As filed with the Securities and Exchange Commission on April 2, 1999
Registration No. 333-________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
FrontierVision Holdings, L.P.
FrontierVision Holdings Capital II Corporation
(Exact Name of Registrants as Specified in Their Charters)
<TABLE>
<S> <C> <C>
Delaware 4841 84-1432334
Delaware 4841 84-1481765
(States or Other Jurisdictions of (Primary Standard Industrial (I.R.S. Employer Identification Numbers)
Incorporation or Organization) Classification Code Numbers)
</TABLE>
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
(303) 757-1588
---------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrants' Principal Executive Offices)
JAMES C. VAUGHN
President and Chief Executive Officer
FrontierVision Inc.
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
(303) 757-1588
---------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Agent for Service)
Please address a copy of all communications to:
EDWARD J. O'CONNELL, ESQ.
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 776-2000
---------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
================================================================= =================================== ==============================
<S> <C> <C>
Proposed Maximum Aggregate Amount of Registration Fee (2)
Title of Each Class of Securities to Be Registered Offering Price(1)
- ----------------------------------------------------------------- ----------------------------------- ------------------------------
11 7/8% senior discount notes due 2007, Series B................. $76,535,592 $21,277
================================================================= =================================== ==============================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f).
(2) An indeterminate amount is also being registered for resale by dealers
in connection with market making activities. See "Explanatory Note."
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants 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, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
EXPLANATORY NOTE
This registration statement covers the registration of $91,298,000 aggregate
principal amount at maturity of 11 7/8% senior discount notes due 2007, Series
B, referred to herein as the exchange notes, of FrontierVision Holdings, L.P.
and FrontierVision Holdings Capital II Corporation that may be exchanged for
equal principal amounts of their outstanding 11 7/8% senior discount notes due
2007, Series B, referred to herein as the old notes and, collectively with the
exchange notes, the notes. This registration statement also covers the
registration of the exchange notes for resale by J.P. Morgan Securities Inc. in
market-making transactions. The complete prospectus relating to the exchange
offer follows immediately after this explanatory note. Following the exchange
offer prospectus are certain pages of the prospectus relating solely to such
market-making transactions, including alternate front and back cover pages, a
section entitled "Risk Factors--Trading Market for the Exchange Notes" to be
used in lieu of the section entitled "Risk Factors--Failure to Participate in
the Exchange Offer Will Have Adverse Consequences," and alternate sections
entitled "Use of Proceeds" and "Plan of Distribution." In addition, each
market-making prospectus will not include the following captions (or the
information set forth under such captions) included in the exchange offer
prospectus: "Risk Factors--There Is No Prior Market for the Exchange Notes; If
One Develops, It May Not Be Liquid," "Prospectus Summary--Summary of the
Exchange Offer," "The Exchange Offer" and "Certain United States Federal Income
Tax Considerations--Effect of Exchange of Old Notes for Exchange Notes." All
other sections of the exchange offer prospectus will be included in the
market-making prospectus.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED, DATED APRIL 2,
1999
PROSPECTUS
- ----------
[LOGO]
EXCHANGE OFFER FOR
$91,298,000
11 7/8% SENIOR DISCOUNT NOTES DUE 2007, SERIES B
of
FrontierVision Holdings, L.P. and
FrontierVision Holdings Capital II Corporation
Terms of Exchange Offer
<TABLE>
<S> <C>
o We are offering to exchange the notes that we sold in o All old notes that are validly tendered and not validly
a private offering for new registered exchange notes. withdrawn will be exchanged.
o The exchange offer expires 5:00 p.m., New York o We believe that the exchange of the old notes will not be
City time, ___________, 1999, unless extended. a taxable exchange for U.S. federal income tax
purposes.
o Tenders of old notes may be withdrawn any time o The terms of the exchange notes we will issue in the
prior to the expiration of the exchange offer. exchange offer are identical to the old notes, except for
the transfer restrictions and registration rights relating to
the old notes.
</TABLE>
Proposed Trading Format
o The notes are eligible for trading in The Portalsm Market, a subsidiary of
the Nasdaq Market, Inc. The notes also may be sold in the over-the-counter
market, in negotiated transactions, or through a combination of such
methods.
Principal Executive Offices
o Our headquarters are located at 1777 South Harrison Street, Suite P- 200,
Denver, Colorado 80210, our telephone number is (303) 757-1588 and our
E-mail address is [email protected].
We are not making an offer to exchange notes in any jurisdiction where the offer
is not permitted.
Investing in the notes issued in the exchange offer involves certain risks. See
"Risk Factors" beginning on page 13.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page Page
<S> <C> <C>
Prospectus Summary 3 The Partnership Agreements 63
Risk Factors 13 Description of Other Indebtedness 67
Use of Proceeds 21 The Exchange Offer 73
Capitalization 22 Description of the Notes 83
Selected Financial and Operating Data 23 Certain United States
Pro Forma Financial Data 26 Federal Tax Considerations 114
Management's Discussion and Analysis of Plan of Distribution 122
Financial Condition and Results of Operations 29 Legal Matters 123
Business 37 Experts 123
Legislation and Regulation 48 Where You Can Get More Information 124
Management 57 Glossary 125
Certain Relationships and Related Transactions 61 Index to Financial Statements F-1
Principal Security Holders 62 Financial Statement Schedules S-1
</TABLE>
Special Note Regarding Forward-Looking Statements
Certain of the information contained in this prospectus, including information
with respect to our plans and strategy for our business and its financing, are
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors."
2
<PAGE>
Prospectus Summary
The following summary highlights selected information from this prospectus and
may not contain all of the information that is important to you. This prospectus
includes specific terms of the notes we are offering, as well as information
regarding our business and detailed financial data. To understand this exchange
offer fully, you should read the entire prospectus, including the risk factors
and the financial statements. We wrote this prospectus using the Securities and
Exchange Commission's newly-adopted "plain English" rule. This rule requires
that we write without the "legalese" typically found in most documents
previously filed with the Securities and Exchange Commission (see "Where You Can
Get More Information") in order to provide you with a more meaningful and
understandable document.
FrontierVision Holdings, L.P. is a holding company that conducts its business
through subsidiaries. FrontierVision Holdings Capital II Corporation, a
wholly-owned subsidiary of FrontierVision Holdings, L.P., has only nominal
assets and does not conduct any operations. Unless the context otherwise
requires, "we," "our," "ours," "us" and "FrontierVision" refers collectively to
FrontierVision Holdings, L.P., FrontierVision Holdings Capital II Corporation
and the consolidated subsidiaries of FrontierVision Holdings, L.P. See
"Ownership Structure" in this prospectus summary for a detailed organizational
chart.
Summary of the Exchange Offer
On December 9, 1998, FrontierVision Holdings, L.P. and FrontierVision Holdings
Capital II Corporation issued $91,298,000 aggregate principal amount at maturity
of 11 7/8% senior discount notes due 2007, Series B to J.P. Morgan Securities
Inc. and Chase Securities Inc. in a private offering. These initial purchasers
sold the notes to institutional and foreign investors in transactions exempt
from the registration requirements of the Securities Act of 1933, as amended.
Registration Rights Agreement......... When we issued the old notes, we entered
into a registration rights agreement
with the initial purchasers in which we
agreed, among other things, to deliver
to you this prospectus and to complete
an exchange offer.
The Exchange Offer.................... Under the terms of the exchange offer,
you are entitled to exchange the old
notes in the exchange offer for
registered exchange notes with
substantially identical terms. You
should read the discussion under the
heading "Summary of Terms of the
Exchange Notes" for further information
regarding the exchange notes.
As of this date, there are $91,298,000
aggregate principal amount at maturity
of the old notes outstanding. The old
notes may be tendered only in integral
multiples of $1,000.
Resales of Exchange Notes............. We believe that the exchange notes
issued in the exchange offer may be
offered for resale, resold or otherwise
transferred by you without compliance
with the registration and prospectus
delivery provisions of the Securities
Act, provided:
o that you are acquiring the
exchange notes in the ordinary
course of your business;
o you are not participating, do
not intend to participate, and
have no arrangement or
understanding with any person to
participate, in the distribution
of the exchange notes; and
o you are not an affiliate of
ours.
-3-
<PAGE>
If any of the foregoing are not true and
you transfer any exchange note without
delivering a prospectus meeting the
requirements of the Securities Act or
without an exemption from the
registration requirements of the
Securities Act, you may incur liability
under the Securities Act. We do not
assume or indemnify you against such
liability.
Each broker-dealer that is issued
exchange notes for its own account in
exchange for old notes that were
acquired by the broker-dealer as a
result of market making or other trading
activities must acknowledge that it will
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the
exchange notes. A broker-dealer may use
this prospectus for an offer to resell,
resale or other transfer of the exchange
notes.
Consequences of Failure to Exchange
Old Notes............................. If you do not exchange your old notes
for exchange notes, you will no longer
be able to require us to register the
old notes under the Securities Act. In
addition, you will not be able to offer
or sell the old notes unless they are
registered under the Securities Act, or
unless you offer or sell them under an
exemption from the requirements of, or
in a transaction not subject to, the
Securities Act. Accordingly, the
liquidity of the market for such old
notes could be adversely affected.
Expiration Date....................... The exchange offer will expire at 5:00
p.m., New York City time, _________,
1999, unless we decide to extend the
expiration date.
Conditions to the Exchange Offer...... We may terminate or amend the exchange
offer if:
o any legal proceeding, government
action or other adverse
development materially impairs
our ability to complete the
exchange offer;
o any SEC rule, regulation or
interpretation materially
impairs the exchange offer; or
o we have not obtained any
necessary governmental approvals
with respect to the exchange
offer.
We may waive any or all of these
conditions. At this time, there are no
adverse proceedings, actions or
developments pending or, to our
knowledge, threatened and no
governmental approvals are necessary to
complete the exchange offer.
Procedures for Tendering
Old Notes............................. If you wish to accept the exchange
offer, you must complete, sign and date
the letter of transmittal, or a
facsimile of the letter of transmittal
and transmit it together with all other
documents required by the letter of
transmittal, to First Trust National
Association, as exchange agent at the
address set forth on the cover page of
the letter of transmittal.
Alternatively, you can tender your old
notes by following the procedures for
book-entry transfer, as described in
this document.
-4-
<PAGE>
Special Procedures for
Beneficial Owners..................... If you beneficially own old notes
registered in the name of a broker,
dealer, commercial bank, trust company
or other nominee and you wish to tender
your old notes in the exchange offer,
you should contact such registered
holder promptly and instruct it to
tender on your behalf. If you wish to
tender on your own behalf, you must,
prior to completing and executing the
letter of transmittal and delivering
your old notes, either arrange to have
your notes registered in your name or
obtain a properly completed bond power
from the registered holder. The transfer
of registered ownership may take
considerable time.
Guaranteed Delivery Procedures........ If you wish to tender your old notes and
you cannot get your required documents
to the exchange agent by the expiration
date, you may tender your old notes
according to the guaranteed delivery
procedure described under the heading
"The Exchange Offer--Guaranteed Delivery
Procedure."
Withdrawal Rights..................... You may withdraw the tender of your old
notes at any time prior to 5:00 p.m.,
New York City time, on the expiration
date. To withdraw, you must send a
written or facsimile transmission notice
of withdrawal to the exchange agent at
its address set forth herein under "The
Exchange Offer--Exchange Agent" by 5:00
p.m., New York City time, on the
expiration date.
Acceptance of Old Notes
and Delivery of Exchange Notes........ If all of the conditions to the exchange
offer are satisfied or waived, we will
accept any and all old notes that are
properly tendered in the exchange offer
prior to 5:00 p.m., New York City time,
on the expiration date. We will deliver
the exchange notes promptly after the
expiration date.
Certain United States Federal
Tax Considerations.................... We believe the exchange of the old notes
will not be a taxable event for United
States federal income tax purposes. You
should consult your tax adviser about
the tax consequences of this exchange as
they apply to your individual
circumstances.
Use of Proceeds....................... We will not receive any proceeds from
the issuance of exchange notes in
accordance with the exchange offer.
Exchange Agent........................ First Trust National Association is
serving as exchange agent for the
exchange offer.
Fees and Expenses..................... We will bear all expenses related to
consummating the exchange offer and
complying with the registration rights
agreement.
-5-
<PAGE>
Summary of Terms of the Exchange Notes
The form and terms of the exchange notes are the same as the form and terms of
the old notes except that the exchange notes will be registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not be entitled to registration under the Securities Act. The exchange
notes will evidence the same debt as the old notes, and both the old notes and
the exchange notes are governed by the same indenture.
Issuers............................... FrontierVision Holdings, L.P. and
FrontierVision Holdings Capital II
Corporation
Notes Offered......................... 11 7/8% senior discount notes due 2007,
Series B
Maturity Date......................... September 15, 2007
Yield and Interest.................... The yield to worst call of the notes
will be 9.75% to the September 15, 2004
call date (computed on a semiannual
bond-equivalent basis) calculated from
December 9, 1998.
Except as described below, cash interest
payments will be made on March 15 and
September 15 of each year, beginning
March 15, 2002.
We are not required to pay interest in
the form of cash payments before March
15, 2002. We may, however, elect to pay
cash interest prior thereto, beginning
on any interest payment date, by giving
notice to the trustee and to you as
holders of the notes.
Sinking Fund.......................... None
Accreted Value and Interest........... The initial accreted value of the notes
was $726.76 per $1,000 principal amount
at maturity. The exchange notes will
accrete at a daily rate of 11 7/8% per
year, compounded semiannually, to an
aggregate principal amount at maturity
of $91,298,000 by September 15, 2001.
Optional Redemption................... The notes are not redeemable prior to
September 15, 2001, except as set forth
below. The notes will be redeemable at
our option, in whole or in part, at any
time on or after September 15, 2001, at
the redemption prices set forth herein,
together with the accrued and unpaid
interest to the day such notes are
redeemed.
In addition, prior to September 15,
2000, we may redeem up to 35% of the
aggregate principal amount at maturity
of the notes with the net cash proceeds
from one or more public equity offerings
or certain equity investments at a
redemption price of 111.875% of the
accreted value of such notes, plus
accrued and unpaid interest, if any, to
the redemption date; provided, however,
that at least 65% in aggregate principal
amount at maturity of the notes
originally issued remains outstanding
immediately after any such redemption.
Mandatory Redemption.................. None
-6-
<PAGE>
Ranking............................... The notes:
o are general unsecured
obligations;
o rank equal in right of payment
with all existing and future
unsecured senior indebtedness,
other than indebtedness that by
its terms is expressly
subordinated in right and
priority of payment to the notes
(as of the date of this
prospectus, there is no
indebtedness expressly
subordinated by its terms in
right and priority of payment to
the notes); and
o are effectively subordinated to
all indebtedness, liabilities
and other obligations of our
subsidiaries.
We conduct all operations through our
subsidiaries and our subsidiaries do not
guaranty the notes. At December 31,
1998, the aggregate consolidated
indebtedness of our subsidiaries was
approximately $871.6 million.
Certain Covenants..................... The indenture governing the notes
contains certain covenants for your
benefit which, among other things and
subject to certain qualifications,
restrict our ability to:
o incur indebtedness;
o pay dividends on, and redeem the
capital stock of, our company
and certain of its subsidiaries;
o enter into transactions with
affiliates;
o create liens;
o sell assets; or
o consolidate, merge or enter
into similar transactions.
Change of Control..................... Upon a change of control, we will be
required to make an offer to purchase
all notes at 101% of the accreted value
thereof, together with accrued and
unpaid interest to the purchase date.
Form of Exchange Notes................ The exchange notes will be represented
by one or more permanent global
securities in bearer form deposited with
the trustee, as book entry depository,
for the benefit of The Depository Trust
Company. Other than as described herein,
beneficial interests in the exchange
notes will be shown on, and transfers of
these will be effected only through,
records maintained in book-entry form by
The Depository Trust Company with
respect to its participants.
-7-
<PAGE>
FrontierVision
We own, operate and develop cable television systems in small and medium-sized
suburban and exurban communities in the United States. As of December 31, 1998,
we were one of the twenty largest operators of cable television systems (a
multiple system operator) in the United States, owning systems which passed
approximately 1,007,100 homes and served approximately 702,200 basic
subscribers.
Since closing our first acquisition in November 1995, we have completed over 30
acquisitions and have established significant critical mass and subscriber
density within our targeted geographic markets. The following table illustrates
our growth and operating characteristics of our systems through December 31,
1998.
-------------------------------------------------------------
Basic Premium Total Revenue EBITDA
Homes Passed Subscribers Units (In Thousands (In Thousands)
------------ ----------- ----- ------------- --------------
December 31, 1995 125,300 92,700 35,700 $ 4,369 $ 991
December 31, 1996 498,900 356,400 152,100 76,464 34,353
December 31, 1997 817,000 559,800 275,400 145,126 66,394
December 31, 1998 1,007,100 702,200 285,300 245,134 114,351
We have established three primary operating clusters in New England, Ohio and
Kentucky, with a fourth, smaller group of cable television systems in the
Southeast. As of December 31, 1998, over 90% of our subscribers were within our
three primary operating clusters. We are currently the second largest multiple
system operator in Kentucky, the largest multiple system operator in Maine and
the third largest multiple system operator in Ohio.
Recent Events
On February 22, 1999, we entered into a definitive agreement with Adelphia
Communication Corporation in which Adelphia agreed to acquire FrontierVision
Partners, L.P., our parent company. The transaction is subject to customary
closing conditions, and we make no assurances as to when or if the transaction
will be consummated. If the transaction does occur, it would constitute a change
of control under the notes and we would be required to offer to purchase the
notes in accordance with the terms of the indenture governing the notes.
-8-
<PAGE>
Ownership Structure
FrontierVision Holdings, L.P. , which we refer to as Holdings, wholly-owns
directly and indirectly (1) FrontierVision Holdings Capital II Corporation
("Holdings Capital II") a Delaware corporation and co-issuer with Holdings of
the notes, (2) FrontierVision Holdings Capital Corporation, a Delaware
corporation and co-issuer with Holdings of senior discount notes issued in 1997,
(3) FrontierVision Operating Partners, L.P. ("FVOP"), a Delaware limited
partnership, which directly owns and operates cable television systems, and (4)
FrontierVision Operating Partners, Inc. ("FVOP Inc."), a Delaware corporation.
FVOP, in turn, wholly-owns FrontierVision Capital Corporation ("Capital"), a
Delaware corporation and co-issuer with FVOP of the notes FVOP issued in 1996.
FrontierVision Partners, L.P. ("FVP" or the "General Partner"), a Delaware
limited partnership, owns directly and indirectly all of the partnership
interests of Holdings. FVP GP, L.P. ("FVP GP"), a Delaware limited partnership,
is the general partner of FVP and FrontierVision Inc. ("FV Inc."), a Delaware
corporation, is the general partner of FVP GP. The following chart illustrates
the ownership structure of FrontierVision (shaded portions indicate the issuers
of the notes offered by this prospectus):
<TABLE>
<S> <C>
----------------------------------------
| James C. Vaughn |
| John S. Koo |
----------------------------------------
| (100% interest)
|
------------------------------------- ----------------------------------------
| Institutional Investors | | |
| James C. Vaughn | | FrontierVision Inc. |
| John S. Koo | | |
------------------------------------- ----------------------------------------
| Limited Partners | General Partner
| (99.0% interest) | (1.0% interest)
| ----------------------------------------
-------------------------------------------| FVP GP, L.P. |
| ("FVP GP") |
----------------------------------------
| General Partner
------------------------------------- | (1.0% interest)
| Institutional Investors | |
| Other Limited Partners | |
------------------------------------- |
| Limited Partners |
| (99.0% interest) ---------------------------------------
--------------------------------------------| FrontierVision Partners, L.P. |
----------------------------------------------| ("FVP") |
| ---------------------------------------
| (100% Interest) | General Partner
------------------------------------ | (99.9% Interest)
| FrontierVision | |
| Holdings, LLC | |
| ("FV Holdings") | |
------------------------------------ |
| Limited Partner (0.1% Interest) |
---------------------------- -----------
| |
--------------------------------------------------
| FrontierVision Holdings, L.P. |
--------------| ("Holdings") |---------------------------
| -------------------------------------------------- |
| | General Partner | |
(100% Interest) | | (99.9% Interest) | (100% Interest) | (100% Interest)
- -------------------------- ----------------------------------- ---------------------------- -----------------------------
|FrontierVision Operating| | FrontierVision Operating | | FrontierVision Holdings | | FrontierVision Holdings |
| Partners, Inc. | | Partners, L.P. | | Capital II Corporation | | Capital Corporation |
| ("FVOP Inc.") |--------| ("FVOP" or the "Company") | | ("Holdings Capital II") | | ("Holdings Capital") |
- -------------------------- Limited----------------------------------- ---------------------------- -----------------------------
Partner | | |
(0.1%interest) | | |--------------------------
--------------------------------- | |
| (100 % interest) |(100% interest) | (100% interest)
- ------------------------------ ------------------------------------- ----------------------------------------
| FrontierVision New England | | FrontierVision Capital Corporation| | ForntierVision Access Partners, L.P. |
| Cable, Inc. ("New England")| | ("Capital") | | ("Access") |
- ------------------------------ ------------------------------------- ----------------------------------------
-9-
<PAGE>
</TABLE>
Summary Financial and Operating Data
The following table presents summary operating data derived from our financial
statements as of and for the years ended December 31, 1998, 1997 and 1996 and as
of and for the period from April 17, 1995 (inception) through December 31, 1995
which have been audited by KPMG LLP, independent certified public accountants,
and selected unaudited operating data for such periods. In addition, the
following table present our unaudited pro forma summary financial and operating
data as of and for the year ended December 31, 1998, as adjusted to give pro
forma effect to:
o in the case of statement of operations data, the offering, and the
acquisition of systems during 1998, as if such transactions had been
consummated on January 1, 1998; and
o in the case of balance sheet data, the acquisitions occurred prior to
December 31, 1998 and are already reflected in the Company's balance
sheet as of December 31, 1998.
See "Pro Forma Financial Data." The unaudited pro forma financial and operating
data presented below are based upon the historical financial statement of
Holdings and the acquisitions that occurred during 1998. The unaudited summary
pro forma financial data do not purport to represent what our results of
operations or financial condition would have actually been if the 1998
transactions had, in fact, occurred on January 1, 1998.
-10-
<PAGE>
<TABLE>
-------------------------------------------------------------------------------
From April 17,
Year Ended December 31, 1995 (inception)
-----------------------
Pro Forma to December 31,
<S> <C> <C> <C> <C> <C>
1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
In thousands except ratios and
operating statistical data
Statement of Operations Data:
Revenue ........................................ $ 280,025 $ 245,134 $ 145,126 $ 76,464 $ 4,369
Operating expenses ............................. 143,219 123,818 74,314 39,181 2,311
Corporate administrative expenses .............. 7,561 6,965 4,418 2,930 127
Depreciation and amortization .................. 130,297 114,155 65,502 35,724 2,308
Pre-acquisition expenses ....................... - - - - 940
----------- ----------- ----------- ----------- -----------
Operating income/(loss) ........................ (1,053) 196 892 (1,371) (1,317)
Interest expense, net (1) ...................... (105,633) (88,875) (48,005) (22,422) (1,386)
Other income/(expenses) ........................ (512) (526) (57) (8) -
Income tax benefit ............................. 2,927 2,927 - - -
Extraordinary item - Loss on early retirement of
debt ....................................... - - (5,046) - -
----------- ----------- ----------- ----------- -----------
Net income/(loss) .............................. $ (104,271) $ (86,278) $ (52,216) $ (23,801) $ (2,703)
=========== =========== =========== =========== ===========
Balance Sheet Data (End of Period):
Total assets ................................... $ 1,210,421 $ 1,210,421 $ 927,275 $ 549,168 $ 143,512
Total debt ..................................... 1,121,142 1,121,142 787,047 398,194 93,159
Partners' capital .............................. 29,162 29,162 115,440 130,003 46,407
Financial Ratios and Other Data:
EBITDA (2) ..................................... $ 131,363 $ 114,351 $ 66,394 $ 34,353 $ 991
EBITDA margin .................................. 46.9% 46.7% 45.8% 44.9% 22.7%
Total debt to EBITDA (3) ....................... 8.53 8.08 7.71 6.75
Net cash flows from operating activities ....... $ 61,955 $ 26,343 $ 18,911 $ 1,907
Net cash flows from investing activities ....... (373,399) (427,921) (418,215) (131,345)
Net cash flows from financing activities ....... 311,807 402,667 400,293 132,088
Deficiency of earnings to fixed charges (4) .... $ 89,205 $ 52,216 $ 23,801 $ 2,703
Operating Statistical Data (End of
Period Except Average):
Homes passed ................................... 1,007,100 1,007,100 817,000 498,900 125,300
Basic subscribers .............................. 702,200 702,200 559,800 356,400 92,700
Basic penetration .............................. 69.7% 69.7% 68.5% 71.4% 74.0%
Premium units .................................. 285,300 285,300 275,400 152,100 35,700
Premium penetration ............................ 40.6% 40.6% 49.2% 42.7% 38.5%
Average monthly revenue per basic
subscriber (5) ............................... $ 33.84 $ 33.84 $ 31.53 $ 29.73 $ 27.76
-----------
</TABLE>
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<PAGE>
(1) Interest expense for the years ended December 31, 1998, 1997 and 1996 and
the period from April 17, 1995 through December 31, 1995 is net of interest
income of $902, $1,023, $471 and $60, respectively.
(2) EBITDA is defined as net income before interest, taxes, depreciation and
amortization. We believe that EBITDA is a meaningful measure of performance
because it is commonly used in the cable television industry to analyze and
compare cable television companies on the basis of operating performance,
leverage and liquidity. In addition, our amended bank credit facility, the
indenture governing the 11% senior subordinated notes due 2006 and the
indenture governing the 11 7/8% senior discount notes due 2007 contain
certain covenants, compliance with which is measured by computations
substantially similar to those used in determining EBITDA. However, EBITDA
is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity, as
determined in accordance with generally accepted accounting principles.
(3) For purposes of this computation, EBITDA for the most recent quarter ended
is multiplied by four. This presentation is consistent with the incurrence
of indebtedness test in the note indenture and the subordinated note
indenture. In addition, this ratio is commonly used in the cable television
industry as a measure of leverage.
(4) For purposes of this computation, earnings are defined as income (loss)
before income taxes and fixed charges. Fixed charges are defined as the sum
of (i) interest costs (including capitalized interest expense) and (ii)
amortization of deferred financing costs.
(5) Average monthly revenue per basic subscriber equals revenue for the last
month of the period divided by the average number of basic subscribers for
such period.
-12-
<PAGE>
Risk Factors
You should consider carefully the following factors and other information in
this prospectus before exchanging the old notes for the exchange notes offered
hereby.
Risks Associated with the Exchange Notes
Failure to Participate in the Exchange Offer Will Have Adverse Consequences
If you do not exchange your old notes for exchange notes in accordance with the
exchange offer, you will continue to be subject to the restrictions on transfer
of your old notes. In general, the old notes may not be offered or sold, unless:
o they are registered under the Securities Act and applicable state
securities laws; or
o they are offered or sold in connection with an exemption from the
registration requirements of the Securities Act; or
o they are offered or sold in a transaction that is not subject to the
Securities Act.
We do not intend to register old notes not tendered in the exchange offer under
the Securities Act. To the extent old notes are tendered and accepted in the
exchange offer, the trading market, if any, for the old notes not tendered will
be adversely affected. See "The Exchange Offer."
There Is No Prior Market for the Exchange Notes; If One Develops, It May Not Be
Liquid
The old notes were not registered under the Securities Act or under the
securities laws of any state and may not be resold unless they are subsequently
registered or an exemption from the registration requirements of the Securities
Act and applicable state securities laws is available. The exchange notes will
be registered under the Securities Act, but will constitute a new issue of
securities with no established trading market, and there can be no assurance as
to:
o the liquidity of any such market that may develop:
o the ability of holders of exchange notes to sell their notes; and
o the price at which the holders of exchange notes would be able to sell
their notes.
If such a market were to exist, the exchange notes could trade at prices that
may be higher or lower than their principal amount or purchase price, depending
on many factors, including prevailing interest rates, the market for similar
debentures and the financial performance of our company.
The notes are designated for trading among qualified institutional buyers in The
Portalsm Market, a subsidiary of the Nasdaq Market, Inc. We have been advised by
the initial purchasers of the old notes that they presently intend to make a
market in the notes. However, they are not obligated to do so, and any
market-making activity with respect to the notes may be discontinued at any time
without notice. In addition, such market-making activity 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. There can be no assurance that an active trading market will exist
for the notes or that such trading market will be liquid.
The Exchange Notes Will Be Issued at an Original Issue Discount Which Has
Consequences You Should Consider
The exchange notes will be issued at a substantial discount from their principal
amount at maturity. Consequently, if you purchase the exchange notes, you
generally will be required to include amounts in gross income for federal income
tax purposes in advance of receipt of the cash payments to which such income is
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<PAGE>
attributable. See "Certain United States Federal Income Tax
Considerations--United States Holders--Original Issue Discount" for a more
detailed discussion.
If a bankruptcy case is commenced by or against us under the U.S. Bankruptcy
Code after the issuance of the exchange notes, your claim as a holder of
exchange notes with respect to the principal amount thereof may be limited to an
amount equal to the sum of (1) the initial issue price, and (2) that portion of
the original issue discount that is not deemed to constitute "unmatured
interest" for purposes of the U.S. Bankruptcy Code. Any original issue discount
that was not amortized as of any such bankruptcy filing would constitute
"unmatured interest."
Risks Associated with Our Company
Since the Exchange Notes Are Not Secured, Our Assets May Be Insufficient to Pay
Amounts Due on Your Notes
The exchange notes will be unsecured senior obligations of FrontierVision and
will be equal in right of payment to all existing and future indebtedness of our
company, other than indebtedness that is expressly subordinated to the exchange
notes. We are, and will continue to be, highly leveraged as a result of the
substantial indebtedness we have incurred, and intend to incur, to finance
acquisitions and expand our operations. In addition, our company and some of our
subsidiaries may incur other senior indebtedness, which may be substantial in
amount, including secured indebtedness.
Because the exchange notes are unsecured obligations, your right of repayment
may be compromised in the following situations:
o FrontierVision Holdings or some of its subsidiaries enter into
bankruptcy, liquidation, reorganization, or other winding-up;
o there is a default in payment under our amended bank credit facility
or other secured indebtedness; or
o there is an acceleration of any indebtedness under our amended bank
credit facility or other secured indebtedness.
If any of these events occur, the assets of our company must pay all
indebtedness under the amended bank credit facility and other secured
indebtedness before those assets would be available to pay the obligations on
the exchange notes. In that event, there may not be sufficient assets remaining
to pay amounts due on any of the exchange notes. See "Description of Other
Indebtedness."
We Are a Holding Company and the Notes are Structurally Subordinate to Our Other
Debt
Since FrontierVision Holdings, L.P. is a holding company and conducts its
business through subsidiaries, the notes will be effectively subordinated to all
existing and future claims of creditors of FrontierVision Holdings, L.P.'s
subsidiaries, including the lenders under our amended bank credit facility, the
holders of the $200 million aggregate principal amount of 11% senior
subordinated notes due 2006 issued in 1996 (the "1996 Notes") by FrontierVision
Operating Partners, L.P. and FrontierVision Capital Corporation and
FrontierVision Operating Partners, L.P.'s trade creditors.
Our only significant assets are the partnership interests in FrontierVision
Operating Partners, L.P., which we refer to as FVOP. All of such interests,
however, are pledged as collateral under the amended bank credit facility.
Therefore, if we are unable to pay amounts when due on the exchange notes, you
will not be able to use the partnership interests of FVOP to satisfy your claims
against us unless (1) you obtain a judgment against us and (2) all amounts owing
under the amended bank credit facility have been fully satisfied.
Furthermore, any action to proceed against the partnership interests that we own
in FVOP by or on your behalf as holders of exchange notes would constitute an
event of default under the amended bank credit facility. Upon such an event of
default, the lenders thereunder may declare all amounts owing under the amended
bank credit facility to be immediately due and payable, which event would in
turn constitute an event of default under the
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<PAGE>
1996 Notes, entitling the holders thereof to declare the principal and accrued
interest thereon to be immediately due and payable. In addition, as a secured
creditor, the lenders under the amended bank credit facility would control the
disposition and sale of the FVOP partnership interests after an event of default
under the amended bank credit facility and would not be legally required to take
into account your interests as unsecured creditors, with respect to any such
disposition or sale. There can be no assurance that our assets, after the
satisfaction of claims of its secured creditors, would be sufficient to satisfy
any amounts owing with respect to the exchange notes.
At December 31, 1998, our subsidiaries had approximately $931.7 million of total
liabilities, including approximately $670.1 million of indebtedness under the
amended bank credit facility. Your rights as holders of the exchange notes to
realize upon the assets of any of our subsidiaries upon any such subsidiary's
liquidation or reorganization (and the consequent rights of the holders of the
exchange notes to participate in the realization of those assets) will be
subject to the prior claims of such subsidiary's respective creditors. In such
event, there may not be sufficient assets remaining to pay amounts due on any or
all of the exchange notes then outstanding. See "Description of the
Notes--Ranking" and "Description of Other Indebtedness." Furthermore, the
indenture for the notes permits our subsidiaries to incur additional
indebtedness under certain circumstances. See "Description of the Notes."
The 1996 Notes and all amounts owing under the amended bank credit facility will
mature prior to the maturity of the exchange notes. If FVOP seeks to refinance
the 1996 Notes or the amended bank credit facility, the indenture for the
exchange notes requires that any agreements governing such refinancing contain
restrictions on the ability of FVOP to make distributions to us that are either
no more restrictive than those contained in FVOP's indenture or that do not
prohibit distributions to us to make regularly scheduled payments on the
exchange notes unless a default or event of default has occurred under the
amended bank credit facility. There can be no assurance that if FVOP is required
to refinance its notes or any amounts under the amended bank credit facility, it
will be able to do so upon acceptable terms, if at all.
If a Change of Control Occurs, We May Not Have Sufficient Assets to Pay Amounts
Due on the Notes
Upon the occurrence of a change of control, we are required to make an offer to
purchase all outstanding notes and all of our outstanding approximately $237.7
million aggregate principal amount at maturity senior discount notes due 2007
issued in 1997 (the "1997 Notes") at a purchase price equal to 101% of their
accreted value, together with accrued and unpaid interest, if any, to the
purchase date. If a change of control were to occur, there can be no assurance
that we would have sufficient financial resources, or would be able to arrange
financing, to pay the purchase price for all the notes and the 1997 Notes
tendered by holders thereof.
In addition, the amended bank credit facility and the 1996 Notes include change
of control provisions that permit, in the case of the amended bank credit
facility, the lenders to accelerate the repayment of indebtedness thereunder and
that require, in the case of the indenture to the 1996 Notes, FVOP to offer to
purchase all of its outstanding 1996 Notes. Any acceleration of the obligations
of FVOP under the amended bank credit facility or the obligation of FVOP to
offer to purchase its 1996 Notes would make it unlikely that FVOP could make
adequate distributions to us so as to permit us to effect a purchase of the
notes and the 1997 Notes upon a change of control. See "Description of Other
Indebtedness" and "Description of the Notes." Any future credit agreements or
other agreements relating to other indebtedness to which we become a party may
contain similar restrictions and provisions.
In the event a change of control occurs at a time when we are prohibited from
repurchasing the notes, we could seek the consent of our lenders to repurchase
the notes or could attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such consent or repay such borrowing, we would
remain prohibited from repurchasing the notes. In such case, our failure to
repurchase tendered notes would constitute an event of default under the
indenture. See "Description of the Notes--Change of Control."
Adelphia has agreed to acquire FVP. See "Prospectus Summary - Recent Events." If
Adelphia completes this acquisition, it will constitute a change of control
under the 1996 Notes, the 1997 Notes, the notes offered hereby and the amended
bank credit facility. Accordingly, Adelphia will be required to offer to
repurchase all outstanding 1996 Notes, 1997 Notes and these notes, and absent a
consent from the lenders under the amended bank credit facility, all amounts
oustanding under the bank credit agreement will be due at closing.
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<PAGE>
Substantial Leverage
Our company is, and will continue to be, highly leveraged as a result of the
substantial indebtedness we have incurred, to finance acquisitions and expand
our operations. As of December 31, 1998, our aggregate consolidated indebtedness
outstanding was approximately $1,121.1 million. All of the indebtedness, other
than the notes offered hereby and the 1997 Notes, represents indebtedness of
FVOP.
We anticipate that, in light of the amount of our existing and planned
indebtedness, we will continue to be highly leveraged for the foreseeable
future. Our company's highly leveraged capital structure could adversely affect
our ability to service the exchange notes and could significantly limit our
ability to:
o finance operations;
o fund capital expenditure requirements;
o compete effectively;
o expand our business;
o comply with certain obligations under our franchise agreements; or
o operate under adverse economic conditions.
Insufficiency of Earnings to Cover Fixed Charges
Our combined historical earnings were insufficient to cover our fixed charges
for the year ended December 31, 1998 and for the year ended December 31, 1997 by
$89.2 million and $52.2 million, respectively. However, for both periods,
earnings are reduced by substantial non-cash charges, principally consisting of
depreciation and amortization. The high levels of depreciation and amortization,
together with interest expense, have caused us to report net losses. Management
believes that such net losses are common for cable television companies, and we
believe that we will continue to incur net losses in the future.
Since being founded in 1995, our cash from equity investments, bank borrowings
and other debt has been sufficient to finance our company's acquisitions and,
together with cash generated from operating activities, also has been sufficient
to meet our debt service, working capital and capital expenditure requirements.
We intend to continue to finance such debt service, working capital and capital
expenditure requirements in the future through a combination of cash from
operations and indebtedness, and we believe that we will continue to generate
cash and be able to obtain financing sufficient to meet such requirements.
Our substantial level of debt has important consequences, which include the
following:
o our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired;
o a substantial portion of our cash flow from operations must be
dedicated to the payment of principal and interest on our
indebtedness, thereby reducing the funds available for other
operations and business opportunities;
o certain of our borrowings bear interest at variable rates, which could
result in a higher interest expense in the event of increases in
general market interest rates;
o we may be substantially more leveraged than certain of our
competitors, which may place us at a competitive disadvantage;
o our substantial degree of leverage may limit our flexibility to adjust
to changing market conditions, reduce our ability to withstand
competitive pressures and make us more vulnerable to a downturn in
general economic conditions or in our business;
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<PAGE>
o a significant portion of our indebtedness will become due prior to the
maturity of the exchange notes; and
o our ability to refinance the exchange notes in order to pay the
principal of the exchange notes at maturity or upon a change of
control may be adversely affected.
Our Debt Covenants Restrict Our Business in Many Ways
o The indenture for the exchange notes, our amended bank credit facility
and the indentures for the 1997 Notes and the 1996 Notes, contain
covenants that restrict our business in a number of important ways.
These covenants limit our ability to:
o incur indebtedness;
o pay dividends on, and redeem the capital stock of, our company and
certain of its subsidiaries;
o enter into transactions with affiliates;
o create liens;
o sell assets; and
o consolidate, merge or enter into similar transactions.
In addition, the amended bank credit facility contain covenants that require us
to comply with specified financial ratios and satisfy certain financial tests.
Our company's ability to comply with those agreements in the future may be
affected by prevailing economic, financial and industry conditions, certain of
which are beyond our control. Breaching any of those covenants or restrictions
could result in a default under the indentures or the amended bank credit
facility. Moreover, the indentures and the amended bank credit facility would
allow our creditors to require acceleration of the payment of principal and
interest on those notes or loans if certain events of default occurred or if the
principal and interest on some of our other indebtedness were accelerated. If
the indebtedness under the amended bank credit facility were to be accelerated,
it is not certain whether our assets would be sufficient to repay in full that
indebtedness and our other indebtedness, including the exchange notes.
