exchange Agent Agreement by and between Bankers Trust Company,
Rifkin Acquisition Partners, L.L.L.P. and Rifkin Acquisition Capital
Corp.
12.1* Statement re: Computation of Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of the Registrants
23.1# Consent of Price Waterhouse LLP, Independent Accountants
23.2* Consent of Baker & Hostetler (included in Exhibit 5.1)
25.1* Statement of Eligibility and Qualification on Form T-1 under the Trust
Indenture Act of 1939 of Midland Marine Bank, as Trustee of the
Indenture relating to the 11 1/8% Senior Subordinated Notes due 2006
(separately bound)
99.1+ Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4* Form of Letter to Clients
99.5* Guidelines for Certification of Taxpayer Identification Number on Form
W-9
</TABLE>
- --------
* Previously filed.
# Updated consent filed herewith.
+ Amended draft filed herewith.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
II-5
<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 Denver,
State of Colorado, as of May 6, 1996.
RIFKIN ACQUISITION PARTNERS,
L.L.L.P.
By: Rifkin Acquisition Management,
L.P., a Colorado limited
partnership, its general partner
By: RT Investments Corp., a
Colorado corporation, its
general partner
By: /s/ Monroe M. Rifkin
-------------------------------
Monroe M. Rifkin
Its: President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer (Principal Executive May 6, 1996
- ---------------------
Monroe M. Rifkin Officer
of RT Investments Corp., the general partner
of Rifkin Acquisition Management, L.P., the
general partner of Rifkin Acquisition
Partners, L.L.L.P.)
/s/ Dale D. Wagner Assistant Treasurer (Principal Financial May 6, 1996
- ---------------------
Dale D. Wagner Officer of RT Investments Corp., the general
partner of Rifkin Acquisition Management,
L.P., the general partner of Rifkin
Acquisition Partners, L.L.L.P.)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Kathryn L. Hale (Principal Accounting Officer of RT May 6, 1996
- ----------------------------
Kathryn L. Hale Investments Corp., the general
partner of Rifkin Acquisition
Management, L.P., the general partner
of Rifkin Acquisition Partners,
L.L.L.P.).
/s/ Charles R. Morris, III* Member of the Board of Directors of May 6, 1996
- ----------------------------
Charles R. Morris, III RT Investments Corp., the general
partner of Rifkin Acquisition
Management, L.P., the general partner
of Rifkin Acquisition Partners,
L.L.L.P.
/s/ Jeffrey D. Bennis Member of the Board of Directors of May 6, 1996
- ----------------------------
Jeffrey D. Bennis RT Investments Corp., the general
partner of Rifkin Acquisition
Management, L.P., the general partner
of Rifkin Acquisition Partners,
L.L.L.P.
/s/ S. Gerard Benford* Member of the Advisory Committee of May 6, 1996
- ----------------------------
S. Gerard Benford Rifkin Acquisition Partners, L.L.L.P.
/s/ Alfred C. Eckert III* Member of the Advisory Committee of May 6, 1996
- ----------------------------
Alfred C. Eckert III Rifkin Acquisition Partners, L.L.L.P.
/s/ David H. Morse* Member of the Advisory Committee of May 6, 1996
- ----------------------------
David H. Morse Rifkin Acquisition Partners, L.L.L.P.
/s/ Dhananjay Pai* Member of the Advisory Committee of May 6, 1996
- ----------------------------
Dhananjay Pai Rifkin Acquisition Partners, L.L.L.P.
/s/ Monroe M. Rifkin Member of the Advisory Committee of May 6, 1996
- ----------------------------
Monroe M. Rifkin Rifkin Acquisition Partners, L.L.L.P.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Nicholas E. Somers* Member of the Advisory Committee of May 6, 1996
- --------------------------
Nicholas E. Somers Rifkin Acquisition Partners, L.L.L.P.
/s/ Jeffrey T. Stevenson* Member of the Advisory Committee of May 6, 1996
- --------------------------
Jeffrey T. Stevenson Rifkin Acquisition Partners, L.L.L.P.
/s/ John S. Suhler* Member of the Advisory Committee of May 6, 1996
- --------------------------
John S. Suhler Rifkin Acquisition Partners, L.L.L.P.
</TABLE>
/s/ Monroe M. Rifkin
*By: _______________
Monroe M. Rikfin
----------------
Attorney-in-Fact
----------------
II-8
<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 Denver,
State of Colorado, as of May 6, 1996.
RIFKIN ACQUISITION CAPITAL CORP.
By: /s/ Monroe M. Rifkin
-------------------------------------
Monroe M. Rifkin
Its: President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer/Director May 6, 1996
- ------------------------ (Principal Executive Officer)
Monroe M. Rifkin
/s/ Dale D. Wagner Assistant Treasurer May 6, 1996
- ------------------------ (Principal Financial Officer)
Dale D. Wagner
/s/ Kathryn L. Hale (Principal Accounting Officer) May 6, 1996
- ------------------------
Kathryn L. Hale
</TABLE>
II-9
<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 Denver,
State of Colorado, as of May 6, 1996.
CABLE EQUITIES, INC.