Our Business May Suffer If Any of Our Key Personnel Leaves FrontierVision
Our business is substantially dependent upon the performance of certain key
individuals, including James C. Vaughn, FrontierVision's president and chief
executive officer, and John S. Koo, FrontierVision's senior vice president and
chief financial officer. Although we maintain a strong management team, the loss
of the services of Mr. Vaughn or Mr. Koo, neither of whom has an employment
agreement with us, could have a material adverse effect on our business.
We have a Limited Operating History Upon Which to Base an Evaluation
FrontierVision was formed in July 1995 and has grown principally through
acquisitions. You, therefore, have limited historical financial information
about us, and about the results that can be achieved by us in managing the cable
systems not previously managed by FrontierVision, upon which to base an
evaluation of our performance and an investment in the exchange notes. In
addition, as a result of our rapid growth through acquisitions, past operating
history is not necessarily indicative of future results.
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Upgrading Our Systems Requires Significant Capital Expenditures
We expect to upgrade a significant portion of our cable television distribution
systems over the next several years to, among other things, increase bandwidth
and channel capacity. Our inability to upgrade the cable television systems
could have a material adverse effect on our operations and competitive position.
Our Acquisitions Involve Risk
We completed nine acquisitions in 1998 and have two transactions currently
pending. Any past or future acquisition may have an adverse effect upon our
operating results or cash flow, particularly for acquisitions of new systems
which must be integrated with the existing operations. There can be no
assurances that we will be able to integrate successfully any acquired business
with our existing operations or realize any efficiencies therefrom. There can
also be no assurances that any such acquisition, if consummated, will be
profitable or that we will be able to obtain any required financing to acquire
additional systems in the future.
Risks Associated with the Cable Television Industry
Significant Competition in the Cable Television Industry
Our cable television systems compete with a variety of alternative sources of
news, information and entertainment, including:
o local broadcast stations that provide free off-air programming;
o program distributors that transmit satellite signals containing video
programming, data and other information to subscriber receiving dishes
of varying sizes;
o satellite master antenna television systems, commonly known as SMATV
systems, and multichannel, multipoint distribution service operators,
commonly known as MMDS or wireless cable operators;
o other cable operators, including local franchising authorities, who
build and operate cable systems in the same communities that we serve,
commonly known as overbuilders;
o newspapers, movie theaters and live sporting events; and
o interactive online computer services, including Internet-based
services, and home video products, including videotape cassette
recorders.
Modifications to federal law in 1996 changed the regulatory environment in which
our cable systems operate. Federal law now allows local exchange carriers,
commonly known as LECs or local telephone companies, and other businesses to
provide directly to subscribers a wide variety of video and information services
that are competitive with our communications services. In recent years, there
has been significant national growth in the number of subscribers to direct
broadcast satellite services. Other new technologies, including Internet-based
services, may also become competitive with services that we can offer. Many of
our potential competitors have substantially greater resources than we do, and
we cannot predict the extent to which competition will materialize in our
franchise areas from other video or broadband service ventures, or from other
potential competitors, or, if such competition materializes, the extent of its
effect on us. For more information about the competitive environment in which
our cable systems operate, you should review the section of this prospectus
titled "Business -- Competition.".
Risks Relating to New Lines of Business
We are selectively upgrading our cable systems to increase channel capacity and
expand addressability in part to enhance the potential for increasing revenues
through the introduction of new technologies, services and program delivery
capabilities, such as pay-per-view movies and events, digital programming
services, cable
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Internet access and telephony. While we are optimistic about the prospects for
these new lines of business, there are no assurances that we will be able to
enter them successfully or that we will be able to generate additional cash
flow. Moreover, many of these new lines of business are likely to have
significant competition from businesses that may have significant financial
resources and market presence such as satellite program distributors, local
telephone companies, long distance telephone companies, and online Internet
service providers.
Non-Exclusive Franchises; Non-Renewal or Termination of Franchises
We typically operate our cable television systems under non-exclusive franchises
granted by local authorities which are subject to renewal and renegotiation from
time to time. Our business is dependent upon the retention and renewal of these
local franchises. Our franchises are generally granted for a fixed term ranging
from five to fifteen years, but in most cases they are terminable if we fail to
comply with the material provisions thereof. Our franchises typically impose
conditions relating to the use and operation of the cable television system,
including requirements relating to the payment of fees, system bandwidth
capacity, customer service requirements, franchise renewal and termination.
Federal law prohibits franchising authorities from granting exclusive cable
television franchises and from unreasonably refusing to award additional
competitive franchises; it also permits municipal authorities to operate cable
television systems in their communities without franchises. Federal law also
provides, among other things, for an orderly franchise renewal process in which
franchise renewal will not be unreasonably withheld. If renewal is denied and
the franchising authority acquires ownership of our cable system or requires a
transfer of the cable system to another person, we generally are entitled to the
fair market value for the cable system covered by our franchise.
Although we generally have good relationships with our franchise authorities, no
assurances can be given that we will be able to retain or renew our franchises
or that the terms of any franchise renewals will be on terms as favorable to us
as our existing franchises. The non-renewal or termination of franchises
relating to a significant portion of our subscribers could have a material
adverse effect on our results of operations.
Extensive Regulation In the Cable Television Industry
Our cable systems are subject to extensive regulation by federal, local and, in
some instances, state governmental agencies. Federal law establishes a national
policy to guide the regulation, development and operation of cable
communications systems. Principal responsibility for implementing federal law
and policies has been allocated between the Federal Communications Commission,
known as the FCC, and state or local regulatory authorities. We expect changes
in the regulatory and legislative environment to occur in the future.
Consequently, we are unable to predict the effect that ongoing or future
developments may have on the cable industry or on our business and operations.
Federal Law and Regulation. Federal laws and regulations covering various
aspects of our cable television business and operations generally have increased
the administrative and operational expenses of cable television systems and have
resulted in additional regulatory oversight by the FCC and local or state
franchise authorities. Federal law and regulations have established, among other
things:
o rate regulations, some of which have expired as of March, 1999,
o mandatory carriage and retransmission consent requirements that
require us, under certain circumstances, to carry a local broadcast
station or to obtain consent to carry a local or distant broadcast
station,
o rules for franchise renewals and transfers,
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o rules relating to the use of our cable systems by the local
franchising authorities, the public and other unrelated companies, and
o other requirements and restrictions covering a variety of operational
areas such as equal employment opportunity and technical standards,
customer service requirements and restrictions, and the sale or lease
to subscribers of set-top boxes, cable modems and other navigation
devices with integrated security functions.
The FCC and state regulatory agencies regularly conduct administrative
proceedings to adopt or amend regulations implementing federal law. At various
times interested parties to these administrative proceedings challenge the new
or amended regulations and policies in the courts with varying levels of
success. We expect that further court actions and regulatory proceedings will
occur and will refine the rights and obligations of various parties, including
the government, under federal law. The results of these judicial and
administrative proceedings may materially affect the cable industry and our
business and operations.
State and Local Regulation. Our cable systems generally operate in accordance
with non-exclusive franchises, permits or licenses granted by a municipality or
other state or local governmental entity. The terms and conditions of our
franchises vary materially from jurisdiction to jurisdiction. State and local
franchising jurisdiction is not unlimited, however; it must be exercised
consistently with federal law. A number of states subject cable systems to the
jurisdiction of centralized state governmental agencies. To date, the only
states in which we currently operate that have enacted such state level
regulation are Vermont and Massachusetts. We cannot predict whether any of the
other states in which we currently operate will engage in such regulation in the
future.
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Use of Proceeds
There will be no cash proceeds payable to us from the issuance of the exchange
notes under the exchange offer. In consideration for issuing these notes as
contemplated in this prospectus, we will receive old notes in like principal
amount, the terms of which are identical in all material respects to the
exchange notes. The old notes surrendered in exchange for the exchange notes
will be retired and canceled and cannot be reissued. Accordingly, the issuance
of the exchange notes will not result in any increase in our indebtedness. The
proceeds received from the sale of the old notes were used to repay obligations
under the amended bank credit facility.
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Capitalization
The following table sets forth the actual capitalization of FrontierVision
Holdings, L.P. as of December 31, 1998 on a historical basis. This table should
be read in conjunction with FrontierVision's historical statements and the
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
------------------------
December 31, 1998
Actual
-------------
(dollars in thousands)
In thousands
FVOP Indebtedness:
Amended bank credit facility..................... $ 670,125
11% Senior Subordinated Notes due 2006........... 200,000
Other 1,485
-------------
Total FVOP indebtedness..................... 871,610
Holdings Indebtedness:
11 7/8% Senior Discount Notes due 2007 249,532
-------------
Total indebtedness.......................... $ 1,121,142
=============
Partners' Capital:
Partnership interests............................ 29,162
-------------
Total partners' capital..................... $ 29,162
-------------
Total capitalization........................ $ 1,150,304
=============
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Selected Financial and Operating Data
The following tables present selected financial data derived from our financial
statements as of December 31, 1998, 1997, 1996 and 1995 and for the years ended
December 31, 1998, 1997, 1996 and the period from inception (April 17, 1995)
through December 31, 1995 which have been audited by KPMG LLP, independent
certified public accountants, and selected unaudited operating data for such
periods.
The following table also presents combined historical financial data as of and
for the years ended December 31, 1995 and 1994 for the United Video Cablevision
systems, the C4 Media systems, the Cox Communications systems, the American
Cable Entertainment of Kentucky-Indiana systems and the Triax Southeast systems.
The summary unaudited combined selected historical financial data are derived
from the audited and unaudited historical financial statements of these systems
and should be read in conjunction with the audited financial statements and
related notes thereto of the systems. We previously filed these audited
statements with FrontierVision Holdings, L.P. Form 10-K for the year ended
December 31, 1997. The combined selected financial data set forth below
represent the combined results of operations for the systems for the periods
during which the systems were not owned by us and, accordingly, do not reflect
any purchase accounting adjustments, including acquisition debt service, or any
changes in the operation or management of the systems that we have made since
the date of acquisition or intends to make in the future. Accordingly, we do not
believe that such operating results are indicative of our future operating
results.
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<TABLE>
----------------------------------------------------------------------------------------------
FrontierVision Holdings, L.P. Predecessor Systems
--------------------------------------------------------------- -----------------------------
For the Year For the Year For the Year From April 17, For the Year For the Year
Ended Ended Ended 1995 (inception) Ended Ended
December 31, December 31, December 31, to December 31, December 31, December 31,
1998 1997 1996 1995 1995 (1)(2) 1994 (3)(4)
------------ ------------ ------------ ---------------- ------------ -------------
In thousands, except ratios
operating statistical data
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $ 245,134 $ 145,126 $ 76,464 $ 4,369 $ 109,765 $ 105,368
Operating expenses.................. 123,818 74,314 39,181 2,311 62,098 58,643
Corporate administrative expenses... 6,965 4,418 2,930 127 - -
Depreciation and amortization....... 114,155 65,502 35,724 2,308 42,354 46,345
Preacquisition expenses............. - - - 940 - -
------------ ------------ ------------ ---------------- ------------ ------------
Operating income (loss)............. 196 892 (1,371) (1,317) 5,313 380
Interest expense, net(5)............ (88,875) (48,005) (22,422) (1,386) (37,898) (34,506)
Other income (expense).............. (526) (57) (8) - (4,409) (2,570)
Income tax benefit.................. 2,927 - - - - -
Extraordinary item - Loss on early
retirement of debt............... - (5,046) - - - -
------------ ------------ ------------ ---------------- ------------ ------------
Net income (loss)................... $ (86,278) $ (52,216) $ (23,801) $ (2,703) $ (36,994) $ (36,696)
============ ============ ============ ================ ============ ============
Balance Sheet Data
(End of Period):
Total assets........................ $ 1,210,421 $ 927,275 $ 549,168 $ 143,512 $ 288,253 $ 228,820
Total debt.......................... 1,121,142 787,047 398,194 93,159 285,144 263,660
Partners' capital................... 29,162 115,440 130,003 46,407
Financial Ratios and Other Data:
EBITDA(6)........................... $ 114,351 $ 66,394 $ 34,353 $ 991 $ 47,667 $ 46,725
EBITDA margin(6).................... 46.7% 45.8% 44.9% 22.7% 43.4% 44.3%
Total debt to EBITDA(7)............. 8.08 7.71 6.75
Net cash flows from operating
activities.......................... $ 61,955 $ 26,343 $ 18,911 $ 1,907
Net cash flows from investing
activities.......................... (373,399) (427,921) (418,215) (131,345)
Net cash flows from financing
activities.......................... 311,807 402,667 400,293 132,088
Deficiency of earnings to fixed
charges(8).......................... $ 86,205 $ 52,216 $ 23,801 $ 2,703
Operating Statistical Data (End of
Period Except Average):
Homes passed........................ 1,007,100 817,000 498,900 125,300
Basic subscribers................... 702,200 559,800 356,400 92,700
Basic penetration................... 69.7% 68.5% 71.4% 74.0%
Premium units....................... 285,300 275,400 152,100 35,700
Premium penetration................. 40.6% 49.2% 42.7% 38.5%
Average monthly revenue per
basic subscriber(9)................. $ 33.84 $ 31.53 $ 29.73 $ 27.76
- -------------
</TABLE>
(1) Includes the combined results of operations of the systems we acquired from
United Video Cablevision, C4 Media Cable Southeast, Cox Communications, American
Cable Entertainment and Triax Associates for the year ended December 31, 1995
(except for the United Video systems, which is for the period ended November 8,
1995). As the results of operations of the United Video systems are included in
the our historical results of operations subsequent to the date of our
acquisition thereof (November 9, 1995), the amounts do not include $4.2 million
in revenue, $2.4 million in operating expenses and $2.2 million in depreciation
and amortization (computed after the application of purchase accounting
adjustments) attributable to such systems.
(2) Includes combined balance sheet data for the United Video systems as of
November 9, 1995, the date of our acquisition, and combined balance sheet data
for the C4 systems, the Cox systems, the American Cable Entertainment systems
and the Triax systems as of December 31, 1995, because such acquisitions
occurred subsequent to that date.
(3) Includes the combined results of operations of the United Video systems, the
C4 systems, the Cox systems, the American Cable Entertainment systems and the
Triax systems for the years ended December 31, 1994.
(4) Includes combined balance sheet data for the UVC systems, the C4 systems,
the Cox systems, the American Cable Entertainment systems and the Triax systems
as of December 31, 1994.
(5) Interest expense for December 31, 1998, 1997, 1996 and 1995 was net of
interest income of $902, $1,023, $471 and $60, respectively.
(6) EBITDA is net income before interest, taxes, depreciation and amortization.
We believe that EBITDA is a meaningful measure of performance because it is
commonly used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance, leverage and
liquidity. In addition, our senior bank indebtedness and our Subordinated Notes
Indenture contain certain covenants, compliance with which is measured by
computations substantially similar to those used in determining EBITDA. However,
EBITDA is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net
-24-
<PAGE>
income as an indicator of operating performance or to cash flows as a measure of
liquidity, as determined in accordance with generally accepted accounting
principles. EBITDA margin represents the percentage of EBITDA to revenue.
(7) For purposes of this computation, EBITDA for the most recent quarter ended
is multiplied by four. This presentation is consistent with the incurrence of
indebtedness tests in the indenture governing the notes and in the indenture
governing FrontierVision Operating Partners, L.P.'s subordinated notes. In
addition, this ratio is commonly used in the cable television industry as a
measure of leverage.
(8) For purposes of this computation, earnings are defined as income (loss)
before income taxes and fixed charges. Fixed charges are defined as the sum of
(i) interest costs (including an estimated interest component of rental expense)
and (ii) amortization of deferred financing costs.
(9) Average monthly revenue per basic subscriber equals revenue for the last
month of the period divided by the number of basic subscribers as of the end of
such period.
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<PAGE>
Pro Forma Financial Data
The unaudited pro forma financial data presented below are derived from the
historical financial statements of Holdings and the previous owners of the cable
television systems we have acquired. The unaudited pro forma statement of
operations data for the twelve months ended December 31, 1998 have been
presented as if the offering of the notes, the acquisition of certain cable
television systems from State Cable TV Corporation and Better Cable TV Company
and the acquisition of the following systems which occurred on various dates
during 1998: TVC - Sumpter Limited Partnership and North Oakland Cablevision
Partners Limited Partnership, TCI Cablevision of Ohio, Inc., New England
Cablevision of Massachusetts, Inc., Ohio Cablevision Network, Inc., and other
less significant system acquisitions as if such transactions had been
consummated on January 1, 1998. A pro forma combined balance sheet has not been
presented because the transactions occurred prior to December 31, 1998 and are
already reflected in our balance sheet as of December 31, 1998.
The unaudited pro forma financial data give effect to the acquisition of the
systems acquired during 1998 under the purchase method of accounting and are
based upon the assumptions and adjustments described in the accompanying notes
to the unaudited pro forma financial statements presented on the following
pages. The allocations of the total purchase price for the acquisition of
systems acquired during 1998 are based on preliminary estimates and are subject
to final allocation adjustments.
The unaudited pro forma financial data do not purport to represent what our
results of operations or financial condition would have actually been or what
operations would be if the transactions that give rise to the pro forma
adjustments had occurred on the dates assumed. The unaudited pro forma financial
data presented below should be read in conjunction with the audited historical
financial statements and related notes thereto of Holdings and the State
Cable/Better TV financial statements, included elsewhere herein.
-26-
<PAGE>
FrontierVision Holdings, L.P. and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
(For the Twelve Months Ended December 31, 1998)
(In thousands)
<TABLE>
-----------------------------------------------------------------------------
Historical State Other
Holdings and Cable/Better TV System Pro Forma Pro Forma
Subsidiaries Acquisition Acquisitions(a) Adjustments Consolidated
------------ ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 245,134 $ 25,148 $ 9,743 $ - $ 280,025
Expenses
System operations 123,296 13,723 5,316 (1,234) (b) 141,101
Corporate administrative expense 6,965 814 714 (931) (c) 7,562
Depreciation and amortization 114,155 4,259 1,199 10,930 (d) 130,543
Storm related costs 522 1,596 - - 2,118
------------ ----------- ---------- ----------- ------------
Operating income (loss) 196 4,756 2,514 (8,765) (1,299)
Interest expense, net (88,875) (4,280) 63 (16,463) (e) (109,555)
Other income (expense) (526) (596) (21) 631 (f) (512)
------------ ----------- ---------- ----------- ------------
Net income (loss) before income taxes (89,205) (120) 2,556 (24,597) (111,366)
Income tax benefit 2,927 - (41) 41 (g) 2,927
------------ ----------- ---------- ----------- ------------
Net income (loss) $ (86,278) $ (120) $ 2,515 $ (24,556) $ (108,439)
============ =========== ========== =========== ============
</TABLE>
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<PAGE>
Footnotes to the Unaudited Pro Forma Combined Statement of Operations
For the Twelve Months Ended December 31, 1998
(In thousands)
(a) Includes the historical results of operations of the system acquisitions
during 1998 other than State Cable and Better TV. Historical results are
presented for the systems purchased from January 1, 1998 to the respective
dates of acquisition.
(b) Represents the anticipated decrease in operating costs from the following:
o applying FrontierVision's existing programming contracts;
o estimated reductions in operating expense by applying FrontierVision's
capitalization policy on construction activities; and
o the estimated cost savings resulting from the elimination of duplicate
functions and personnel of the systems acquired during 1998.
(c) Represents the elimination of management fees and allocated overhead costs
attributable to the systems acquired during 1998.
(d) Represents the additional depreciation and amortization expense
attributable to the systems acquired during 1998, as if such acquisitions
had occurred on January 1, 1998. We calculate pro forma depreciation and
amortization on a straight-line basis over periods that are consistent with
our stated accounting policy. The cost basis of the purchased assets
utilized in these calculations is based on preliminary asset allocations
between property and equipment and intangible assets and are subject to
final allocation adjustments.
(e) Represents the net adjustment to:
o record interest expense on the incremental indebtedness arising from
the purchase of our cable television systems that existed as of
January 1, 1998 and the acquisitions during 1998 as if such
transactions had been consummated on January 1, 1998; and
o reverse historical interest expense and the historical interest
expense of the systems acquired during 1998.
Adjustments to interest expense are calculated as if the incremental
indebtedness had been outstanding since January 1, 1998 with interest
accruing at rates as follows:
o 7.41% weighted average interest rate on borrowings under the amended
bank credit facility;
o 11% interest rate for $200,000 of the 1996 Notes;
o 11.875% interest rate for $249,532 of the 1997 Notes; and
o 10% weighted average interest rate for $1,485 of capital lease
obligations.
(f) Represents the elimination of the minority interest in loss of the State
Cable and Better TV systems prior to acquisition.
(g) Represents adjustments to reverse provision of income taxes.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations as
well as other sections of this Prospectus contain certain forward-looking
statements. Our actual results could differ materially from those discussed
herein and our current business plans may be altered in response to market
conditions and other factors beyond our control. Additionally, our investors'
decision to sell their ownership interest in our company to Adelphia
Communications Corporation may ultimately cause our business plan and results of
operations to differ materially from our current business plan and expected
future operating results. Our operations commenced on November 9, 1995 with the
acquisition of our first cable television systems. See "Business--Development of
the Systems" for a description of our cable television systems. We have operated
these systems for a limited period of time and had no operations prior to
November 9, 1995. We have accounted for all acquisitions under the purchase
method of accounting and, therefore, our historical results of operations
include the results of operations for each acquired system subsequent to its
respective acquisition date.
Introduction
In this section, we explain the general financial condition and the results of
operations for FrontierVision and its subsidiaries including what factors affect
our business, what our revenues and expenses were for 1998, 1997 and 1996, why
those revenues and expenses were different from the year before and how all of
this effects our overall financial position.
We commenced operations in November, 1995 with the acquisition of certain cable
television systems. Since that first acquisition, we have completed over 30
separate acquisitions and have grown to become one of the twenty largest
multiple system operators in the United States, serving over 702,200 subscribers
as of December 31, 1998. Our systems are located in three primary operating
clusters - New Engalnd, Ohio and Kentucky - with a fourth, smaller group of
systems in the Southeast. See "Business - Development of the Systems" for a
summary of our past acquisitions and operating clusters.
During 1998, we completed nine acquisition transactions, acquiring a total of
approximately 140,000 basic subscribers. These acquisitions increased the size
and scale of each of our three primary operating clusters and significantly
increased the size and scale of our New England operating cluster. Our October
1998 acquisition of eight cable systems from State Cable TV Corporation added
approximately 75,000 basic subscribers to our New England cluster in attractive
communities directly contiguous to systems which we already owned in southern
Maine and central New Hampshire. With the State Cable systems, we have grown to
serve over 248,000 subscribers in our New England cluster and over 168,000
subscribers and four of the five largest cities in the state of Maine. See Note
5 to the financial statements for more detailed descriptions of these
transactions.
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<PAGE>
Results of Operations
In this section, we discuss our 1998, 1997 and 1996 earnings and the factors
affecting them.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 AND YEAR
ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The following table summarizes certain of our operating and financial data for
the years ended December 31, 1998, 1997 and 1996. As a result of our limited
operating history, and the fact that acquired systems are only included from the
date of acquisition, we believe that the results of operations for the periods
presented in this table are not indicative of our future results.
<TABLE>
--------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
------------------------ ----------------------- ------------------------
% of % of % of
Amount Revenue Amount Revenue Amount Revenue
------ ------- ------ ------- ------ -------
In thousands
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $ 245,134 100.0 % $ 145,126 100.0 % $ 76,464 100.0 %
Expenses
Operating expenses............. 123,296 50.3 74,314 51.2 39,181 51.2
Corporate expenses............. 6,965 2.8 4,418 3.0 2,930 3.9
Depreciation and amortization.. 114,155 46.6 65,502 45.2 35,724 46.7
Storm related costs............ 522 0.2 - - - -
----------- ------ ----------- ------ ---------- -------
Total expenses.......... 244,938 99.9 144,234 99.4 77,835 101.8
----------- ------ ----------- ------ ---------- -------
Operating income/(loss)............ 196 0.1 892 0.6 (1,371) (1.8)
Interest expense, net.............. (88,875) (36.3) (48,005) (33.1) (22,422) (29.3)
Other expense...................... (526) (0.2) (57) 0.0 (8) -
Income tax benefit................. 2,927 1.2 - - - -
Extraordinary item - Loss on early
retirement of debt............. - - (5,046) (3.5) - -
----------- ------ ----------- ----- ---------- -------
Net loss........................... $ (86,278) (35.2)% $ (52,216) (36.0)% $ (23,801) (31.1)%
=========== ====== =========== ====== ========== =======
EBITDA $ 114,351 46.7% $ 66,394 45.8 % $ 34,353 44.9 %
=========== ====== =========== ====== ========== =======
Basic subscribers.................. 702,200 559,800 356,400
Premium units...................... 285,300 275,400 152,100
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Significant increases in the amounts of revenue, operating expense and EBITDA
are primarily attributable to acquisition activity during 1998 and 1997, which
increased our size from 559,800 basic subscribers at December 31, 1997 to over
702,000 at December 31, 1998. Revenue increased 68.9%, or approximately $100.0
million, to approximately $245.1 million for the year ended December 31, 1998
from approximately $145.1 million for the year ended December 31, 1997.
Operating expenses, including storm related costs attributable to ice storms in
Maine described below, and corporate expenses increased approximately 66.6% and
57.7%, respectively, for the year ended December 31, 1998 from the year ended
December 31, 1997. The decrease in the percentage of operating expenses to
revenue was primarily attributable to cost efficiencies achieved through the
integration of cable systems and increased revenue per subscriber per month. The
EBITDA margin, when adjusted to exclude the storm related costs, improved from
45.8% for the twelve months ended December 31, 1997 to 46.9% in 1998.
During mid-January 1998, certain of the communities we service in Maine
experienced devastating ice storms. For the twelve months ended December 31,
1998 we recognized a loss due to service outages and increased labor costs of
approximately $522,000 due these storms, net of $183,000 related to a claim on
our business interruption insurance for the storm damage. Additionally, we spent
approximately $540,000 of capital expenditures to replace subscriber drops
damaged in the storms.
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<PAGE>
Depreciation and amortization expense increased 74.3% as a result of acquisition
activity that occurred in 1997 and 1998. Net interest expense increased to $88.9
million from $48.0 million primarily as a result of the higher weighted average
drawings on our senior bank indebtedness.
During the year ended December 31, 1998, (i) our annualized subscriber churn
rate, which represents the annualized number of subscriber terminations divided
by the weighted average number of subscribers during the period, was
approximately 31.5%, and (ii) the average subscriber life implied by such
subscriber churn rate was approximately 3.2 years. Churn rates are computed
without adjustment for the effects of seasonal subscriber activity and
acquisitions and are within our expectations.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Significant increases in the amounts of revenue, operating expense and EBITDA
are primarily attributable to acquisition activity during 1997 and 1996, which
increased our size from 356,400 basic subscribers at December 31, 1996 to
559,800 at December 31, 1997. Revenue increased to $145.1 million in the twelve
months ended December 31, 1997 from $76.5 million in the year ended December 31,
1996. Operating and corporate expenses were reduced to 54.2% of revenue in the
twelve months ended December 31, 1997 from 55.1% of revenues in the year ended
December 31, 1996 due primarily to the achievement of efficiencies in the
corporate office through the elimination of duplicative expenses, such as
customer billing, accounting, accounts payable and payroll administration. As a
result of cost efficiencies and the aforementioned acquisitions, EBITDA
increased to 45.8% of revenues in the twelve months ended December 31, 1997 from
44.9% of revenues in the year ended December 31, 1996.
The increase in depreciation and amortization expense of $29.8 million from the
year ended December 31, 1996 to the year ended December 31, 1997 was a result of
the inclusion of a full year of expense for acquisitions completed in 1996 and
new acquisitions completed in 1997. Net interest expense increased by $25.6
million due to the higher weighted average debt balance outstanding over the
year ended December 31, 1997.
Liquidity and Capital Resources
The cable television business generally requires substantial capital for the
construction, maintenance and expansion of cable plant and distribution
equipment. In addition, we have pursued selective acquisitions. Since our
founding in 1995, our cash received from equity investments, bank borrowings and
other debt issued by FrontierVision Operating Partners, L.P. and FrontierVision
Holdings, L.P. has been sufficient to finance our acquisitions and, together
with cash generated from operating activities, also has been sufficient to
service our debt, provide sufficient working capital and fund required capital
expenditures. We intend to continue to finance such debt service, working
capital and capital expenditure requirements through a combination of cash from
operations, indebtedness and equity capital sources. We believe that we will
continue to generate cash and be able to obtain financing sufficient to meet
such requirements. Our ability to meet our debt service and other obligations
will depend upon our future performance which, in turn, is subject to general
economic conditions and to financial, political, competitive, regulatory and
other factors, many of which are beyond our control.
Amended Bank Credit Facility
Drawings on our amended bank credit facility, along with cash flow generated
from operations and high yield debt financing, have been sufficient to finance
capital improvement projects as well as acquisitions. We have adequately
serviced our debt in accordance with the provisions of the amended bank credit
facility from EBITDA of approximately $114.4 million generated by FrontierVision
Operating Partners, L.P. for the year ended December 31, 1998.
On December 19, 1997, we amended our existing senior bank indebtedness and
entered into an $800.0 million amended bank credit facility with The Chase
Manhattan Bank, as Administrative Agent, J.P. Morgan Securities Inc., as
Syndication Agent, CIBC Inc., as Documentation Agent, and the other lenders
signatory thereto. The
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<PAGE>
amended bank credit facility includes a $300.0 million, 7.75-year reducing
revolving credit facility, a $250.0 million, 7.75-year term loan and a $250.0
million, 8.25-year term loan.
At December 31, 1998, we had $172.0 million outstanding under the revolving
credit facility, $248.1 million outstanding under the 7.75 year term loan and
$250.0 million outstanding under the 8.25 year term loan. The weighted average
interest rates at December 31, 1998 on the outstanding borrowings under the
revolving credit facility were approximately 7.25%, and under the 7.75 year term
loan and the 8.25 year term loan were approximately 7.29% and 7.63%,
respectively. We have entered into interest rate protection agreements to hedge
the underlying LIBOR rate exposure for $437.5 million of borrowings through
November 1999 and October 2001. For the year ended December 31, 1998, we
recognized an increase to interest expense of approximately $0.6 million as a
result of these interest rate swap agreements.
In general, the amended bank credit facility requires us to use the proceeds
from any equity or subordinated debt issuance or any cable system disposition to
reduce indebtedness for borrowings under the amended bank credit facility and to
reduce permanently commitments thereunder, subject to certain exceptions
permitting us to use such proceeds to fund certain permitted acquisitions,
provided that we are otherwise in compliance with the terms of the amended bank
credit facility.
The amended bank credit facility is secured by a pledge of all limited and
general partnership interests in FrontierVision Operating Partners, L.P. and in
any of our restricted subsidiaries and a first priority lien on all the tangible
and intangible assets of FrontierVision Operating Partners, L.P. and each of its
restricted subsidiaries. In addition, in the event of the occurrence and
continuance of an event of default under the amended bank credit facility, the
Administrative Agent is entitled to replace our general partner with its
designee.
Holdings, as the general partner of FrontierVision Operating Partners, L.P.,
guarantees the indebtedness under the amended bank credit facility on a limited
recourse basis. The amended bank credit facility is also secured by a pledge of
all limited and general partnership interests in FrontierVision Operating
Partners, L.P. and a first priority lien on all the assets of FrontierVision
Operating Partners, L.P and its subsidiaries.
Senior Subordinated Notes (herein referred to as the 1996 notes)
On October 7, 1996, FrontierVision Operating Partners, L.P. issued $200.0
million aggregate principal amount of 11% senior subordinated notes due 2006.
The 1996 notes mature on October 15, 2006 and bear interest at 11%, with
interest payments due semiannually commencing on April 15, 1997. The 1996 notes
are general unsecured obligations of FrontierVision and rank subordinate in
right of payment to all existing and any future senior indebtedness. In
anticipation of the issuance of the 1996 notes, FrontierVision entered into
deferred interest rate setting agreements to reduce the interest rate exposure
related to the 1996 notes. The financial statement effect of these agreements
will be to increase the effective interest rate which FrontierVision incurs over
the life of the 1996 notes.
Senior Discount Notes, Series A (herein referred to as the 1997 notes)
Holdings and FrontierVision Holdings Capital Corporation were formed for the
purpose of acting as co-issuers of $237.7 million aggregate principal amount at
maturity of 11 7/8% senior discount notes due 2007. FVP contributed to Holdings,
both directly and indirectly, all of the outstanding partnership interests of
FrontierVision Operating Partners, L.P. prior to the issuance of the 1997 notes
on September 19, 1997 and as a result, FrontierVision Operating Partners, L.P.
and FrontierVision Capital Corporation are wholly-owned consolidated
subsidiaries of Holdings. Holdings contributed the majority of the net proceeds
of the discount notes totaling approximately $142.3 million to FrontierVision
Operating Partners, L.P. as a capital contribution.
Senior Discount Notes, Series B (herein referred to as the old notes)
Holdings and FrontierVision Holdings Capital II Corporation acted as co-issuers
of $91.3 million aggregate principal amount at maturity of 11 7/8% senior
discount notes due 2007. Holdings II Capital was formed for the purpose of
acting as co-issuer on these old notes. The old notes were issued on December 2,
1998. Holdings
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<PAGE>
contributed the majority of the net proceeds of approximately $72.8 million from
the issuance of the old notes to FrontierVision Operating Partners, L.P. as a
capital contribution.
Cash Flows From Operating Activities
Cash flows from operating activities for the year ended December 31, 1998 were
$62.0 million compared to $26.3 million for the year ended December 31, 1997 and
$18.9 million for the year ended December 31, 1996. The increase was primarily a
result of cable television system operations acquired during 1996, 1997 and
1998.
Cash Flows From Investing Activities
Investing cash flows were primarily used to fund capital expenditures and
acquire cable television systems. Capital expenditures for the year ended
December 31, 1998 were approximately $65.6 million compared to approximately
$32.7 million for the year ended December 31, 1997 and $9.3 million for the year
ended December 31, 1996. Capital expenditures primarily consisted of
expenditures for the construction and expansion of cable plant and distribution
equipment, and additional costs were incurred related to the expansion of
customer service facilities. We invested approximately $307.6 million in
acquisitions during the year ended December 31, 1998 compared with approximately
$392.6 million for the year ended December 31, 1997 and $421.5 million for the
year ended December 31, 1996.
Cash Flows From Financing Activities
We financed acquisitions during the year ended December 31, 1998 with borrowings
under our senior bank indebtedness. We financed acquisitions during the year
ended December 31, 1997 with equity contributions from our partners and
borrowings under our senior bank indebtedness. During the year ended December
31, 1996, we financed acquisitions with equity contributions from our partners,
borrowings under our senior bank indebtedness and the issuance of $200.0 million
aggregate principal amount of senior subordinated notes.
During the year ended December 31, 1998, we received no equity contributions
from our partners as compared with $37.7 million for the year ended December 31,
1997 and $107.4 million for the year ended December 31, 1996.
As of December 31, 1998 and 1997, we received approximately $75.0 million and
$150.0 million, respectively, in proceeds as a result of the issuance of the
Discount Notes. Furthermore, from inception through December 31, 1998, FVP
received a total of $199.4 million of debt and equity contributions from its
partners, all of which has been invested in Holdings and down streamed to FVOP.
Such amount represents the contractual maximum amount committed by FVP's
partners.
Year 2000
Many existing hardware and software elements of computer systems and other
technologies represent the year as a two-digit number. Such representation may
cause software and hardware malfunctions to occur as a system date or
application date crosses the Year 2000 boundary. This might happen when the
actual century turns, the date of some input data exceeds January 1, 2000 and/or
the system or application must internally refer to a date that occurs on,
before, or after January 1, 2000.
During 1998, we continued a review of the Year 2000 Issue with the objective of
formulating a plan to identify and correct any system malfunctions which might
occur due to Year 2000 Issues. An informal task force, comprised solely of
FrontierVision employees, was established in the fourth quarter of 1997 to
determine which of our mission critical business processes could be impacted by
Year 2000 issues. Those mission critical business processes that were identified
as subject to Year 2000 Issues are as follows: Signal Delivery, Franchise
Services, Service Delivery and Revenue Collection.
The following table illustrates the primary components of each of the Year 2000
effected mission critical business processes:
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<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------
Mission Critical
Business Process Description Significant Components
------------------------------------------------------------------------------------------------
<S> <C> <C>
Signal Delivery Process of receiving a video signal from Headend equipment
satellite or broadcast sources and Plant infrastructure
transmitting that signal via fiber-optic Programming suppliers
and co-axial cable to a customer's
residence or place of business.
Franchise Services The performance of tasks specifically Local origination
required by local or national Emergency broadcast
regulatory agencies.
Service Delivery The ongoing process of responding timely Customer call center infrastructure
to customer service requests. Dispatch equipment
Revenue Collection The process of collecting customer Subscriber management systems
billings and utilizing those cash Cash management
receipts for necessary corporate
purposes.
</TABLE>
Since the task force was established, FrontierVision management has committed
additional internal and external resources to address Year 2000 Issues. During
the third quarter of 1998, we engaged an external third-party Year 2000
consultant to review our informal task force's Year 2000 efforts to date and to
produce a formal, written Year 2000 project plan. This plan provides a work
schedule for us to address our Year 2000 Issues by December 31, 1999. Since that
date, we have formally adopted a Year 2000 Compliance Plan, discussed in more
detail below. Additionally, we have joined an industry initiative whereby along
with other similar companies, we will achieve efficiencies in their individual
Year 2000 plans through the sharing of information and joint testing. We have
also entered into cooperative agreements with other multiple system operators to
share pertinent assessment information.
We have established a Year 2000 team which consists of a full-time Project
Manager, one full-time Project Administrator and two full-time equivalent
consultants. The Year 2000 team also involves certain individuals in
FrontierVision who are subject matter experts, for example, engineering and
information technology. The Project Manager is accountable directly to our
senior management team, who in turn is accountable to FrontierVision's general
partner.
The Year 2000 Compliance Plan, consists of an awareness program, a prevention
program and a find and fix program. The awareness program is designed to educate
employees and customers on the implications of Year 2000 Issues. Employees have
been trained on our Year 2000 Compliance Plan and their role in the success of
the Plan has been communicated. The prevention program is designed to prevent
new problems from arising while we resolve existing problems. For example, since
October 30, 1998, we have required a Year 2000 compliance warranty on all
purchase orders to ensure that vendors ship to FrontierVision only equipment
that they have warranted is Year 2000 compliant. The find and fix program
includes three phases: inventory, assessment and remediation, and is initially
focused on mission critical business processes.
The inventory phase consists of a physical inventory of all susceptible business
components within each mission critical business process. A physical inventory
of the components used in certain of our mission critical business processes was
initiated during 1998. We substantially completed the inventory phase of the
mission critical items on January 31, 1999. We plan to initiate random inventory
verification audits during the second quarter of 1999. The inventory consisted
of specifically identifying each component/system (both internal and external
systems) of a mission critical business process. Internal systems include
computer systems and related software (information technology systems) as well
as systems and devices that manage the distribution of cable television service
to customers (non information technology systems). External systems include our
third party billing service provider and subscriber management system, banking
partners (including cash management, lockbox providers and lenders) and
programming providers.
An end product of the inventory phase is a comprehensive database which allows
us to review any of our business components by, among other attributes,
manufacturer/supplier, geographic location, compliance status or asset class.
This database allows us to electronically track the assessments for each item.
Once an assessment is made on a given item, the assessment is automatically
linked to the individual inventory piece. Furthermore,
-34-
<PAGE>
the database allows for the tracking of remediation efforts at the inventory
level, including the date the item was ordered, the expected and actual cost,
who the repair is made by, when it is made and who tests the repair. This method
of item management ensures normalization of the descriptions of like items,
enhancing the overall efficiency of the project.
We are also in the process of communicating with our significant suppliers and
service providers to determine their position with regard to Year 2000 Issues
and evaluating the potential impact on FrontierVision if those third parties
fail to remediate their own Year 2000 Issues. We have received responses from
approximately 50% of such significant suppliers and service providers; the
majority of which are currently in their own assessment and remediation phases.
Material relationships with third parties include utility companies (providing
power to the cable plant), telephone companies (providing communication lines
for use in customer contact, employee communications and in data transfer
related to subscriber and billing management information systems) and
programming and equipment vendors (providing the product distributed by
FrontierVision as well as maintenance and construction materials).
Since the inventory phase was completed, the Year 2000 team has focused on
assessing each business component's vulnerability to Year 2000 Issues. The
assessment phase requires management to attain a high degree of confidence that
FrontierVision prevents Year 2000 problems with respect to components of mission
critical business processes and minimize such problems in other non-critical
areas, while controlling replacement costs. To ensure that the most at-risk
components/systems are assessed first, the initial task in the Assessment stage
was the prioritization of each equipment/system in the project database. Items
of inventory have been reviewed for Year 2000 compatibility first by
cross-referencing the project database to materials received from vendors,
industry groups and other multiple systems operations, second by contacting
vendors as necessary and finally, by making an "in-house" determination of
compatibility where no other information is available. The end product of the
assessment phase for each item is the determination of whether a given
component/system is to be replaced or upgraded or whether specific contingency
plans are needed.
Approximately 95% of the total inventory components in our headends, plant
infrastructure and customer service infrastructure have proven to have no date
sensitive components. Of the remaining 5% subject to future investigation, we
have completed assessments on approximately 70% of the components and have
determined that less than 1% of these to be non-compliant with respect to Year
2000 Issues.
After the assessment phase is completed for a given component and the component
is found to have a Year 2000 Issue, the remediation phase begins. The
remediation phase includes the following activities:
o A decision is made as to the optimal remedy of the Year 2000 Issue.
o A purchase order is placed for the new component or upgrade.
o Based upon the expected delivery date, the appropriate resources are
scheduled to complete the implementation.
o After the new component is implemented, dependent testing occurs to
verify that remediations do not introduce new Year 2000 problems.
If remediation is determined to be impossible with respect to a business
component, the Year 2000 team will create an appropriate contingency plan.
As of March 20, 1999, our overall progress in the find and fix program for our
mission critical systems as follows:
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<PAGE>
<TABLE>
----------------------------- ------------------------ ----------------------------
Percentage Complete Completion Date or
Phase of Phase Expected Completion Date
----------------------------- ------------------------ ----------------------------
<S> <C> <C>
Inventory 99% January 31, 1999
Assessment 70% April 30, 1999
Remediation 30% November 30, 1999
</TABLE>
The expected completion dates set forth above are based on our current
expectations. The assessment phase is expected to be completed by April 30, 1999
which is two months behind our original estimate for completion. We are also
dependent on our suppliers for timely fulfillment of purchase orders that will
be made to replace non-compliant equipment and assistance in installations. In
addition, the current remediation timetable does not allow for a significant
amount of time for testing. Further delays in the assessment phase and/or delays
in the purchasing and receipt of replacement equipment further reduces the time
available for testing and places additional risk on the successful completion of
the remediation phase. As a result, no assurances can be given as to whether
each of the phases will be completed on schedule due to uncertainties which are
inherent in the remediation of Year 2000 Issues.
As we have not yet completed the assessment of each of our mission critical
systems (either internal or external), the total costs to address the Year 2000
Issue are uncertain. To date, we have expended approximately $2,200,000 to fix
components with Year 2000 Issues. Based on the assessment results to date, we
plan to spend an additional $600,000 in replacing equipment with known Year 2000
Issues. Furthermore, as of March 20, 1999, we have expended approximately
$270,000 in third-party consulting fees and expect to spend an additional
$200,000 in external fees in conjunction with the Year 2000 project team through
December 31, 1999.
We have budgeted in excess of $1,000,000 in incremental capital expenditures for
fiscal year 1999 to complete the Year 2000 Compliance Plan. It is not known, at
this point in time, if these budgeted amounts will be sufficient to identify and
correct our Year 2000 Issues.
While management believes that the Year 2000 Compliance Plan will significantly
reduce the risks associated with the transition to the year 2000 through a
process of inventory, assessment and remediation, we have yet to develop or
implement any significant contingency plans. There can be no assurance that we
will identify all Year 2000 Issues or that we will be able to remedy each Year
2000 Issue. A failure to sufficiently correct a material Year 2000 problem could
cause us to suffer an interruption or a failure of certain important business
operations. Additionally, the failure of a material external (third-party)
system may cause us to experience an interruption or a failure of certain
important business operations. The interruption or failure by FrontierVision in
an important business operation may cause a material, adverse impact on our
financial position. It is not management's intention that certain information
technology and technical enhancement projects planned will be deferred as a
result of the cost to address Year 2000 Issues. Additionally, although
management believes that a combination of cash from operations and indebtedness
will fund the costs associated with correcting Year 2000 Issues, no assurances
can be given that costs ultimately required to be paid to ensure the our Year
2000 readiness will not have an adverse effect on our financial position and
results of operations.
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<PAGE>
Business
We own, operate and develop cable television systems in small and medium-sized
suburban and exurban communities in the United States. As of December 31, 1998,
we were one of the twenty largest operators of cable television systems (a
multiple system operator) in the United States, owning systems which passed
approximately 1,007,100 homes and served approximately 702,200 basic
subscribers.
On February 22, 1999, the owners of our general partner, FrontierVision
Partners, L.P., entered into a definitive agreement to sell their ownership
interests in our company to Adelphia Communications Corporation. This change in
our ownership is likely to have a significant effect on our continued
operations. We expect to continue the execution of our business plan through the
closing of this transaction, which is currently expected to occur during the
third-quarter of 1999.
We were organized in 1995 under the laws of the State of Delaware and our
headquarters are located at 1777 South Harrison Street, Suite P-200, Denver,
Colorado, 80210. Our telephone number is (303) 757-1588 and we may be reached by
e-mail at [email protected].
FrontierVision
Since closing our first acquisition in November 1995, we have completed over 30
acquisitions and have established significant critical mass and subscriber
density within our targeted geographic markets. The following table illustrates
our growth and operating characteristics of our systems through December 31,
1998.
<TABLE>
--------------------------------------------------------------------------------------
Basic Premium Total Revenue
Homes Passed Subscribers Units (In Thousands)
---------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
December 31, 1995 125,300 92,700 35,700 4,369
December 31, 1996 498,900 356,400 152,100 76,464
December 31, 1997 817,000 559,800 275,400 145,126
December 31, 1998 1,007,100 702,200 285,300 245,134
</TABLE>
We have established three primary operating clusters in New England, Ohio and
Kentucky, with a fourth, smaller group of cable television systems in the
Southeast. As of December 31, 1998, over 90% of our subscribers were within our
three primary operating clusters. We are currently the second largest multiple
system operator in Kentucky, the largest multiple system operator in Maine and
the third largest multiple system operator in Ohio.
Development of the Systems
We were organized in 1995 to exploit acquisition opportunities in the cable
television marketplace created by the confluence of several economic,
regulatory, competitive and technical forces. The cable television industry has
experienced rapid and continuing consolidation over the last several years for
various reasons. Operators have been faced with the need for increased levels of
capital expenditures to expand channel capacity and have recently begun to face
the threat of competition from new market entrants, including DBS services and
telephone company video programming services. Many smaller multiple system
operators, particularly those that were acquisitive during the late 1980's and
purchased systems at prices significantly higher than those paid by us, sought
liquidity for their investors or were constrained from accessing additional
capital to upgrade or rebuild aging plant to remain competitive with other video
programming providers. More recently, larger multiple system operators have
embarked on their own program of divesting or trading less strategic systems to
redirect their resources to major urban and suburban markets.
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<PAGE>
As a result of this supply and demand anomaly, we have been able to selectively
acquire cable television properties from both small and large multiple system
operators, thereby establishing core geographic clusters and subscriber mass.
The following table summarizes our acquisitions through December 31, 1998:
<TABLE>
-----------------------------------------------
Purchase Basic
Price(1) Subscribers
Predecessor Owner Date Acquired (in millions) Acquired(2)
- ----------------- ----------------- ------------ -----------
<S> <C> <C> <C>
United Video Cablevision, Inc. ............................ November 9, 1995 $ 120.8 87,400
Longfellow Cable Company, Inc. ............................ November 21, 1995 6.1 5,100
C4 Media Cable Southeast, Limited Partnership.............. February 1, 1996 47.6 40,400
Americable International Maine, Inc........................ March 29, 1996 4.8 3,350
Cox Communications......................................... April 9, 1996 136.0 77,200
Phoenix Grassroots Cable Systems, LLC...................... August 29, 1996 9.3 7,400
Triax Southeast Associates, L.P............................ October 7, 1996 84.7 53,200
American Cable Entertainment of Kentucky-Indiana, Inc...... October 9, 1996 146.0 83,250
SRW, Inc.'s Penn/Ohio Cablevision, L.P..................... October 31, 1996 3.8 3,225
SRW, Inc.'s Deep Creek Cable TV, L.P. ..................... December 23, 1996 3.0 2,175
Bluegrass Cable Partners, L.P.............................. March 20, 1997 9.9 7,225
Clear Cable T.V., Inc. and B&G Cable T.V. Systems,
Inc..................................................... March 31, 1997 1.7 1,450
Milestone Communications of New York, L.P. ................ March 31, 1997 2.8 2,125
Triax Associates I, L.P.................................... May 30, 1997 34.5 20,700
Phoenix Front Row Cablevision ............................. May 30, 1997 6.8 5,250
PCI Incorporated........................................... August 29, 1997 13.5 7,750
SRW, Inc.'s Blue Ridge Cable Systems, L.P.................. September 3, 1997 4.1 4,550
Harold's Home Furnishings, Inc............................. October 31, 1997 1.5 1,480
A-R Cable Services - ME, Inc............................... October 31, 1997 78.2 54,300
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture.......................................... December 2, 1997 34.5 22,100
Cox Communications, Inc.................................... December 19, 1997 203.0 85,400
TVC-Sumpter Linked Partnership and North Oakland
Cablevision March 6, 1998 14.2 8,100
Partners Limited Partnership ........................
TCI Cablevision of Ohio, Inc............................... April 1, 1998 10.0 6,000
New England Cablevision of Massachusetts, Inc. ............ April 3, 1998 44.7 26,500
Ohio Cablevision Network, Inc.............................. July 31, 1998 38.0 19,700
Appalachian Cablevision of Ohio............................ September 1, 1998 0.3 280
Unity Cable Television, Inc................................ September 30, 1998 0.8 590
State Cable TV Corporation ................................ October 23, 1998 188.2 75,000
Paint Valley Cable Company, Inc............................ October 30, 1998 1.7 1,300
Casco Cable Television, Inc................................ November 30, 1998 3.2 2,185
____________
</TABLE>
(1) Represents the contract purchase price excluding working capital purchase
adjustments and transaction costs.
(2) Includes 10,600 subscribers to systems that were sold by FrontierVision in
1996.
On January 7, 1999, we sold nine cable systems located in eastern Tennessee and
western North Carolina to Helicon Partners I, LP. The systems served a total of
approximately 4,400 basic subscribers in smaller, rural communities in western
Tennessee and eastern North Carolina. The systems were part of our Southeast
operating region. In addition, on February 17, 1999 we entered into an asset
exchange agreement to obtain one Kentucky system serving approximately 6,200
subscribers outside of Lexington, Kentucky in exchange for one of our existing
Kentucky systems serving approximately 4,800 subscribers south of Cincinnati,
Ohio and approximately $3.1 million of cash. There can be no assurance that the
system trade will be consummated or that we can successfully integrate any
acquired business with our existing operations.
System Descriptions
Our cable television systems consist of three primary clusters--New England,
Ohio and Kentucky--with a fourth, smaller group of systems in the Southeast. The
following chart provides certain operating and technical profile statistics as
of December 31, 1998 for our cable systems.
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<PAGE>
<TABLE>
-----------------------------------------------------------------
New England Ohio Kentucky Southeast Total
Cluster Cluster Cluster Region Systems
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homes passed................................... 351,300 383,200 172,600 100,000 1,007,100
Basic subscribers.............................. 248,000 268,800 123,700 61,700 702,200
Basic penetration.............................. 70.6% 70.1% 71.7% 61.7% 69.7%
Premium units.................................. 107,400 119,700 37,800 20,400 285,300
Premium penetration............................ 43.3% 44.5% 30.6% 33.1% 40.6%
Digital cable television subscribers........... 744 2,929 None 1,358 5,031
Average monthly revenue per basic subscriber $33.20 $35.85 $34.20 $26.95 $33.84
(1)............................................
Number of headends............................. 87 87 38 46 258
Percentage of subscribers with at least
54-channel 63.7% 76.8% 57.6% 32.1% 65.6%
capacity....................................
</TABLE>
___________
(1) Average monthly revenue per basic subscriber equals revenue for the month
ended December 31, 1998 divided by the number of basic subscribers as of
the end of such period.
New England Cluster. The systems in our New England cluster passed approximately
351,300 homes and served approximately 248,000 basic subscribers and 107,400
premium units as of December 31, 1998. The New England cluster is comprised
primarily of systems located in communities in southern, middle and coastal
Maine, central New Hampshire, northeastern Massachusetts and northern Vermont.
Of the Maine systems' approximately 168,400 total subscribers, approximately
155,000 subscribers are located in Augusta, Bangor and Lewiston and contiguous
communities or in nearby coastal communities. Most of the approximately 45,300
subscribers in New Hampshire are located in Lebanon and surrounding communities,
the 27,100 Massachusetts subscribers are located within 30 miles of suburban
Boston and most of the 7,200 Vermont subscribers are located within 20 miles of
Burlington, the state's largest city. Approximately 63.7% of our subscribers in
the New England cluster are offered at least 54 channels, including 750 MHz
design systems in Amesbury and Glouchester, Massachusetts and Augusta, Maine and
550 MHz design systems in Waterville and Rockland, Maine.
Ohio Cluster. Systems in the Ohio cluster passed approximately 383,200 homes and
served approximately 268,800 basic subscribers and 119,700 premium units as of
December 31, 1998. The majority of the subscribers in the Ohio cluster are
located in northwest Ohio, extending from the northern suburbs of Toledo south
along the Indiana state border, and central Ohio, south and east of suburban
Columbus to the Ohio River. Approximately 76.8% of the our subscribers in the
Ohio cluster are offered at least 54 channels, including 550 MHz design systems
in Ashland, Kentucky and Newark and New Philadelphia, Ohio.
Kentucky Cluster. The systems in the Kentucky cluster passed approximately
172,600 homes and served approximately 123,700 basic subscribers and 37,800
premium units as of December 31, 1998. A single regional customer service center
in Richmond, Kentucky serves all Kentucky subscribers, the majority of which
reside in outlying communities of Lexington, Kentucky and Cincinnati, Ohio.
Approximately 57.6% of our subscribers in the Kentucky cluster are offered at
least 54 channels, including 550 MHz design systems in Nicholasville, Kentucky
and Delhi, Ohio and 750 MHz design systems in Madison, Indiana and Winchester,
Kentucky.
Southeast Systems. The Southeast systems passed approximately 100,000 homes and
served approximately 61,700 basic subscribers and 20,400 premium units as of
December 31, 1998. The Southeast systems at December 31, 1998 were comprised of
groups of systems located in the following states:
o Tennessee, serving approximately 23,000 basic subscribers
o North Carolina, serving approximately 13,400 basic subscribers
o Virginia, serving approximately 17,300 basic subscribers, and
o Maryland/Pennsylvania, serving approximately 8,000 basic subscribers
The Tennessee systems are located primarily in Greeneville, Tennessee and
surrounding communities; the North Carolina systems are located near Rocky
Mount, North Carolina; and the Virginia systems are located in north central
Virginia between Charlottesville and Winchester and in Eastern Virginia, near
Richmond. The
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<PAGE>
Maryland/Pennsylvania systems are located along the Maryland and Pennsylvania
border, approximately 120 miles west of Washington, D.C. Approximately 32.1% of
the current plant design in the Southeast region is at least 54 channels.
Technological Developments
The following tables set forth certain information regarding the channel
capacities and miles of plant and the average number of subscribers per headend
for our cable systems as of December 31, 1998.
<TABLE>
----------------------------------------------------------------
<220 MHz: 221-399 MHz:400-549 MHz:550-750 MHz:
Up to 32 33 to 53 54 to 77 78 to 110
Channels Channels Channels Channels Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Miles of plant....................... 362 11,033 10,819 3,594 25,808
% miles of plant..................... 1.4% 42.8% 41.9% 13.9% 100.0%
% of basic subscribers............... 1.3% 33.1% 44.1% 21.5% 100.0%
----------------------------------------------------------------------
Number of Subscribers Per Headend
----------------------------------------------------------------------
1,001- 5,001- 10,001-
<1,000 5,000 10,000 20,000 >20,001 Total
--------------------------------------------------------------------------------------------------------
# of subscribers.............. 58,300 191,620 126,010 130,930 195,340 702,200
% of subscribers.............. 8.3% 27.3% 18.0% 18.6% 27.8% 100.0%
</TABLE>
Our cable systems have an average capacity of approximately 59 analog channels
and delivered an average of 50 analog channels of programming to our subscribers
as of December 31, 1998. Approximately 64% of our subscribers are served by
systems with more than 5,000 subscribers and approximately 46% are served by
systems serving more than 10,000 subscribers. We believe that our current excess
channel capacity and significant number of larger systems will allow us to cost
effectively introduce new service offerings.
Recently, digital cable television has become commercially viable with
technological cost reductions. We believe that this development will allow us to
increase services to our subscribers. As of December 31, 1998, we had
successfully launched digital cable television services in 12 of our systems and
were in the process of installing necessary headend equipment for launches in
additional systems. As of March 15, 1999, we had introduced digital cable
television to approximately one-third of our basic cable subscribers.
The Cable Television Industry
Our cable television systems receive television, radio and data signals that are
transmitted to the system's headend site by means of off-air antennas, microwave
relay systems and/or satellite earth stations. These signals are then modulated,
amplified and distributed, primarily through coaxial, and in some instances,
fiber optic cable, to customers who pay a fee for this service. In some cases,
we may also originate our own television programming and other information
services for distribution through the system. Our cable television systems
generally are constructed and operated pursuant to non-exclusive franchises or
similar licenses granted by local governmental authorities for a specified term
of years, generally for extended periods of up to 15 years.
The cable television industry developed in the United States in the late 1940's
and early 1950's in response to the needs of residents in predominantly rural
and mountainous areas of the country where the quality of off-air television
reception was inadequate due to factors such as topography and remoteness from
television broadcast towers. In the late 1960's, cable television systems also
developed in small and medium-sized cities and suburban areas that had a limited
availability of clear off-air television station signals. All of these markets
are regarded within the cable industry as "classic" cable television station
markets. In more recent years, cable television systems have been constructed in
large urban cities and nearby suburban areas, where good off-air reception from
multiple television stations usually is already available, in order to receive
the numerous, satellite-delivered channels carried by cable television systems
which are not otherwise available via broadcast television reception.
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<PAGE>
Our cable television systems offer customers various levels, commonly known as
"tiers," of cable services consisting of:
o off-air television signals of local network, independent and
educational stations;
o a limited number of television signals from so-called "superstations"
originating from distant cities (such as WGN-TV);
o various satellite-delivered, non-broadcast channels (such as Cable
News Network, MTV: Music Television, the USA Network, Entertainment
and Sports Programming Network and Turner Network Television);
o certain programming originated locally by the cable television system
(such as public, governmental and educational access programs); and
o informational displays featuring news, weather, stock market and
financial reports and public service announcements.
For an extra monthly charge, our cable television systems also offer premium
television services to their customers. These services (such as Home Box Office
(R), Showtime (R) and regional sports networks) are satellite-delivered channels
consisting principally of feature films, live sports events, concerts and other
special entertainment features, usually presented without commercial
interruption.
Customers generally pay an initial installation charge and fixed monthly fees
for basic and premium television services and for other services (such as the
rental of converters and remote control devices). Such monthly service fees
constitute our primary source of revenue. In addition to customer revenue from
these services, we also generate revenue from additional fees paid by customers
for pay-per-view programming of movies and special events and from the sale of
available advertising spots on advertiser-supported programming networks, such
as MTV: Music Television, the USA Network, and Entertainment and Sports
Programming Network. We also offer to our customers home shopping services,
which pay our systems a share of revenue from sales of products in the systems'
service areas.
Programming, Services and Rates
We have various contracts to obtain basic and premium programming for our
systems from program suppliers whose compensation is typically based on a fixed
fee per customer. Our programming contracts are generally for a fixed period of
time and are subject to negotiated renewal. Some program suppliers provide
volume discount pricing structures or offer marketing support to us. In
particular, we have negotiated programming agreements with premium service
suppliers that offer cost incentives to us under which premium service unit
prices decline as certain premium service growth thresholds are met. Our
successful marketing of multiple premium service packages emphasizing customer
value has enabled us to take advantage of such cost incentives.
We are a member of a programming consortium consisting of small to medium-sized
cable companies serving, in the aggregate, over eight 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 medium-sized operators. We
also have various retransmission consent arrangements with commercial broadcast
stations. Some of these consents require direct payment of nominal fees for
carriage. In some other instances no payment is required; however, we have
entered into agreements with certain stations to carry satellite-delivered cable
programming which is affiliated with the network carried by such stations.
Although services vary from system to system due to differences in channel
capacity, viewer interests and community demographics, the majority of our
systems offer a "basic service tier," consisting of local television channels
(network and independent stations) available over-the-air and local public,
governmental, home-shopping and leased access channels. The majority of our
systems offer, for a monthly fee, an expanded basic
-41-
<PAGE>
tier of "superstations" originating from distant cities (such as WGN-TV),
various satellite-delivered, non-broadcast channels (such as Cable News Network,
MTV: Music Television, the USA Network, Entertainment and Sports Programming
Network) and certain programming originated locally by the cable system (such as
public, governmental and educational access programs) providing information with
respect to news, time, weather and the stock market. In addition to these
services, our systems typically provide one or more premium services purchased
from independent suppliers and combined in different formats to appeal to the
various segments of the viewing audience, such as Home Box Office (R), Showtime
(R), Cinemax (R) The Movie Channel(TM), and Starz!. These services are
satellite-delivered channels consisting principally of feature films, original
programming, live sports events, concerts and other special entertainment
features, usually presented without commercial interruption. Such premium
programming services are offered by our systems both on an a la carte basis and
as part of premium service packages designed to enhance customer value and to
enable us systems to take advantage of programming agreements offering cost
incentives based on premium unit growth. Subscribers may subscribe for one or
more premium units.
Subscriber rates vary from market to market and in accordance with the type of
service selected. As of December 31, 1998, the combined average monthly service
rate in our cable systems was $26.15 for the basic and expanded basic service
tiers. Our subscriber service rates reflect reductions required in response to
federal rate regulation. A one-time installation fee, which may be waived in
whole or in part during certain promotional periods, is charged to new
subscribers. Management believes that the Company's rate practices are generally
consistent with the current practices in the industry. For additional
information on rate regulation of our services, see "Legislation and Regulation
- -- Rate Regulation."
Marketing, Customer Service and Community Relations
We market and promote cable television services with the objective of adding and
retaining customers and increasing subscriber revenue. We actively market basic
and premium program packages through a number of coordinated marketing
techniques, which include:
o direct consumer sales and subscriber audit programs;
o direct mail for basic and upgrade acquisition campaigns;
o monthly subscriber statement inserts;
o local newspaper and broadcast/radio advertising where population
densities are sufficient to provide a reasonable cost per sale; and
o cross-channel promotion of new services and pay-per-view.
We have a single centralized telemarketing center to provide the outbound
telemarketing support for all operating regions. Using a predictive dialing
system platform, the operation is focused on:
o basic and pay unit acquisition;
o delinquent account collection activities;
o customer satisfaction surveys; and
o targeted marketing campaigns.
We are dedicated to providing superior customer service. To meet this objective,
we provide our customers with a full line-up of programming, a wide variety of
programming options and packages, timely and reliable service and improved
technical quality. Our employees receive ongoing training in customer service,
sales and subscriber retention and technical support. In general, following a
new installation, a customer service representative will follow up by telephone
contact with the subscriber to assess the quality of installation and the
service the subscriber is receiving and to ensure overall subscriber
satisfaction. Customer service representatives and technicians are also trained
to market upgrades or cross-sell services at the point of sale of service. As
part of our consolidation efforts, we have established centralized customer
service facilities, increased hours of operation, and installed state-of-the-art
telephone, information and billing systems to
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<PAGE>
improve responsiveness to customer needs. In addition, we have retained local
payment and technical offices to maintain a local presence and visibility within
the communities we serve.
Recognizing that strong governmental, franchise and public relations are crucial
to our overall success, we maintain and improve the working relationships with
all governmental entities within the franchise areas. Regional management meets
regularly with local officials for the purposes of keeping them advised on our
activities within the communities, to receive information and feedback on our
standing with officials and customers alike and to ensure that we can maximize
our growth potential in areas where new housing development is occurring or
where significant technical plant improvement is underway. The regional
management is also responsible for franchise renewal negotiations as well as the
maintenance of Company visibility through involvement in various community and
civic organizations and charities. In addition, we have hired experienced
community relations personnel in its New England, Ohio and Kentucky clusters to
enhance local visibility and long-term relationships.
Franchises
Our cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. Our
franchises typically contain many conditions, such as:
o time limitations on commencement and completion of construction; and
o conditions of service, including number of channels, types of
programming and the provision of free service to schools and certain
other public institutions.
The provisions of local franchises are subject to regulation under state and
federal law, including the Communications Act of 1934, as amended, the Cable
Communications Policy Act of 1984, the Cable Television Consumer Protection and
Competition Act of 1992, and the Telecommunications Act of 1996, as well as the
rules, regulations and policies of the FCC and applicable state agencies. For
additional information on the federal and state regulation of our cable services
and operations, see " Legislation and Regulation."
As of December 31, 1998, we held 744 franchises. These franchises, most of which
are non-exclusive, provide for the payment of fees to the issuing authority.
Generally, such franchise fees are passed through directly to the customers.
Federal law prohibits franchising authorities from imposing franchise fees in
excess of 5% of gross revenue and also permits us to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
Approximately 94% of our basic subscribers are in service areas that require a
franchise. The table below groups the our franchises by date of expiration and
presents the approximate number and percentage of basic subscribers for each
group of franchises as of December 31, 1998.
<TABLE>
-----------------------------------------------------
Percentage of Percentage of
Number of Total Number of Franchised
Year of Franchise Expiration Franchises Franchises Subscribers Subscribers
-----------------------------------------------------
<S> <C> <C> <C> <C>
1997 through 2001................... 348 47% 288,400 44%
2002 and thereafter................. 396 53% 368,500 56%
-------- -------- --------- ----------
Total.............................. 744 100% 656,900 100%
</TABLE>
Federal law provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld. If a
franchise renewal is denied and the franchising authority acquires ownership of
our system or effects a transfer of our system to another person, we generally
are entitled to the "fair market value" for the system covered by such
franchise. In addition, federal law established comprehensive renewal procedures
which requires that our renewal application be assessed on its own merits and
not as part of a comparative process with competing applications.
-43-
<PAGE>
We believe that we generally have very good relationships with our franchising
communities. We have never had a franchise revoked or failed to have a franchise
renewed. In addition, all of our franchises eligible for renewal have been
renewed or extended at or prior to their stated expirations.
Competition
Our cable systems compete with a number of different sources of news,
information and entertainment, including:
o local television broadcast stations that provide free off-air
programming which can be received in many communities by using a
roof-top antenna and television set;
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises;
o satellite master antenna television systems, commonly known as SMATV
systems, which generally serve condominiums, apartment and office
complexes and private residential developments, but do not use or
cross public rights-of-way;
o multichannel, multipoint distribution service operators, commonly
known as MMDS or wireless cable operators, which use low-power
microwave frequencies to transmit video programming and other
information over-the-air to subscribers;
o other cable operators who build and operate cable systems in the same
communities that we serve, commonly known as overbuilders;
o interactive online computer services;
o newspapers, magazines and book stores;
o movie theaters;
o live concerts and sporting events; and
o home video products, including videotape cassette recorders.
Our cable systems will be competitive with other businesses providing similar
communications services if we provide, at a reasonable price to our subscribers,
superior technical performance, superior customer service and a greater variety
of video programming and other communications services than are available
off-air or through other alternative delivery sources.
Modifications to federal law in 1996 changed the regulatory environment in which
our cable systems operate. Federal law now allows local exchange carriers,
commonly known as LECs or local telephone companies, and other businesses to
provide directly to subscribers a wide variety of video services that are
competitive with our communications services. Some local telephone companies:
o provide video services within and outside their telephone service
areas through a variety of distribution methods, including broadband
cable networks and wireless transmission facilities; and
o have announced plans to construct and operate cable communications
systems in various states.
Local telephone companies and other businesses with significant financial
resources construct and operate communications facilities that provide access to
the Internet; such facilities also transmit and distribute to homes and
businesses interactive computer-based services, data and other non-video
services. Our cable systems may be at a competitive disadvantage if the delivery
of video and interactive online computer services by local telephone companies
becomes widespread because local telephone companies are not required in certain
circumstances to obtain local franchises to deliver these communications
services or to comply with the variety of obligations that are imposed upon our
cable systems under our franchises. We cannot predict the likelihood of success
of competing video or broadband service ventures by local telephone companies or
other well-financed businesses. Nor can we predict the impact of these
competitive ventures on our cable systems
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and other businesses. For more information about the federal and state laws and
regulations governing our businesses, see "Legislation and Regulation".
We operate our cable systems in the communities we serve generally pursuant to
non-exclusive franchises that are negotiated with and issued by a community's
governing body such as a city council, a county board of supervisors or a state
regulatory agency. Federal law prohibits local franchising authorities from
unreasonably denying requests for additional franchises, and it permits local
franchising authorities to operate cable systems. Companies that traditionally
have not provided cable services and that have substantial financial resources
(such as public utilities that own certain of the poles to which our cables are
attached) may also obtain cable franchises and may provide competing
communications services.
In the past few years Congress has enacted legislation and the FCC has adopted
regulatory policies intended to provide a more favorable operating environment
for existing and new technologies that provide, or have the potential to
provide, substantial competition to cable systems. These technologies include,
among others, direct broadcast satellite service, commonly known as DBS service,
whereby signals are transmitted by satellite directly to small receiving dishes
located on the customer's property. According to recent government and industry
reports, conventional, medium and high-power satellites currently provide video
programming to over 7.2 million individual households, condominiums, apartment
and office complexes in the United States. DBS providers typically offer to
their subscribers more than 150 channels of programming including:
o news channels;
o movies;
o broadcast stations;
o live concerts and sporting events; and
o other program services similar to those program services provided by
cable systems.
DBS systems use video compression technology to increase significantly the
channel capacity of their systems, and digital technology to improve
significantly the technical quality of the signals transmitted to subscribers.
DBS service currently has certain competitive advantages and disadvantages
compared to cable service. The advantages of DBS service include more
programming, greater channel capacity, and the digital quality of the signals
delivered to subscribers. The disadvantages of DBS service compared to cable
service include high up-front customer equipment and installation costs and a
lack of local programming and local service. The FCC and Congress are presently
considering proposals that will enhance the ability of DBS providers and other
video program distributors to gain access to additional programming and to
transmit local broadcast signals to local markets. These proposals, if adopted,
will likely increase competition to our cable systems.
Two major companies, DirecTV and EchoStar Communications Corporation, are
currently offering nationwide high-power DBS services. Additionally, Primestar,
Inc. currently offers video programming to subscribers from a medium-power DBS
satellite system. DirecTV and Primestar recently reported that DirecTV and its
parent company are acquiring Primestar's medium-power DBS business and the
high-power DBS business of Tempo, a subsidiary of Primestar. EchoStar recently
announced that it is acquiring a high-power DBS license from MCI
Telecommunications Corporation and two satellites currently under construction
from News Corp. Various agencies of the federal government must still approve
these transactions; however, if they are completed, DirecTV and EchoStar will
significantly enhance the number of channels on which they can provide
programming to subscribers and may improve significantly their competitive
positions against cable operators. We are unable predict the impact these
transactions may have on our business and operations.
Our cable systems also compete for subscribers with satellite master antenna
systems, commonly known as SMATV or satellite TV systems. Satellite TV systems
serve condominiums, apartment and office complexes and private residential
developments and, because they do not use public rights-of-way, they typically
are not subject to regulation like local franchised cable operators. Satellite
TV systems offer subscribers both improved reception of local television
stations and many of the same satellite-delivered programming services offered
by franchised cable systems. In addition, some satellite TV operators are
developing and/or offering packages of telephony, data and video services to
private residential and commercial developments. Satellite TV operators often
enter into exclusive service agreements with building owners or homeowners'
associations, although some states have enacted laws to provide franchised cable
systems access to these private complexes.
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Courts have reviewed challenges to these laws and have reached varying results.
Our ability to compete for subscribers in residential and commercial
developments served by satellite TV operators is uncertain. However, we are
developing competitive packages of services (video and data) to offer to these
residential and commercial developments.
Cable systems also compete with wireless program distribution services such as
multichannel, multipoint distribution services, commonly known as MMDS or
wireless cable systems, which use low-power microwave frequencies to transmit
video programming and other information over-the-air to subscribers. The FCC,
which licenses wireless cable systems, has authorized wireless cable systems to
operate in areas served by our cable systems. Individual households also receive
many of the satellite-delivered program services formerly available only to
cable subscribers through the use of reasonably priced home satellite dishes.
Federal law enhances the ability of cable competitors to purchase certain
satellite-delivered cable programming at competitive costs. Federal law also
significantly limits certain local restrictions on the use of roof-top,
satellite and microwave antennae to receive satellite programming and
over-the-air broadcasting services. We are unable to predict whether wireless
video services, satellite TV operations or home satellite dish use will have a
material impact on our business and operations.
Some of our cable systems are currently offering or plan to offer interactive
online computer services to subscribers. These cable systems will compete with a
number of other companies, many of whom have substantial resources, such as:
o existing Internet service providers, commonly known as ISPs;
o local telephone companies; and
o long distance telephone companies.
Recently a number of companies, including local telephone companies and ISPs,
have requested local authorities and the FCC to require cable operators to
provide open access to cable operators' broadband infrastructure so that these
companies may deliver Internet and other communications services directly to
customers over the operators' broadband facilities. In a recent report to
Congress, the FCC declined to institute an administrative proceeding to examine
this issue because, in part, it believes that multiple methods of increasing
bandwidth are or soon will be made available to a broad range ISPs and the
public. At the present time, several local jurisdictions are attempting to
impose open access obligations on other cable operators as a condition for
obtaining municipal consent for franchise transfers; however, such conditions
are currently being challenged in court. Although the FCC currently is
refraining from imposing conditions on the availability of cable operators'
broadband facilities to other competing companies, the FCC, Congress, and state
and local regulatory authorities will continue to monitor and consider further
actions in this area.
The deployment by certain local telephone companies of Asymmetric Digital
Subscriber Line technology, known as ADSL, will allow Internet access to
subscribers at data transmission speeds equal to or greater than that of modems
over conventional telephone lines. A number of large companies in the
telecommunications and technology industries, including the Regional Bell
Operating Companies, GTE Corporation, Microsoft, Compaq Computer Corporation and
Intel Corporation, have formed a working group to accelerate the deployment of
ADSL service. Several telephone companies have initiated ADSL service and have
requested the FCC to fully deregulate packet-switched networks to allow them to
provide high-speed broadband services, including interactive online services,
without regard to present service boundaries and other regulatory restrictions.
We are unable to predict the likelihood of success of the online services
offered by our competitors or the impact on our business and operations of these
competitive ventures.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, to occur in the
future. For a detailed discussion of the legislative and regulatory factors
effecting our business and operations, see "Legislation and Regulation". Other
new technologies and services may develop in the future and may compete with
services that our cable systems offer. Consequently, we are unable to predict
the effect that ongoing or future developments might have on the cable industry
or on our business and operations.
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Employees
At December 31, 1998, we had approximately 1,206 equivalent full-time employees,
fourteen of whom belonged to a collective bargaining unit. We consider our
relations with our employees to be good.
Properties
Our principal physical assets consist of cable television operating plant and
equipment, including signal receiving, encoding and decoding devices, headends
and distribution systems and customer house drop equipment for each of its cable
television systems. The signal receiving apparatus typically includes a tower,
antenna, ancillary electronic equipment and earth stations for reception of
satellite signals. Headends, consisting of associated electronic equipment
necessary for the reception, amplification and modulation of signals, are
located near the receiving devices. Our distribution system consists primarily
of coaxial and fiber optic cables and related electronic equipment. Customer
devices consist of decoding converters, which expand channel capacity to permit
reception of more than twelve channels of programming. Some of our systems
utilize converters that can be addressed by sending coded signals from the
headend over the cable network. See "Business--Technological Developments."
We own or lease parcels of real property for signal reception sites (antenna
towers and headends), microwave facilities and business offices. We own most of
our service vehicles. We believe that our properties, both owned and leased, are
in good condition and are suitable and adequate for our business operations.
Our cables generally are attached to utility poles under pole rental agreements
with local public utilities, although in some areas the distribution cable is
buried in underground ducts or trenches. The physical components of the our
systems require maintenance and periodic upgrading to keep pace with
technological advances.
Legal Proceedings
There are no material pending legal proceedings to which we are a party or to
which any of our properties are subject.
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Legislation and Regulation
A federal law known as the Communications Act of 1934, as amended, establishes a
national policy to guide the regulation, development and operation of cable
communications systems. In 1996, a comprehensive amendment to the Communications
Act became effective and is expected to promote competition and decrease
governmental regulation of various communications industries, including the
cable television industry. However, until the desired competition develops,
various federal, state and local governmental units will have broad regulatory
authority and responsibilities over telecommunications and cable television
matters. The courts, especially the federal courts, will continue to play an
important oversight role as the statutory and regulatory provisions are
interpreted and enforced by the various federal, state and local governmental
units.
The Communications Act allocates principal responsibility for enforcing the
federal policies between the FCC, state and local governmental authorities. The
FCC and state regulatory agencies regularly conduct administrative proceedings
to adopt or amend regulations implementing the statutory mandate of the
Communications Act. At various times interested parties to these administrative
proceedings challenge the new or amended regulations and policies in the courts
with varying levels of success. We expect that further court actions and
regulatory proceedings will occur and will refine the rights and obligations of
various parties, including the government, under the Communications Act. The
results of these judicial and administrative proceedings may materially affect
the cable industry and our business and operations. In the following paragraphs,
we summarize the federal laws and regulations materially affecting the growth
and operation of the cable industry. We also provide a brief description of
certain state and local laws.
THE COMMUNICATIONS ACT AND FCC REGULATIONS
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates;
o the content of the programming we offer to subscribers, as well as the
way we sell our program packages to subscribers;
o the use of our cable systems by the local franchising authorities, the
public and other unrelated companies;
o our franchise agreements with local governmental authorities;
o cable system ownership limitations and prohibitions; and
o our use of utility poles and conduit.
Rate Regulation
The Communications Act and the FCC's regulations and policies limit the ability
of cable systems to raise rates for basic services and equipment, as well as for
certain non-basic cable programming services. Federal law prohibits rate
regulation of cable services and customer equipment only in communities that are
subject to "effective competition," as defined by federal law. Federal law also
prohibits the regulation of cable operators' rates where comparable video
programming services, other than DBS, are offered by local telephone companies,
or their affiliates, or by third parties using the local telephone company's
facilities.
Where there is no effective competition to the cable operator's services,
federal law gives local franchising authorities the responsibility to regulate
the rates charged by the operator for:
o the lowest level of programming service offered by the cable operator,
typically called basic service, which includes the local broadcast
channels and any public access or governmental channels that are
required by the operator's franchise; and
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o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
Local franchising authorities who wish to regulate basic service rates and
related equipment rates must first obtain FCC certification to regulate by
following a simplified FCC certification process and agreeing to follow
established FCC rules and policies when regulating the operator's rates.