By: /s/ Monroe M. Rifkin
-------------------------------------
Monroe M. Rifkin
Its President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer/Director May 6, 1996
- ------------------------ (Principal Executive Officer)
Monroe M. Rifkin
/s/ Dale D. Wagner Assistant Treasurer May 6, 1996
- ------------------------ (Principal Financial Officer)
Dale D. Wagner
/s/ Kathryn L. Hale (Principal Accounting Officer) May 6, 1996
- ------------------------
Kathryn L. Hale
</TABLE>
II-10
<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 Denver,
State of Colorado, as of May 6, 1996.
COLORADO EQUITIES OF COLORADO
MANAGEMENT CORP.
By: /s/ Monroe M. Rifkin
-------------------------------------
Monroe M. Rifkin
Its: President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer/Director May 6, 1996
- -----------------------
Monroe M. Rifkin (Principal Executive Officer)
/s/ Dale D. Wagner Assistant Treasurer May 6, 1996
- -----------------------
Dale D. Wagner (Principal Financial Officer)
/s/ Kathryn L. Hale (Principal Accounting Officer) May 6, 1996
- -----------------------
Kathryn L. Hale
</TABLE>
II-11
<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 Denver,
State of Colorado, as of May 6, 1996.
FNI MANAGEMENT CORP.
By: /s/ Monroe M. Rifkin
-------------------------------------
Monroe M. Rifkin
Its: President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer/Director May 6, 1996
- ---------------------------
Monroe M. Rifkin (Principal Executive Officer)
/s/ Dale D. Wagner Assistant Treasurer May 6, 1996
- ---------------------------
Dale D. Wagner (Principal Financial Officer)
/s/ Kathryn L. Hale (Principal Accounting Officer) May 6, 1996
- ---------------------------
Kathryn L. Hale
/s/ Charles R. Morris III* Director May 6, 1996
- ---------------------------
Charles R. Morris III
/s/ Jeffrey D. Bennis Director May 6, 1996
- ---------------------------
Jeffrey D. Bennis
</TABLE>
/s/ Monroe M. Rifkin
*By: _______________
Monroe M. Rifkin
----------------
Attorney-in-Fact
-----------------
II-12
<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 Denver,
State of Colorado, as of May 6, 1996.
CABLE EQUITIES OF COLORADO, LTD.
By: Cable Equities, Inc., its
general partner,
By: /s/ Monroe M. Rifkin
-------------------------------------
Monroe M. Rifkin
Its: President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer (Principal Executive May 6, 1996
- ---------------------
Monroe M. Rifkin Officer
of Cable Equities, Inc., the general partner
of Cable Equities of Colorado, Ltd.)
/s/ Dale D. Wagner Assistant Treasurer (Principal Financial May 6, 1996
- ---------------------
Dale D. Wagner Officer of Cable Equities, Inc., the general
partner of Cable Equities of Colorado, Ltd.
/s/ Kathryn L. Hale (Principal Accounting Officer of Cable May 6, 1996
- ---------------------
Kathryn L. Hale Equities, Inc., the general partner of Cable
Equities of Colorado, Ltd.)
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Charles R. Morris, III* Director of Cable Equities, Inc., the May 6, 1996
- --------------------------- general partner of Cable Equities of
Charles R. Morris, III Colorado, Ltd.
/s/ Jeffrey D. Bennis Director of Cable Equities, Inc., the May 6, 1996
- ---------------------------- general partner of Cable Equities of
Jeffrey D. Bennis Colorado, Ltd.
</TABLE>
*By:/s/ Monroe M. Rifkin
--------------------
MONROE M. RIFKIN
ATTORNEY-IN-FACT
II-14
<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 Denver,
State of Colorado, as of May 6, 1996.
RIFKIN/TENNESSEE, LTD.
By: Rifkin Acquisition Partners,
L.L.L.P., a Colorado limited
liability limited partnership,
its general partner,
By: Rifkin Acquisition Management,
L.P., a Colorado limited
partnership, its general
partner
By: RT Investment Corp., a
Colorado corporation, its
general partner
By: /s/ Monroe M. Rifkin
---------------------------------
Monroe M. Rifkin
Its: President/Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Monroe M. Rifkin and Stuart G. Rifkin, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
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 as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Monroe M. Rifkin President/Treasurer (Principal Executive May 6, 1996
- ---------------------
Monroe M. Rifkin Officer
of RT Investments Corp., the general partner
of Rifkin Acquisition Management, L.P., the
general partner of Rifkin Acquisition
Partners, L.L.L.P. the general partner of
Rifkin Tennessee, Ltd.)
/s/ Dale D. Wagner Assistant Treasurer (Principal Financial May 6, 1996
- ---------------------
Dale D. Wagner Officer of RT Investments Corp., the general
partner of Rifkin Acquisition Management,
L.P., the general partner of Rifkin
Acquisition Partners, L.L.L.P. the general
partner of Rifkin Tennessee, Ltd.)
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Kathryn L. Hale (Principal Accounting Officer of RT May 6, 1996
- ----------------------------
Kathryn L. Hale Investments Corp., the general
partner of Rifkin Acquisition
Management, L.P., the general partner
of Rifkin Acquisition Partners,
L.L.L.P. the general partner of
Rifkin Tennessee, Ltd.)
/s/ Charles R. Morris, III* Director of RT Investments Corp., the May 6, 1996
- ----------------------------
Charles R. Morris, III general partner of Rifkin Acquisition
Management, L.P., the general partner
of Rifkin Acquisition Partners,
L.L.L.P., the general partner of
Rifkin Tennessee, Ltd.