Several years ago, the FCC adopted detailed rate regulations, guidelines and
rate forms that we and the local franchising authority must use in connection
with the regulation of our basic service and equipment rates. The FCC adopted a
benchmark methodology as the principal method of regulating rates. However, if
this methodology produces unacceptable rates, we may also justify our rates
using a detailed and complicated cost-of-service methodology. The FCC's rules
also require franchising authorities to regulate equipment rates on the basis of
our actual cost plus a reasonable profit, as defined by the FCC.
If the local franchising authority concludes that our rates are too high under
the FCC's rate rules, the local franchising authority may require us to reduce
our rates and to refund overcharges to subscribers with interest. We may appeal
adverse local rate decisions to the FCC. Approximately 125 of the communities
served by our cable systems, representing approximately 12% of the communities
we serve, currently regulate our basic service and equipment rates. The
Communications Act and the FCC's regulations also permit franchising authorities
to file complaints with the FCC concerning rates we charge for certain non-basic
cable programming services tiers. Only one of the communities we serve,
representing approximately 1% of our subscribers, has a complaint pending with
the FCC challenging the rates we charge for the non-basic cable programming
service tier.
The FCC also adopted several years ago comprehensive and restrictive regulations
that allow us to modify our regulated rates on a quarterly or annual basis using
various methodologies that account for changes in:
o the number of regulated channels;
o inflation; and
o certain external costs, such as franchise and other governmental fees,
copyright and retransmission consent fees, taxes, programming fees and
franchise-related obligations.
The Communications Act prohibits regulation of certain non-basic rates, and in
some cases basic rates, of qualified small cable operators, as defined by
federal law. For certain other small cable operators who continue to be subject
to rate regulation, the FCC has adopted regulations designed to reduce the
substantive and procedural burdens of rate regulation on qualified small cable
systems, as defined by federal law. The regulatory benefits accruing to
qualified small cable systems under certain circumstances remain effective even
if such systems are subsequently acquired by a larger cable operator. Many of
our cable systems currently satisfy the FCC's small system eligibility criteria
and are eligible to use the FCC's simplified rate methodology and procedures to
justify cable service and equipment rates.
The Communications Act and the FCC's regulations also:
o prohibit the regulation of the rates charged by cable operators for
programming offered on a per channel or per program basis, and for
certain multi-channel groups of new non-basic programming;
o eliminate the regulation of non-basic cable programming service tiers
after March 31, 1999, although Congress may consider legislation to
extend the period during which non-basic rates remain subject to
regulation;
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition;
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments;
and
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o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
o to elect once every three years to require a cable system to carry the
station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station on our
cable system, commonly called "retransmission consent."
The Communications Act requires a cable operator to devote up to one-third of
its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations 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 must obtain retransmission
consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN);
o commercial radio stations; and
o certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for mandatory carriage of digital television signals
offered by local television broadcasters. We are unable to predict the ultimate
outcome of this proceeding or the impact of new carriage requirements on the
operation of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming we offer on a per channel or a per program basis
without the necessity of subscribing to any tier of service, other than the
basic cable service tier. However, we are not required to comply with this
requirement until December 2002 for any of our cable systems that do not have
addressable converter boxes or that have other substantial technological
limitations. Many of our cable systems do not have the technological capability
to offer programming in the manner required by the statute and thus currently
are exempt from complying with the requirement. We anticipate having significant
capital expenditures over the next two to three years in order for us to meet
this requirement. We are unable to predict whether the full implementation of
this statutory provision in December 2002 will have a material impact on the
operation of our cable systems.
To increase competition between cable operators and other video program
distributors, the Communications Act and the FCC's regulations:
o preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors;
o require such programmers to sell their programming to other video
program distributors; and
o limit the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
The Communications Act and FCC regulations contain restrictions on the
transmission by cable operators of obscene or indecent programming. It requires
cable operators to block fully both the video and audio portion of sexually
explicit or indecent programming on channels that are primarily dedicated to
sexually oriented programming or alternatively to carry such programming only at
"safe harbor" time periods currently defined by the FCC as the hours between 10
p.m. to 6 a.m. A three-judge federal district recently determined that this
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provision was unconstitutional; however, the federal government announced that
it will appeal the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports broadcast
programming;
o advertising in children's programming;
o political advertising;
o origination cablecasting;
o sponsorship identification; and
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows local franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity for their own use.
For example, it:
o permits franchising authorities to require cable operators to set
aside certain channels for public, educational and governmental access
programming; and
o requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including:
o the maximum reasonable rate a cable operator may charge for third
party commercial use of the designated channel capacity;
o the terms and conditions for commercial use of such channels; and
o the procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity.
The FCC is also considering proposals by various companies, including Internet
service providers, to gain access to our cable systems on a common carrier
basis. We cannot predict if these or other similar proposals will be adopted,
or, if adopted, whether they will have an adverse impact on our business and
operations.
Franchise Matters
We have franchises that authorize us to construct, operate and maintain our
cable systems in approximately 744 communities. Although franchising matters are
normally regulated at the local level through a franchise agreement and/or a
local ordinance, the Communications Act provides oversight and guidelines to
govern our relationship with local franchising authorities. For example, the
Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions;
o generally prohibits us from operating in communities without a
franchise;
o encourages competition with existing cable systems by:
o allowing municipalitie to operate their own cable
systems without franchises; and
o preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to
award additional franchises covering an existing
cable system's service area.
o permits local authorities, when granting or renewing our franchises,
to establish requirements for cable-related facilities and equipment,
but prohibits franchising authorities from
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establishing requirements for specific video programming or
information services other than in broad categories;
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances;
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable
franchising process or during franchise renewal that
require, prohibit or restrict us from providing
telecommunications services,
o imposing franchise fees on revenues we derived from
providing telecommunications services over our cable
systems, or
o restricting our use of any type of subscriber
equipment or transmission technology.
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
Franchise fees may be passed on to subscribers and separately itemized on
subscribers' bills. In 1997, a federal appellate court overturned an FCC order
that had concluded a cable operator's gross revenue did not include money
collected from subscribers that is allocated by the operator to pay local
franchise fees. Instead, the court concluded that a cable operator's gross
revenue includes all revenue received from subscribers, without deduction. The
FCC subsequently determined that cable operators may "pass through" on
subscribers' monthly bills any additional payments of franchise fees that
franchising authorities require cable operators to make for past periods when
they had relied upon the FCC's earlier decision. Various municipal groups have
requested the FCC to reconsider its decision. We are unable to predict the
ultimate resolution of this matter, but we do not expect that any additional
franchise fees we may be required to pay to our franchising authorities will be
material to our business and operations.
The Communications Act contains renewal procedures designed to protect us
against arbitrary denials of renewal of our franchises, although under certain
circumstances the franchising authority could deny us a franchise renewal.
Moreover, even if our franchise is renewed, the franchising authority may seek
to impose upon us 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 franchising authority's consent is required for the
purchase or sale of our cable system or franchise, the franchising authority may
attempt to impose more burdensome or onerous franchise requirements on us in
connection with a request for such consent. Historically, cable operators
providing satisfactory services to their subscribers and complying with the
terms of their franchises have typically obtained franchise renewals. We believe
that we have generally met the terms of our franchises and have provided quality
levels of service. We anticipates that our future franchise renewal prospects
generally will be favorable.
Various courts have considered whether franchising authorities have the legal
right to limit the number of franchises awarded within a community and to impose
certain substantive franchise requirements (e.g. access channels, universal
service and other technical requirements). These decisions have been
inconsistent and, until the U.S. Supreme Court rules definitively on the scope
of cable operators' First Amendment protections, the legality of the franchising
process generally and of various specific franchise requirements is likely to be
in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
satellite TV or wireless cable system in any area where we provide franchised
cable service and do not have effective competition, as defined by federal law.
We may, however, acquire and operate satellite TV systems in our existing
franchise service areas if the programming and other services provided to the
satellite TV subscribers are offered according to the terms and conditions of
our local franchise agreement.
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The Communications Act also authorizes the FCC to adopt nationwide limits on the
number of subscribers under the control of a cable operator. A federal district
court has concluded that this subscriber limitation is unconstitutional and has
delayed its enforcement; an appeal of this decision is pending in a federal
appellate court. Pending further action by the federal courts, the FCC recently
reconsidered it cable ownership regulations and:
o reaffirmed its 30% nationwide subscriber ownership limit, but
maintained its voluntary stay on enforcement of that limitation
pending further action;
o reaffirmed its subscriber ownership information reporting rules that
require any person holding an attributable interest (as defined by FCC
rules) in cable systems reaching 20% or more of homes passed by cable
plant nationwide to notify the FCC of any incremental change in that
person's cable ownership interests; and
o opened an administrative proceeding to reevaluate its cable television
ownership attribution rules.
The Communications Act and FCC regulations also impose limits on the number of
channels that can be occupied on a cable system by a video programmer in which a
cable operator has an attributable interest. This statutory provision has also
been declared unconstitutional by a federal district court. An appeal of the
district court's decision has been consolidated with appeals challenging the
FCC's regulatory cable ownership restrictions. Both appeals are pending.
In 1996 amendments to the Communications Act eliminated the statutory
prohibition on the common ownership, operation or control of a cable system and
a television broadcast station in the same service area. Although the FCC has
eliminated its regulatory restriction on cross-ownership of cable systems and
national broadcasting networks, it has not yet completed its review of other
regulations that prohibit common ownership of other broadcast interests and
cable systems in the same geographical area.
The 1996 amendments to the Communications Act also made far-reaching changes in
the relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas;
o preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
o set basic standards for relationships between telecommunications
providers; and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable operators
with local franchises or they may opt to provide their programming over
unfranchised "open video systems," subject to certain conditions, including, but
not limited to, setting aside a portion of their channel capacity for use by
unaffiliated program distributors on a non-discriminatory basis. A federal
appellate court recently overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. We expect the FCC to modify its open video rules to comply with the
federal court's decision, but we are unable to predict the impact any rule
modifications may have on our business and operations.
Pole Attachment Regulation
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 have demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's current rate formula, which is
being reevaluated by the FCC, governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
only cable services and, until
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2001, by certain companies providing telecommunications services. The FCC also
adopted a second rate formula that will be effective in 2001 and will govern the
maximum rate certain utilities may charge for attachments to their poles and
conduit by companies providing telecommunications services, including cable
operators.
Any resulting increase in attachment rates due to the FCC's new rate formula
will be phased in over a five-year period in equal annual increments, beginning
in February 2001. Several parties have requested the FCC to reconsider its new
regulations and several parties have challenged the new rules in court. A
federal district court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility; the utilities involved in that
litigation have appealed the lower court's decision. We are unable to predict
the outcome of this litigation or the ultimate impact of any revised FCC rate
formula or of any new pole attachment rate regulations on our business and
operations.
Other Regulatory Requirements of the Communications Act and The FCC
The Communications Act also includes provisions, among others, regulating:
o customer service;
o subscriber privacy;
o marketing practices;
o equal employment opportunity; and
o regulation of technical standards and equipment compatibility.
The FCC has adopted cable inside wiring rules to provide a more specific
procedure for the disposition of residential home wiring and internal building
wiring that belongs to an incumbent cable operator that is forced by the
building owner to terminate its cable services in a building with multiple
dwelling units. The FCC is also considering additional rules relating to inside
wiring that, if adopted, may disadvantage incumbent cable operators.
The FCC actively regulates other parts of our cable operations, involving such
areas as:
o hiring and promotion of employees and use of outside vendors;
o consumer protection and customer service;
o technical standards and testing of cable facilities;
o consumer electronics equipment compatibility;
o registration of cable systems;
o maintenance of various records and public inspection files;
o microwave frequency usage; and
o antenna structure notification, marking and lighting.
The FCC may 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 FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications have
previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that further attempts will be
made by Congress and other governmental bodies relating to the regulation of
cable communications services.
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<PAGE>
COPYRIGHT
Our cable systems typically include in their channel line-ups local and distant
television and radio broadcast signals which are protected by the copyright
laws. We generally do not obtain a license to use this programming directly from
the owners of the programming, but instead comply with an alternative federal
compulsory copyright licensing process. In exchange for filing certain reports
and contributing a percentage of our revenues to a federal copyright royalty
pool, we obtain blanket permission to retransmit the copyrighted material
carried on these broadcast signals. The nature and amount of future copyright
payments for broadcast signal carriage cannot be predicted at this time.
In a report to Congress, the U.S. Copyright Office recommended that Congress
make major revisions to both the cable television and satellite compulsory
licenses. 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 our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We cannot predict the outcome of this
legislative activity.
Our cable systems also utilize music in certain programming and advertising that
we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations which negotiate on behalf of their
copyright owners for license fees covering each performance. The cable industry
and one of the major music performing rights organizations have negotiated a
standard licensing agreement covering the performance of music contained in
advertising and other information inserted by operators into cable programming
and on certain local access and origination channels carried on cable systems.
Negotiations on a similar standard licensing agreement are occurring between the
cable industry and another major music performing rights organization covering
the use of music in local origination and access channels and pay-per-view
programming. Rate courts established by a New York federal court exist to
determine appropriate copyright coverage and royalty fees in the event the
parties fail to reach a settlement or to negotiate renewals of licensing
agreements. Although we cannot predict the ultimate outcome of these industry
negotiations or the amount of any license fees we may be required to pay for
past and future use of music, we do not believe such license fees will be
significant to our financial position, results of operations or liquidity.
STATE AND LOCAL REGULATION
Our cable systems use local streets and rights-of-way. Consequently, we must
comply with state and local regulation which is typically imposed through the
franchising process. Our cable systems generally are operated pursuant to
non-exclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Our franchises generally are granted for fixed
terms and in many cases are terminable if we fail to comply with material
provisions. The terms and conditions of our franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing:
o cable service rates;
o franchise fees;
o franchise term;
o system construction and maintenance obligations;
o system channel capacity;
o design and technical performance;
o customer service standards;
o franchise renewal;
o sale or transfer of the franchise;
o territory of the franchisee;
o indemnification of the franchising authority;
o use and occupancy of public streets; and
o types of cable services provided.
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<PAGE>
A number of states subject cable 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
systems are continuing and can be expected to increase. To date, those states in
which we operate that have enacted such state level regulation are Vermont and
Massachusetts. State and local franchising jurisdiction is not unlimited,
however; it must be exercised consistently with federal law. The Communications
Act immunizes franchising authorities from monetary damage awards arising from
regulation of cable systems or decisions made on franchise grants, renewals,
transfers and amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not 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 proposals which could change, in varying
degrees, the manner in which cable systems operate. Neither the outcome of these
proceedings nor their impact upon the cable industry or our cable operations can
be predicted at this time.
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<PAGE>
Management
Directors and Executive Officers of FrontierVision Inc.
Holdings' sole general partner is FrontierVision Partners. FVP's sole general
partner is FVP GP, L.P. FVP GP's sole general partner is FrontierVision Inc.
Information with respect to the directors and executive officers of
FrontierVision Inc. and FrontierVision Holdings Capital Corporation,
respectively, is set forth below:
FrontierVision Inc.
Name Age Position
- ---- --- --------
James C. Vaughn 53 President, Chief Executive Officer and Director
John S. Koo 37 Executive Vice President, Chief Financial
Officer, Secretary and Director
William J. Mahon Jr. 58 Senior Vice President - Operations
David M. Heyrend 48 Vice President of Engineering
Albert D. Fosbenner 44 Vice President - Treasurer
William P. Brovsky 42 Vice President of Marketing and Sales
James W. McHose 35 Vice President - Finance
Richard G. Halle 35 Vice President of New Business Development
FrontierVision Holdings Capital II Corporation
Name Age Position
- ---- --- --------
James C. Vaughn 53 President, Chief Executive Officer and Director
John S. Koo 37 Executive Vice President, Chief Financial
Officer, Secretary and Director
Albert D. Fosbenner 44 Vice President - Treasurer
James C. Vaughn, President, Chief Executive Officer and a Director of
FrontierVision Inc. and Holdings Capital II and a founder of FrontierVision, is
a cable television system operator and manager with over 30 years of experience
in the cable television industry. From 1987 to 1995, he served as Senior Vice
President of Operations for Triax Communications Corp., a top 40 multiple system
operator, where he was responsible for managing all aspects of small and
medium-sized cable television systems. These systems grew from serving 57,000
subscribers to over 376,000 subscribers during Mr. Vaughn's tenure. Prior to
joining Triax Communications, Mr. Vaughn served as Director of Operations for
Tele-Communications, Inc. from 1986 to 1987, with responsibility for managing
the development of Chicago-area cable television systems. From 1985 to 1986, Mr.
Vaughn was Division Manager for Harte-Hanks Communications. From 1983 to 1985,
Mr. Vaughn served as Vice President of Operations for Bycom, Inc. From 1979 to
1983, Mr. Vaughn served as Director of Engineering for the Development Division
of Cox Cable Communications Corp. From 1970 to 1979, Mr. Vaughn served as Senior
Staff Engineer for Viacom, Inc.'s cable division, and a Director of Engineering
for Showtime, a division of Viacom International, Inc.
John S. Koo, Executive Vice President, Chief Financial Officer, Secretary and a
Director of FrontierVision Inc. and Holdings Capital II and a founder of
FrontierVision, has over eleven years of banking experience in the
telecommunications industry. From 1990 to 1995, Mr. Koo served as a Vice
President at Canadian Imperial Bank of Commerce, where he co-founded its
Mezzanine Finance Group, targeted at emerging media and telecommunications
businesses. From 1986 to 1990, Mr. Koo was a Vice President at Bank of New
England specializing in media finance. From 1984 to 1986, he was a management
consultant to the financial services industry.
William J. Mahon, Jr., Senior Vice President - Operations of FrontierVision Inc.
since December 1995, has over fifteen years of cable television operations
management experience. Prior to joining the Company, Mr. Mahon served as Vice
President of Operations for United Video Cablevision, a top 50 MSO, from 1990 to
1995, where he was responsible for the day-to-day operations of approximately
130 cable systems located in twelve states. From 1983 to 1989, Mr. Mahon served
as President and General Manager of Heritage Cable
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<PAGE>
Vision, a 90,000 subscriber MSO. Mr. Mahon is a member of the Society of Cable
Engineers and serves on the Board of Directors of the New England Cable
Television Association.
David M. Heyrend, Vice President of Engineering of FrontierVision Inc., has 24
years of cable television engineering management and operations experience.
Prior to joining FrontierVision in 1996, Mr. Heyrend served from 1988 to 1995 as
Director of Engineering for United Video Cablevision, where he developed
technical standards, employee development programs and oversaw plant
construction projects. From 1985 to 1988, as Director of Programs for
Tele-Engineering Corporation, he developed and managed broadband local area
network projects for clients such as Allen Bradley, Ford Motor Company and TRW.
Mr. Heyrend also worked for several years with Daniels & Associates in system
technical operations and engineering management.
Albert D. Fosbenner, Vice President - Treasurer of FrontierVision Inc. and
Holdings Capital II, has fourteen years of domestic, international and new
business cable television experience and is responsible for FrontierVision's
accounting, reporting, treasury and information technology activities. Prior to
joining FrontierVision in early 1998 Mr. Fosbenner served as the Chief Financial
Officer of a Denver-based interactive television network startup company from
1994 to 1997, where he was responsible for all finance, treasury, accounting and
administrative functions. From 1991 to 1994 Mr. Fosbenner served (in Norway) as
the CFO of Norkabel A/S, a Norwegian cable television multiple system operator
(owned by United International Holdings, Inc.) serving 142,000 subscribers.
While at Norkabel Mr. Fosbenner was responsible for finance, accounting,
treasury, investor relations and management information systems. From 1985 to
1991 Mr. Fosbenner worked for both United Cable Television and United Artists
Entertainment in a number of financial and operations management positions,
including Director of Finance & Administration and Division Business Manager.
Mr. Fosbenner is a Certified Public Accountant and a Certified Management
Accountant.
William P. Brovsky, Vice President of Marketing and Sales of FrontierVision
Inc., has fifteen years of cable television experience and is responsible for
programming and contract negotiations in addition to overseeing the sales and
marketing activities of FrontierVision's operating divisions. Before joining
FrontierVision in 1996, Mr. Brovsky managed day-to-day sales and marketing
operations from 1989 to 1996 for Time Warner Cable of Cincinnati, serving almost
200,000 subscribers. He also served as Project Manager, supervising all aspects
of system upgrades to fiber optics. From 1982 to 1989, Mr. Brovsky served as
General Sales Manager for American Television and Communications, where he was
responsible for sales, marketing and telemarketing operations for Denver and its
suburban markets.
James W. McHose, Vice President - Finance of FrontierVision Inc., has over ten
years of accounting and tax experience, including six years providing tax,
accounting and consulting services to companies engaged in the cable television
industry. Through early 1998, Mr. McHose served FrontierVision as the Vice
President - Treasurer. Prior to joining FrontierVision in 1996, Mr. McHose was a
Senior Manager in the Information, Communications, and Entertainment practice of
KPMG Peat Marwick, LLP, where he specialized in taxation of companies in the
cable television industry. In this capacity, Mr. McHose served multiple system
operators with over 14 million subscribers in the aggregate. Mr. McHose is a
member of the Cable Television Tax Professional's Institute and is a Certified
Public Accountant.
Richard G. Halle', Vice President of New Business Development of FrontierVision
Inc. since February 1997, is responsible for the evaluation and development of
new businesses including cable modems and Internet access, digital programming
delivery, distance learning and alternative telephone access. Prior to joining
FrontierVision, from 1995 to 1996 Mr. Halle served as the Vice President of
Operations and then as the Vice President of Development at Fanch
Communications, a top 20 multiple system operator, where he was initially
responsible for the management of an operating region of 100,000 subscribers and
subsequently responsible for the planning and deployment of all advanced
services including digital television, dial-up Internet access and high speed
cable modems. Prior to that, he spent nine years in the banking industry,
specializing in media and telecommunications finance.
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<PAGE>
Advisory Committee
The partnership agreement of FVP provides for the establishment of an Advisory
Committee to consult with and advise FVP GP, with respect to FVP's business and
overall strategy. The Advisory Committee has broad authority to review and
approve or disapprove matters relating to all material aspects of FVP's
business. The approval of seventy-five percent (75%) of the members of the
Advisory Committee that are entitled to vote on the matter is required in order
for FrontierVision to effect any cable television system acquisition.
The Advisory Committee consists of four representatives of the Attributable
Class A Limited Partners of FVP and one representative of FVP GP. Subject to
certain conditions, each of the four Attributable Class A Limited Partners
listed in "Principal Security Holders" is entitled to designate (directly or
indirectly) one of the four Attributable Class A Limited Partner representatives
on the Advisory Committee. The designees of J.P. Morgan Investment Corporation,
1818 II Cable Corp. (whose designee is selected by two affiliated individuals
specified in the FVP partnership agreement), Olympus Cable Corp. and First Union
Capital Partners Inc. are John W. Watkins, Richard H. Witmer, Jr., James A.
Conroy and L. Watts Hamrick, III, respectively. FVP GP's designee is Mr. Vaughn.
Executive Compensation
The following table summarizes the compensation paid to FrontierVision Inc.'s
Chief Executive Officer and to each of the four remaining most highly
compensated officers receiving compensation in excess of $100,000 for services
rendered during the fiscal years ended December 31, 1998, 1997 and 1996.
Summary Compensation Table
<TABLE>
----------------------------------------------------
Annual Compensation All Other
-------------------
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------- -------- --------- -------- ----------------
<S> <C> <C> <C> <C>
James C. Vaughn 1998 $ 361,158 $ - $ 12,877
President and Chief Executive Officer 1997 305,030 90,000 11,465
1996 283,986 120,000 7,882
John S. Koo 1998 196,250 - 6,349
Executive Vice President, Chief Financial Officer and Secretary 1997 179,745 150,000 5,241
1996 170,192 111,618 4,760
William J. Mahon, Jr. 1998 123,600 - 2,451
Senior Vice President - Operations 1997 121,175 25,000 3,761
1996 13,900 53,350 -
David M. Heyrend 1998 114,586 - 2,245
Vice President of Engineering 1997 110,000 22,000 3,597
1996 45,034 5,000 1,351
Richard G. Halle' 1998 112,665 - 3,447
Vice President of New Business Development 1997 91,109 40,000 2,733
1996 - - -
</TABLE>
________________
(1) Consists of contributions to the 401(k) Plan and to a key man life insurance
plan.
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<PAGE>
Deferred Compensation Plan
FVP established the FrontierVision Partners, L.P. Executive Deferred
Compensation Plan effective January 1, 1996 to allow key employees the
opportunity to defer the payment of compensation to a later date and to
participate in any appreciation of FrontierVision's business. The deferred
compensation plan is administered by FVP's Advisory Committee. Participation in
the deferred compensation plan is limited to James C. Vaughn, John S. Koo and
other key executives of FVP or its affiliates approved by the compensation
committee of the Advisory Committee.
Under the deferred compensation plan, eligible participants may elect to defer
the payment of a portion of their compensation each year up to an amount
determined by the compensation committee. Any amount deferred is credited to a
bookkeeping account, which is credited with interest at the rate of 12% per
annum. Each participant's account also has a phantom equity component through
which the account will be credited with earnings in excess of 12% per annum to
the extent the net equity value of FVP appreciates in excess of 12% per annum
during the term of the deferral. Net equity value of FVP is determined by
multiplying each cable television system's EBITDA for the most recent fiscal
quarter by the weighted average multiple of EBITDA paid by FVP to acquire each
cable television system; provided that if substantially all of the assets or
partnership interests of FVP are sold, net equity value shall be based upon such
actual sale price adjusted to reflect any prior distributions to the partners
and any payments during the term of the deferral to the holders of certain
subordinated notes issued to the limited partners of FVP.
Accounts shall be paid following (1) the sale of all of FVP's partnership
interests or upon liquidation of FVP, other than sales or liquidations which are
part of a reorganization, or (2) the death or disability of the participant
prior to termination of employment with FVP. The compensation committee may
agree to pay the account in the event the participant incurs a severe financial
hardship or if the participant agrees to an earlier payment. There are 20
employees currently participating in the Deferred Compensation Plan, including
Messrs. Vaughn and Koo.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Advisory Committee, consisting of Messrs.
Watkins and Witmer, as representative of J.P. Morgan Investment Corporation and
1818 II Cable Corp., respectively, sets the compensation of the executive
officers of FrontierVision. See "Certain Relationships and Related
Transactions."
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<PAGE>
Certain Relationships and Related Transactions
The sole general partner (owning 99.9% of the partnership interests therein) of
FrontierVision Operating Partners, L.P. is Holdings. Holdings' sole general
partner (owning 99.9% of the partnership interests therein) is FVP. Holdings'
sole limited partner (owning 0.1% of the partnership interests therein) is
FrontierVision Holdings, LLC, which is a wholly owned subsidiary of FVP. FVP's
sole general partner (owning 1% of the partnership interests therein) is FVP GP.
FVP's limited partners (owning 99% of the partnership interests therein) consist
of J.P. Morgan Investment Corporation, an affiliate of J.P. Morgan Securities
Inc., First Union Capital Partners, Inc., and various institutional investors
and accredited investors. FVP GP's sole general partner (owning 1% of the
partnership interests therein) is FrontierVision Inc., which is owned by James
C. Vaughn and John S. Koo. See "Principal Security Holders".
As of December 31, 1998, J.P. Morgan Investment Corporation and First Union
Capital Partners, Inc. had committed approximately $44.9 million and $30.0
million, respectively, to FVP, all of which has been contributed to FVP. As of
December 31, 1998, FrontierVision Inc. had committed and contributed
approximately $19,935 to FVP, representing contributions of approximately
$13,290 and $6,645 by James C. Vaughn and John S. Koo, respectively, who are
directors of FrontierVision Inc. Such capital commitments were contributed as
equity to FVOP in connection with the closing of acquisitions by FVOP, for
escrow deposits for acquisitions by FVOP under contract and for FVOP working
capital requirements.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc. are
"Special Class A Limited Partners" of FVP. Upon the termination of FVP and in
connection with distributions to its partners in respect of their partnership
interests, J.P. Morgan Investment Corporation, First Union Capital Partners,
Inc. and FVP GP will be entitled to receive "carried interest" distributions or
will be allocated a portion of 15% of any remaining capital to be distributed by
FVP after certain other distributions are made. J.P. Morgan Securities Inc.
acted as placement agent for the initial offering of limited partnership
interests of FVP (other than with respect to the investment made by J.P. Morgan
Investment Corporation) and the placement of debt securities of FVP and in
connection with those activities received customary fees and reimbursement of
expenses.
J.P. Morgan Securities Inc., The Chase Manhattan Bank, an affiliate of Chase
Securities Inc. and CIBC Inc., an affiliate of CIBC Wood Gundy Security
Corporation, are agents and lenders under the amended bank credit facility and
have received customary fees for acting in such capacities. In addition, J.P.
Morgan Securities Inc. and Chase Securities Inc. received:
(1) compensation in the aggregate of approximately $6.0 million in
connection with the issuance of the Senior Subordinated Notes;
(2) received compensation in the aggregate of approximately $5.3 million in
connection with the issuance of the Senior Discount Notes, Series A;
(3) received compensation in the aggregate of approximately $1.5 million in
connection with the issuance of the old notes.
There are no other arrangements between FVOP, J.P. Morgan Securities Inc. and
Chase Securities Inc. and their affiliates and Holdings or any of its affiliates
in which J.P. Morgan Securities Inc. and Chase Securities Inc. or their
affiliates will receive any additional compensation from Holdings or any of its
affiliates.
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<PAGE>
Principal Security Holders
The following table sets forth, as of December 31, 1998:
(1) the percentage of the total partnership interests of FVP beneficially
owned by the directors and executive officers of FrontierVision Inc.
and each person who is known to FrontierVision to own beneficially more
than 5.0% of any class of FVP's partnership interests; and
(1) the percentage of the equity securities of FrontierVision Inc., FVP GP,
FVP and Holdings owned by each director or executive officer of
FrontierVision Inc. named in the Summary Compensation Table and by all
executive officers of FrontierVision Inc.
as a group.
Holdings was formed as a Delaware limited partnership in August 1997. FVP has
contributed its 99.9% general partner interest in FrontierVision Operating
Partners, L.P. to Holdings. FVP has contributed its 100% interest in FVOP Inc.
to Holdings, with the result that FrontierVision Operating Partners, L.P. is
wholly owned, directly or indirectly, by Holdings. Holdings Capital II was
incorporated in December, 1998 and is a wholly-owned subsidiary of Holdings. It
has nominal assets and does not conduct any operations. For a more detailed
discussion of the ownership of FrontierVision, see "Certain Relationships and
Related Transactions."
<TABLE>
Name and Address of Beneficial Owners Type of Interest % of Class
- ------------------------------------- ---------------- ----------
<S> <C> <C>
FrontierVision Partners, L.P. ("FVP")(1) General Partner Interest in Holdings (2) 99.90%
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
FVP GP, L.P. (3) General Partner Interest in FVP 1.00%
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
J.P. Morgan Investment Corporation Limited Partnership Interest in FVP 22.83%
101 California Street, Suite 3800 (Attributable Class A Limited Partner)
San Francisco, CA 94111 Limited Partnership Interest in FVP GP 6.57%
1818 II Cable Corp. Limited Partnership Interest in FVP 23.63%
c/o Brown Brothers Harriman & Co. (Attributable Class A Limited Partner)
59 Wall Street Limited Partnership Interest in FVP GP 6.57%
New York, NY 10005
Olympus Cable Corp. Limited Partnership Interest in FVP 14.77%
Metro Center--One Station Place (Attributable Class A Limited Partner)
Stamford, CT 06920 Limited Partnership Interest in FVP GP 6.57%
First Union Capital Partners, Inc. Limited Partnership Interest in FVP 15.05%
One First Union Center, 5th Floor (Attributable Class A Limited Partner)
Charlotte, NC 28288 Limited Partnership Interest in FVP GP 3.94%
James C. Vaughn Stockholder of FrontierVision Inc. 66.67%
1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 50.24%
Denver, Colorado 80210
John S. Koo Stockholder of FrontierVision Inc. 33.33%
1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 25.12%
Denver, Colorado 80210
All other executive officers and directors as a group 0.00%
</TABLE>
- ----------------
(1) FVP's limited partners (owning 99% of the partnership interests
therein) are various institutional investors and accredited investors.
(2) Holdings' sole limited partner (owning 0.1% of the partnership
interests therein) is FrontierVision Holdings, LLC.
(3) FVP GP's sole general partner (owning 1% of the partnership interests
therein) is FrontierVision Inc., which is owned by James C. Vaughn and
John S. Koo. FVP GP's limited partners (owning 99% of the partnership
interests therein) consist of various institutional investors, James
C. Vaughn and John S. Koo.
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<PAGE>
The Partnership Agreements
The following is a summary of certain material terms of the Agreement of Limited
Partnership of Holdings, the Agreement of Limited Partnership of FVOP, as
amended, the First Amended and Restated Agreement of Limited Partnership of FVP,
as amended, and the First Amended and Restated Agreement of Limited Partnership
of FVP GP, as amended.
The statements under this caption are summaries and do not purport to be
complete, and where reference is made to particular provisions of these
partnership agreements, such provisions, including the definitions of certain
terms, are incorporated by reference as a part of such summaries or terms, which
are qualified in their entirety by such reference. Complete copies of the form
of these partnership agreements have been filed as exhibits to FVOP's and
FrontierVision Capital Corporation's registration statement on Form S-1 (File
No. 333-9535) and are available in the manner described in "Where You Can Find
More Information." Certain terms contained in this summary but not capitalized
in this summary or defined herein are defined in the respective partnership
agreements.
Holdings Partnership Agreement
ORGANIZATION AND DURATION. Holdings was formed on August 29, 1997 as a Delaware
limited partnership to acquire, own and operate cable systems and to engage in
all activities necessary, desirable or incidental for such purpose. Unless
otherwise terminated in accordance with the terms of the Holdings partnership
agreement, Holdings may exist until June 30, 2008.
CONTROL OF OPERATION. The Holdings partnership agreement provides that its
general partner shall have the right and power to manage and control the
business and affairs of Holdings.
CAPITAL CONTRIBUTIONS. Under the Holdings partnership agreement, the partners of
Holdings have made certain capital contributions to Holdings. Each partner of
Holdings may, but is not required to, make additional capital contributions to
Holdings. The Holdings partnership agreement provides that, upon the admission
of any additional limited partners or substituted limited partners to Holdings,
Holdings' sole limited partner, FV Holdings, shall withdraw from Holdings and
shall be entitled to receive the return of its capital contribution, without
interest or deduction.
WITHDRAWAL OR REMOVAL OF PARTNERS. In general, no right is given to any partner
of Holdings to withdraw from Holdings. The general partner of Holdings may
admit:
(1) additional limited partners;
(2) an assignee of the limited partner's partnership interest in Holdings as a
substituted limited partner of Holdings; and
(3) one or more additional general partners to Holdings.
ASSIGNMENT OF PARTNERSHIP INTERESTS. Under the Holdings partnership agreement,
the limited partner may assign all or any part of its partnership interest in
Holdings only with the consent of the general partner. The limited partner has
no right to grant an assignee of its partnership interest in Holdings the right
to become a substituted limited partner of Holdings. Following the admission of
a new general partner to Holdings, neither the initial general partner nor the
initial limited partner may transfer its partnership interest in Holdings
without the prior written consent of the new general partner.
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<PAGE>
FVOP Partnership Agreement
ORGANIZATION AND DURATION. FVOP was formed on July 14, 1995 as a Delaware
limited partnership to acquire, own and operate cable systems and to engage in
all activities necessary, desirable or incidental for such purpose. Unless
otherwise terminated in accordance with the terms of the FVOP partnership
agreement, FVOP may exist until June 30, 2008.
CONTROL OF OPERATIONS. The FVOP partnership agreement provides that its general
partner shall have the right and power to manage and control the business and
affairs of FVOP. Upon the occurrence and continuance of any event of default
under and as defined in the amended bank credit facility, The Chase Manhattan
Bank, as the administrative agent, shall be entitled to be substituted, or to
have a designee of its choice substituted, as a new general partner of FVOP.
CAPITAL CONTRIBUTIONS. Under the FVOP partnership agreement, the partners of
FVOP have made certain capital contributions to FVOP. Each partner of FVOP may,
but is not required to, make additional capital contributions to FVOP. The FVOP
partnership agreement provides that, upon the admission of any additional
limited partners or substituted limited partners to FVOP, FVOP's sole limited
partner, FVOP Inc., shall withdraw from FVOP and shall be entitled to receive
the return of its capital contribution, without interest or deduction.
WITHDRAWAL OR REMOVAL OF PARTNERS. In general, no right is given to any partner
of FVOP to withdraw from FVOP. The general partner of FVOP may admit:
(1) additional limited partners;
(2) an assignee of the limited partner's partnership interest in FVOP as a
substituted limited partner of FVOP; and
(3) one or more additional general partners to FVOP.
In addition, upon the occurrence and continuance of any event of default under
and as defined in the amended bank credit facility, the administrative agent
shall be entitled to be substituted (or to have a designee of its choice
substituted) as a new general partner.
ASSIGNMENT OF PARTNERSHIP INTERESTS. Under the FVOP partnership agreement, the
limited partner may assign all or any part of its partnership interest in FVOP
only with the consent of the general partner of FVOP. The limited partner has no
right to grant an assignee of its partnership interest in FVOP the right to
become a substituted limited partner of FVOP. Following the admission of a new
general partner to FVOP, neither the initial general partner of FVOP nor the
initial limited partner may transfer its partnership interest in FVOP without
the prior written consent of the new general partner of FVOP.
FVP Partnership Agreement
ORGANIZATION AND DURATION. FVP was formed on April 17, 1995 as a Delaware
limited partnership to:
(1) acquire, invest in, own, finance, operate, improve, develop, maintain,
promote, sell, dispose of and otherwise exploit cable television
systems and properties and interests therein;
(2) conduct related business activities, including telephony and other
communications businesses and activities that are related to FVP's
cable television businesses and activities, directly or indirectly
through other entities, alone or with others; and
(3) do any and all acts necessary, desirable or incidental to the
accomplishment of such purpose.
Unless otherwise terminated in accordance with the terms of the FVP partnership
agreement, FVP may exist until June 30, 2008.
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<PAGE>
CONTROL OF OPERATIONS. The FVP partnership agreement provides that its general
partner has the right, power and discretion to operate, manage and control the
affairs and business of FVP and to make all decisions affecting FVP's affairs
and business, subject to the terms and provisions of the FVP partnership
agreement.
ADVISORY COMMITTEE. The FVP partnership agreement provides for the establishment
of an advisory committee to consult with and advise FVP GP with respect to FVP's
business and overall strategy. Under the FVP partnership agreement, the advisory
committee has broad authority to review and approve or disapprove matters
relating to all material aspects of FVP's business. The failure of the general
partner to follow any such direction of the advisory committee in connection
with such determinations shall constitute a material breach of the FVP
partnership agreement whereby FVP GP may be removed from FVP. As provided in the
FVP partnership agreement, the approval of seventy-five percent (75%) of the
members of the advisory committee that are entitled to vote on the matter is
required in order for FVOP to effect any cable television system acquisition.
The advisory committee consists of four representatives of the attributable
class A limited partners of FVP and one representative of FVP GP. Subject to
certain conditions, each of the four attributable class A limited partners of
FVP is entitled to designate (directly or indirectly) one of the four
attributable class A limited partner representatives on the advisory committee.
VOTING RIGHTS. Except as to matters for which consent or approval is expressly
required under the FVP partnership agreement, the limited partners of FVP have
no right to vote on any partnership matters.
AMENDMENTS AND MODIFICATIONS. In general, the FVP partnership agreement is
subject to modification or amendment only with the written consent of the
general partner of FVP and a majority in Interest of the Class A and Class B
limited partners of FVP.
CAPITALIZATION AND CERTAIN DISTRIBUTIONS. In connection with its initial
formation, FVP issued to its limited partners units consisting of limited
partnership interests in FVP, 12% Senior Subordinated Notes due 2008 and 14%
Junior Subordinated Notes due 2008. Pursuant to such transaction, and under the
FVP partnership agreement, each general partner and limited partner of FVP has
made certain capital contributions and loans to FVP. The general partner of FVP
is required under the FVP partnership agreement to make such capital commitments
to FVP as are necessary to maintain at all times a capital commitment equal to
not less than one percent (1%) of the total capital commitments of all partners.
The limited partners of FVP are not required to make additional capital
contributions to FVP in excess of their respective capital commitments. Except
for provisions allowing for the return of capital to partners upon dissolution
of FVP, the FVP partnership agreement provides that no partner of FVP shall have
the right to withdraw or demand return of its capital contribution.
FVP GP Partnership Agreement
ORGANIZATION AND DURATION. FVP GP was formed on April 17, 1995 as a Delaware
limited partnership to:
(1) serve as general partner of FVP; and
(2) do all other lawful things necessary, desirable or incidental to the
accomplishment of such purposes.
Unless otherwise terminated in accordance with the terms of the FVP GP
partnership agreement, FVP GP shall exist until the partners of FVP GP may
unanimously elect to carry on the business of FVP GP.
CONTROL OF OPERATIONS. The FVP GP partnership agreement provides that its
general partner has the right, power and discretion to operate, manage and
control the affairs and business of FVP GP and to make all decisions affecting
FVP GP's affairs and business, subject to certain customary exceptions specified
in the FVP GP partnership agreement.
VOTING RIGHTS. Except as to matters for which consent or approval is expressly
required under the FVP GP partnership agreement, the limited partners of FVP GP
have no right to vote on any partnership matters.
AMENDMENTS AND MODIFICATIONS. In general, the FVP GP partnership agreement is
subject to modification or amendment only with the written consent of the
general partner of FVP GP and a majority in Interest of the Class X and Class Z
limited partners of FVP GP and a majority in Interest of the Class Y limited
partners.
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CAPITAL CONTRIBUTIONS. Under the FVP GP partnership agreement, the partners of
FVP GP have made certain capital contributions to FVP GP. The general partner is
required under the FVP GP partnership agreement to make such capital commitments
to FVP GP as are necessary to maintain at all times a capital commitment equal
to not less than one percent (1%) of the total capital commitments of all
partners. The limited partners of FVP GP are not required to make additional
capital contributions to FVP GP. Except for provisions allowing for the return
of capital to partners of FVP GP upon dissolution of FVP GP, the FVP GP
partnership agreement provides that no partner of FVP GP shall have the right to
withdraw or demand return of its capital contribution.
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Description of Other Indebtedness
The 1996 Notes
The 1996 Notes are joint and several obligations of FVOP and FrontierVision
Capital Corporation. The 1996 Notes are general unsecured senior subordinated
obligations of FVOP and Capital, are limited to $200 million aggregate principal
amount and rank subordinate in right of payment to all existing and future
senior indebtedness of FVOP. The 1996 Notes rank ratably in right of payment
with all other senior subordinated indebtedness of FVOP and Capital. Capital has
nominal assets and does not conduct any operations. Certain terms contained in
this summary but not capitalized in this summary or defined herein are defined
in the indenture for the 1996 Notes, a copy of which is incorporated by
reference as an exhibit to the exchange offer registration statement of which
this prospectus is a part. You should carefully read the indenture for the 1996
Notes before participating in the exchange offer.
The 1996 Notes mature on October 15, 2006 and bear interest at 11% per annum
from the date of issuance or from the most recent interest payment date to which
interest has been paid or provided for. Interest is payable semiannually on
April 15 and October 15 of each year.
The 1996 Notes are not redeemable prior to October 15, 2001, except as set forth
below. The 1996 Notes are subject to redemption, at the option of FVOP and
Capital, in whole or in part, at any time on or after October 15, 2001 and prior
to maturity, at the following redemption prices, expressed as percentages of
principal amount, plus accrued and unpaid interest to but excluding the date
fixed for redemption, if redeemed during the 12-month period beginning on
October 15 of the years indicated:
Year Percentage
---- ----------
2001 105.50%
2002 103.67
2003 101.83
2004 and thereafter 100.00
In addition, prior to October 15, 1999, FVOP and Capital may redeem up to 35% of
the principal amount of the 1996 Notes with the net cash proceeds received by
FVOP from one or more public equity offerings or certain strategic equity
investments, at a redemption price, expressed as a percentage of the principal
amount, of 111% of the principal amount thereof, plus accrued and unpaid
interest to the date fixed for redemption; provided, however, that at least 65%
in aggregate principal amount of the 1996 Notes originally issued remains
outstanding immediately after any such redemption (excluding any of the 1996
Notes owned by FVOP and Capital or any of their affiliates).
Upon a change of control, FVOP and Capital will be required to make an offer to
purchase all outstanding 1996 Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest to the purchase date.
The indenture for the 1996 Notes contains the following covenants which limit
the ability of FVOP and certain of its subsidiaries to incur indebtedness or
make distributions to Holdings.
LIMITATION ON INDEBTEDNESS. The indenture for the 1996 Notes provides that FVOP
will not, and will not permit any restricted subsidiary to, directly or
indirectly, incur any indebtedness ,including acquired indebtedness, or issue
any disqualified equity interests except for permitted indebtedness; provided,
however, that FVOP or any restricted subsidiary may incur indebtedness and FVOP
or any restricted subsidiary may 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, the debt to operating cash flow ratio would be less than
or equal to:
(1) 7.0 to 1.0 if the date of such incurrence is on or before December 31,
1997; and
(2) 6.75 to 1.0 thereafter.
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The foregoing limitations will not apply to the incurrence of any of the
following (collectively referred to as permitted indebtedness), each of which
shall be given independent effect:
(a) indebtedness under the 1996 Notes and the indenture for the 1996
Notes;
(b) indebtedness and disqualified equity interests of FVOP and the
restricted subsidiaries outstanding on the Issue Date;
(c) indebtedness under the amended bank credit facility in an aggregate
principal amount at any one time outstanding not to exceed the sum of:
(1) $265.0 million, which amount shall be reduced by (x) any
permanent reduction of commitments thereunder and (y) any other
repayment accompanied by a permanent reduction of commitments
thereunder (other than in connection with any refinancing
thereof); plus
(2) any amounts outstanding under the amended bank credit facility
that utilize subparagraph (i) below;
(d) (x) indebtedness of any restricted subsidiary owed to and held by FVOP
or any wholly owned restricted subsidiary and (y) indebtedness of FVOP
owed to and held by any wholly owned restricted subsidiary which is
unsecured and subordinated in right of payment to the payment and
performance of FVOP and Capital's obligations under any senior
indebtedness, the 1996 Notes and the indenture for the 1996 Notes;
provided, however, that an incurrence of indebtedness that is not
permitted by this clause (d) shall be deemed to have occurred upon:
(1) any sale or other disposition of any indebtedness of FVOP or a
wholly owned restricted subsidiary referred to in this clause (d)
to an entity (other than FVOP or a wholly owned restricted
subsidiary);
(2) any sale or other disposition of equity interests of a wholly
owned restricted subsidiary which holds indebtedness of Holdings
or another wholly owned restricted subsidiary such that such
wholly owned restricted subsidiary ceases to be a wholly owned
restricted subsidiary; or
(3) designation of a wholly owned restricted subsidiary which holds
indebtedness of FVOP as an Unrestricted Subsidiary;
(e) guarantees by any restricted subsidiary of indebtedness of FVOP;
(f) interest rate protection obligations of FVOP or any restricted
subsidiary relating to indebtedness of FVOP or such restricted
subsidiary, as the case may be, which indebtedness (1) bears interest
at fluctuating interest rates and (2) is otherwise permitted to be
incurred under this covenant; provided, however, that the notional
principal amount of such interest rate protection obligations does not
exceed the principal amount of the indebtedness to which such interest
rate protection obligations relate;
(g) purchase money indebtedness and capitalized lease obligations of FVOP
or any restricted subsidiary which do not exceed $5.0 million in the
aggregate at any one time outstanding;
(h) indebtedness or disqualified equity interests of FVOP or any
restricted subsidiary to the extent representing a replacement,
renewal, refinancing or extension of outstanding indebtedness or
disqualified equity interests of FVOP or any restricted subsidiary
incurred in compliance with the debt to operating cash flow ratio of
the first paragraph of this covenant or clause (a) or (b) of this
paragraph of this covenant; provided, however, that:
(1) indebtedness or disqualified equity interests of Holdings may not
be refinanced under this clause (h) with indebtedness or
disqualified equity interests of any restricted subsidiary;
(2) any such refinancing shall not exceed the sum of the principal
amount or, if such indebtedness or disqualified equity interests
provide for a lesser amount to be due and payable upon a
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declaration of acceleration thereof at the time of such
refinancing, an amount no greater than such lesser amount of the
indebtedness or disqualified equity interests being refinanced
plus the amount of accrued interest or dividends thereon and the
amount of any reasonably determined prepayment premium necessary
to accomplish such refinancing and such reasonable fees and
expenses incurred in connection therewith;
(3) indebtedness representing a refinancing of indebtedness other
than senior indebtedness shall have a weighted average life to
maturity equal to or greater than the weighted average life to
maturity of the indebtedness being refinanced; and
(4) indebtedness that is equal in rights with the notes may only be
refinanced with indebtedness that is made equal in rights or
subordinate in right of payment to the notes and subordinated
indebtedness or disqualified equity interests may only be
refinanced with subordinated indebtedness or disqualified equity
interests; and
(i) in addition to the items referred to in clauses (a) through (h) above,
indebtedness of FVOP, including any indebtedness under the amended
bank credit facility that utilizes this subparagraph (i) having an
aggregate principal amount not to exceed $20.0 million at any time
outstanding.
LIMITATION ON RESTRICTED PAYMENTS. The indenture for the 1996 Notes provides
that FVOP will not, and will not permit any restricted subsidiary to, directly
or indirectly:
(1) declare or pay any dividend or any other distribution on any equity
interests of FVOP or any restricted subsidiary or make any payment or
distribution to the direct or indirect holders (in their capacities as
such) of equity interests of FVOP or any restricted subsidiary (other
than payments or distributions made to FVOP or a wholly owned
restricted subsidiary and dividends or distributions payable solely in
qualified equity interests of Holdings or in options, warrants or
other rights to purchase qualified equity interests of FVOP);
(2) purchase, redeem or otherwise acquire or retire for value any equity
interests of FVOP or any restricted subsidiary (other than any such
equity interests owned by FVOP or a wholly owned restricted
subsidiary);
(3) purchase, redeem, defease or retire for value more than one year prior
to the stated maturity thereof any subordinated indebtedness (other
than any subordinated indebtedness held by a wholly owned restricted
subsidiary); or
(4) make any investment (other than permitted investments) in any entity
(other than in FVOP, a wholly owned restricted subsidiary or an entity
that becomes a wholly owned restricted subsidiary, or is merged with
or into or consolidated with FVOP or a wholly owned restricted
subsidiary, provided FVOP or a wholly owned restricted subsidiary is
the survivor, as a result of or in connection with such investment);
such payments or any other actions (other than permitted Investments) described
in (1), (2), (3) and (4) collectively referred to as restricted payments,
unless:
(a) no default or event of default shall have occurred and be continuing
at the time or after giving effect to such restricted payment;
(b) immediately after giving effect to such restricted payment, FVOP would
be able to incur $1.00 of indebtedness (other than permitted
indebtedness) under the debt to operating cash flow ratio of the first
paragraph of "--Limitation on indebtedness" above; and
(c) immediately after giving effect to such restricted payment, the
aggregate amount of all restricted payments declared or made on or
after October 15, 1996 does not exceed an amount equal to the sum of:
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(1) the difference between (x) the cumulative available cash flow
determined at the time of such restricted payment and (y) 140% of
cumulative consolidated interest expense of FVOP determined for the
period commencing on October 15, 1996 and ending on the last day of
the latest fiscal quarter for which consolidated financial statements
of FVOP are available preceding the date of such restricted payment;
plus
(2) the aggregate net proceeds (with the value of any non-cash proceeds to
be the fair market value thereof as determined by an independent
financial advisor) received by FVOP either (x) as capital
contributions to FVOP after October 15, 1996 or (y) from the issue and
sale (other than to a restricted subsidiary) of its qualified equity
interests after October 15, 1996 (excluding the net proceeds from any
issuance and sale of qualified equity interests financed, directly or
indirectly, using funds borrowed from FVOP or any restricted
subsidiary until and to the extent such borrowing is repaid); plus
(3) the principal amount, or accrued or accreted amount, if less, of any
indebtedness of FVOP or any restricted subsidiary incurred after
October 15, 1996 which has been converted into or exchanged for
qualified equity interests of FVOP; plus
(4) in the case of the disposition or repayment of any investment
constituting a restricted payment made after October 15, 1996, an
amount, to the extent not included in the computation of cumulative
available cash flow, equal to the lesser of:
(a) the return of capital with respect to such investment; and
(b) the amount of such investment which was treated as a restricted
payment;
in either case, less the cost of the disposition of such investment;
plus
(5) FVOP's proportionate interest in the lesser of the fair market value
or the net worth of any unrestricted subsidiary that has been
redesignated as a restricted subsidiary after October 15, 1996 not to
exceed in any case the designation amount with respect to such
restricted subsidiary upon its designation; minus
(6) the designation amount with respect to any subsidiary of FVOP which
has been designated as an unrestricted subsidiary after October 15,
1996.
The foregoing provisions will not prevent:
(1) the payment of any dividend or distribution on, or redemption of,
equity interests within 60 days after the date of declaration of such
dividend or distribution or the giving of formal notice of such
redemption, if at the date of such declaration or giving of formal
notice such payment or redemption would comply with the provisions of
the indenture for the 1996 Notes;
(2) so long as no default or event of default shall have occurred and be
continuing, the retirement of any equity interests of FVOP in exchange
for, or out of the net cash proceeds of the substantially concurrent
issue and sale (other than to a restricted subsidiary) of, qualified
equity interests of FVOP; provided, however, that any such net cash
proceeds and the value of any equity interests issued in exchange for
such retired equity interests are excluded from clause (c)(2) of the
preceding paragraph, and were not included therein at any time;
(3) so long as no default or event of default shall have occurred and be
continuing, the purchase, redemption, retirement or other acquisition
of subordinated indebtedness made in exchange for, or out of the net
cash proceeds of, a substantially concurrent issue and sale (other
than to a restricted subsidiary) of (x) qualified equity interests of
FVOP; provided, however, that any such net cash proceeds and the value
of any equity interests issued in exchange for subordinated
indebtedness are excluded from clauses (c)(2) and (c)(3) of the
preceding paragraph (and were not included
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therein at any time) or (y) other subordinated indebtedness having
no stated maturity for the payment of principal thereof prior to the
final stated maturity of the 1996 Notes;
(4) the payment of any dividend or distribution on equity interests of
FVOP or any restricted subsidiary 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
FVOP or such restricted subsidiary and attributable to them solely as
a result of FVOP or such restricted subsidiary, 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;
(5) so long as no default or event of default has occurred and is
continuing, any investment made out of the net cash proceeds of the
substantially concurrent issue and sale (other than to a restricted
subsidiary) of qualified equity interests of FVOP; provided, however,
that any such net cash proceeds are excluded from clause (c)(2) of the
preceding paragraph, and were not included therein at any time; or
(6) the purchase, redemption or other acquisition, cancellation or
retirement for value of equity interests, or options, warrants, equity
appreciation rights or other rights to purchase or acquire equity
interests, of FVOP or any restricted subsidiary, or similar
securities, held by officers or employees or former officers or
employees of FVOP or any restricted subsidiary, or their estates or
beneficiaries under their estates, upon death, disability, retirement
or termination of employment not to exceed $1.0 million in any
calendar year.
The indenture governing the terms of the 1996 Notes contains certain other
covenants that, among other things, limit the ability of FVOP and Capital and
certain of FVOP's subsidiaries to create certain liens, enter into certain
transactions with affiliates, permit dividend or other payment restrictions to
apply to certain subsidiaries or consummate certain merger, consolidation or
similar transactions. In addition, in certain circumstances, FVOP and Capital
are required to offer to purchase the 1996 Notes at 100% of the principal amount
thereof with the net proceeds of certain asset sales. These covenants are
subject to a number of significant exceptions and qualifications, as more fully
set forth in the indenture for the 1996 Notes.
The Amended Bank Credit Facility
On December 19, 1997, FVOP entered into an $800.0 million second amended and
restated credit agreement, referred herein as the amended bank credit facility,
with The Chase Manhattan Bank, as administrative agent, J.P. Morgan Securities
Inc., as syndication agent, CIBC Inc., as documentation agent, and other lenders
signatory thereto. FVOP used these proceeds to refinance an existing $265.0
million senior credit facility, to finance the purchase of the Cox-Central Ohio
Systems and for general business purposes. As of December 31, 1998, borrowings
under the amended bank credit facility totaled $670.1 million.
The amended bank credit facility consists of a $300.0 million, 8.25-year
revolving credit facility, a $250.0 million, 7.75-year Facility A term loan and
a $250.0 million, 8.25-year Facility B term loan. The Facility A term loan and
the Facility B term loan must be fully drawn as a condition to the availability
of borrowings under the revolving credit facility. In addition, the amended bank
credit facility contemplates that the lenders may make available, in their sole
discretion, following a request by FVOP, up to a $200.0 million incremental term
loan facility to fund future acquisitions. No lender was required to have
committed to fund the incremental term loan facility at the closing of the
amended bank credit facility. If the lenders determine to fund the incremental
term loan facility, the final maturity of such facility will be the same as the
maturity of the Facility B term loan.
In general, the amended bank credit facility requires FVOP to make mandatory
prepayments of amounts outstanding under the amended bank credit facility,
beginning in 2002, based on a percentage of available excess cash flow. In
addition, the amended bank credit facility requires FVOP to use the proceeds
from any cable system disposition, subject to certain qualifications, to reduce
indebtedness for borrowings under the amended bank credit facility. The amended
bank credit facility provides that FVOP may engage in cable system dispositions
of up to $150.0 million in the aggregate without the need to permanently reduce
the commitments under the amended bank credit facility if the net proceeds of
such dispositions are either applied to temporarily reduce the amended bank
credit facility or held in a special account pending permitted reinvestment in
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subsequent acquisitions of cable systems. The amended bank credit facility also
permits FVOP to make acquisitions of up to $150.0 million in the aggregate, as
such amount may be increased by the proceeds of dispositions being held for
reinvestment. The amended bank credit facility also contains customary financial
and other covenants, which include limitations on the ability of Holdings and
its subsidiaries to incur additional indebtedness. The amended bank credit
facility permits FVOP to make distributions to Holdings in order to make
regularly scheduled interest payments, commencing March 15, 2002, and the
payment of principal at the stated maturity date of the notes unless a default
or an event of default has occurred under the amended bank credit facility.
Holdings, as the general partner of FVOP, guaranties the indebtedness under the
amended bank credit facility on a limited recourse basis. The amended bank
credit facility is secured by a pledge of all limited and general partnership
interests in FVOP and a first priority lien on all the assets of FVOP and its
subsidiaries.
The 1997 Notes
On September 19, 1997, Holdings and FrontierVision Holdings Capital Corporation
issued $237,650,000 aggregate principal amount at maturity of 11 7/8% senior
discount notes due 2007. The terms of the 1997 Notes are substantially identical
to those of the notes offered hereby, and the terms of the 1997 Notes indenture,
including the covenants set forth therein, are substantially identical to those
of the indenture for the notes offered hereby. See "Description of the Notes."
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The Exchange Offer
Purpose and Effect of The Exchange Offer
Holdings' and Holdings Capital II's outstanding 11? % senior discount notes due
2007, Series B were originally sold by Holdings and Holdings Capital II on
December 9, 1998 to J.P. Morgan Securities Inc. and The Chase Manhattan Bank, an
affiliate of Chase Securities Inc., collectively, the initial purchasers, in
accordance with a purchase agreement, dated December 2, 1998, by and among
Holdings, Holdings Capital II and the initial purchasers. The initial purchasers
subsequently sold the old notes to:
(1) qualified institutional buyers in reliance on Rule 144A under the
Securities Act; and
(2) qualified buyers outside the United States in reliance upon Regulation
S under the Securities Act.
As a condition of the purchase agreement, Holdings and Holdings Capital II
entered into a registration rights agreement with the initial purchasers in
which Holdings and Holdings Capital II have agreed, for the benefit of the
holders of the old notes, at Holdings' and Holdings Capital II's expense, to
file a registration statement for the exchange offer, of which this prospectus
is a part, within 120 days after the date of the original issue of the old notes
with the Securities and Exchange Commission with respect to the exchange offer
for the exchange notes. Upon the exchange offer registration statement being
declared effective, Holdings and Holdings Capital II will offer the exchange
notes in exchange for surrender of the old notes. For each old note surrendered
to Holdings and Holdings Capital II in connection with the exchange offer, the
holder of such old note will receive an exchange note having an original
principal amount at maturity equal to that of the surrendered old note.
Based upon interpretations by the staff of the Commission set forth in certain
no-action letters to third parties (including Exxon Capital Holdings Corp., SEC
No-Action Letter (April 13, 1989); Morgan Stanley & Co. Inc., SEC No-Action
Letter (June 5, 1991); and Shearman & Sterling, SEC No-Action Letter (July 2,
1993)), Holdings and Holdings Capital II believe that the exchange notes issued
in connection with the exchange offer in exchange for old notes will in general
be freely tradeable after the exchange offer without compliance with the
registration and prospectus delivery requirements of the Securities Act.
However, any purchaser of old notes who is an affiliate of Holdings or Holdings
Capital II, within the meaning of Rule 405 under the Securities Act, who does
not acquire the exchange notes in the ordinary course of business or who tenders
in the exchange offer for the purpose of participating in a distribution of the
exchange notes could not rely on the position of the staff of the Commission
enunciated in such no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance may result in such
holder incurring liability under the Securities Act for which the holder is not
indemnified by Holdings or Holdings Capital II.
As contemplated by the above-mentioned no-action letters and the registration
rights agreement, each holder accepting the exchange offer is required to
represent to Holdings and Holdings Capital II in a letter of transmittal that:
(1) the exchange notes are to be acquired by the holder or the person
receiving such exchange notes, whether or not such person is the
holder, in the ordinary course of business;
(2) the holder or any such other person is not engaging in the
distribution of the exchange notes;
(3) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of
the exchange notes;
(4) neither the holder nor any such other person is an affiliate of
Holdings or Holdings Capital II within the meaning of Rule 405 under
the Securities Act; and
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(5) the holder or any such other person acknowledges that if such holder
or any other person participates in the exchange offer for the purpose
of distributing the exchange notes it must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with any resale of the exchange notes and cannot
rely on the above-mentioned no-action letters.
As indicated above, each participating broker-dealer that receives an exchange
note for its own account in exchange for old notes must acknowledge that it:
(1) acquired the old notes for its own account as a result of market
making activities or other trading activities;
(2) has not entered into any arrangement or understanding with Holdings
and Holdings Capital II or any of their affiliates, within the meaning
of Rule 405 under the Securities Act, to distribute the exchange notes
to be received in the exchange offer; and
(3) will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such exchange notes. For a
description of the procedures for resales by participating
broker-dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of the
staff of the Commission do not permit Holdings and Holdings Capital II to effect
the exchange offer, or if for any other reason the exchange offer is commenced
and not consummated within 300 days of the date of the original issuance of the
old notes, Holdings and Holdings Capital II will:
(1) file a shelf registration statement covering resales of the old notes;
(2) use their reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or
prior to the 120th day after the filing thereof with the Commission;
and
(3) use their reasonable best efforts to keep effective the shelf
registration statement until the earlier of:
(a) two years after the date of the original issuance of the old
notes; or
(b) such time as all of the applicable old notes have been sold
thereunder.
Holdings and Holdings Capital II will, in the event of the filing of the shelf
registration statement, provide to each applicable holder of the old notes
copies of the prospectus which is a part of the shelf registration statement,
notify each such holder when the shelf registration statement has become
effective and take certain other actions as are required to permit unrestricted
resale of the old notes. A holder of the old notes that sells such old notes in
connection with the 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 a holder, including certain indemnification obligations. In
addition, each holder of the old notes will be required to deliver information
to be used in connection with the shelf registration statement and to provide
comments on the shelf registration statement within the time periods set forth
in the registration rights agreement in order to have their old notes included
in the shelf registration statement and to benefit from the provisions set forth
in the following paragraph.
The registration rights agreement provides that Holdings and Holdings Capital II
will file an exchange offer registration statement with the Commission on or
prior to 120 days after the date of the original issuance of the old notes (the
"Issue Date"). In the event that:
(1) the exchange offer registration statement is not filed with the
Commission on or prior to the 120th day following the Issue Date;
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(2) the exchange offer registration statement is not declared effective by
the Commission on or prior to the 210th day following the Issue Date;
(3) the exchange offer is not consummated on or prior to the 240th day
following the Issue Date; or
(4) a shelf registration statement with respect to resale of the old
notes, if required, is not declared effective within the period
specified in the registration rights agreement, each such event
referred to in clauses (1) through (4) above a registration default,
the sole remedy available to holders of the old notes will be the
immediate assessment of cash interest on the old notes, whether or not
cash interest is then payable on the old notes under the indenture for
the notes, additional interest as follows: the per annum interest rate
on the old notes will increase by 25 basis points and the per annum
interest rate will increase by an additional 25 basis for each
subsequent 90-day period during which the registration default remains
uncured, up to a maximum amount of additional interest of 100 basis
points per annum. All additional interest will be payable to holders
of the old notes in cash on each March 15 and September 15, commencing
with the first such date occurring after any such additional interest
commences to accrue, until such registration default is cured. After
the date on which such registration default is cured, the interest
rate on the old notes will revert to 11? % per annum.
Holders of old notes will be required to make certain representations to
Holdings and Holdings Capital II, as described in the registration rights
agreement, in order to participate in the exchange offer and will be required to
deliver information to be used in connection with the shelf registration
statement, if required, and to provide comments on the shelf registration
statement within the time periods set forth in the registration rights agreement
in order to have their old notes included in the shelf registration statement
and benefit from the provisions regarding additional interest set forth above.
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 is filed as an exhibit to the exchange offer registration statement of
which this prospectus is a part.
Following the consummation of the exchange offer, holders of the old notes who
were eligible to participate in the exchange offer but who did not tender their
old notes will not have any further registration rights and such old notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such old notes could be adversely affected.
Terms of The Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal for the exchange offer, attached hereto as an exhibit,
Holdings and Holdings Capital II will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. Holdings and Holdings Capital II will issue $1,000 original
principal amount at maturity of exchange notes in exchange for each $1,000
original principal amount at maturity of outstanding old notes accepted in the
exchange offer. Holders may tender some or all of their old notes in accordance
with the exchange offer. However, old notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms of
the old notes except that:
(1) the exchange notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof; and
(2) the holders of the exchange notes will not be entitled to certain
rights under the registration rights agreement covering the old notes,
including the provisions providing for an increase in the interest
rate on the old notes in certain circumstances relating to the timing
of the exchange offer, all of which rights will terminate when the
exchange offer is terminated.
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The exchange notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture governing the old notes.
As of the date of this prospectus, $91,298,000 aggregate original principal
amount at maturity of old notes were outstanding. Holdings and Holdings Capital
II have fixed the close of business on ____________, 1999 as the record date for
the exchange offer for purposes of determining the persons to whom this
prospectus and the letter of transmittal will be mailed initially.
Holders of old notes do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law or the indenture for the notes in connection
with the exchange offer. Holdings and Holdings Capital II intend to conduct the
exchange offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
Holdings and Holdings Capital II shall be deemed to have accepted validly
tendered old notes when, as and if Holdings and Holdings Capital II have given
oral or written notice thereof to First Trust National Association, which is the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the exchange notes from Holdings and Holdings
Capital II.
If any tendered old notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted old notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
exchange offer's expiration date.
Holders who tender old notes in the exchange offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of old notes in
accordance with the exchange offer. Holdings and Holdings Capital II will pay
all charges and expenses, other than transfer taxes in certain circumstances, in
connection with the exchange offer. See "Fees and Expenses."
Expiration Date; Extensions; Amendments
Holdings and Holdings Capital II shall keep the exchange offer open for at least
20 business days, or longer if required by applicable law, after the date notice
of the exchange offer is mailed to holders of old notes. The expiration date
shall be 5:00 p.m., New York City time, on ____________, 1999 unless Holdings
and Holdings Capital II, in their sole discretion, extend the exchange offer, in
which case the expiration date shall be the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, Holdings and Holdings Capital II will
notify the exchange agent of any extension by oral or written notice and will
mail to the registered holders an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
Holdings and Holdings Capital II reserve the right, in their sole discretion:
(1) to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "Conditions to Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination
to the exchange agent; or
(2) to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders.
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Procedures for Tendering
Only a holder of old notes may tender such old notes in the exchange offer. To
tender in the exchange offer, a holder must complete, sign and date the letter
of transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the letter of transmittal or transmit an agent's message in
connection with a book-entry transfer, and mail or otherwise deliver such letter
of transmittal or such facsimile, or agent's message, together with the old
notes and any other required documents, to the exchange agent prior to 5:00
p.m., New York City time, on the expiration date. In addition, either:
(1) certificates for such old notes must be received by the exchange agent
prior to the expiration date along with the letter of transmittal:
(2) a timely confirmation of a book-entry transfer, a book-entry
confirmation, of such old notes into the exchange agent's account at
The Depository Trust Company, DTC, in accordance with the procedure
for book-entry transfer described below, must be received by the
exchange agent prior to the expiration date; or
(3) the holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the old notes, or book-entry confirmation, as the
case may be, the letter of transmittal and other required documents must be
received by the exchange agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the expiration date. Delivery
of documents to DTC in accordance with its procedure does not constitute
delivery to the exchange agent.
DTC has authorized DTC participants that hold old notes on behalf of beneficial
owners of old notes through DTC to tender their old notes as if they were
holders. To effect a tender of old notes, DTC participants should either:
(1) complete and sign the letter of transmittal, or a manually signed
facsimile thereof, have the signature thereon guaranteed if required
by the instructions to the letter of transmittal, and mail or deliver
the letter of transmittal, or such manually signed facsimile, to the
exchange agent in accordance with the procedure set forth in
"Procedures for Tendering;" or
(2) transmit their acceptance to DTC through the DTC automated tender
offer program for which the transaction will be eligible and follow
the procedure for book-entry transfer set forth in "Book-Entry
Transfer."
By executing the letter of transmittal or agent's message, each holder will make
to Holdings and Holdings Capital II the representations set forth above in the
third paragraph under the heading "Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by Holdings and Holdings
Capital II will constitute agreement between such holder and Holdings and
Holdings Capital II in accordance with the terms and subject to the conditions
set forth herein and in the letter of transmittal or agent's message.
The method of delivery of old notes, the letter of transmittal or agent's
message and all other required documents to the exchange agent is at the
election and sole risk of the holder. As an alternative to delivery by mail,
holders may wish to consider overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the exchange agent
before the expiration date. No letter of transmittal or old notes should be sent
to FrontierVision. Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such holders.
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
should contact the registered holder promptly and instruct
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such registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may
be, must be guaranteed by an Eligible Institution (as defined herein) unless the
old notes tendered in connection therewith are tendered:
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
(2) for the account of an Eligible Institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of the Medallion System.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed therein, such old notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such old notes with the signature
thereon guaranteed by an Eligible Institution.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to Holdings
and Holdings Capital II of their authority to so act must be submitted with the
letter of transmittal.
All questions as to the validity, form, eligibility, including time of receipt,
acceptance of tendered old notes and withdrawal of tendered old notes will be
determined by Holdings and Holdings Capital II in their sole discretion, which
determination will be final and binding. Holdings and Holdings Capital II
reserve the absolute right to reject any and all old notes not properly tendered
or any old notes Holdings' and Holdings Capital II's acceptance of which would,
in the opinion of counsel for Holdings and Holdings Capital II, be unlawful.
Holdings and Holdings Capital II also reserve the right in their sole discretion
to waive any defects, irregularities or conditions of tender as to particular
old notes. Holdings' and Holdings Capital II's interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of old notes must be cured
within such time as Holdings and Holdings Capital II shall determine.
Although Holdings and Holdings Capital II intend to notify holders of defects or
irregularities with respect to tenders of old notes, neither Holdings, Holdings
Capital II, the exchange agent nor any other person shall incur any liability
for failure to give such notification. Tenders of old notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holders, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
Acceptance of Old Notes for Exchange; Delivery of Exchange Notes
For each old note accepted for exchange, the holder of such old note will
receive an exchange note having a principal amount at maturity equal to that of
the surrendered old note. For purposes of the exchange offer, Holdings and
Holdings Capital II shall be deemed to have accepted properly tendered old notes
for exchange when, as and if Holdings and Holdings Capital II have given oral or
written notice thereof to the exchange agent.
In all cases, the issuance of exchange notes for old notes that are accepted for
exchange in connection with the exchange offer will be made only after timely
receipt by the exchange agent of certificates for such old notes or a timely
book-entry confirmation of such old notes into the exchange agent's account at
DTC, a properly completed and duly executed letter of transmittal or agent's
message and all other required documents. If any
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tendered old notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer, such unaccepted or nonexchanged old notes will
be returned without expense to the tendering holder thereof, or, in the case of
old notes tendered by book-entry transfer into the exchange agent's account at
DTC in accordance with the book-entry transfer procedures described below, such
nonexchanged old notes will be credited to an account maintained with DTC, as
promptly as practicable after the expiration date.
Book-Entry Transfer
The exchange agent will establish a new account or utilize an existing account
with respect to the old notes at DTC promptly after the date of this prospectus,
and any financial institution that is a participant in DTC and whose name
appears on a security position listing as the owner of old notes may make a
book-entry tender of old notes by causing DTC to transfer such old notes into
the exchange agent's account in accordance with DTC's procedures for such
transfer. However, although tender of old notes may be effected through book
entry transfer into the exchange agent's account at DTC, the letter of
transmittal, or a manually signed facsimile thereof, properly completed and
validly executed, with any required signature guarantees, or an agent's message
in lieu of the letter of transmittal, and any other required documents, must, in
any case, be received by the exchange agent at its address set forth below under
the caption "Exchange Agent" on or prior to the expiration date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of book-entry transfer of old notes into the exchange agent's
account at DTC as described above is referred to herein as a book-entry
confirmation. Delivery of documents to DTC in accordance with DTC's procedures
does not constitute delivery to the exchange agent.
The term agent's message means a message transmitted by DTC to, and received by,
the exchange agent and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering the old notes stating:
(1) the aggregate principal amount of old notes which have been tendered
by such participant;
(2) that such participant has received and agrees to be bound by the terms
of the letter of transmittal; and
(3) that Holdings and Holdings Capital II may enforce such agreement
against the participant.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes and:
(1) whose old notes are not immediately available;
(2) who cannot deliver their old notes, the letter of transmittal or any
other required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date, may effect a tender if:
(a) the tender is made through a firm which is a member of a
registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning
of Rule 17Ad-15 under the Exchange Act, an eligible institution;
(b) prior to the expiration date, the exchange agent receives from
such Eligible Institution a properly completed and duly executed
notice of guaranteed delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such old notes and the principal
amount of old notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the expiration date, the letter of
transmittal, or facsimile thereof, or in the case of a book-entry
transfer, an agent's message, together with the certificate(s)
representing the old notes (or a
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confirmation of book-entry transfer of such notes into the
exchange agent's account at DTC), and any other documents
required by the letter of transmittal will be deposited by the
Eligible Institution with the exchange agent; and
(c) the certificate(s) representing all tendered old notes in proper
form for transfer (or a confirmation of book-entry transfer of
such old notes into the exchange agent's account at DTC),
together with a letter of transmittal, or facsimile thereof,
properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an agent's
message, and all other documents required by the letter of
transmittal are received by the exchange agent upon five New York
Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be sent
to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the expiration date;
otherwise such tenders are irrevocable.
To withdraw a tender of old notes in the exchange offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
exchange agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the expiration date. Any such notice of withdrawal must:
(1) specify the name of the person having deposited the old notes to be
withdrawn;
(2) identify the old notes to be withdrawn, including the certificate
number(s) and principal amount of such old notes, or, in the case of
old notes transferred by book-entry transfer, the name and number of
the account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature
on the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to
the old notes register the transfer of such old notes into the name of
the person withdrawing the tender; and
(4) specify the name in which any such old notes are to be registered, if
different from that of the Depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by Holdings and Holdings Capital II,
whose determination shall be final and binding on all parties. Any old notes so
with drawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no exchange notes will be issued with respect thereto unless
the old notes so withdrawn are validly retendered. Any old notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn old
notes may be retendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the expiration date.
Conditions to Exchange Offer
Notwithstanding any other term of the exchange offer, Holdings and Holdings
Capital II shall not be required to accept for exchange, or exchange exchange
notes for, any old notes, and may terminate or amend the exchange offer as
provided herein before the acceptance of such old notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in the sole judgment of Holdings and Holdings Capital II,
might materially impair the ability of Holdings and Holdings Capital
II to proceed with the
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exchange offer or any material adverse development has occurred in any
existing action or proceeding with respect to Holdings and Holdings
Capital II or any of their subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole
judgment of Holdings and Holdings Capital II, might materially impair
the ability of Holdings and Holdings Capital II to proceed with the
exchange offer or materially impair the contemplated benefits of the
exchange offer to Holdings and Holdings Capital II; or
(c) any governmental approval has not been obtained, which approval
Holdings and Holdings Capital II shall, in their sole discretion, deem
necessary for the consummation of the exchange offer as contemplated
hereby.
If Holdings and Holdings Capital II determine in their sole discretion that any
of the conditions are not satisfied, Holdings and Holdings Capital II may:
(1) refuse to accept any old notes and return all tendered old notes to
the tendering holders;
(2) extend the exchange offer and retain all old notes tendered prior to
the expiration of the exchange offer, subject, however, to the rights
of holders to withdraw such old notes (see "Withdrawal of Tenders");
or
(3) waive such unsatisfied conditions with respect to the exchange offer
and accept all properly tendered old notes which have not been
withdrawn.
Holdings and Holdings Capital II shall keep the exchange offer open for at least
20 business days, or longer if required by applicable law, including in
connection with any material modification or waiver of the terms or conditions
of the exchange offer that requires such extension under applicable law, after
the date notice of the exchange offer is mailed to holders of old notes.
Exchange Agent
First Trust National Association has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal and requests for
notice of guaranteed delivery should be directed to the exchange agent addressed
as follows:
By Registered or Certified Mail: By Overnight Courier:
First Trust National Association First Trust National Association
180 East 5th Street 180 East 5th Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
Attn: Special Finance (SPFT0414) Attn: Special Finance (SPFT0414)
By Hand: By Facsimile:
First Trust National Association (612) 2441537
180 East 5th Street, 4th Floor Attn: Special Finance (SPFT0414)
Bond Drop Window Confirm by Telephone:
St. Paul, Minnesota 55101 (617) 244-1234 or (800) 934-6802
Attn: Special Finance (SPFT0414)
Delivery to an address other than set forth above will not constitute a valid
delivery.
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Fees and Expenses
The expenses of soliciting tenders will be borne by Holdings and Holdings
Capital II. The principal solicitation is being made by mail; however,
additional solicitation may be made by telegraph, telecopy, telephone or in
person by officers and regular employees of Holdings and Holdings Capital II and
their affiliates.