/s/ Jeffrey D. Bennis Director of RT Investments Corp., the May 6, 1996
- ----------------------------
Jeffrey D. Bennis general partner of Rifkin Acquisition
Management, L.P., the general partner
of Rifkin Acquisition Partners,
L.L.L.P., the general partner of
Rifkin Tennessee, Ltd.
*By: /s/ Monroe M. Rifkin
- ----------------------------
Monroe M. Rifkin
Attorney-in-Fact
</TABLE>
II-16
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates, and related
to the financial statements of the companies, listed below which appear in such
Prospectus.
<TABLE>
<CAPTION>
Company Date
- ------- ----
<S> <C>
Rifkin Acquisition Partners, L.L.L.P. March 22, 1996
Rifkin Acquisition Partners, L.P. December 20, 1995
Rifkin Acquisition Capital Corporation January 24, 1996
Rifkin Acquisition Management, L.P. March 22, 1996
Mid-Tennessee Systems March 15, 1996
</TABLE>
We also consent to the references to us under the heading "Experts."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
May 6, 1996
<PAGE>
Exhibit 99.1
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1996, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR
TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
360 South Monroe Street, Suite 600
Denver, Colorado 80209
LETTER OF TRANSMITTAL
To Exchange 11% Senior Subordinated Notes due 2006
Exchange Agent:
BANKERS TRUST COMPANY
_______________
To: Bankers Trust Company
_______________
Facsimile Transmission:
_______________
Confirm by telephone to:
_______________
By Mail/Hand Delivery/Overnight Delivery:
Bankers Trust Company
Corporate Trust and Agency Group
Four Albany Street
New York, New York 10006
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated ,
1996 (the "Prospectus") of Rifkin Acquisition Partners, L.L.L.P., a Colorado
limited liability limited partnership, and Rifkin Acquisition Capital Corp., a
Colorado corporation (collectively, the "Issuers"), and this Letter of
Transmittal for 11% Senior Subordinated Notes due 2006 which may be amended
from time to time (this "Letter"), which together constitute the Issuers' offer
(the "Exchange Offer") to exchange $1,000 principal amount of its 11% Senior
Subordinated Notes due 2006 (the "Exchange Notes") for each $1,000 in principal
amount of its outstanding 11% Senior Subordinated Notes due 2006 (the "Old
Notes") that were issued and sold in a transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act").
The undersigned has completed, executed and delivered this Letter to indicate
the action he or she desires to take with respect to the Exchange Offer.
All holders of Old Notes who wish to tender their Old Notes must, prior to
the Expiration Date: (1) complete, sign, date and deliver this Letter, or a
facsimile thereof, to the Exchange Agent, in person or to the address set forth
above; and (2) tender his or her Old Notes or, if a tender of Old Notes is to be
made by book-entry transfer to the account maintained by the Exchange Agent at
The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such
book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance
with the procedures for tendering described in the Instructions to this Letter.
Holders of Old Notes whose certificates are not immediately available, or who
are unable to deliver their certificates or Book-Entry Confirmation and all
other documents required by this Letter to be delivered to the Exchange Agent on
or prior to the Expiration Date, must tender their Old Notes according to the
guaranteed delivery procedures set forth under the caption "The Exchange Offer--
How to Tender" in the Prospectus. (See Instruction 1).
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and the
issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Issuers shall be deemed to have accepted for
exchange validly tendered Old Notes when, as and if the Issuers have given
written notice thereof to the Exchange Agent.
The Instructions included with this Letter must be followed in their
entirety. Questions and requests for assistance or for additional copies of the
Prospectus or this Letter may be directed to the Exchange Agent, at the address
listed above, or Dale D. Wagner, Senior Vice President-Finance and
Administration of Rifkin & Associates, 360 South Monroe Street, Suite 600,
Denver, Colorado 80209, at (303) 333-1215.
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING
THE INSTRUCTIONS TO THIS LETTER, CAREFULLY
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Old Notes of which you are the holder. If the space
provided in Box 1 is inadequate, list the certificate numbers and principal
amount of Old Notes on a separate signed schedule and affix that schedule to
this Letter.
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Name(s) and Address(es) of Amount of
Registered Holder(s) Certificate Principal Amount Old Notes
(Please fill in if blank) Number(s) (1) of Old Notes Tendered (2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Totals:
- ------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed if Old Notes are being tendered by book-entry
transfer.
(2) Unless otherwise indicated, the entire principal amount of Old Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered.
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuers the principal amount of Old Notes indicated
above. Subject to, and effective upon, the acceptance for exchange of the Old
Notes tendered with this Letter, the undersigned exchanges, assigns and
transfers to, or upon the order of, the Issuers all right, title and interest in
and to the Old Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Issuers) with respect to the tendered Old Notes, with
full power of substitution, to: (a) deliver certificates for such Old Notes;
(b) deliver Old Notes and all accompanying evidence of transfer and authenticity
to or upon the order of the Issuers upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to which the undersigned is entitled
upon the acceptance by the Issuers of the Old Notes tendered under the Exchange
Offer; and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of the Old Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, assign and transfer the Old Notes tendered
hereby and that the Issuers will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuers to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered.