Holdings and Holdings Capital II have not retained any dealer-manager in
connection with the exchange offer and will not make any payments to brokers,
dealers, or others soliciting acceptances of the exchange offer. Holdings and
Holdings Capital II, however, will pay the exchange agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the exchange offer will be
paid by Holdings and Holdings Capital II. Such expenses include fees and
expenses of the exchange agent and the U.S. Bank National Association, the
trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old notes,
which is face value, as reflected in Holdings' and Holdings Capital II's
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by Holdings and Holdings Capital II. The
expenses of the exchange offer will be expensed over the term of the exchange
notes.
Consequences of Failure to Exchange
The old notes that are not exchanged for exchange notes in connection with the
exchange offer will remain restricted securities. Accordingly, such old notes
may be resold only:
(1) to Holdings and Holdings Capital II, upon redemption thereof or
otherwise;
(2) so long as the old notes are eligible for resale in accordance with
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A under the Securities Act in a transaction meeting
the requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or in accordance with another exemption from the
registration requirements of the Securities Act, and based upon an
opinion of counsel reasonably acceptable to Holdings and Holdings
Capital II;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) in accordance with an effective registration statement under the
Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States.
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Description of the Notes
The old notes and the exchange notes, collectively referred to herein as the
notes, were issued in connection with an indenture, dated as of December 9,
1998, among Holdings and Holdings Capital II and U.S. Bank National Association,
as trustee. The indenture is subject to and governed by the Trust Indenture Act
of 1939, as amended. The statements under this caption relating to the notes,
the indenture and the registration rights agreement are summaries and do not
purport to be complete, and where reference is made to particular provisions of
the indenture or the registration rights agreement, such provisions, including
the definitions of certain terms, are incorporated by reference as a part of
such summaries or terms, which are qualified in their entirety by such
reference. A copy of the indenture and registration rights agreement are filed
as exhibits to the exchange offer registration statement of which this
prospectus is a part. Certain definitions of terms used in the following summary
are set forth under "--Certain Definitions" below. Certain terms contained in
this summary but not capitalized in this summary or defined under the subheading
"--Certain Definitions" are defined in the indenture. You should carefully read
the indenture for the notes before participating in the exchange offer.
The form and terms of the exchange notes are the same as the form and terms of
the old notes, which they replace, except that:
(1) the issuance of the exchange notes have been registered under the
Securities Act and, therefore, the exchange notes will not bear
legends restricting the transfer thereof, and
(2) the holders of exchange notes will not be entitled to certain rights
under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the old notes in
certain circumstances relating to the timing of the exchange offer,
which rights will terminate when the exchange offer is consummated.
The notes are joint and several obligations of Holdings and Holdings Capital II.
The notes will be general unsecured obligations of Holdings and Holdings Capital
II, will be limited to $91,298,000 aggregate original principal amount at
maturity, designed to result in gross proceeds to the Holdings of approximately
$75.0 million.
Maturity, Interest and Principal
The notes will mature on September 15, 2007. Cash interest will not be required
to accrue or be payable on the notes prior to September 15, 2001; provided that
on any interest payment date prior to September 15, 2001, Holdings and Holdings
Capital II may elect to begin accruing cash interest on the notes, with notice
of such election to the trustee and the holders of the notes (the "Cash Interest
Election"). Cash interest will accrue on the notes at the rate of 11 7/8% per
annum from the earlier of the interest payment date on which the Cash Interest
Election is made or September 15, 2001 and will be payable semiannually on March
15 and September 15, commencing on the earlier of the interest payment date
following the Cash Interest Election or March 15, 2002, to the entity in whose
name a note is registered at the close of business on the preceding March 1 or
September 1 (each referred to herein as a record date), as the case may be. Cash
interest on the notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the earlier of the interest
payment date on which the Cash Interest Election is made or September 15, 2001.
Cash interest on the notes will be computed on the basis of a 360-day year of
twelve 30-day months. Holders must surrender the notes to the paying agent for
the notes to collect principal payments. Holdings and Holdings Capital II will
pay principal and cash interest by check and may mail interest checks to a
holder's registered address.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. No service charge will be made for any registration of transfer or
exchange of notes, but Holdings and Holdings Capital II may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith. Initially, First Trust National Association will act as
paying agent and registrar for the notes. The notes may be presented for
registration of transfer and exchange at the offices of the registrar for the
notes.
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Notes that remain outstanding after consummation of the exchange offer and
exchange notes will be treated as a single class of securities under the
indenture.
Optional Redemption
The notes are not redeemable prior to September 15, 2001, except as set forth
below. The notes will be subject to redemption, at the option of Holdings and
Holdings Capital II, in whole or in part, at any time on or after September 15,
2001 and prior to maturity, upon not less than 30 nor more than 60 days' notice
mailed to each holder of notes to be redeemed at such holder's address appearing
in the register for the notes, in amounts of $1,000 principal amount at maturity
or an integral multiple of $1,000 principal amount at maturity, at the following
redemption prices expressed as percentages of principal amount at maturity, plus
accrued and unpaid interest, if any, to but excluding the date fixed for
redemption, subject to the right of holders of record on the relevant record
date to receive interest, if any, due on an interest payment date that is on or
prior to the date fixed for redemption, if redeemed during the 12-month period
beginning on September 15 of the years indicated:
Year Percentage
---- ----------
2001 107.917%
2002 105.937
2003 103.958
2004 101.979
2005 and thereafter 100.000
In addition, prior to September 15 , 2000, Holdings and Holdings Capital II may
redeem up to 35% of the aggregate principal amount at maturity of the notes with
the net cash proceeds received by Holdings from one or more Public Equity
Offerings or Strategic Equity Investments at a redemption price of 111.875% of
the Accreted Value thereof, plus accrued and unpaid interest, if any, to the
date of redemption; provided, however, that at least 65% in aggregate principal
amount at maturity of the notes originally issued remains outstanding
immediately after any such redemption (excluding any notes owned by Holdings and
Holdings Capital II or any of their affiliates). Notice of redemption in
accordance with this paragraph must be mailed to holders of notes not later than
60 days following the consummation of such Public Equity Offering or Strategic
Equity Investment.
Selection of notes for any partial redemption shall be made by the trustee, in
accordance with the rules of any national securities exchange on which the notes
may be listed or, if the notes are not so listed, pro rata or by lot or in such
other manner as the trustee shall deem appropriate and fair. Notes in
denominations larger than $1,000 principal amount at maturity may be redeemed in
part but only if the unredeemed portion is an integral multiple of $1,000
principal amount at maturity. Notice of redemption will be mailed before the
date fixed for redemption to each holder of notes to be redeemed at such
holder's registered address. On and after the date fixed for redemption,
interest will cease to accrue on notes or portions thereof called for
redemption.
The notes will not have the benefit of any sinking fund.
Covenants
The indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. The indenture will provide that Holdings will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, incur
any Indebtedness, including Acquired Indebtedness, or issue any Disqualified
Equity Interests except for Permitted Indebtedness; provided, however, that
Holdings or any Restricted Subsidiary may incur Indebtedness and Holdings or any
Restricted Subsidiary may 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, the Debt to Operating Cash Flow Ratio would be less than or equal to:
(1) 8.0 to 1.0 if the date of such incurrence is on or before December 31,
1998; and
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(2) 7.5 to 1.0 thereafter.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the notes and the indenture;
(b) (x) Indebtedness and Disqualified Equity Interests of Holdings and the
Restricted Subsidiaries outstanding on September 19, 1997 (including
(A) Indebtedness under the 1997 Notes and the 1997 Notes Indenture,
(B) Indebtedness under the indenture for FVOP's 1996 Notes and (C)
Indebtedness under the UVC Note) and (y) Indebtedness incurred after
September 19, 1997 and prior to the Issue Date in accordance with the
first paragraph of Section 4.04 of the 1997 Notes Indenture;
(c) Indebtedness of Holdings and the Restricted Subsidiaries under the
amended bank credit facility in an aggregate principal amount at any
one time outstanding not to exceed the sum of:
(1) $650.0 million, which amount shall be reduced by:
(x) any permanent reduction of commitments thereunder after
September 19, 1997; and
(y) any other repayment after September 19, 1997 accompanied by
a permanent reduction of commitments thereunder (other than,
in the case of either clause (x) or (y), in connection with
any refinancing thereof); plus
(2) any amounts outstanding under the amended bank credit facility
that utilize, or have utilized since September 19, 1997,
subparagraph (i) below;
(d) (x) Indebtedness of any Restricted Subsidiary owed to and held by
Holdings or any wholly owned Restricted Subsidiary and (y)
Indebtedness of Holdings owed to and held by any wholly owned
Restricted Subsidiary which is unsecured and subordinated in right of
payment to the payment and performance of Holdings' and Holdings
Capital II's obligations under the indenture and the notes; provided,
however, that an incurrence of Indebtedness that is not permitted by
this clause (d) shall be deemed to have occurred upon:
(1) any sale or other disposition of any Indebtedness of Holdings or
a wholly owned Restricted Subsidiary referred to in this clause
(d) to a entity, other than Holdings or a wholly owned Restricted
Subsidiary;
(2) any sale or other disposition of equity interests of a wholly
owned Restricted Subsidiary which holds Indebtedness of Holdings
or another wholly owned Restricted Subsidiary such that such
wholly owned Restricted Subsidiary ceases to be a wholly owned
Restricted Subsidiary; or
(3) designation of a wholly owned Restricted Subsidiary which holds
Indebtedness of Holdings as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Indebtedness of Holdings;
(f) interest rate protection obligations of Holdings or any Restricted
Subsidiary relating to Indebtedness of Holdings or such Restricted
Subsidiary, as the case may be, which Indebtedness (1) bears interest
at fluctuating interest rates and (2) is otherwise permitted to be
incurred under this covenant; provided, however, that the notional
principal amount of such interest rate protection obligations does not
exceed the principal amount of the Indebtedness to which such interest
rate protection obligations relate;
(g) purchase money indebtedness and capitalized lease obligations of
Holdings or any Restricted Subsidiary which do not exceed $10.0
million in the aggregate at any one time outstanding, whether incurred
after September 19, 1997 and prior to the Issue Date or after the
Issue Date;
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(h) Indebtedness or Disqualified Equity Interests of Holdings or any
Restricted Subsidiary to the extent representing a replacement,
renewal, refinancing or extension (collectively, a "refinancing") of
outstanding Indebtedness or Disqualified Equity Interests of Holdings
or any Restricted Subsidiary incurred in compliance with the Debt to
Operating Cash Flow Ratio of the first paragraph of this covenant or
clause (a) or (b) of this paragraph of this covenant; provided,
however, that:
(1) Indebtedness or Disqualified Equity Interests of Holdings may not
be refinanced under this clause (h) with Indebtedness or
Disqualified Equity Interests of any Restricted Subsidiary;
(2) any such refinancing shall not exceed the sum of the principal
amount, or, if such Indebtedness or Disqualified Equity Interests
provide for a lesser amount to be due and payable upon a
declaration of acceleration thereof at the time of such
refinancing, an amount no greater than such lesser amount, of the
Indebtedness or Disqualified Equity Interests being refinanced
plus the amount of accrued interest or dividends thereon and the
amount of any reasonably determined prepayment premium necessary
to accomplish such refinancing and such reasonable fees and
expenses incurred in connection therewith;
(3) Indebtedness representing a refinancing of Indebtedness of
Holdings shall have a weighted average life to maturity equal to
or greater than the weighted average life to maturity of the
Indebtedness being refinanced; and
(4) subordinated Indebtedness of Holdings or Disqualified Equity
Interests of Holdings may only be refinanced with subordinated
Indebtedness of Holdings or Disqualified Equity Interests of
Holdings; and
(i) in addition to the items referred to in clauses (a) through (h) above,
Indebtedness of Holdings, including any Indebtedness under the amended
bank credit facility that utilizes this subparagraph (i) having an
aggregate principal amount not to exceed $25.0 million at any time
outstanding, whether incurred after September 19, 1997 and prior to
the Issue Date or after the Issue Date.
LIMITATION ON RESTRICTED PAYMENTS. The indenture will provide that Holdings will
not, and will not permit any Restricted Subsidiary to, directly or indirectly:
(1) declare or pay any dividend or any other distribution on any equity
interests of Holdings or any Restricted Subsidiary or make any payment
or distribution to the direct or indirect holders, in their capacities
as such, of equity interests of Holdings or any Restricted Subsidiary,
other than payments or distributions made to Holdings or a wholly
owned Restricted Subsidiary and dividends or distributions payable
solely in Qualified Equity Interests of Holdings or in options,
warrants or other rights to purchase Qualified Equity Interests of
Holdings;
(2) purchase, redeem or otherwise acquire or retire for value any equity
interests of Holdings or any Restricted Subsidiary, other than any
such equity interests owned by Holdings or a wholly owned Restricted
Subsidiary;
(3) purchase, redeem, defease or retire for value more than one year prior
to the stated maturity thereof any subordinated Indebtedness of
Holdings, other than any such subordinated Indebtedness held by a
wholly owned Restricted Subsidiary; or
(4) make any investment (other than Permitted Investments) in any entity
(other than in Holdings, a wholly owned Restricted Subsidiary or a
entity that becomes a wholly owned Restricted Subsidiary, or is merged
with or into or consolidated with Holdings or a wholly owned
Restricted Subsidiary, provided Holdings or a wholly owned Restricted
Subsidiary is the survivor, as a result of or in connection with such
investment);
such payments or any other actions (other than Permitted Investments) described
in (1), (2), (3) and (4) collectively, "Restricted Payments"), unless:
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(a) no default or event of default shall have occurred and be continuing
at the time or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, Holdings
would be able to incur $1.00 of Indebtedness, other than Permitted
Indebtedness, under the Debt to Operating Cash Flow Ratio of the first
paragraph of "--Limitation on Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or
after September 19, 1997 does not exceed an amount equal to the sum
of:
(1) the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) 140% of
cumulative Consolidated Interest Expense of Holdings determined
for the period commencing on September 19, 1997 and ending on the
last day of the latest fiscal quarter for which consolidated
financial statements of Holdings are available preceding the date
of such Restricted Payment; plus
(2) the aggregate net proceeds, with the value of any non-cash
proceeds to be the fair market value thereof as determined by an
independent financial advisor, received by Holdings either (x) as
capital contributions to Holdings after September 19, 1997 or (y)
from the issue and sale (other than to a Restricted Subsidiary)
of its Qualified Equity Interests after September 19, 1997
(excluding the net proceeds from any issuance and sale of
Qualified Equity Interests financed, directly or indirectly,
using funds borrowed from Holdings or any Restricted Subsidiary
until and to the extent such borrowing is repaid); plus
(3) the principal amount, or accrued or accreted amount, if less, of
any Indebtedness of Holdings or any Restricted Subsidiary
incurred after September 19, 1997 which has been converted into
or exchanged for Qualified Equity Interests of Holdings; plus
(4) in the case of the disposition or repayment of any investment
constituting a Restricted Payment made after September 19, 1997,
an amount, to the extent not included in the computation of
Cumulative Available Cash Flow, equal to the lesser of: (a) the
return of capital with respect to such investment and (b) the
amount of such investment which was treated as a Restricted
Payment, in either case, less the cost of the disposition of such
investment; plus
(5) Holdings' proportionate interest in the lesser of the fair market
value or the net worth of any Unrestricted Subsidiary that has
been redesignated as a Restricted Subsidiary after September 19,
1997 in accordance with "--Designation of Unrestricted
Subsidiaries" below not to exceed in any case the Designation
Amount with respect to such Restricted Subsidiary upon its
designation; minus
(6) the Designation Amount with respect to any subsidiary of Holdings
which has been designated as an Unrestricted Subsidiary after
September 19, 1997 in accordance with "--Designation of
Unrestricted Subsidiaries" below.
The foregoing provisions will not prevent:
(1) the payment of any dividend or distribution on, or redemption of,
equity interests within 60 days after the date of declaration of such
dividend or distribution or the giving of formal notice of such
redemption, if at the date of such declaration or giving of formal
notice such payment or redemption would comply with the provisions of
the indenture;
(2) so long as no default or event of default shall have occurred and be
continuing, the retirement of any equity interests of Holdings in
exchange for, or out of the net cash proceeds of the substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of,
Qualified Equity Interests of Holdings; provided, however, that any
such net cash proceeds and the value of any equity interests
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issued in exchange for such retired equity interests are excluded from
clause (c)(2) of the preceding paragraph (and were not included
therein at any time);
(3) so long as no default or event of default shall have occurred and be
continuing, the purchase, redemption, retirement or other acquisition
of subordinated Indebtedness of Holdings made in exchange for, or out
of the net cash proceeds of, a substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of (x) Qualified Equity
Interests of Holdings; provided, however, that any such net cash
proceeds and the value of any equity interests issued in exchange for
subordinated Indebtedness of Holdings are excluded from clauses (c)(2)
and (c)(3) of the preceding paragraph, and were not included therein
at any time, or (y) other subordinated Indebtedness of Holdings having
no stated maturity for the payment of principal thereof prior to the
final stated maturity of the notes;
(4) the payment of any dividend or distribution on equity interests of
Holdings or any Restricted Subsidiary 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 Holdings or such Restricted Subsidiary and attributable to
them solely as a result of Holdings or such Restricted Subsidiary, 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;
(5) so long as no default or event of default has occurred and is
continuing, any investment made out of the net cash proceeds of the
substantially concurrent issue and sale, other than to a Restricted
Subsidiary, of Qualified Equity Interests of Holdings; provided,
however, that any such net cash proceeds are excluded from clause
(c)(2) of the preceding paragraph, and were not included therein at
any time;
(6) the purchase, redemption or other acquisition, cancellation or
retirement for value of equity interests, or options, warrants, equity
appreciation rights or other rights to purchase or acquire equity
interests, of Holdings or any Restricted Subsidiary, or similar
securities, held by officers or employees or former officers or
employees of Holdings or any Restricted Subsidiary, or their estates
or beneficiaries under their estates, upon death, disability,
retirement or termination of employment not to exceed $2.0 million in
any calendar year;
(7) the payment of any dividend or distribution on equity interests of a
Restricted Subsidiary out of such Restricted Subsidiary's net income
from September 19, 1997 to entities other than Holdings or a
Restricted Subsidiary; provided that such dividend or distribution is
paid pro rata to all holders of such equity interests;
(8) investments in entities, including, without limitation, Restricted
Subsidiaries which are not wholly owned Restricted Subsidiaries and
Unrestricted Subsidiaries, engaged in a Related Business, not to
exceed $30.0 million at any one time outstanding from September 19,
1997; and
(9) Permitted Strategic Investments.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended in accordance with clauses (1), (6) and (9) of the
immediately preceding paragraph shall be included as Restricted Payments and
amounts expended in accordance with clauses (2) through (5) and (7) and (8)
shall be excluded. The amount of any non-cash Restricted Payment shall be deemed
to be equal to the fair market value thereof at the date of the making of such
Restricted Payment.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. The
indenture will provide that in the event that any Restricted Subsidiary (other
than a subsidiary guarantor), directly or indirectly, guarantees any
Indebtedness of Holdings other than the notes (the "Other Indebtedness")
Holdings shall cause such Restricted Subsidiary to concurrently guarantee
Holdings' obligations under the indenture and the notes to the same extent that
such Restricted Subsidiary guaranteed Holdings' obligations under the Other
Indebtedness, including waiver of subrogation, if any; provided, however, that
if such Other Indebtedness is:
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(1) not subordinated Indebtedness of Holdings, the subsidiary guarantee
shall be equal in right of payment with the guarantee of the Other
Indebtedness; or
(2) subordinated Indebtedness of Holdings, the subsidiary guarantee shall
be senior in right of payment to the guarantee of the Other
Indebtedness; provided, further, however, that each subsidiary issuing
a subsidiary guarantee will be automatically and unconditionally
released and discharged from its obligations under such subsidiary
guarantee upon the release or discharge of the guarantee of the Other
Indebtedness that resulted in the creation of such subsidiary
guarantee, except a discharge or release by, or as a result of, any
payment under the guarantee of such Other Indebtedness by such
subsidiary guarantor. Holdings shall cause each Restricted Subsidiary
issuing a subsidiary guarantee to:
(a) execute and deliver to the trustee a supplemental indenture in
form reasonably satisfactory to the trustee in which such
Restricted Subsidiary shall unconditionally guarantee all of
Holdings' obligations under the notes and the indenture on the
terms set forth in the indenture;
(b) deliver to the trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal,
valid, binding and enforceable obligation of such Restricted
Subsidiary, which opinion may be subject to customary assumptions
and qualifications; and
(c) execute and deliver to the Initial Purchasers a counterpart to
the Registration Rights Agreement as a subsidiary guarantor
thereunder. Thereafter, such Restricted Subsidiary shall (unless
released in accordance with the terms of the indenture) be a
subsidiary guarantor for all purposes of the indenture.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The indenture will provide that Holdings will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions to Holdings or any other
Restricted 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 Holdings or any other Restricted
Subsidiary;
(b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, Holdings or any other Restricted Subsidiary; or
(c) transfer any of its properties or assets to Holdings or any other
Restricted Subsidiary;
(any such encumbrance or restriction in the foregoing clauses (a), (b) and (c),
a "Payment Restriction"), except for:
(1) any such encumbrance or restriction existing on September 19,
1997, including, without limitation, in connection with the
amended bank credit facility, the FVOP Indenture or the 1997
Notes Indenture, in each case as in effect on September 19, 1997,
and any amendments, restatements, renewals, replacements or
refinancings (collectively, a "refinancing") thereof; provided,
however, that such refinancings are either:
(x) no more restrictive in the aggregate with respect to such
encumbrances or restrictions than those contained in the
FVOP Indenture as in effect on the Issue Date; or
(y) do not prohibit the payment of dividends or distributions to
Holdings in an amount sufficient to pay cash interest on the
notes, assuming no Cash Interest Election is made, as
required under the indenture and on the 1997 Notes (assuming
no cash interest election under the 1997 Notes Indenture) as
required under the 1997 Notes Indenture or to pay the
principal amount at maturity of the notes at their Stated
Maturity and the principal amount at maturity of the 1997
Notes at their Stated Maturity unless an event has occurred
which permits, or with the giving
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of notice or the lapse of time or both would permit, the
acceleration of the maturity of any such Indebtedness;
(2) any such encumbrance or restriction existing under or by reason
of applicable law;
(3) any such encumbrance or restriction existing under or by reason
of any instrument governing Indebtedness or equity interests of
an acquired entity acquired by Holdings or any Restricted
Subsidiary after September 19, 1997 as in effect at the time of
such acquisition (except to the extent such Indebtedness was
incurred by such acquired entity in connection with, as a result
of or in contemplation of such acquisition); provided, however,
that such encumbrances and restrictions are not applicable to
Holdings or any Restricted Subsidiary, or the properties or
assets of Holdings or any Restricted Subsidiary, other than the
acquired entity;
(4) any such encumbrance or restriction existing under or by reason
of customary non-assignment provisions in leases or cable
television franchises entered into in the ordinary course of
business and consistent with past practices;
(5) any such encumbrance or restriction existing under or by reason
of any agreement governing purchase money indebtedness for
property acquired after September 19, 1997 in the ordinary course
of business that only imposes encumbrances and restrictions on
the property so acquired;
(6) any such encumbrance or restriction existing under or by reason
of any agreement for the sale or disposition after September 19,
1997 of the equity interests or assets of any Restricted
Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (6) are only applicable to
such Restricted Subsidiary or assets, as applicable, and any such
sale or disposition is made in compliance with "--Disposition of
Proceeds of Asset Sales" below to the extent applicable thereto;
(7) any such encumbrance or restriction existing under or by reason
of any agreement governing refinancing Indebtedness permitted
under clause (h) of "--Limitation on Indebtedness" above;
provided, however, that the encumbrances and restrictions
contained in the agreements governing such Indebtedness are no
more restrictive in the aggregate than those contained in the
agreements governing the Indebtedness being refinanced
immediately prior to such refinancing;
(8) any such encumbrance or restriction existing under or by reason
of the indenture; or
(9) any such encumbrance or restriction existing under any other
agreement, instrument or document hereafter in effect; provided,
however, that the terms and conditions of any such encumbrance or
restriction are either (a) not more restrictive than those
contained in the FVOP Indenture as in effect on September 19,
1997 or (b) in the case of any such agreement, instrument or
document governing Indebtedness, do not prohibit the payment of
dividends or distributions to Holdings in an amount sufficient to
pay cash interest on the notes, assuming no Cash Interest
Election, as required under the indenture or on the 1997 Notes,
assuming no cash interest election is made, as required under the
1997 Notes Indenture or to pay the principal amount at maturity
of the notes at their Stated Maturity or to pay the principal
amount at maturity of the 1997 Notes at their Stated Maturity
unless an event has occurred which permits, or with the giving of
notice or the lapse of time or both would permit, the
acceleration of the maturity of any such Indebtedness.
LIMITATION ON LIENS. The indenture will provide that Holdings will not, directly
or indirectly, incur any liens of any kind against or upon any of its properties
or assets now owned or hereafter acquired, or any proceeds therefrom or any
income or profits therefrom, to secure any Indebtedness unless contemporaneously
therewith effective provision is made to secure the notes equally and ratably
with such Indebtedness with a lien on the same properties and assets securing
such Indebtedness for so long as such Indebtedness is secured by such lien,
except for:
(1) Liens on equity interests of subsidiaries of Holdings, and their
successors, securing obligations under the amended bank credit
facility;
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(2) Liens on equity interests of Unrestricted Subsidiaries; and
(3) Permitted Liens.
DISPOSITION OF PROCEEDS OF ASSET SALES. The indenture will provide that Holdings
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make any Asset Sale, unless (a) Holdings or such Restricted
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 and (b) either:
(1) at least 75% of such consideration consists of cash or Cash
Equivalents; or
(2) at least 75% of such consideration consists of (x) properties and
capital assets, including franchises and licenses required to own or
operate such properties, to be used in the same lines of business
being conducted by Holdings or any Restricted Subsidiary at such time
or (y) equity interests in one or more entities which thereby become
wholly owned Restricted Subsidiaries whose assets consist primarily of
such properties and capital assets.
The amount of any:
(1) liabilities of Holdings or any Restricted Subsidiary that are actually
assumed by the transferee in such Asset Sale and from which Holdings
and the Restricted Subsidiaries are fully released shall be deemed to
be cash for purposes of determining the percentage of cash
consideration received by Holdings or the Restricted Subsidiaries; and
(2) notes or other similar obligations received by Holdings or the
Restricted Subsidiaries from such transferee that are immediately
converted, or are converted within thirty days of the related Asset
Sale, by Holdings or the Restricted Subsidiaries into cash shall be
deemed to be cash, in an amount equal to the net cash proceeds
realized upon such conversion, for purposes of determining the
percentage of cash consideration received by Holdings or the
Restricted Subsidiaries.
Holdings or such Restricted Subsidiary, as the case may be, may:
(1) apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt
thereof to repay:
(x) Indebtedness of Holdings secured by a lien on the property or assets
subject to such Asset Sale; or
(y) Indebtedness of any Restricted Subsidiary; or
(z) Indebtedness under the 1997 Notes and the 1997 Notes Indenture and, in
each case, permanently reduce any related commitment; provided,
however, that if Indebtedness under the revolving credit portion of
the amended bank credit facility is repaid, Holdings need not reduce
the commitments for such revolving credit portion; or
(2) commit in writing to acquire, construct or improve properties and capital
assets, including franchises and licenses required to own or operate any
such assets or properties, to be used in the same line of business being
conducted by Holdings or any Restricted Subsidiary at such time and so
apply such Net Cash Proceeds within 365 days of the receipt thereof.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not so
applied within 365 days of such Asset Sale (such Net Cash Proceeds, the
"Unutilized Net Cash Proceeds"), Holdings shall, within 30 days of such 365th
day, make an Offer to Purchase from all holders of notes. Notes with an
aggregate Accreted Value as of such Purchase Date equal to such Unutilized Net
Cash Proceeds, at a purchase price in cash equal to 100% of such Accreted Value
thereof, plus accrued and unpaid interest to the Purchase Date; provided,
however, that the Offer to Purchase may be deferred until there are aggregate
Unutilized Net Cash Proceeds equal to or in excess of $5.0 million, at which
time the entire amount of such Unutilized Net Cash Proceeds, and not just the
amount in excess of $5.0 million, shall be applied as required in accordance
with this paragraph. In the event that any other Indebtedness of Holdings which
ranks ratably with the notes requires the repayment or prepayment thereof, or an
offer to purchase to be made to repurchase such Indebtedness, upon the
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consummation of any Asset Sale, Holdings may apply the Unutilized Net Cash
Proceeds otherwise required to be applied to an Offer to Purchase to repay,
prepay or offer to purchase such other Indebtedness and to an Offer to Purchase
pro rata based upon:
(1) the aggregate Accreted Value of the notes then outstanding on the
applicable Purchase Date; and
(2) the aggregate principal amount, or accreted amount, if less, of such
other Indebtedness then outstanding on such Purchase Date.
The Offer to Purchase shall remain open for a period of 20 business days or such
longer period as may be required by law. To the extent the aggregate Accreted
Value of notes tendered in accordance with the Offer to Purchase exceeds the
Unutilized Net Cash Proceeds, notes shall be purchased among holders on a
proportionate basis, based on the relative aggregate Accreted Value of notes
validly tendered for purchase by holders thereof. To the extent the Unutilized
Net Cash Proceeds exceed the aggregate Accreted Value of notes tendered by the
holders of the notes in connection with the Offer to Purchase, Holdings may
retain and utilize any portion of the Unutilized Net Cash Proceeds not applied
to repurchase the notes for any purpose consistent with the other terms of the
indenture.
In the event that Holdings makes an Offer to Purchase the notes, Holdings shall
comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act and any violation of the provisions of the indenture relating to such Offer
to Purchase occurring as a result of such compliance shall not be deemed an
event of default or an event that with the passing of time or giving of notice,
or both, would constitute an event of default.
LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED ENTITIES. The indenture
will provide that Holdings will not, and will not permit, cause or suffer any
Restricted Subsidiary to, directly or indirectly, conduct any business or enter
into any transaction, or series of related transactions, with or for the benefit
of any of their respective affiliates or any beneficial holder of 10% or more of
the equity interests of Holdings or any officer, director or employee of
Holdings or any Restricted Subsidiary (each an "Affiliate Transaction"), unless:
(a) such Affiliate Transaction is on terms which are no less favorable to
Holdings or such Restricted Subsidiary, as the case may be, than would
be available in a comparable transaction with an unaffiliated third
party;
(b) if such Affiliate Transaction, or series of related Affiliate
Transactions, involves aggregate payments or other consideration
having a fair market value in excess of $5.0 million, a majority of
the disinterested members of the interest payment dates of Holdings
shall have approved such transaction and determined that such
transaction complies with the foregoing provisions; and
(c) if such Affiliate Transaction, or series of related Affiliate
Transactions, involves aggregate payments or other consideration
having a fair market value of $25.0 million or more, Holdings has
obtained a written opinion from an independent financial advisor
stating that the consideration to be paid or received, as the case may
be, by Holdings or the Restricted Subsidiary in connection with such
Affiliate Transaction is fair to Holdings or the Restricted
Subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to:
(1) transactions with or among Holdings and the wholly owned Restricted
Subsidiaries;
(2) customary directors' fees, indemnification and similar arrangements,
consulting fees, employee salaries, bonuses, or employment agreements,
compensation or employee benefit arrangements, and incentive
arrangements with any officer, director or employee of Holdings
entered into in the ordinary course of business, including customary
benefits thereunder, and payments under any indemnification
arrangements permitted by applicable law;
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(3) the Agreement of Limited Partnership of Holdings or the Agreement of
Limited Partnership of FVOP, in each case, as in effect on September
19, 1997, including any amendments or extensions thereof that do not
otherwise violate any other covenant set forth in the indenture, and
any transactions undertaken in connection with any other contractual
obligations in existence on September 19, 1997, as in effect on
September 19, 1997;
(4) the issue and sale by Holdings to its partners or stockholders of
Qualified Equity Interests;
(5) any Restricted Payments made in compliance with "--Limitation on
Restricted Payments" above (including without limitation the making of
any payments or distributions permitted to be made in accordance with
clauses (1) through (9) of the penultimate paragraph of "--Limitation
on Restricted Payments");
(6) loans and advances to officers, directors and employees of Holdings
and the Restricted Subsidiaries for travel, entertainment, moving and
other relocation expenses, in each case made in the ordinary course of
business and consistent with past business practices;
(7) customary commercial banking, investment banking, underwriting,
placement agent or financial advisory fees paid in connection with
services rendered to Holdings and its subsidiaries in the ordinary
course;
(8) the incurrence of intercompany Indebtedness permitted in accordance
with clause (d) under the definition of "Permitted Indebtedness" set
forth under "--Limitation on Indebtedness;"
(9) the pledge of equity interests of Unrestricted Subsidiaries to support
the Indebtedness thereof and (x) the amended bank credit facility.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES. As of the Issue Date, there are no
Unrestricted Subsidiaries other than FrontierVision Access Partners, LLC, a
Delaware limited liability company, and Maine Security Surveillance, a Maine
corporation. The indenture will provide that Holdings may designate any
subsidiary of Holdings as an "Unrestricted Subsidiary" under the indenture only
if:
(a) no default or event of default shall have occurred and be continuing
at the time of or after giving effect to such designation;
(b) at the time of and after giving effect to such designation, Holdings
could incur $1.00 of additional Indebtedness under the Debt to
Operating Cash Flow Ratio of the first paragraph of "--Limitation on
Indebtedness" above; and
(c) Holdings would be permitted to make an investment (other than a
Permitted Investment) at the time of designation, assuming the
effectiveness of such designation, in accordance with the first
paragraph of "--Limitation on Restricted Payments" above in an amount
(the "Designation Amount") equal to Holdings' proportionate interest
in the fair market value of such subsidiary on such date; provided,
however, that the condition set forth in this clause (c) shall not be
applicable to the designation of a subsidiary as an Unrestricted
Subsidiary which is made as part of an investment or Permitted
Strategic Investment made in accordance with clause (8) or (9) of the
penultimate paragraph of "--Limitation on Restricted Payments."
Neither Holdings nor any Restricted Subsidiary shall at any time:
(x) provide credit support for, subject any of its property or assets
(other than the equity interests of any Unrestricted Subsidiary) to
the satisfaction of, or guarantee, any Indebtedness of any
Unrestricted Subsidiary, including any undertaking, agreement or
instrument evidencing such Indebtedness;
(y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary; or
(z) be directly or indirectly liable for any Indebtedness which provides
that the holder thereof may, upon notice, lapse of time or both,
declare a default thereon or cause the payment thereof to be
accelerated
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or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted
Subsidiary, except, in the case of clause (x) or (y), to the extent
otherwise permitted under the terms of the indenture, including,
without limitation, "--Limitation on Restricted Payments" and
"--Limitation on Indebtedness" above.
Holdings may revoke any designation of a subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no default or event of default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(b) all liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time,
have been permitted to be incurred for all purposes of the indenture.
All designations and Revocations must be evidenced by resolutions of the
interest payment dates of Holdings delivered to the trustee certifying
compliance with the foregoing provisions.
LIMITATION ON CONDUCT OF BUSINESS OF HOLDINGS CAPITAL II. The indenture will
provide that Holdings Capital II will not own any operating assets or other
properties or conduct any business other than to serve as an Issuer and an
obligor on the notes and as a guarantor of obligations under the amended bank
credit facility.
Change of Control
The indenture will provide that within 35 days following the date of
consummation of a transaction resulting in a change of control, Holdings will
commence an Offer to Purchase all outstanding notes at a purchase price in cash
equal to 101% of the Accreted Value of the notes on such Purchase Date, plus
accrued and unpaid interest, if any, to such Purchase Date. Each holder shall be
entitled to tender all or any portion of the notes owned by such holder in
connection with the Offer to Purchase, subject to the requirement that any
portion of a note tendered must be in an integral multiple of $1,000 principal
amount at maturity.
In the event that Holdings makes an Offer to Purchase the notes, Holdings shall
comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act, and any violation of the provisions of the indenture relating to such Offer
to Purchase occurring as a result of such compliance shall not be deemed an
event of default or an event that with the passing of time or giving of notice,
or both, would constitute an event of default.
With respect to the sale of assets referred to in the definition of change of
control, the phrase "all or substantially all" of the assets of Holdings or the
General Partner will likely be interpreted under applicable state law and will
be dependent upon particular facts and circumstances. As a result, there may be
a degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of Holdings or the General Partner has
occurred. In addition, no assurances can be given that Holdings will be able to
acquire notes tendered upon the occurrence of a change of control. The ability
of Holdings to pay cash to the holders of notes upon a change of control may be
limited by its then existing financial resources. The amended bank credit
facility and the FVOP Indenture contain certain covenants which will have the
effect of limiting or prohibiting, or requiring waiver or consent of the lenders
thereunder prior to, the repurchase of the notes upon a change of control, and
future debt agreements of Holdings or the Restricted Subsidiaries may provide
the same. See "Risk Factors--If a Change of Control Occurs, We May Not Have
Sufficient Assets to Pay Amounts due on the Notes." None of the provisions
relating to a repurchase upon a change of control are waivable by the interest
payment dates of FV Inc. or the trustee.
The foregoing provisions will not prevent Holdings from entering into a
transaction of the type described under the as a change of control with
management or their affiliates. In addition, such provisions may not necessarily
afford the holders of the notes protection in the event of a highly leveraged
transaction, including a reorganization, restructuring, merger or similar
transaction, involving Holdings that may adversely affect the holders of the
notes because such transactions may not involve a shift in voting power or
beneficial ownership or, even if they do, may not involve a shift of the
magnitude required under the definition of change of control to trigger the
provisions.
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Provision of Financial Information
The indenture will provide that whether or not Holdings and Holdings Capital II
are subject to Section 13(a) or 15(d) of the Exchange Act, or any successor
provision thereto, Holdings and Holdings Capital II shall file with the SEC the
annual reports, quarterly reports and other documents which Holdings and
Holdings Capital II would have been required to file with the SEC in connection
with such Section 13(a) or 15(d) or any successor provision thereto if Holdings
and Holdings Capital II were so required, such documents to be filed with the
SEC on or prior to the respective dates by which Holdings and Holdings Capital
II would have been required so to file such documents if Holdings and Holdings
Capital II were so required. Holdings and Holdings Capital II shall also in any
event
(a) within 15 days of each required filing date under the Exchange Act
(whether or not permitted or required to file with the SEC):
(1) transmit by mail to all holders of notes, as their names and
addresses appear in the note register, without cost to such
holders; and
(2) file with the trustee, copies of the annual reports, quarterly
reports and other documents which Holdings and Holdings Capital
II are required to file with the Commission in accordance with
the preceding sentence or, if such filing is not so permitted,
information and data of a similar nature; and
(b) if, notwithstanding the preceding sentence, filing such documents by
Holdings and Holdings Capital II with the Commission is not permitted
under the Exchange Act, promptly upon written request supply copies of
such documents to any prospective holder of notes. Holdings and
Holdings Capital II shall not be obligated to file any such reports
with the Commission if the Commission does not permit such filings for
all companies similarly situated other than due to any action or
inaction by Holdings and Holdings Capital II. Notwithstanding the
foregoing provisions, this covenant shall be deemed to have been
satisfied during the period prior to the effectiveness of a
registration statement with respect to the notes or the exchange notes
if Holdings and Holdings Capital II cause such annual reports,
quarterly reports and other documents to be filed with the Commission
by FVOP if such filings contain substantially the same information
that would be required if such documents were filed by Holdings and
Holdings Capital II.
Merger, Sale of Assets, etc.