The undersigned agrees that acceptance of any tendered Old Notes by the
Issuers and the issuance of Exchange Notes (together with the guarantees of the
Guarantors (as defined in the Prospectus) with respect thereto) in exchange
therefor shall constitute performance in full by the Issuers and the Guarantors
of their obligations under the Registration Rights Agreement (as defined in the
Prospectus) and that, upon the issuance of the Exchange Notes, the Issuers and
the Guarantors will have no further obligations or liabilities thereunder
(except in certain limited circumstances). By tendering Old Notes, the
undersigned certifies (a) that it is not an "affiliate" of the Issuers within
the meaning of the Securities Act (an "Affiliate"), that it is not a broker-
dealer that owns Old Notes acquired directly from the Issuers or an Affiliate,
that it is acquiring the Exchange Notes acquired directly from the Issuers or an
Affiliate, that it is acquiring the Exchange Notes offered hereby in the
ordinary course of the undersigned's business and that the undersigned has no
arrangement with any person to participate in the distribution of such Exchange
Notes; (b) that it is an Affiliate of the Issuers or of any of the initial
purchasers of the Old Notes in the Old Notes Offering and that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable to it; or (c) that it is a Participating Broker-Dealer
(as defined in the Registration Rights Agreement) and that it will deliver a
prospectus in connection with any resale of the Exchange Notes. By tendering
==============
Old Notes and executing this Letter of Transmittal, the undersigned further
===========================================================================
certifies that it is not engaged in and does not intend to engage in a
======================================================================
distribution of the Exchange Notes.
===================================
The undersigned acknowledges that, if it is a broker-dealer that will receive
Exchange Notes for its own account, it will deliver a prospectus in connection
with any resale of such Exchange Notes. 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.
<PAGE>
The undersigned understands that the Issuers may accept the undersigned's
tender by delivering written notice of acceptance to the Exchange Agent, at
which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate
for any Old Notes not tendered but represented by a certificate also
encompassing Old Notes which are tendered) to the undersigned at the address set
forth in Box 1.
The undersigned acknowledges that the Exchange Offer is subject to the more
detailed terms set forth in the Prospectus and, in case of any conflict between
the terms of the terms of the Prospectus and this Letter, the Prospectus shall
prevail.
<PAGE>
[_] CHECK HERE IF TENDERED OLD 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:__________________________________________________
================================================================================
CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Owner(s):___________________________________________
Date of Execution of Notice of Guaranteed Delivery:_______________________
Window Ticket Number (if available):______________________________________
Name of Institution which Guaranteed Delivery:____________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
- --------------------------------------------------------------------------------
BOX 2
PLEASE SIGN HERE
WHETHER OR NOT OLD NOTES ARE BEING
PHYSICALLY TENDERED HEREBY
This box must be signed by registered holder(s) of Old Notes as their
name(s) appear(s) on certificate(s) for Old Notes, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Letter. If signature is by a trustee, executor,
administrator, guardian, offer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below. (See Instruction 3)
X_______________________________________________________________________________
X_______________________________________________________________________________
Signature(s) of Owner(s) or Authorized Signatory
Date: ___________________________, 1996
Name(s)_________________________________________________________________________
(Please Print)
Capacity:
Address:
(Include Zip Code)
Area Code and Telephone No.:
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (See Instructions 4 below)
Certain Signatures Must be Guaranteed by an Eligible Institution
- ------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- ------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
- ------------------------------------------------------------------------------
(Authorized Signature)
- ------------------------------------------------------------------------------
(Title)
- ------------------------------------------------------------------------------
(Printed Name)
Date: ___________________________, 1996
- --------------------------------------------------------------------------------
<PAGE>
BOX 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYOR'S NAME: _________________________
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Part 1 Social Security Number
or Employer Identification
PLEASE PROVIDE YOUR TIN Number
IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW. ------------------------
- --------------------------------------------------------------------------------
SUBSTITUTE Part 2 [_]
Form W-9
Department of the Check the box if you are NOT subject to back-up
Treasury, Internal withholding under the provisions of Section
Revenue Service 2406(a)(1)(C) of the Internal Revenue Code because
(1) you have not been notified that you are
subject to back-up withholding as a result of
failure to report all interest or dividends or (2)
the Internal Revenue Service has notified you that
you are no longer subject to back-up withholding.
- --------------------------------------------------------------------------------
Payor's Request for Part 3
Taxpayer
Identification Check if
Number (TIN) Awaiting TIN
- --------------------------------------------------------------------------------
CERTIFICATION UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE.
Signature______________________ Date______________
______________________
Name: (Please Print)
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BOX 4 BOX 5
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
- --------------------------------------------------------------------------------
<S> <C>
To be completed ONLY if certificates To be completed ONLY if certificates
for Old Notes in a principal amount for Old Notes in a principal amount
not exchanged, or Exchange Notes, are not exchanged, or Exchange Notes, are
to be issued in the name of someone to be sent to someone other than the
other than the person whose signature person whose signature appears in Box
appears in Box 2, or if Old Notes 2 or to an address other than that
delivered by book-entry transfer shown in Box 1.
which are not accepted for exchange
are to be returned by credit to an Deliver:
account maintained at the Book-Entry
Transfer Facility other than the (check appropriate boxes)
account indicated above.
[_] Old Notes not tendered
Issue and deliver:
[_] Exchange Notes, to:
(check appropriate boxes)
(Please Print)
[_] Old Notes not tendered
Name:_____________________________
[_] Exchange Notes, to:
Address:__________________________
(Please Print)
__________________________
Name: ____________________________
__________________________
Address:__________________________
Please complete the Substitute
__________________________ Form W-9 at Box 3.
__________________________ Tax I.D. or Social Security Number:
Please complete the Substitute __________________________________
Form W-9 at Box 3.
Tax I.D. or Social Security Number:
__________________________________
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter and Certificates. Certificates for Old Notes or a
Book-Entry Confirmation, as the case may be, as well as a properly completed and
duly executed copy of this Letter and any other documents required by this
Letter, must be received by the Exchange Agent at one of its addresses set forth
herein on or before the Expiration Date. The method of delivery of this Letter,
certificates for Old Notes or a Book-Entry Confirmation, as the case may be, and
any other required documents is at the election and risk of the tendering
holder, but except as otherwise provided below, the delivery will be deemed made
when actually received by the Exchange Agent. If delivery is by mail, the use
of registered mail with return receipt requested, properly insured, is
suggested.
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, 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 Issuers and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/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 on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
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
Old Notes should contact such holder promptly and instruct such holder to tender
Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to
tender such Old Notes himself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take considerable
time.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes or a Book-Entry Confirmation, as the case may be, and all other
required documents to the Exchange Agent on or before the Expiration Date may
tender their Old Notes pursuant to the guaranteed delivery procedures set forth
in the Prospectus. Pursuant to such procedure: (i) tender must be made by or
through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange
Agent must have received from the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile
transmission, mail or hand delivery) (x) setting forth the name and address of
the holder, the description of the Old Notes and the principal amount of Old
Notes tendered, (y) stating that the tender is being made thereby and (z)
guaranteeing that, within five New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, this Letter together
with the certificates representing the Old Notes or a Book-Entry Confirmation,
as the case may be, and any other documents required by this Letter will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) the
certificates for all tendered Old Notes or a Book-Entry Confirmation, as the
case may be, as well as all other documents required by this Letter, must be
received by the Exchange Agent within
<PAGE>
five New York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "The Exchange Offer--How to Tender."
The method of delivery of Old Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper insurance be
obtained, and the mailing be made sufficiently in advance of the Expiration Date
to permit delivery to the Exchange Agent on or before the Expiration Date.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does not
provide his or her taxpayer identification number (social security number or
employer identification number) and certify that such number is correct. Each
tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is proved in a manner satisfactory to
the Issuers and the Exchange Agent.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the principal amount of the
Old Notes being tendered, the names in which the Old Notes are registered and,
if possible, the certificate numbers of the Old Notes to be 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 such letter,
telegram or facsimile transmission by the Eligible Institution, the Old Notes,
in proper form for transfer, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the above-
described method (or a timely Book-Entry Confirmation) 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 Issuers 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.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) 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 above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Old Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers, whose determination will be final and binding. The Issuers reserve
the absolute right to reject any or all tenders that are not in proper form or
the acceptance of which, in the opinion of the Issuers' counsel, would be
unlawful. The Issuers also reserve the right to waive any irregularities or
conditions of tender as to particular Old Notes. All tendering holders, by
execution of this Letter, waive any right to receive notice of acceptance of
their
<PAGE>
Old Notes. The Issuers' interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding.
Neither the Issuers, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. Partial Tenders; Withdrawals. If less than the entire principal amount of
any Old Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal amount
tendered in the fourth column of Box 1 above. All of the Old Notes represented
by a certificate or by a Book-Entry Confirmation delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. A certificate
for Old Notes not tendered will be sent to the holder, unless otherwise provided
in Box 5, as soon as practicable after the Expiration Date, in the event that
less than the entire principal amount of Old Notes represented by a submitted
certificate is tendered (or, in the case of Old Notes tendered by book-entry
transfer, such non-exchanged Old Notes will be credited to an account maintained
by the holder with the Book-Entry Transfer Facility).
If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn
prior to the Expiration Date. To be effective with respect to the tender of Old
Notes, a notice of withdrawal must: (i) be received by the Exchange Agent
before the Issuers notify the Exchange Agent that they have accepted the tender
of Old Notes pursuant to the Exchange Offer; (ii) specify the name of the person
who tendered the Old Notes; (iii) contain a description of the Old Notes to be
withdrawn, the certificate numbers shown on the particular certificates
evidencing such Old Notes and the principal amount of Old Notes represented by
such certificates; and (iv) be signed by the holder in the same manner as the
original signature on this Letter (including any required signature guarantee).
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of the Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of Old Notes to be withdrawn, the principal amount of Old Notes to be
withdrawn, a statement that such holder is withdrawing his election to have such
Old Notes exchanged, and the name of the registered holder of such Old Notes,
and must be signed by the holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to the Issuers that the person withdrawing
the tender has succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Notes
promptly following receipt of notice of withdrawal. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Issuers, and such determination will be final and binding on
all parties.
3. Signatures on this Letter; Assignments; Guarantee of Signatures. If this
Letter is signed by the holder(s) of Old Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificate(s)
for such Old Notes, without alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Old Notes are held in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate copies of this Letter as there are names in which
certificates are held.