The indenture will provide that Holdings and Holdings Capital II will not
consolidate with or merge with or into (whether or not such Issuer is the
surviving entity) any other entity and Holdings and Holdings Capital II will not
and will not permit any of their respective Restricted Subsidiaries to sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of such Issuer's properties and assets (determined, in the case of Holdings, on
a consolidated basis for Holdings and the Restricted Subsidiaries) to any entity
in a single transaction or series of related transactions, unless:
(a) either:
(1) such Issuer shall be the surviving entity; or
(2) the surviving entity (if other than Holdings and Holdings Capital
II) shall be, in the case of Holdings Capital II, a corporation
or, in any other case, a corporation, partnership, limited
liability company, limited liability limited partnership or trust
organized and validly existing under the laws of the United
States of America or any State thereof or the District of
Columbia, and shall, in any such case, expressly assume by a
supplemental indenture the due and punctual payment of the
principal of, premium, if any, and interest on all the notes and
the performance and observance of every covenant of the indenture
to be performed or observed on the part of the applicable Issuer;
(b) immediately thereafter, no default or event of default shall have
occurred and be continuing;
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(c) immediately after giving effect to any such transaction involving the
incurrence by Holdings or any Restricted Subsidiary, directly or
indirectly, of additional Indebtedness, and treating any Indebtedness
not previously an obligation of Holdings or any Restricted Subsidiary
in connection with or as a result of such transaction as having been
incurred at the time of such transaction, the surviving entity could
incur, on a pro forma basis after giving effect to such transaction as
if it had occurred at the beginning of the latest fiscal quarter for
which consolidated financial statements of Holdings are available, at
least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Debt to Operating Cash Flow Ratio of the first
paragraph of "--Limitation on Indebtedness" above; and
(d) immediately thereafter the surviving entity shall have a consolidated
net worth equal to or greater than the consolidated net worth of such
Issuer immediately prior to such transaction.
The indenture will provide that, subject to the requirements of the immediately
preceding paragraph, 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 entity of any such merger or consolidation, or such subsidiary
guarantor, if all of its equity interests are sold, shall be released and
relieved of any and all obligations under the subsidiary guarantee of such
subsidiary guarantor if:
(1) the entity or entity surviving such merger or consolidation or
acquiring the equity interests of such subsidiary guarantor is not a
Restricted Subsidiary; and
(2) the Net Cash Proceeds from such sale are used after such sale in a
manner that complies with the provisions of "--Disposition of Proceeds
of Asset Sales" above.
Except as provided in the preceding sentence, the indenture will provide that no
subsidiary guarantor shall consolidate with or merge with or into another
entity, whether or not such entity is affiliated with such subsidiary guarantor
and whether or not such subsidiary guarantor is the surviving entity, unless:
(1) the surviving entity is a corporation, partnership, limited liability
company, limited liability limited partnership or trust organized or
existing under the laws of the United States, any State thereof or the
District of Columbia;
(2) the surviving entity (if other than such subsidiary guarantor) assumes
all the Obligations of such subsidiary guarantor under the notes and
the indenture in accordance with a supplemental indenture in a form
reasonably satisfactory to the trustee;
(3) at the time of and immediately after such disposition, no default or
event of default shall have occurred and be continuing; and
(4) the surviving entity will have consolidated net worth, immediately
after giving pro forma effect to the disposition, equal to or greater
than the consolidated net worth of such subsidiary guarantor
immediately preceding the transaction; provided, however, that this
clause (4) shall not be a condition to a merger or consolidation of a
subsidiary guarantor if such merger or consolidation only involves
Holdings and/or one or more wholly owned Restricted Subsidiaries.
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 entity and the surviving
entity is to assume all the obligations of such Issuer or any such subsidiary
guarantor under the notes and the indenture in accordance with a supplemental
indenture, such surviving entity 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 following will be events of default under the indenture:
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(a) failure to pay interest on any note when due and payable, continued
for 30 days;
(b) failure to pay the Accreted Value or principal of (or premium, if any,
on) any note when due and payable at maturity, upon redemption or
otherwise;
(c) failure to perform or comply with any of the provisions described
under "--Merger, Sale of Assets, etc.," "--Change of Control" and
"--Covenants--Disposition of Proceeds of Asset Sales" above;
(d) failure to observe or perform any other covenant, warranty or
agreement of Holdings and Holdings Capital II or any subsidiary
guarantor under the indenture or the notes continued for 30 days after
written notice to Holdings and Holdings Capital II by the trustee or
holders of at least 25% in aggregate principal amount at maturity of
outstanding notes;
(e) default under the terms of one or more instruments evidencing or
securing Indebtedness of Holdings or any Restricted Subsidiary having
an outstanding principal amount of $10 million or more individually or
in the aggregate that has resulted in the acceleration of the payment
of such Indebtedness or failure to pay principal when due at the
stated maturity of any such Indebtedness;
(f) the rendering of a final judgment or judgments (not subject to appeal)
against Holdings or any Restricted Subsidiary in an amount of $10
million or more (net of any amounts covered by reputable and
creditworthy insurance companies) which remains undischarged or
unstayed for a period of 60 days after the date on which the right to
appeal has expired;
(g) any holder or holders of at least $10 million in aggregate principal
amount of Indebtedness of Holdings or any Restricted Subsidiary, after
a default under such Indebtedness, shall notify the trustee of the
intended sale or disposition of any assets of Holdings or any
Restricted Subsidiary with an aggregate fair market value (as
determined in good faith by the interest payment dates of Holdings) of
at least $2 million 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 Holdings or any Restricted Subsidiary (including funds on deposit
or held in a lock-box and other similar arrangements) which continues
for five business days after notice has been given to Holdings and the
representative of such Indebtedness;
(h) certain events of bankruptcy, insolvency or reorganization affecting
either of Holdings or Holdings Capital II or any Significant
Restricted Subsidiary; and
(i) other than as provided in or in connection with any subsidiary
guarantee or the indenture, such subsidiary guarantee ceases to be in
full force and effect or is declared null and void and unenforceable
or found to be invalid or any subsidiary guarantor denies its
liability under its subsidiary guarantee (other than by reason of a
release of such subsidiary guarantor from its subsidiary guarantee in
accordance with the terms of the indenture and such subsidiary
guarantee).
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default (as defined) shall occur and be continuing,
the trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request or direction of any of the holders, unless
such holders shall have offered to the trustee reasonable indemnity. Subject to
such provisions for the indemnification of the trustee, the holders of a
majority in aggregate principal amount at maturity of the outstanding notes will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust or power
conferred on the trustee.
If an event of default (other than an event of default with respect to either
Holdings or Holdings Capital II described in clause (h) above) shall occur and
be continuing, the trustee or the holders of at least 25% in aggregate principal
amount at maturity of the outstanding notes by notice in writing to Holdings and
Holdings Capital II (and to the trustee if given by the holders) may declare the
Accreted Value of all the outstanding notes, together with all accrued and
unpaid interest, if any, thereon as of such date of
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declaration to be immediately due and payable (provided that notes whose
Accreted Value remains unpaid after such date of declaration shall continue to
accrete in accordance with the definition of "Accreted Value" and accrue
interest as provided in the notes). Upon any such declaration, such Accreted
Value and accrued and unpaid interest, if any, shall become immediately due and
payable. If an event of default specified in clause (h) above with respect to
either Holdings or Holdings Capital II occurs, the Accreted Value on all of the
outstanding notes, together with all accrued and unpaid interest, if any,
thereon will therefore become immediately due and payable without any
declaration or other act on the part of the trustee or any holder (provided that
notes whose Accreted Value remains unpaid after the date of such event of
default shall continue to accrete in accordance with the definition of "Accreted
Value" and accrue interest as provided in the notes).
After such acceleration, but before a judgment or decree based on acceleration
has been obtained, the holders of not less than a majority in aggregate
principal amount at maturity of then outstanding notes may, under certain
circumstances, rescind and annul such acceleration if all events of default,
other than the non-payment of accelerated Accreted Value or principal and
interest, as the case may be, have been cured or waived as provided in the
indenture. For information as to waiver of defaults, see "--Modification and
Waiver" below.
The indenture provides that the trustee shall, within 30 days after the
occurrence of any default or event of default with respect to the notes, give
the holders thereof notice of all uncured defaults or events of default known to
it; provided, however, that, except in the case of an event of default or a
default in payment with respect to the notes or a default or event of default in
complying with "Merger, Sale of Assets, etc." above, the trustee shall be
protected in withholding such notice if and so long as the interest payment
dates or responsible officers of the trustee in good faith determine that the
withholding of such notice is in the interest of the holders of the notes.
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing event of
default and unless the holders of at least 25% in aggregate principal amount at
maturity of the outstanding notes shall have made written request, and offered
reasonable indemnity, to the trustee to institute such proceeding as trustee,
and the trustee shall not have received from the holders of a majority in
aggregate principal amount at maturity of the outstanding notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a note for enforcement of payment of Accreted Value
of, the principal of and premium, if any, or interest on such note on or after
the respective due dates expressed in such note and the indenture.
Holdings and Holdings Capital II will be required to furnish to the trustee
annually a statement as to the performance by them of certain of their
obligations under the indenture and as to any default in such performance.
No Personal Liability of Directors, Officers, Employees and Partners
The indenture will provide that no director, officer, employee, incorporator or
limited or general partner of Holdings or Holdings Capital II or any of their
subsidiaries shall have any liability for any obligation of Holdings or Holdings
Capital II 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 entities from all such liability and such waiver and release is
part of the consideration for the issuance of the notes.
Satisfaction and Discharge of Indenture; Defeasance
Holdings and Holdings Capital II may terminate their and any subsidiary
guarantor's substantive obligations in respect of the notes by delivering all
outstanding notes to the trustee for cancellation and paying all sums payable by
them on account of Accreted Value of or principal of, premium, if any, and
interest on all notes or otherwise. In addition to the foregoing, Holdings and
Holdings Capital II may, provided that no default or event of default has
occurred and is continuing or would arise therefrom (or, with respect to a
default or event of default specified in clause (h) of "--Events of Default"
above, any time on or prior to the 91st calendar day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until after such 91st day)), terminate their and any subsidiary guarantor's
substantive obligations in respect of the notes
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(except for their obligations to pay the principal of (and premium, if any) and
the interest on the notes and the subsidiary guarantors' guarantee thereof) by:
(1) depositing with the trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining Indebtedness on the notes
to their maturity;
(2) delivering to the trustee either an opinion of counsel or a ruling
directed to the trustee from the Internal Revenue Service to the
effect that the holders of the notes will not recognize income, gain
or loss for federal income tax purposes solely as a result of such
deposit and termination of obligations;
(3) delivering to the trustee an opinion of counsel to the effect that
Holdings' and Holdings Capital II's exercise of their option under
this paragraph will not result in either Holdings or Holdings Capital
II, the trustee or the trust created by the Holdings' and Holdings
Capital II's deposit of funds in accordance with this provision
becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940, as amended; and
(4) complying with certain other requirements set forth in the indenture.
In addition, Holdings and Holdings Capital II may, provided that no default or
event of default has occurred and is continuing or would arise therefrom (or,
with respect to a default or event of default specified in clause (h) of
"--Events of Default" above, any time on or prior to the 91st calendar day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 91st day)), terminate all of their and any
subsidiary guarantor's substantive obligations in respect of the notes,
including their obligations to pay the principal of (and premium, if any) and
interest on the notes and the subsidiary guarantors' guarantee thereof, by:
(1) depositing with the trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient
(without reinvestment) to pay all remaining Indebtedness on the notes
to their maturity;
(2) delivering to the trustee either a ruling directed to the trustee from
the Internal Revenue Service to the effect that the holders of the
notes will not recognize income, gain or loss for federal income tax
purposes solely as a result of such deposit and termination of
obligations or an opinion of counsel based upon such a ruling
addressed to the trustee or a change in the applicable federal tax law
since the date of the indenture to such effect;
(3) delivering to the trustee an opinion of counsel to the effect that
Holdings' and Holdings Capital II's exercise of their option under
this paragraph will not result in either Holdings or Holdings Capital
II, the trustee or the trust created by Holdings' and Holdings Capital
II's deposit of funds in accordance with this provision becoming or
being deemed to be an "investment company" under the Investment
Company Act of 1940, as amended; and
(4) complying with certain other requirements set forth in the indenture.
Governing Law
The indenture and the notes will be governed by the laws of the State of New
York without regard to principles of conflicts of laws.
Modification and Waiver
Holdings and Holdings Capital II and each subsidiary guarantor (if any), when
authorized by a resolution of their respective Boards of Directors, and the
trustee may amend or supplement the indenture or the notes without notice to or
consent of any holder:
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(1) to cure any ambiguity, defect or inconsistency; provided, however,
that such amendment or supplement does not materially and adversely
affect the rights of any holder;
(2) to effect the assumption by a successor entity of all obligations of
Holdings and Holdings Capital II under the notes and the indenture in
connection with any transaction complying with "--Merger, Sale of
Assets, etc." Above;
(3) to provide for uncertificated notes in addition to or in place of
certificated notes;
(4) to comply with any requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act;
(5) to make any change that would provide any additional benefit or rights
to the holders;
(6) to make any other change that does not materially and adversely affect
the rights of any holder under the indenture;
(7) to evidence the succession of another entity to any subsidiary
guarantor and the assumption by any such successor of the covenants of
such subsidiary guarantor in the indenture and in the subsidiary
guarantee;
(8) to add to the covenants of Holdings and Holdings Capital II or the
subsidiary guarantors for the benefit of the holders, or to surrender
any right or power conferred upon Holdings and Holdings Capital II or
any subsidiary guarantor under the indenture;
(9) to secure the notes in accordance with the requirements of
"--Covenants--Limitation on Liens" above or otherwise; or
(10) to reflect the release of a subsidiary guarantor from its obligations
with respect to its subsidiary guarantee in accordance with the
provisions of the indenture and to add a subsidiary guarantor in
accordance with the requirements of the indenture; provided, however,
that Holdings and Holdings Capital II have delivered to the trustee an
opinion of counsel stating that such amendment or supplement complies
with the provisions of the indenture.
Modifications and amendments of the indenture and the notes may be made by
Holdings and Holdings Capital II and each subsidiary guarantor, if any, when
authorized by a resolution of their respective Boards of Directors and the
trustee with the consent of the holders of a majority in aggregate principal
amount at maturity of the outstanding notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each note
affected thereby:
(a) change the definition of "Accreted Value" or change the definition of
principal amount at maturity or change the Stated Maturity of the
principal of or any installment of interest on any note or alter the
optional redemption or repurchase provisions of any note or the
indenture in a manner adverse to the holders of the notes;
(b) reduce the Accreted Value or the principal amount at maturity (or the
premium) of any note;
(c) reduce the rate of or extend the time for payment of interest on any
note;
(d) change the place or currency of payment of Accreted Value or principal
of (or premium) or interest on any note;
(e) modify any provisions of the indenture relating to the waiver of past
defaults (other than to add sections of the indenture subject thereto)
or the right of the holders to institute suit for the enforcement of
any payment on or with respect to any note or the modification and
amendment of the indenture and the notes (other than to add sections
of the indenture or the notes which may not be amended, supplemented
or waived without the consent of each holder affected);
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(f) reduce the percentage of the principal amount at maturity of
outstanding notes necessary for amendment to or waiver of compliance
with any provision of the indenture or the notes or for waiver of any
default;
(g) waive a default in the payment of the Accreted Value of, principal of,
interest on, or a redemption payment with respect to, any note (except
a rescission of acceleration of the notes by the holders as provided
in the indenture and a waiver of the payment default that resulted
from such acceleration);
(h) modify the ranking or priority of the notes or the subsidiary
guarantee of any subsidiary guarantor in any manner adverse to the
holders;
(i) release any subsidiary guarantor from any of its obligations under its
subsidiary guarantee or the indenture otherwise than in accordance
with the indenture; or
(j) modify the provisions relating to any Offer to Purchase required under
the covenants described under "--Covenants--Disposition of Proceeds of
Asset Sales" or "--Change of Control" above in a manner materially
adverse to the holders.
The holders of a majority in aggregate principal amount at maturity of the
outstanding notes, on behalf of all holders of notes, may waive compliance by
Holdings and Holdings Capital II with certain restrictive provisions of the
indenture. Subject to certain rights of the trustee, as provided in the
indenture, the holders of a majority in aggregate principal amount at maturity
of the outstanding notes, on behalf of all holders of notes, may waive any past
default under the indenture, except a default in the payment of the Accreted
Value of, principal of, premium or interest on or a default arising from failure
to purchase any note tendered in connection with an Offer to Purchase, or a
default in respect of a provision that under the indenture cannot be modified or
amended without the consent of the holder of each outstanding note affected.
The Trustee
The indenture provides that, except during the continuance of a default, the
trustee will perform only such duties as are specifically set forth in the
indenture. During the existence of a default, the trustee will exercise such
rights and powers vested in it under the indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The indenture and
provisions of the Trust Indenture Act incorporated by reference therein contain
limitations on the rights of the trustee, should it become a creditor of either
Holdings or Holdings Capital II, any subsidiary guarantor or any other obligor
upon the notes, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claim as security or
otherwise. The trustee is permitted to engage in other transactions with
Holdings and Holdings Capital II or an affiliate of either Holdings or Holdings
Capital II; provided, however, that if it acquires any conflicting interest, as
defined in the indenture or in the Trust Indenture Act, it must eliminate such
conflict or resign. The trustee is also the trustee under the FVOP Indenture and
the 1997 Notes Indenture.
Certain Definitions
Set forth below is a summary of certain of the 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.
"1997 NOTES" means the $237,650,000 aggregate principal amount at maturity 11
7/8% senior discount notes due 2007 of Holdings and FrontierVision Holdings
Capital Corporation issued under the 1997 Notes Indenture.
"1997 NOTES INDENTURE" means the indenture dated as of September 19, 1997 among
Holdings, FrontierVision Holdings Capital Corporation, as Issuers, and U.S. Bank
National Association (d/b/a/ Colorado National Bank), as trustee.
"ACCRETED VALUE" as of any specified date means, with respect to each $1,000
original principal amount at maturity of notes:
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(1) if the specified date is one of the following dates, the amount set
forth opposite such date below:
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
Issue Date $ 726.76
March 15, 1999 750.42
September 15, 1999 794.97
March 15, 2000 842.17
September 15, 2000 892.18
March 15, 2001 945.15
September 15, 2001 1,000.00
(2) if the specified date occurs between two semi-annual accrual dates,
the sum of (a) the Accreted Value for the semi-annual accrual date
immediately preceding the specified date and (b) an amount equal to
the product of (x) the Accreted Value for the immediately following
semi-annual accrual date less the Accreted Value for the immediately
preceding semi-annual accrual date and (y) a fraction, the numerator
of which is the number of days actually elapsed from the immediately
preceding semi-annual accrual date to the specified date and the
denominator of which is 180; and
(3) if the specified date is after September 15, 2001, $1,000;
provided, however, that if Holdings makes the Cash Interest Election, the
Accreted Value shall be, and remain through the Stated Maturity of the notes,
the Accreted Value as of the Semi-Annual Accrual Date on which the Cash Interest
Election is made.
"ADVISORY COMMITTEE" means the Advisory Committee of the General Partner
established in accordance with the provisions of Article VI of the First Amended
and Restated Agreement of Limited Partnership of the General Partner, as amended
to the date of issuance of the notes.
"ASSET ACQUISITION" means:
(1) any capital contribution (by means of transfers of cash or other
property to others or payments for property or services for the
account or use of others, or otherwise) by Holdings or any Restricted
Subsidiary to any other entity, or any acquisition or purchase of
equity interests of any other entity by Holdings or any Restricted
Subsidiary, in either case pursuant to which such entity shall become
a Restricted Subsidiary or shall be consolidated or merged with or
into Holdings or any Restricted Subsidiary; or
(2) any acquisition by Holdings or any Restricted Subsidiary of the assets
of any entity which constitute substantially all of an operating unit
or line of business of such entity or which is otherwise outside of
the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition, including, without
limitation, any merger, consolidation or sale-leaseback transaction, to any
entity other than Holdings or a wholly owned Restricted Subsidiary, in one
transaction or a series of related transactions of:
(1) any equity interest of any Restricted Subsidiary;
(2) any material license, franchise or other authorization of Holdings or
any Restricted Subsidiary;
(3) any assets of Holdings or any Restricted Subsidiary which constitute
substantially all of an operating unit or line of business of Holdings
or any Restricted Subsidiary; or
(4) any other property or asset of Holdings or any Restricted Subsidiary
outside of the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not include:
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(1) any transaction consummated in compliance with "--Merger, Sale of
Assets, etc." above and the creation of any lien not prohibited by the
provisions described under "--Covenants--Limitation on Liens" above;
(2) sales of property or equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the
business of Holdings or any Restricted Subsidiary, as the case may be;
and
(3) any transaction consummated in compliance with
"--Covenants--Limitation on Restricted Payments" above. In addition,
solely for purposes of "--Covenants--Disposition of Proceeds of Asset
Sales" above, any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a
series of related transactions, involving assets with a fair market
value not in excess of $1.0 million individually or $2.0 million in
any fiscal year shall be deemed not to be an Asset Sale.
"CASH EQUIVALENTS" means:
(1) any security maturing not more than six months after the date of
acquisition issued by the United States of America or an
instrumentality or agency thereof and guaranteed fully as to
principal, premium, if any, and interest by the United States of
America;
(2) any certificate of deposit, time deposit, money market account or
bankers' acceptance maturing not more than six months after the date
of acquisition issued by any commercial banking institution that is a
member of the Federal Reserve System and that has combined capital and
surplus and undivided profits of not less than $500.0 million whose
debt has a rating, at the time as of which any investment therein is
made, of "P-1" (or higher) according to Moody's Investors Service,
Inc. or any successor rating agency, or "a-1" (or higher) according to
Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc., or any successor rating agency; and
(3) commercial paper maturing not more than three months after the date of
acquisition issued by any corporation (other than an affiliate of
Holdings) organized and existing under the laws of the United States
of America with a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's Investors
Service, Inc. or any successor rating agency, or "A-1" (or higher)
according to Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., or any successor rating agency.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to Holdings for any period,
without duplication, the sum of:
(1) the interest expense of Holdings and the Restricted Subsidiaries for
such period as determined on a consolidated basis in accordance with
GAAP, including, without limitation:
(a) any amortization of debt discount;
(b) the net cost under interest rate protection obligations
(including any amortization of discounts);
(c) the interest portion of any deferred payment obligation;
(d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
and
(e) all capitalized interest and all accrued interest;
(2) the interest component of capitalized lease obligations paid, accrued
and/or scheduled to be paid or accrued by Holdings and the Restricted
Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP; and
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(3) dividends and distributions in respect of Disqualified Equity
Interests actually paid in cash by Holdings during such period as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any period, the net income of
Holdings and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication:
(1) all extraordinary gains or losses and all gains and losses from the
sale or other disposition of assets out of the ordinary course of
business (net of taxes, fees and expenses relating to the transaction
giving rise thereto) for such period;
(2) that portion of such net income derived from or in respect of
investments in entities other than Restricted Subsidiaries, except to
the extent actually received in cash by Holdings or any Restricted
Subsidiary;
(3) the portion of such net income (or loss) allocable to minority
interests in unconsolidated entities for such period, except to the
extent actually received in cash by Holdings or any Restricted
Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of the immediately following sentence of this definition);
and
(4) net income (or loss) of any other entity combined with Holdings or any
Restricted Subsidiary on a "pooling of interests" basis attributable
to any period prior to the date of combination.
In calculating Consolidated Net Income as a component of Consolidated Operating
Cash Flow:
(x) for purposes of calculating the Debt to Operating Cash Flow Ratio in
connection with determining whether an incurrence of Indebtedness by
Holdings (but not the Restricted Subsidiaries) is permitted under the
Debt to Operating Cash Flow Ratio of the first paragraph of
"--Covenants--Limitation on Indebtedness;" and
(y) for purposes of calculating:
(1) Cumulative Available Cash Flow in accordance with clause (c)(1)
of "--Covenants--Limitation on Restricted Payments;" and
(2) the Debt to Operating Cash Flow Ratio in accordance with clause
(b) under "--Covenants--Limitation on Restricted Payments" in
connection with determining whether a Restricted Payment by
Holdings in accordance with clauses (1), (2) or (3) under
"--Covenants--Limitation on Restricted Payments" is permitted
under such covenant, the net income of any Restricted Subsidiary
shall be excluded to the extent that the declaration of dividends
or similar distributions by that Restricted Subsidiary of that
income is not at the time (regardless of any waiver) permitted,
directly or indirectly, by reason of any Payment Restriction;
provided, however, that that net income shall not be so excluded
in determining whether Holdings could incur $1.00 of Indebtedness
under the Debt to Operating Cash Flow Ratio of the first
paragraph under "--Covenants--Limitation on Indebtedness:"
(a) (or in calculating Cumulative Available Cash Flow) for purposes of
determining whether any Restricted Payment other than those referred
to in clause (y) of this sentence is permitted under
"--Covenants--Limitation on Restricted Payments;"
(b) for purposes of determining whether a designation is permitted in
accordance with clause (b) under "--Covenants--Designation of
Unrestricted Subsidiaries;" and
(c) for purposes of determining compliance with clause (c) under "Merger,
Sale of Assets, etc." (unless the applicable transaction involves the
incurrence by Holdings of additional Indebtedness).
"CONSOLIDATED OPERATING CASH FLOW" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of:
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(1) consolidated income tax expense accrued according to GAAP for such
period to the extent deducted in determining Consolidated Net Income
for such period;
(2) Consolidated Interest Expense (other than dividends on preferred
equity interests) for such period to the extent deducted in
determining Consolidated Net Income for such period; and
(3) depreciation, amortization and any other non-cash items for such
period to the extent deducted in determining Consolidated Net Income
for such period (other than any non-cash item which requires the
accrual of, or a reserve for, cash charges for any future period) of
Holdings and the Restricted Subsidiaries, including, without
limitation, amortization of capitalized debt issuance costs for such
period, all of the foregoing determined on a consolidated basis in
accordance with GAAP minus non-cash items to the extent they increase
Consolidated Net Income (including the partial or entire reversal of
reserves taken in prior periods) for such period.
"CUMULATIVE AVAILABLE CASH FLOW" means, as at any date of determination, the
positive cumulative Consolidated Operating Cash Flow realized during the period
commencing on September 19, 1997 and ending on the last day of the most recent
fiscal quarter immediately preceding the date of determination for which
consolidated financial information of Holdings is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"DEBT TO OPERATING CASH FLOW RATIO" means the ratio of:
(1) the Total Consolidated Indebtedness as of the date of calculation; to
(2) four times the Consolidated Operating Cash Flow for the latest fiscal
quarter for which financial information is available immediately
preceding such calculation date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the
Measurement Period immediately prior to the relevant calculation date:
(a) any entity that is a Restricted Subsidiary on the calculation
date (or would become a Restricted Subsidiary on such calculation
date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be
deemed to have been a Restricted Subsidiary at all times during
such Measurement Period;
(b) any entity that is not a Restricted Subsidiary on such
calculation date (or would cease to be a Restricted Subsidiary on
such calculation date in connection with the transaction that
requires the determination of such Consolidated Operating Cash
Flow) will be deemed not to have been a Restricted Subsidiary at
any time during such Measurement Period; and
(3) if Holdings or any Restricted 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, any operating business during such Measurement Period
or after the end of such period and on or prior to such
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 business, all such transactions had
been consummated prior to the first day of such Measurement
Period.
"DESIGNATION AMOUNT" has the meaning set forth under "--Covenants--Designation
of Unrestricted Subsidiaries" above.
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"Disqualified Equity Interest" means any equity interest which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, in connection with a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the notes or the date on which no notes remain
outstanding.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"INDEBTEDNESS" means (without duplication), with respect to any entity, whether
recourse is to all or a portion of the assets of such entity and whether or not
contingent:
(1) every obligation of such entity for money borrowed;
(2) every obligation of such entity evidenced by bonds, debentures, notes
or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of such entity with respect to letters
of credit, bankers' acceptances or similar facilities issued for the
account of such entity;
(4) every obligation of such entity issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable incurred in the ordinary course of business and payable in
accordance with industry practices, or other accrued liabilities
arising in the ordinary course of business which are not overdue or
which are being contested in good faith);
(5) every capitalized lease obligation of such entity;
(6) every net obligation under interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements of such entity;
(7) every obligation of the type referred to in clauses (1) through (6) of
another entity and all dividends of another entity the payment of
which, in either case, such entity has guaranteed or is responsible or
liable for, directly or indirectly, as obligor, guarantor or
otherwise; and
(8) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (1) through (7) above.
Indebtedness:
(1) shall never be calculated taking into account any cash and cash
equivalents held by such entity;
(2) shall not include obligations of any entity:
(x) arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within
two business days of their incurrence unless covered by an
overdraft line;
(y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with
past business practices; and
(z) under stand-by letters of credit to the extent collateralized by
cash or Cash Equivalents;
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(3) which provides that an amount less than the principal amount thereof
shall be due upon any declaration of acceleration thereof shall be
deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination;
(4) shall include the liquidation preference and any mandatory redemption
payment obligations in respect of any Disqualified Equity Interests of
Holdings or any Restricted Subsidiary; and
(5) shall not include obligations under performance bonds, performance
guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, incurred in the ordinary course of business,
including in connection with the requirements of cable television
franchising authorities, and otherwise consistent with industry
practice.
"ISSUE DATE" means the date of original issuance of the notes under the
indenture.
"NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or Cash
Equivalents received by Holdings or any Restricted Subsidiary in respect of any
Asset Sale, including all cash or Cash Equivalents received upon any sale,
liquidation or other exchange of proceeds of Asset Sales received in a form
other than cash or Cash Equivalents, net of:
(1) the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof;
(2) taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing
arrangements);
(3) amounts required to be applied to the repayment of Indebtedness
secured by a lien on the asset or assets that were the subject of such
Asset Sale;
(4) amounts deemed, in good faith, appropriate by the Board of Directors
of FV Inc. to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the
subject of such Asset Sale (provided that the amount of any such
reserves shall be deemed to constitute Net Cash Proceeds at the time
such reserves shall have been released or are not otherwise required
to be retained as a reserve); and
(5) with respect to Asset Sales by Restricted Subsidiaries, the portion of
such cash payments attributable to entities holding a minority
interest in such Restricted Subsidiaries.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by or on behalf of
Holdings by first class mail, postage prepaid, to each holder at his address
appearing in the register for the notes on the date of the Offer offering to
purchase up to the Accreted Value of notes specified in such Offer at the
purchase price specified in such Offer (as determined in accordance with the
indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date of the Offer to Purchase, which shall be not less than 20
business days nor more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of notes to occur no later
than five business days after the expiration date. Holdings shall notify the
trustee at least 15 business days (or such shorter period as is acceptable to
the trustee) prior to the mailing of the Offer of Holdings' obligation to make
an Offer to Purchase, and the Offer shall be mailed by Holdings or, at Holdings'
request, by the trustee in the name and at the expense of Holdings. The Offer
shall contain all the information required by applicable law to be included
therein. The Offer shall contain all instructions and materials necessary to
enable such holders to tender notes in connection with the Offer to Purchase.
The Offer shall also state:
(1) the section of the indenture which the Offer to Purchase is being
made;
(2) the expiration date and the Purchase Date;
(3) the aggregate principal amount at maturity of the outstanding notes
offered to be purchased by Holdings in accordance with the Offer to
Purchase (including, if less than all of the notes, the manner
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by which such amount has been determined in connection with the
Section of the indenture requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by Holdings for each $1,000 aggregate
principal amount at maturity of notes accepted for payment (as
specified in the indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the notes registered
in the name of such holder and that any portion of a note tendered in
a denomination of less than $1,000 principal amount at maturity must
be tendered in whole;
(6) the place or places where notes are to be surrendered for tender in
connection with the Offer to Purchase;
(7) that notes not tendered or tendered but not purchased by Holdings in
accordance with the Offer to Purchase will continue to accrete
Accreted Value as provided in the indenture;
(8) that interest on any note not tendered or tendered but not purchased
by Holdings in accordance with the Offer to Purchase will continue to
accrue as provided in the indenture;
(9) that on the Purchase Date the Purchase Price will become due and
payable upon each note being accepted for payment in accordance with
the Offer to Purchase and that the Accreted Value thereof will cease
to increase on and that interest thereon shall cease to accrue on and
after the Purchase Date;
(10) that each holder electing to tender all or any portion of a note in
accordance with the Offer to Purchase will be required to surrender
such note at the place or places specified in the Offer prior to the
close of business on the expiration date (such note being, if Holdings
or the trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to Holdings and
the trustee duly executed by, the holder thereof or his attorney duly
authorized in writing);
(11) that holders will be entitled to withdraw all or any portion of notes
tendered if Holdings (or its Paying Agent) receives, not later than
the close of business on the fifth Business Day next preceding the
expiration date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount at maturity
of the note the holder tendered, the certificate number of the note
the holder tendered and a statement that such holder is withdrawing
all or a portion of his tender;
(12) that if notes with an aggregate Accreted Value less than or equal to
the Purchase Amount are duly tendered and not withdrawn in accordance
with the Offer to Purchase, Holdings shall purchase all such notes and
(b) if notes with an aggregate Accreted Value in excess of the
Purchase Amount are tendered and not withdrawn in accordance with the
Offer to Purchase, Holdings shall purchase notes with an aggregate
Accreted Value equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that no notes in
denominations of less than $1,000 principal amount at maturity are
purchased in part); and
(13) that in the case of any holder whose note is purchased only in part,
Holdings shall execute and the trustee shall authenticate and deliver
to the holder of such note without service charge a new note or notes,
of any authorized denomination as requested by such holder, in an
aggregate principal amount at maturity equal to and in exchange for
the unpurchased portion of the note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"PAYMENT RESTRICTION" has the meaning set forth under "--Covenants--Limitation
on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries."
"PERMITTED HOLDERS" means any of:
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(a) the General Partner, FVP GP or FV Inc. for so long as a majority of
the voting power of the voting equity interests of such entity is
beneficially owned by any of the entities listed in the other clauses
of this definition;
(b) James C. Vaughn, the President and Chief Executive Officer of FV Inc.
on the Issue Date;
(c) John S. Koo, the Senior Vice President and Chief Financial Officer of
FV Inc. on the Issue Date;
(d) any of J. P. Morgan Investment Corporation, a Delaware corporation,
Olympus Cable Corp., a Delaware corporation, First Union Capital
Partners, Inc., a Virginia corporation, and 1818 II Cable Corp., a
Delaware corporation;
(e) any entity controlling, controlled by or under common control with any
other entity described in clauses (a)-(d) of this definition; and
(f) (1) the spouse or children of any entity named in clause (b) or (c) of
this definition and any trust for the benefit of any such entities or
their respective spouses or children; provided, however, that with
respect to any such trust, such entities have the sole right to direct
and control any such trust and any voting equity interest owned by
such trust, and
(2) any such entity's estate, executor, administrator and heirs.
"PERMITTED INVESTMENTS" means:
(a) Cash Equivalents;
(b) investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance
and other similar deposits;
(c) loans and advances to employees made in the ordinary course of
business not to exceed $1 million in the aggregate at any one time
outstanding;
(d) interest rate protection obligations;
(e) bonds, notes, debentures or other securities received as a result of
Asset Sales permitted under "--Covenants--Disposition of Proceeds of
Asset Sales" above not to exceed 25% of the total consideration for
such Asset Sales;
(f) transactions with officers, directors and employees of Holdings, the
General Partner, FVP GP, FV Inc. or any Restricted Subsidiary entered
into in the ordinary course of business, including compensation or
employee benefit arrangements with any such director or employee, and
consistent with past business practices;
(g) investments existing as of September 19, 1997 and any amendment,
extension, renewal or modification thereof to the extent that any such
amendment, extension, renewal or modification does not require
Holdings or any Restricted Subsidiary to make any additional cash or
non-cash payments or provide additional services in connection
therewith;
(h) any investment for which the sole consideration provided is Qualified
Equity Interests of Holdings; and
(i) any investment consisting of a guarantee permitted under clause (e) of
"--Covenants--Limitation on Indebtedness" above.
"PERMITTED LIENS" means:
(a) Liens on property of an entity existing at the time such entity is
merged into or consolidated with Holdings; provided, however, that
such liens were in existence prior to the contemplation of such
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merger or consolidation and do not secure any property or assets of
Holdings or any Restricted Subsidiary other than the property or
assets subject to the liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics'
liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than sixty (60)
days past due or which are being contested in good faith and by
appropriate proceedings;
(c) Liens existing on September 19, 1997;
(d) Liens securing only (1) the notes or (2) the 1997 Notes in accordance
with the terms of the 1997 Notes Indenture as in effect on the Issue
Date;
(e) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made
therefor;
(f) easements, reservation of rights-of-way, restrictions and other
similar easements, licenses, restrictions on the use of properties, or
minor imperfections of title that in the aggregate are not material in
amount and do not in any case materially detract from the properties
subject thereto or interfere with the ordinary conduct of the business
of Holdings and the Restricted Subsidiaries;
(g) Liens resulting from the deposit of cash or securities in connection
with contracts, tenders or expropriation proceedings, or to secure
workers' compensation, surety or appeal bonds, costs of litigation
when required by law and public and statutory obligations or
obligations under franchise arrangements entered into in the ordinary
course of business;
(h) Liens securing Indebtedness consisting of capitalized lease
obligations of Holdings, purchase money indebtedness of Holdings,
mortgage financings of Holdings, industrial revenue bonds of Holdings
or other monetary obligations of Holdings, in each case incurred
solely for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the
business of Holdings, or repairs, additions or improvements to such
assets, provided, however, that:
(1) such liens secure Indebtedness in an amount not in excess of the
original purchase price or the original cost of any such assets
or repair, addition or improvement thereto (plus an amount equal
to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness);
(2) such liens do not extend to any other assets of Holdings or the
Restricted Subsidiaries (and, in the case of repairs, additions
or improvements to any such assets, such lien extends only to the
assets (and improvements thereto or thereon) repaired, added to
or improved);
(3) the incurrence of such Indebtedness is permitted by
"--Covenants--Limitation on Indebtedness" above and (4) such
liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement;
(i) Liens to secure any refinancings, renewals, extensions, modifications
or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by
liens referred to in the clauses above so long as such lien does not
extend to any other property (other than improvements thereto); and
(j) Liens securing letters of credit entered into in the ordinary course
of business and consistent with past business practice.
"PERMITTED STRATEGIC INVESTMENT" means an investment in an entity (including,
without limitation, a Restricted Subsidiary which is not a wholly owned
Restricted Subsidiary or an Unrestricted Subsidiary) engaged in a Related
Business if, at the time of and immediately after giving pro forma effect to
such investment (and any related transaction or series of transactions), the
Debt to Operating Cash Flow Ratio would be less than or equal to:
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(1) 7.0 to 1.0, if the date of such investment is on or before December
31, 1998; and
(2) 6.5 to 1.0 thereafter.
"PUBLIC EQUITY OFFERING" means, with respect to any entity, a public offering by
such entity of some or all of its Qualified Equity Interests, the net proceeds
of which (after deducting any underwriting discounts and commissions) exceed
$25.0 million.
"PURCHASE DATE" has the meaning set forth in the definition of "Offer to
Purchase".
"QUALIFIED EQUITY INTEREST" in any entity means any equity interest in such
entity other than any Disqualified Equity Interest.
"RESTRICTED SUBSIDIARY" means any subsidiary of Holdings that has not been
designated by the interest payment dates of Holdings by a resolution of the
interest payment dates of Holdings delivered to the trustee as an Unrestricted
Subsidiary in accordance with "--Covenants--Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
interest payment dates of Holdings delivered to the trustee, subject to the
provisions of such covenant.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, at any date of determination:
(a) any Restricted Subsidiary that, together with its subsidiaries that
constitute Restricted Subsidiaries:
(1) for the most recent fiscal year of Holdings accounted for more
than 10.0% of the consolidated revenues of Holdings and the
Restricted Subsidiaries; or
(2) as of the end of such fiscal year, owned more than 10.0% of the
consolidated assets of Holdings and the Restricted Subsidiaries,
all as set forth on the consolidated financial statements of
Holdings and the Restricted Subsidiaries for such year prepared
in conformity with GAAP; and
(b) any Restricted Subsidiary which, when aggregated with all other
Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (h) of
"--Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"STRATEGIC EQUITY INVESTMENT" means the issuance and sale of Qualified Equity
Interests of Holdings for net proceeds to Holdings of at least $25.0 million to
an entity engaged primarily in the cable television, wireless cable television,
telephone or interactive television business.