<PAGE>
If this Letter is signed by the holder of record and (i) the entire principal
amount of the holder's Old Notes are tendered; and/or (ii) untendered Old Notes,
if any, are to be issued to the holder of record, then the holder of record need
not endorse any certificates for tendered Old Notes, nor provide a separate bond
power. In any other case, the holder of record must transmit a separate bond
power with this Letter.
If this Letter or any certificate or assignment is 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 proper evidence satisfactory to the
Issuers of their authority to so act must be submitted, unless waived by the
Issuers.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Old Notes are tendered: (i) by a holder who has not completed the Box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
this Letter; or (ii) for the account of an Eligible Institution. In the event
that the signatures in this Letter or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by an eligible
guarantor institution which is a member of The Securities Transfer Agents
Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature
Program (MSP) or The Stock Exchanges Medallion Program (SEMP). If Old Notes are
registered in the name of a person other than the signer of this Letter, the Old
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by the Issuers, in their discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
4. Special Issuance and Delivery Instructions. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Old Notes not exchanged are to be issued or
sent, if different from the name and address of the person signing this Letter.
In the case of issuance in a different name, the tax identification number of
the person named must also be indicated. Holders tendering Old Notes by book-
entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such holder may
designate.
5. Tax Identification Number. Federal income tax law requires that a holder
whose tendered Old Notes are accepted for exchange must provide the Exchange
Agent (as payor) with his or her correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Exchange Agent is not provided with the correct TIN,
the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to the holder of the Exchange Notes pursuant to
the Exchange Offer may be subject to back-up withholding. (If withholding
results in overpayment of taxes, a refund may be obtained.) Exempt holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these back-up withholding and reporting requirements. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuers on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back-up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the Internal Revenue Service that he or she is
subject to back-up withholding as a result of failure to report all interest or
dividends; (ii) the Internal Revenue Service has notified the holder that he or
she is no longer subject to
<PAGE>
back-up withholding; or (iii) in accordance with the Guidelines, such holder is
exempt from back-up withholding. If the Old Notes are in more than one name or
are not in the name of the actual owner, consult the enclosed Guidelines for
information on which TIN to report.
6. Transfer Taxes. The Issuers will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Old Notes
not exchanged are to be delivered to, or are to be issued in the name of, any
person other than the record holder, or if tendered certificates are recorded in
the name of any person other than the person signing this Letter, or if a
transfer tax is imposed by any reason other than the transfer of Old Notes to
the Issuers or its order pursuant to the Exchange Offer, then the amount of such
transfer taxes (whether imposed on the record holder or any other person) will
be payable by the tendering holder. If satisfactory evidence of payment of
taxes or exemption from taxes is not submitted with this Letter, the amount of
transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
7. Waiver of Conditions. The Issuers reserves the absolute right to amend or
waive any of the specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
8. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder whose
certificates for Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above, for further
instructions.
9. Requests for Assistance or Additional Copies. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: This Letter (together with certificates representing tendered Old
Notes or a Book-Entry Confirmation and all other required documents) must be
received by the Exchange Agent on or before the Expiration Date (as defined in
the Prospectus).
<PAGE>
EXHIBIT 99.2
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
NOTICE OF GUARANTEED DELIVERY
of 11% Senior Subordinated Notes
due 2006
As set forth in the Prospectus dated , 1996 (the
"Prospectus") of Rifkin Acquisition Partners, L.L.L.P. and Rifkin Acquisition
Capital Corp. (the "Issuers") and their subsidiaries under "The Exchange Offer--
How to Tender" and in the Letter of Transmittal for 11% Senior Subordinated
Notes due 2006 (the "Letter of Transmittal"), this form or one substantially
equivalent hereto must be used to accept the Exchange Offer (as defined below)
of the Issuers if: (i) certificates for the above-referenced Notes (the "Old
Notes") are not immediately available, (ii) time will not permit all required
documents to reach the Exchange Agent (as defined below) on or prior to the
Expiration Date (as defined in the Prospectus) or (iii) the procedures for book-
entry transfer cannot be completed on or prior to the Expiration Date (as
defined below). Such form may be delivered by hand or transmitted by telegram,
telex, facsimile transmission or letter to the Exchange Agent.
To: Bankers Trust Company
(the "Exchange Agent")
By Facsimile:
_______________
Confirm by telephone to:
_______________
By Mail/Hand Delivery/Overnight Delivery:
Bankers Trust Company
Corporate Trust and Agency Group
Four Albany Street
New York, New York 10006
Delivery of this instrument to an address other than
as set forth above or transmittal of this instrument to
a facsimile or telex number other than as set forth
above does not constitute a valid delivery.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuers, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the
principal amount of Old Notes set forth below pursuant to the guaranteed
delivery procedures described in the Prospectus and the Letter of Transmittal.
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1996, unless
extended by the Issuers. With respect to the Exchange Offer, "Expiration Date"
means such time and date, or if the Exchange Offer is extended, the latest time
and date to which the Exchange Offer is so extended by the Issuers.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undesigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
<TABLE>
<S> <C>
- ----------------------------------
SIGNATURES Principal amount of Old Notes Exchanged:
- ---------------------------------- $__________________________________________
Signature of Owner
Certificate Nos. of Old Notes (if available)
- ----------------------------------
Signature of Owner (if more than --------------------------------------------
one)
Dated:_____________________, 1996 --------------------------------------------
Name(s):__________________________ IF OLD NOTES WILL BE DELIVERED BY
BOOK-ENTRY TRANSFER, PROVIDE THE DEPOSITORY
__________________________ TRUST COMPANY ("DTC") ACCOUNT NO.:
(Please Print)
Account No.______________________________
Address:__________________________
__________________________________
__________________________________
(Include Zip Code)
Area Code and
Telephone No.:___________________
Capacity (full title), if signing
in a representative capacity:
- ----------------------------------
Taxpayer Identification or Social
Security No.:
- ----------------------------------
- ----------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a member of a recognized signature guarantee medallion program
within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, hereby guarantees (a) that the above-named person(s) own(s) the above-
described securities tendered hereby within the meaning of Rule 10b-4 under the
Securities Exchange Act of 1934, (b) that such tender of the above-described
securities complies with Rule 10b-4, and (c) that delivery of such certificates
pursuant to the procedure for book-entry transfer, in either case with delivery
of a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and any other required documents, is being made within five New York
Stock Exchange trading days after the date of execution of a Notice of
Guaranteed Delivery of the above-named person.
- --------------------------------------------------------------------------------
<S> <C>
Name of Firm:
- --------------------------------- ---------------------------------------------
(Authorized Signature)
Title:
- ---------------------------------
Number and Street or P.O. Box
---------------------------------------------
- --------------------------------- Date:
City State Zip Code
Tel. No.
------------------------- ---------------------------------------------
Fax No.:
-------------------------
- --------------------------------------------------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES REPRESENTING NOTES WITH THIS NOTICE. NOTES
SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED
AND DULY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
Offer to Exchange
$1,000 in principal amount of
11% Senior Subordinated Notes due 2006
for
each $1,000 in principal amount of
outstanding 11% Senior Subordinated Notes due 2006
that were issued and sold in a transaction
exempt from registration under the Securities
Act of 1933, as amended
To Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus dated ,
1996 (as the same may be amended or supplemented from time to time (the
"Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by Rifkin Acquisition Partners,
L.L.L.P. and Rifkin Acquisition Capital Corp. (the "Issuers") to exchange up to
$125,000,000 in aggregate principal amount of their 11% Senior Subordinated
Notes due 2006 (the "Exchange Notes") for up to $125,000,000 in aggregate
principal amount of their outstanding 11% Senior Secured Notes due 2006 that
were issued and sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Old Notes").
We are asking you to contact your clients for whom you hold Old Notes
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Old Notes registered in
their own name. The Issuers will not pay any fees or commissions to any broker,
dealer or other person in connection with the solicitation of tenders pursuant
to the Exchange Offer. You will, however, be reimbursed by the Issuers for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Issuers will pay all transfer taxes, if
any, applicable to the tenderer of Old Notes to it or its order, except as
otherwise provided in the Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the exchange
of Old Notes and for the information of your clients (facsimile copies of the
Letter of Transmittal may be used to exchange Old Notes);
3. A form of letter that may be sent to your clients for whose accounts
you hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining the clients' instructions with regard to the
Exchange Offer;
4. A Notice of Guaranteed Delivery;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
<PAGE>
6. A return envelope addressed to ___________________________, the Exchange
Agent.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on , , 1996, unless
extended (the "Expiration Date"). Old Notes tendered pursuant to the Exchange
Offer may be withdrawn, subject to the procedures described in the Prospectus,
at any time prior to the Expiration Date.
To tender Old Notes, certificates for Old Notes or a Book-Entry Confirmation,
a duly executed and properly completed Letter of Transmittal or a facsimile
thereof, and any other required documents, must be received by the Exchange
Agent as provided in the Prospectus and the Letter of Transmittal.
Questions and requests for assistance with respect to the Exchange Offer or
for additional copies of the enclosed material may be directed to the Exchange
Agent at its address set forth in the Prospectus or at ( ) _______________.
Very truly yours,
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF THE ISSUERS OR THE EXCHANGE AGENT, OR ANY AFFILIATE
THEREOF, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY
DOCUMENT ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR
THE ENCLOSED DOCUMENTS AND THE STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.4
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
RIFKIN ACQUISITION CAPITAL CORP.
Offer to Exchange
$1,000 in principal amount of
11% Senior Subordinated Notes due 2006
for
each $1,000 in principal amount of
outstanding 11% Senior Subordinated Notes due 2006
that were issued and sold in a transaction
exempt from registration under the Securities
Act of 1933, as amended
To Our Clients:
Enclosed for your consideration is a Prospectus dated ,
1996 (as the same may be amended or supplemented from time to time (the
"Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal")
relating to the offer (the "Exchange Offer") by Rifkin Acquisition Partners,
L.L.L.P. and Rifkin Acquisition Capital Corp. (the "Issuers") to exchange up to
$125,000,000 in aggregate principal amount of their 11% Senior Subordinated
Notes due 2006 (the "Exchange Notes") for up to $125,000,000 in aggregate
principal amount of their outstanding 11% Senior Secured Notes due 2006 that
were issued and sold in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Old Notes").
The material is being forwarded to you as the beneficial owner of Old Notes
carried by us for your account or benefit but not registered in your name. A
tender of any Old Notes may be made only by us as the registered holder and
pursuant to your instructions. Therefore, the Issuers urge beneficial owners of
Old Notes registered in the name of a broker, dealer, commercial bank, trust
company or other nominee to contact such registered holder promptly if they wish
to tender Old Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender any
or all Old Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. We urge you to read carefully the
Prospectus and Letter of Transmittal before instructing us to tender your Old
Notes.
Your instructions to us should be forwarded as promptly as possible in order
to permit us to tender Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , , 1996, unless extended
(the "Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may
be withdrawn, subject to the procedures described in the Prospectus, at any time
prior to the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount at
maturity of the Exchange Notes for each $1,000 principal amount at maturity
of the Old Notes, of which $125,000,000 aggregate principal amount of the Old
Notes was outstanding as of , 1996. The terms of the Exchange
Notes are substantially identical (including principal amount, interest rate,
maturity, security and ranking) to the terms of the Old Notes, except that
the Exchange Notes (i) are freely transferable by holders thereof (except as
provided in the Prospectus) and (ii) are not entitled to certain registration
rights and certain additional interest provisions which are applicable
<PAGE>
to the Old Notes under a registration rights agreement dated as of January
31, 1996 (the "Registration Rights Agreement") between the Issuers, the
Subsidiary Guarantors and BT Securities Corporation, Smith Barney, Inc.,
First Union Capital Markets Corp. and PaineWebber Incorporated, as initial
purchasers.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS, SEE "THE EXCHANGE
OFFER--CONDITIONS TO THE EXCHANGE OFFER" IN THE PROSPECTUS.
3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on , 1996, unless extended.
4. The Issuers have agreed to pay the expenses of the Exchange Offer
except as provided in the Prospectus and the Letter of Transmittal.
5. Any transfer taxes incident to the transfer of Old Notes from the
tendering holder to the Issuers will be paid by the Issuers, except as
provided in the Prospectus and the Letter of Transmittal.
The Exchange Offer is not being made to nor will exchange be accepted from or
on behalf of holders of Old Notes in any jurisdiction in which the making of the
Exchange Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction.
If you wish to have us tender any or all of your Old Notes held by us for
your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying
Letter of Transmittal is furnished to you for informational purposes only and
may not be used by you to tender Old Notes held by us and registered in our name
for your account or benefit.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Rifkin
Acquisition Partners, L.L.L.P. and Rifkin Acquisition Capital Corp., including
the Prospectus and the Letter of Transmittal.
This form will instruct you to exchange the aggregate principal amount of Old
Notes indicated below (or, if no aggregate principal amount is indicated below,
all Old Notes) held by you for the account or benefit of the undersigned,
pursuant to the terms and conditions set forth in the Prospectus and Letter of
Transmittal.
- --------------------------------------------------------------------------
Aggregate Principal Amount of Old Notes to be exchanged
$_______________*
- --------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------
* I (we) understand that if I
(we) sign these instruction ----------------------------------------
forms without indicating an
aggregate principal amount of
Old Notes in the space above, ----------------------------------------
all Old Notes held by you for Signature(s)
my (our) account will be
exchanged.
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
(Please print name(s) and address above)
Dated: , 1996
----------------------------------------
(Area Code & Telephone Number)
----------------------------------------
(Taxpayer Identification or
Social Security Number)
<PAGE>
EXHIBIT 99.5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer--
Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-
0000. Employee identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------- -----------------------------------------------------------------
Give the Give the EMPLOYER
SOCIAL SECURITY IDENTIFICATION
For this type of account: number of-- For this type of account: number of--
- --------------------------------------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying number
2. Two or more individuals The actual owner of the of the representative or
(joint account) account or, if combined trustee unless the legal
funds, any one of the entity itself is not
individuals (1) designated in the account
title) (5)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds, 10. Corporate account The corporation
either person (1)
11. Religious, charitable, or The organization
4. Custodian account of a The minor (2) educational organization
minor (Uniform Gift to account
Minors Act)
12. Partnership account held The partnership
5. Adult and minor (joint The adult or, if the minor is in the name of the
account) the only contributor, the business
minor (1)
13. Association, club, or The organization
6. Account in the name of The ward, minor, or other tax-exempt
guardian or committee for incompetent person (3) organization
a designated ward, minor,
or incompetent person 14. A broker or registered The broker or nominee
nominee
7. a. The usual revocable The grantor-trustee (1)
savings trust account 15. Account with the The public entity
(grantor is also Department of Agriculture
trustee) in the name of a public
entity (such as a State
b. So-called trust account The actual owner (1) or local government,
that is not a legal or school district, or
valid trust under State prison) that receives
law agricultural program
payments
8. Sole proprietorship account The owner (4)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation
. A financial institution
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a nonexempt trust as described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business
and you have not provided your correct taxpayer identification number to the
payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852). Payments described in section 6049(b)(5) to non-resident
aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice--Section 6109 requires most recipients of dividends, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payers must be given the numbers whether or not recipients are required to file
tax returns. Beginning January 1, 1993, payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does not
furnish a taxpayer identification number to a payer. Certain penalties may also
apply.
Penalties
(1) Penalties for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payee, you are subject
to a penalty of $50 for each such failure unless your failure is due to a
reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information.-Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