"TOTAL CONSOLIDATED INDEBTEDNESS" means, as at any date of determination, an
amount equal to the aggregate amount of all Indebtedness and Disqualified Equity
Interests of Holdings and the Restricted Subsidiaries outstanding as of such
date of determination.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"UNRESTRICTED SUBSIDIARY" means the subsidiaries listed in the first sentence of
"--Covenants--Designation of Unrestricted Subsidiaries" and any other subsidiary
of Holdings designated as such in accordance with the provisions of
"--Covenants--Designation of Unrestricted Subsidiaries" above. Any such
designation may be revoked by a resolution of the interest payment dates of
Holdings delivered to the trustee, subject to the provisions of such covenant.
Book-Entry; Delivery and Form
The certificates representing the notes will be issued in fully registered form
without interest coupons.
Notes sold in offshore transactions in reliance on Regulation S under the
Securities Act will initially be represented by a single, temporary global note
in definitive, fully registered form without interest coupons (the "Temporary
Regulation S Global Note") and will be deposited with the trustee as custodian
for The Depository
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Trust Company, DTC, as depository, and registered in the name of a nominee of
DTC for the accounts of Euroclear and Cedel. The Temporary Regulation S Global
Note will be exchangeable for a single, permanent global note (the "Permanent
Regulation S Global Note", and, together with the Temporary Regulation S Global
Note, the "Regulation S Global Note") on or after the 40th day after the later
of the commencement of the Offering and the Issue Date. Prior to such date,
beneficial interests in the Temporary Regulation S Global Note may be only held
through Euroclear or Cedel, and any resale or other transfer of such interests
to U.S. persons shall not be permitted during such period unless such resale or
transfer is made in accordance with Rule 144A or Regulation S and in accordance
with the certification requirements described below.
Notes sold in reliance on Rule 144A will be represented by a single, permanent
global note in definitive, fully registered form without interest coupons (the
"Restricted Global Note") and will be deposited with the trustee as custodian
for and registered in the name of a nominee of DTC. The Restricted Global Note
and the Temporary Regulation S Global Note (and any notes issued in exchange
therefor) will be subject to certain restrictions on transfer set forth therein
and will bear the legend regarding such restrictions set forth under "Notice to
Investors."
Prior to the 40th day after the later of the commencement of the original
offering of the notes and the Issue Date, a beneficial interest in the Temporary
Regulation S Global Note may be transferred to a person who takes delivery in
the form of an interest in the Restricted Global Note only upon receipt by the
trustee of a written certification from the transferor to the effect that such
transfer is being made to a person whom the transferor reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A. Beneficial interests in the Restricted
Global Note may be transferred to a person who takes delivery in the form of an
interest in the Regulation S Global Note whether before, on or after such 40th
day, only upon receipt by the trustee of a written certification to the effect
that such transfer is being made in accordance with Regulation S. Any beneficial
interest in the Global Notes (as defined) that is transferred to a person who
takes delivery in the form of an interest in the other Global Note will, upon
transfer, cease to be an interest in such Global Note and become an interest in
the other Global Note and, accordingly, will thereafter be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other Global Note for as long as it remains such an interest.
The Global Notes
Upon the issuance of the Regulation S Global Note and the Restricted Global Note
(each a "Global Note" and together the "Global Notes"), DTC or its custodian
will credit on its internal system the respective principal amount at maturity
of the individual beneficial interests represented by such Global Note to the
accounts of persons who have accounts with DTC. Such accounts initially will be
designated by or on behalf of the Initial Purchasers. Ownership of beneficial
interests in a 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 a 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).
Qualified institutional buyers may hold their interests in a Global Note
directly through DTC, if they are participants in such system, or indirectly
through organizations which are participants in such system.
Investors may hold their interests in the Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system. Beginning
40 days after the later of the commencement of the Offering and the Issue Date
(but not earlier), investors may also hold such interests through organizations
other than Cedel or Euroclear that are participants in DTC's system. Cedel and
Euroclear will hold interests in the Regulation S Global Note on behalf of their
participants through DTC.
So long as DTC, or its nominee, is the registered holder of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by such Global Note for all purposes under the
indenture and the notes. No beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with the procedures
provided for under "Notice to Investors," as well as DTC's applicable procedures
and, if applicable, those of Euroclear and Cedel.
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Payments of the Accreted Value of, the principal of, and interest on, the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither Holdings or Holdings Capital II, the trustee or any
Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Holdings and Holdings Capital II expect that DTC or its nominee, upon receipt of
any payment of Accreted Value, principal or interest in respect of a Global
Note, will credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount at maturity of
such Global Note as shown on the records of DTC or its nominee. Holdings and
Holdings Capital II also expect 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 practices, as is now the case
with securities held for the accounts of customers registered in the name of
nominees for such customers. Such payments will be the responsibility of such
participants. Transfers between participants in DTC will be effected in the
ordinary way in accordance with DTC's rules and will be settled in same-day
funds.
DTC has advised Holdings and Holdings Capital II that it will take any action
permitted to be taken by a holder of notes (including the presentation of notes
for exchange as described below) only at the direction of one or more
participants to whose accounts an interest in the Global Notes is credited and
only in respect of such portion of the aggregate principal amount at maturity of
notes as to which such participant or participants has or have given such
direction.
DTC has advised Holdings and Holdings Capital II as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
banking organization within the meaning of New York Banking Law, a member of the
Federal Reserve System, a clearing corporation within the meaning of the Uniform
Commercial Code and a Clearing Agency registered in accordance with 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, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to 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, Euroclear and Cedel have agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither Holdings, Holdings Capital II nor the trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
If DTC is at any time unwilling or unable to continue as a depository for the
Global Notes and a successor depository is not appointed by Holdings and
Holdings Capital II within 90 days, Holdings and Holdings Capital II will issue
certificated notes in exchange for the Global Notes.
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Certain United States Federal Income Tax Considerations
General
The following is a summary of the material United States federal income, estate
and gift tax consequences of the purchase, ownership and disposition of the
notes, but is not purported to be a complete analysis of all potential tax
effects. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations promulgated thereunder,
published rulings and court decisions, all as in effect and existing on the date
hereof and all of which are subject to change at any time, which change may be
retroactive or prospective. Unless otherwise specifically noted, this summary
applies only to those persons that hold the notes as capital assets within the
meaning of Section 1221 of the Code. This discussion assumes that the notes will
be treated as indebtedness for United States federal income tax purposes.
This summary is for general information only and does not address the tax
consequences to taxpayers who are subject to special rules (such as financial
institutions, tax-exempt organizations, insurance companies, s corporations,
regulated investment companies, real estate investment trusts, broker-dealers,
taxpayers subject to the alternative minimum tax and persons that will hold the
notes as part of a position in a "straddle" or as part of a "constructive sale "
or a "hedging" or "conversion" transaction) or address aspects of federal
taxation that might be relevant to a prospective investor based upon such
investor's particular tax situation. This summary does not address any tax
consequences arising under any state, municipality, foreign country or other
taxing jurisdiction. Prospective investors are urged to consult their tax
advisors regarding the united states federal tax consequences of owning and
disposing of the notes (including the investor's status as a united states
holder or a non-united states holder), as well as any tax consequences that may
arise under the laws of any state, municipality, foreign country or other taxing
jurisdiction.
Effect of Exchange of Old Notes for Exchange Notes
Holdings and Holdings Capital II believe that the exchange of old notes for
exchange notes in accordance with the exchange offer will not be treated as an
"exchange" for federal income tax purposes because the exchange notes will not
be considered to differ materially in kind or extent from the old notes. Rather,
the exchange notes received by a holder will be treated as a continuation of the
old notes in the hands of such holder. As a result, holders will not recognize
any taxable gain or loss or any interest income as a result of exchanging old
notes for exchange notes in accordance with the exchange offer, the holding
period of the exchange notes will include the holding period of the old notes,
and the basis of the exchange notes will equal the basis of the old notes
immediately before the exchange.
United States Holders
GENERAL. The following is a general discussion of certain United States federal
income tax consequences of the ownership and sale or other disposition of the
notes by a beneficial owner that, for United States federal income tax purposes,
is a "United States person" (a "United States Holder"). For purposes of this
discussion, a "United States person" means a citizen or individual resident (as
defined in Section 7701(b) of the Code) of the United States; a corporation or
partnership (including any entity treated as a corporation or partnership for
United States federal income tax purposes) created or organized under the laws
of the United States, any state thereof or the District of Columbia unless, in
the case of a partnership, otherwise provided by regulation; an estate the
income of which is subject to United States federal income tax without regard to
its source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. Notwithstanding the preceding sentence, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date that
elect to continue to be so treated shall also be considered to be United States
persons.
ISSUER CLASSIFICATION OF THE NOTES. The following discussion is based on the
position that, for federal income tax purposes, Holdings will be deemed to be
the sole Issuer of the notes, insofar as Holdings Capital II will have nominal
assets and no business operations.
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ORIGINAL ISSUE DISCOUNT. Because the notes were issued at a discount from their
"stated redemption price at maturity," the notes have original issue discount
for federal income tax purposes. For federal income tax purposes, the amount of
OID on a note generally equals the excess of the "stated redemption price at
maturity" of the note over its "issue price." The issue price of the notes is
the first price at which a substantial amount of the notes is sold (excluding
sales to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters or wholesalers). For purposes of this discussion, it is
assumed that all initial Holders purchased their notes at the issue price. The
stated redemption price at maturity of a note is the sum of all cash payments to
be made on such note (whether denominated as principal or interest), other than
payments of "qualified stated interest." Qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate that appropriately takes into account the length of the interval between
payments. Because there will be no required payment of interest on the notes
prior to March 15, 2002, none of the interest payments on the notes will
constitute qualified stated interest; and, accordingly, each note bears OID in
an amount equal to the excess of:
(1) the sum of its principal amount and all stated interest payments; over
(2) its issue price.
A United States Holder is required to include OID in income periodically over
the term of a note before receipt of the cash or other payment attributable to
such income, regardless of such holder's method of tax accounting. The amount of
OID required to be included in a United States Holder's gross income for any
taxable year is the sum of the "daily portions" of OID with respect to the note
for each day during the taxable year or portion of a taxable year during which
such holder holds the note. The daily portion is determined by allocating to
each day of any "accrual period" within a taxable year a pro rata portion of an
amount equal to the "adjusted issue price" of the note at the beginning of the
accrual period multiplied by the "yield to maturity" of the note. For purposes
of computing OID, Holdings and Holdings Capital II use six-month accrual periods
that end on the days in the calendar year corresponding to the maturity date of
the notes and the date six months prior to such maturity date, with the
exception of an initial short accrual period. A United States Holder is
permitted to use different accrual periods; provided that each accrual period is
no longer than one year, and each scheduled payment of interest or principal
occurs on either the first or last day of an accrual period. The adjusted issue
price of a note at the beginning of any accrual period is the issue price of the
note increased by the amount of OID previously includible in the gross income of
the holder (disregarding any reduction on account of acquisition premium,
described below) and decreased by any payments previously made on the note. The
yield to maturity is the discount rate that, when used in computing the present
value of all payments of principal and interest to be made on a note, produces
an amount equal to the issue price of the note. Under these rules, United States
Holders of notes are required to include in gross income increasingly greater
amounts of OID in each successive accrual period. Payments of stated interest on
a note are not separately included in income, but rather are treated first as
payments of previously accrued OID and then as payments of principal and,
consequently, reduce a United States Holder's basis in a note as described below
under "Certain United States Federal Income Tax Considerations--United States
Holders--Sale, Exchange or Redemption of the notes."
Holdings and Holdings Capital II intend to treat the possibility of:
(1) an optional redemption, as described under "Description of
Notes--Optional Redemption;" and
(2) a repurchase in connection with a change of control, as described
under "Description of Notes--Change of Control," as remote under
applicable Treasury regulations. Holdings and Holdings Capital II do
not intend to treat the possibilities described in (1) or (2) above
as:
(x) affecting the determination of the yield to maturity of the
notes; or
(y) giving rise to any additional accrual of OID or recognition of
ordinary income upon the redemption, sale or exchange of a note.
In the event Holdings and Holdings Capital II make the Cash Interest Election,
the payments of interest made in connection therewith should be treated first as
payments of accrued OID, and second as payments of principal. The Internal
Revenue Service may take the position, however, that the interest paid in
connection with the Cash
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Interest Election should be treated as a "pro rata prepayment" of a portion of
the note. A pro rata prepayment would be treated as a payment in retirement of a
portion of the note, which may result in gain or loss to the United States
Holder, as described below under "Certain United States Federal Income Tax
Considerations--United States Holders--Sale, Exchange or Redemption of the
Notes."
ACQUISITION PREMIUM. A United States Holder that purchases a note for an amount
that is greater than its adjusted issue price as of the purchase date will be
considered to have purchased such note at an "acquisition premium." The amount
of OID that such holder must include in its gross income with respect to such
note for any taxable year is generally reduced by the portion of such
acquisition premium properly allocable to such year. The information reported by
Holdings and Holdings Capital II to the record holders of the notes on an annual
basis will not account for an offset against OID for any portion of the
acquisition premium. Accordingly, each United States Holder should consult its
own tax advisor as to the determination of the acquisition premium amount and
the resulting adjustments to the amount of reportable OID.
AMORTIZABLE BOND PREMIUM. A United States Holder that purchases a note for an
amount in excess of its principal amount will be considered to have purchased
the note at a premium and may elect to amortize such premium, using a constant
yield method, over the remaining term of the note (or, if a smaller amortization
allowance would result, by computing such allowance with reference to the amount
payable on an earlier call date and amortizing such allowance over the shorter
period to such call date). The amount amortized in any year will be treated as a
reduction of the United States Holder's interest income from the note. Bond
premium on a note held by a United States Holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the note. The election to amortize bond premium on a constant
yield method, once made, applies to all debt obligations held or subsequently
acquired by the electing United States Holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS.
MARKET DISCOUNT. If a United States Holder purchases, subsequent to its original
issuance, a note for an amount that is less than its "revised issue price" as of
the purchase date, the amount of the difference generally will be treated as
"market discount," unless such difference is less than a specified de minimis
amount. The Code generally provides that the revised issue price of a debt
obligation equals its issue price plus the amount of OID includable in the
income of all holders for periods prior to the purchase date (disregarding any
deduction for acquisition premium) reduced by the amount of all prior cash
payments on the debt obligation. Subject to a de minimis exception, a United
States Holder will be required to treat any gain recognized on the sale,
exchange, redemption, retirement or other disposition of a note as ordinary
income to the extent of the accrued market discount that has not previously been
included in income. In addition, the United States Holder may be required to
defer, until the maturity date of the note or its earlier disposition in a
taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such note.
Any market discount will be considered to accrue on a straight line basis during
the period from the date of acquisition to the maturity date of the note, unless
the United States Holder elects to accrue market discount on a constant interest
method. A United States Holder of a note may elect to include market discount in
income currently as it accrues (under either the straight line or constant
interest method). This election to include currently, once made, applies to all
market discount obligations acquired in or after the first taxable year to which
the election applies and may not be revoked without the consent of the IRS. If
the United States Holder of a note makes such an election, the foregoing rules
with respect to the recognition of ordinary income on sales and other
dispositions of such instruments, and with respect to the deferral of interest
deductions on debt incurred or maintained to purchase or carry such debt
instruments, would not apply.
ELECTION TO TREAT ALL INTEREST AS OID. A United States Holder of a note may
elect, subject to certain limitations, to include all interest that accrues on a
note in gross income on a constant yield basis. For purposes of this election,
interest includes stated interest, OID, market discount, de minimis OID, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. Special rules and limitations apply to
taxpayers who make this election; therefore, United States Holders should
consult their tax advisors as to whether they should make this election.
<PAGE>
SALE, EXCHANGE OR REDEMPTION OF THE NOTES. Generally, a sale, exchange or
redemption of the notes will result in taxable gain or loss equal to the
difference between the amount of cash or other property received and the
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United States Holder's adjusted tax basis in the notes. A United States Holder's
adjusted tax basis for determining gain or loss on the sale or other disposition
of a note will initially equal the cost of the note to such holder and will be
increased by:
(1) any amounts included in income as OID; and
(2) any market discount previously included in income by such holder and
decreased by:
(a) any principal and stated interest payments received by such
holder; and
(b) any amortized premium previously deducted from income by such
holder.
Except as described above with respect to market discount, such gain or loss
will be capital gain or loss. Capital gain or loss will be long-term gain or
loss if the note is held by the United States Holder for more than one year,
otherwise such gain or loss will be short-term.
United States Holders that are corporations will generally be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States Holders that
are individuals will generally be taxed on net capital gains at a maximum rate
of:
(1) 39.6% for property held for 12 months or less; and
(2) 20% for property held for more than 12 months. Special rules (and
generally lower maximum rates) apply for individuals in lower tax
brackets. Any capital losses realized by a United States Holder that
is a corporation generally may be used only to offset capital gains.
Any capital losses realized by a United States Holder that is an
individual generally may be used only to offset capital gains plus
$3,000 of other income per year.
Foreign Holders
The following is a general discussion of certain United States federal income,
estate and gift tax consequences of the ownership and sale or other disposition
of the notes by any beneficial owner of a note that is not a United States
Holder (a "Non-United States Holder"). Resident alien individuals are subject to
United States federal income tax with respect to the notes as if they were
United States Holders.
INTEREST. Under current United States federal income tax law, and subject to the
discussion of backup withholding below, interest (including OID) paid on the
notes to a Non-United States Holder will not be subject to the normal 30% United
States federal withholding tax; provided that:
(1) the interest is "effectively connected with the conduct of a trade or
business in the United States" by the Non-United States Holder and the
Non-United States Holder timely furnishes Holdings and Holdings
Capital II with two duly executed copies of Internal Revenue Service
Form 4224 (or any successor form); or
(2) all of the following conditions of the portfolio interest exception
(the "Portfolio Interest Exception") are met:
(A) the Non-United States Holder does not, actually or
constructively, own 10% or more of the total combined voting
power of all classes of stock of a corporate Issuer entitled to
vote and does not, actually or constructively, own 10% or more of
the capital or profits interest in a partnership Issuer;
(B) the Non-United States Holder is not a controlled foreign
corporation that is related, directly or indirectly, to Holdings
and Holdings Capital II through stock ownership;
(C) the Non-United States Holder is not a bank receiving interest
(including OID) in connection with a loan agreement entered into
in the ordinary course of its trade or business; and
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(D) either:
(1) the Non-United States Holder certifies to Holdings and
Holdings Capital II or their agent, under penalties of
perjury, that it is a Non-United States Holder and provides
its name and address; or
(2) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution"),
and holds the notes in such capacity, certifies to Holdings
and Holdings Capital II or their agent, under penalties of
perjury, that such statement has been received from the
beneficial owner of the notes by it or by a Financial
Institution between it and the beneficial owner and
furnishes Holdings and Holdings Capital II or their agent
with a copy thereof. The foregoing certification may be
provided by the Non-United States Holder on Internal Revenue
Service Form W-8 (or any successor form). Such certificate
is effective with respect to payments of interest (including
OID) made after the issuance of the certificate in the
calendar year of its issuance and the two immediately
succeeding calendar years.
On October 14, 1997, final regulations were published in the Federal Register
(the "1997 Final Regulations") that affect the United States federal income
taxation of Non-United States Holders. The 1997 Final Regulations are effective
for payments after December 31, 1999, regardless of the issue date of the
instrument with respect to which such payments are made, subject to certain
transition rules discussed below. The discussion under this heading and under
"Backup Withholding Tax and Information Reporting," below, is not intended to be
a complete discussion of the provisions of the 1997 Final Regulations.
Prospective holders of the notes are urged to consult their tax advisors
concerning the tax consequences of their investment in light of the 1997 Final
Regulations.
The 1997 Final Regulations provide documentation procedures designed to simplify
compliance by withholding agents. The 1997 Final Regulations generally do not
affect the documentation rules described above, but add other certification
options. Under one such option, a withholding agent will be allowed to rely on
an intermediary withholding certificate furnished by a "qualified intermediary"
(as defined below) on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described above. Qualified intermediaries include:
(1) foreign financial institutions or foreign clearing organizations
(other than a United States branch or United States office of such
institution or organization); or
(2) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations,
which, as to both (1) and (2), have entered into withholding
agreements with the IRS. In addition to certain other requirements,
qualified intermediaries must obtain withholding certificates, such as
revised Internal Revenue Service Form W-8 (discussed below), from each
beneficial owner. Under another option, an authorized foreign agent of
a United States withholding agent will be permitted to act on behalf
of the United States withholding agent (including the receipt of
withholding certificates, the payment of amounts of income subject to
withholding and the deposit of tax withheld); provided that certain
conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat as the beneficial owners of payments on a note those persons
that, under United States federal income tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally must provide the required certifications to
qualify for the withholding tax exemption described above (unless the
partnership has entered into a special agreement with the IRS). A payment to a
United States partnership, however, is treated for these purposes as payment to
a United States payee, even if the partnership has one or more foreign partners.
The 1997 Final Regulations provide certain presumptions with respect to
withholding for holders not furnishing the required certifications to qualify
for the withholding tax exemption described above. In addition, the 1997 Final
Regulations will replace a number of current tax certification forms (including
Internal Revenue Service Form W-8) with a single, revised Internal Revenue
Service Form W-8 (which, in certain circumstances, requires information in
addition
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to that previously required). Under the 1997 Final Regulations, this
revised Form W-8 will remain valid until the last day of the third calendar year
following the year in which the certificate is signed.
The 1997 Final Regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1999 will generally remain valid
until the earlier of December 31, 2000 or the date of their expiration. Existing
certificates that expire in 1999 will not be effective after their expiration.
Certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
In the event that the interest (including OID) paid on the notes is effectively
connected with the conduct of a trade or business within the United States of
the Non-United States Holder, the Non-United States Holder will generally be
taxed on a net income basis (that is, after allowance for applicable deductions)
at the graduated rates that are applicable to United States Holders in
essentially the same manner as if the notes were held by a United States Holder,
as discussed above. In the case of a Non-United States Holder that is a
corporation, such income may also be subject to the United States federal branch
profits tax (which is generally imposed on a foreign corporation upon the deemed
repatriation from the United States of effectively connected earnings and
profits) at a 30% rate, unless the rate is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder is a qualified
resident of the treaty country.
If the interest on the notes is not "effectively connected" and does not qualify
for the Portfolio Interest Exception, then the interest will be subject to
United States federal withholding tax at a flat rate of 30% (or a lower
applicable income tax treaty rate upon delivery of the appropriate certification
of eligibility for treaty benefits).
GAIN ON SALE OR OTHER DISPOSITION. Subject to special rules applicable to
individuals as described below, a Non-United States Holder will generally not be
subject to regular United States federal income or withholding tax on gain
recognized on a sale or other disposition of the notes, unless the gain is
effectively connected with the conduct of a trade or business within the United
States of the Non-United States Holder or of a partnership, trust or estate in
which such Non-United States Holder is a partner or beneficiary.
Gains realized by a Non-United States Holder that are effectively connected with
the conduct of a trade or business within the United States of the Non-United
States Holder will generally be taxed on a net income basis (that is, after
allowance for applicable deductions) at the graduated rates that are applicable
to United States Holders, as described above, unless exempt by an applicable
income tax treaty. In the case of a Non-United States Holder that is a
corporation, such income may also be subject to the United States federal branch
profits tax (which is generally imposed on a foreign corporation upon the deemed
repatriation from the United States of effectively connected earnings and
profits) at a 30% rate, unless the rate is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder is a qualified
resident of the treaty country.
In addition to being subject to the rules described above, an individual
Non-United States Holder who holds the notes as a capital asset will generally
be subject to tax at a 30% rate on any gain recognized on the sale or other
disposition of such notes if:
(1) such gain is not effectively connected with the conduct of a trade or
business within the United States of the Non-United States Holder; and
(2) such individual is present in the United States for 183 days or more
in the taxable year of the sale or other disposition and either:
(A) has a "tax home" in the United States (as specially defined for
purposes of the United States federal income tax); or
(B) maintains an office or other fixed place of business in the
United States and the gain from the sale or other disposition of
the notes is attributable to such office or other fixed place of
business. Individual Non-United States Holders may also be
subject to tax in connection with provisions of United States
federal income tax law applicable to certain United States
expatriates (including certain former long-term residents of the
United States).
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Under the 1997 Final Regulations, withholding of United States federal income
tax may apply to payments on a taxable sale or other disposition of the notes by
a Non-United States Holder who does not provide appropriate certification to the
withholding agent with respect to such transaction.
FEDERAL ESTATE AND GIFT TAXES. A note beneficially owned by an individual who is
neither a United States citizen nor a domiciliary of the United States at the
time of death will not be subject to United States federal estate tax as a
result of such individual's death; provided that any interest thereon would have
been eligible for the Portfolio Interest Exception described above in "Certain
United States Federal Income Tax Considerations--Foreign Holders--Interest," if
such interest had been received by the individual at the time of death.
An individual who is not a United States citizen will not be subject to United
States federal gift tax on a transfer of notes, unless such person is a
domiciliary of the United States or such person is subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates (including certain former long-term residents of the United States).
Backup Withholding Tax and Information Reporting
Under current United States federal income tax law, information reporting
requirements apply to interest (including OID) paid to, and to the proceeds of
sales or other dispositions before maturity by, certain non-corporate persons.
In addition, a 31% backup withholding tax applies if a non-corporate person:
(1) fails to furnish such person's Taxpayer Identification Number (which,
for an individual, is his or her Social Security Number) to the payor
in the manner required;
(2) furnishes an incorrect TIN and the payor is so notified by the IRS;
(3) is notified by the IRS that such person has failed properly to report
payments of interest and dividends; or
(4) in certain circumstances, fails to certify, under penalties of
perjury, that such person has not been notified by the IRS that such
person is subject to backup withholding for failure properly to report
interest and dividend payments. Backup withholding does not apply to
payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
In the case of a Non-United States Holder, under current United States federal
income tax law, backup withholding and information reporting do not apply to
payments of interest (including OID) with respect to the note, or to payments on
the sale or other disposition of a note, if such holder has provided to Holdings
and Holdings Capital II or their paying agent the certification described in
clause (2)(D) of "Certain United States Federal Income Tax
Considerations--Foreign Holders--Interest" or has otherwise established an
exemption.
Under current United States federal income tax law:
(1) interest payments (including OID) with respect to a note collected
outside the United States by a foreign office of a custodian, nominee
or broker acting on behalf of a beneficial owner of a note; and
(2) payments on the sale or other disposition of a note to or through a
foreign office of a broker are not generally subject to backup
withholding or information reporting. However, if such custodian,
nominee or broker is a "United States person" (as defined in Section
7701(a)(30) of the Code), a controlled foreign corporation for United
States tax purposes or a foreign person 50% of more of whose gross
income is effectively connected with the conduct of a United States
trade or business for a specified three-year period (a "U.S. Related
Person"), such custodian, nominee or broker may be subject to certain
information reporting (but not backup withholding) requirements with
respect to such payments, unless such custodian, nominee or broker has
in its records documentary evidence that the beneficial owner is not a
United States Holder and certain conditions are met or the beneficial
owner otherwise establishes an exemption. Backup withholding may apply
to any payment that such custodian, nominee or broker is required to
report if such person has actual knowledge that the payee is
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a United States Holder. Payments to or through the United States
office of a broker will be subject to backup withholding and
information reporting unless the Holder certifies, under penalties of
perjury, that it is not a United States Holder or otherwise
establishes an exemption.
In the case of a Non-United States Holder, under the 1997 Final Regulations,
backup withholding and information reporting will not apply to payments of
interest (including OID) with respect to a note if such Holder provides the
required certification to establish an exemption from the withholding of the
United States federal income tax or otherwise establishes an exemption.
Under the 1997 Final Regulations, payments of interest (including OID) with
respect to a note made to a custodian, nominee or broker will not be subject to
backup withholding or information reporting by Holdings and Holdings Capital II,
irrespective of the place of payment or the location of the office of the
custodian, nominee or broker, although payments of interest (including OID) with
respect to a note paid to a foreign intermediary will be subject to withholding
of United States federal income tax at the rate of 30% unless the beneficial
owner (whether or not a United States Holder) or a qualified intermediary
establishes an exemption by furnishing a withholding certificate or other
appropriate documentation. Unless the beneficial owner establishes an exemption,
a payment by a custodian, nominee or broker may be subject to information
reporting and, unless:
(1) the payment has been subject to withholding of United States federal
income tax at the rate of 30%; or
(2) the payment is made outside the United States to an offshore account
in a financial institution that maintains certain procedures related
to account documentation, to backup withholding as well.
The 1997 Final Regulations modify certain of the certification requirements for
backup withholding and expand the group of U.S. Related Persons. It is possible
that Holdings and Holdings Capital II or their paying agent may request new
withholding exemption forms from holders in order to qualify for continued
exemption from backup withholding when the 1997 Final Regulations become
effective. Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a holder under the backup withholding rules are
allowed as a refund or a credit against such holder's United States federal
income tax; provided that the required information is furnished to the IRS.
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Plan Of Distribution
Each participating broker-dealer that receives exchange notes for its own
account in accordance with the exchange offer, where its old notes were acquired
by such broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by any participating broker-dealer
in connection with resales of exchange notes received in exchange for old notes
where such old notes were acquired as a result of market making or other trading
activities. Holdings and Holdings Capital II have agreed that for a period of up
to 180 days after the expiration date, they will use their reasonable best
efforts to keep the exchange offer registration statement effective and to amend
and supplement this prospectus in order to permit this prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act (provided that, as set forth in the letter of transmittal, such
persons shall have expressed that they may be subject to such requirements and
have undertaken to use their reasonable best efforts to notify Holdings when
they are no longer subject to such requirements). In addition, until , 1999 (90
days after the commencement of the exchange offer), all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
Holdings and Holdings Capital II will not receive any proceeds from any sales of
the exchange notes by participating broker-dealers. Exchange notes received by
participating broker-dealers for their own account in accordance with the
exchange offer may be sold from time to time in one or more transactions in the
over the counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
participating broker-dealer and/or the purchasers of any such exchange notes.
Any participating broker-dealer that resells the exchange notes that were
received by it for its own account in accordance with 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 participating broker-dealer
will not be deemed to admit that it is an underwriter within the meaning of the
Securities Act.
For a period of up to 180 days after the expiration date, Holdings and Holdings
Capital II will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any participating broker-dealer
that has provided Holdings and Holdings Capital II, in accordance with the
letter of transmittal, with notice of its status as a participating
broker-dealer.
Certain of the Initial Purchasers and their affiliates have provided financial
advisory and investment banking and commercial banking services to Holdings and
Holdings Capital II and their affiliates in the past, for which they received
customary fees, and may do so in the future. In addition, affiliates of each of
the Initial Purchasers serve as lenders and agents under the amended bank credit
facility and have received customary fees for acting in such capacities. Each of
such affiliates will receive its proportionate share of any repayment by FVOP of
amounts outstanding under the amended bank credit facility from the proceeds of
the offering. See "Use of Proceeds." Certain of such affiliates will extend
commitments to FVOP with respect to the amended bank credit facility for which
they will receive compensation. See "Description of Other indebtedness--The
Amended Bank Credit Facility."
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Legal Matters
The validity of the exchange notes will be passed upon for Holdings and Holdings
Capital II by Dow, Lohnes & Albertson, PLLC, Washington, D.C.
Experts
The consolidated financial statements and schedules of FrontierVision Holdings,
L.P. and subsidiaries as of December 31, 1998 and 1997, and for each of the
years in the three-year period ended December 31, 1998, have been included
herein in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The balance sheet of FrontierVision Holdings Capital II Corporation as of
December 31, 1998, have been included herein in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The balance sheets of FrontierVision Partners, L.P. as of December 31, 1998 and
1997, have been included herein in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of the Central Ohio Cluster as of and for the year
ended December 31, 1996 included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to the sale of the assets and certain
liabilities of the Central Ohio Cluster), and has been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of State Cable TV Corporation and subsidiary as of and
for the year ended December 31, 1997, included elsewhere in this prospectus,
have been audited by Arthur Andersen LLP, independent auditors, as stated in
their report appearing herein.
The financial statements of New England Cablevision of Massachusetts, Inc as of
and for the years ended December 31, 1997 and 1996, included elsewhere in this
prospectus, have been audited by Baker Newman and & Noyes, LLC, independent
auditors, as stated in their report appearing herein.
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Where You Can Find More Information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act covering the exchange notes. This
prospectus does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is not necessarily complete. If we have
filed any of those contracts, agreements or other documents as an exhibit to the
registration statement, you should read the exhibit for a more complete
understanding of the document or matter involved. Each statement regarding a
contract, agreement or other document is qualified in its entirety by reference
to the actual document.
Following the exchange offer, we will be required to file periodic reports and
other information with the SEC under the Exchange Act. In the indenture
governing the exchange notes, we have agreed to file with the SEC financial and
other information for public availability. In addition, the indenture governing
the exchange notes requires us to deliver to you, or to First Trust National
Association for forwarding to you, copies of all reports that we file with the
SEC without any cost to you. We will also furnish such other reports as we may
determine or as the law requires.
You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that we file at the
SEC's public reference room in Washington, D.C. You can request copies of these
documents, upon payment of a duplicating fee, by writing the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings will also be available to the public on the SEC
Internet site (http://www.sec.gov).
You should rely only on the information provided in this prospectus. No person
has been authorized to provide you with different information.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.
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Glossary
The following is a description of certain terms used in this Prospectus.
Acquisition Cash Flow--Forecasted net income of an acquired system, for a period
believed to be appropriate based on the facts and circumstances of a specific
acquisition, calculated as of the date of acquisition of such system, before
interest, taxes, depreciation, amortization and corporate administrative
expenses. The Company believes that Acquisition Cash Flow is a measure commonly
used in the cable television industry to analyze and compare the purchase price
of cable television systems. However, Acquisition Cash Flow is not intended to
be an indicator of actual operating performance and is not determined in
accordance with generally accepted accounting principles.
A La Carte--The purchase of programming services on a per-channel or per-program
basis.
Addressability--"Addressable" technology permits the cable operator to activate
remotely the cable television services to be delivered to subscribers who are
equipped with addressable converters. With addressable technology, a cable
operator can add to or reduce services provided to a subscriber from the headend
site without dispatching a service technician to the subscriber's home.
Basic Penetration--Basic subscribers as a percentage of the total number of
homes passed in the system.
Basic Service--A package of over-the-air broadcast stations, local access
channels and certain satellite-delivered cable television services (other than
premium services).
Basic Subscriber--A subscriber to a cable or other television distribution
system who receives the basic level of cable television service and who is
usually charged a flat monthly rate for a number of channels. A home with one or
more television sets connected to a cable system is counted as one basic
subscriber.
Cable Plant--A network of coaxial and/or fiber optic cables that transmit
multiple channels carrying video-programming, sound and data between a central
facility and an individual customer's television set. Networks may allow one-way
(from a headend to a residence and/or business) or two-way (from a headend to a
residence and/or business with a data return path to the headend) transmission.
Clustering--A general term used to describe the strategy of operating cable
television systems in a specific geographic region, thus allowing for the
achievement of economies of scale and operating efficiencies in such areas as
system management, marketing and technical functions.
Coaxial Plant--Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
copper wire, but less than is possible with optical fiber.
Competitive Access Provider (CAP)--A company that provides its customers with an
alternative to the local telephone company for local transport of private line,
special access services and switched access services. CAPs are also referred to
in the industry as alternative access vendors, alternative local
telecommunications service providers (ALTS) and metropolitan area network
providers (MANs).
Cost-Of-Service--A general term used to refer to the regulation of prices
charged to a customer. Existing prices are set and price increases are regulated
by allowing a company to earn a reasonable rate of return, as determined by the
regulatory authority.
Density--A general term used to describe the number of homes passed per mile of
cable plant.
Digital Compression--The conversion of the standard analog video signal into
digital signal, and the compression of that signal so as to facilitate multiple
channel transmission through a single channel's bandwidth.
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Digital Programming System--A programming distribution system under which
multiple channels of programming are digitally transmitted via satellite to a
cable television system's headend and then retransmitted, using the cable
system's existing distribution platform, to subscribers equipped with special
digital converters. One such example is the Headend-in-the-Sky digital
programming system ("HITS"). The use of the HITS system enables a cable operator
to transmit from 6 to 14 digital channels using the same bandwidth as used by a
single analog channel and, thus, has the potential to dramatically expand a
system's channel capacity.
Direct Broadcast Satellite (DBS)--A service by which packages of
satellite-delivered television programming are transmitted directly into
individual homes, each serviced by a single satellite dish.
Expanded Basic Service--A package of satellite-delivered cable programming
services available only for additional subscription over and above the basic
level of television service.
Fiber Optics--Technology that involves sending laser light pulses across glass
strands to transmit digital information; fiber is virtually immune to electrical
interference and most environmental factors that affect copper wiring and
satellite transmissions. Use of fiber optic technology reduces noise on the
cable system, improves signal quality and increases system channel capacity and
reliability.
Fiber Optic Backbone Cable--The principal fiber optic trunk lines for a cable
system which is using a hybrid fiber-coaxial architecture to deliver signals to
customers.
Fiber Optic Trunk Lines--Cables made of glass fibers through which signals are
transmitted as pulses of light to the distribution portion of the cable
television system which in turn goes to the customer's home. Capacity for a very
large number of channels can be more easily provided.
Fiber-To-The-Feeder--Network topology/architecture using a combination of fiber
optic cable and coaxial cable transmission lines to deliver signals to
customers. Initially signals are transmitted from the headend on fiber optic
trunk lines into neighborhood nodes (an individual point of origination and
termination or intersection on the network, usually where electronics are
housed) and then from the nodes to the end user on a combination of coaxial
cable distribution/feeder and drop lines. The coaxial feeder and drop lines
typically represent the operator's "last mile" of plant to the end user.
Headend--A collection of hardware, typically including satellite receivers,
modulators, amplifiers and video cassette playback machines, within which
signals are processed and then combined for distribution within the cable
network.
Homes Passed--Homes that can be connected to a cable distribution system without
further extension of the distribution network.
HFC--Hybrid fiber optic/coaxial cable design, used in a cable television
system's distribution plant.
Microwave Links--The transmission of voice, video or data using microwave radio
frequencies, generally above 1 GHz, from one location to another.
MMDS--Multichannel Multipoint Distribution Service. A one-way radio transmission
of programming over microwave frequencies from a fixed station transmitting to
multiple receiving facilities located at fixed points.
New Product Tiers--A general term used to describe unregulated cable television
services.
Over-The-Air Broadcast Stations--A general term used to describe signals
transmitted by local television broadcast stations, including network affiliates
or independent television stations, that can be received directly through the
air by the use of a standard rooftop receiving antenna.
Pay-Per-View--Payment made for individual movies, programs or events as opposed
to a monthly subscription for a whole channel or group of channels.
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Premium Penetration--Premium service units as a percentage of the total number
of basic service subscribers. A customer may purchase more than one premium
service, each of which is counted as a separate premium service unit. This ratio
may be greater than 100% if the average customer subscribes to more than one
premium service unit.
Premium Service--An individual cable programming service available only for
additional subscription over and above the basic or expanded basic levels of
cable television service.
Premium Units--The number of subscriptions to premium services which are paid
for on an individual basis.
Rebuild--The replacement or upgrade of an existing cable system, usually
undertaken to improve either its technological performance or to expand the
system's channel or bandwidth capacity in order to provide more services.
SMATV--Satellite Master Antenna Television System. A video programming delivery
system to multiple dwelling units utilizing satellite transmissions.
Tiers--Varying levels of cable services consisting of differing combinations of
several over-the-air broadcast and satellite-delivered cable television
programming services.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
FrontierVision Holdings, L.P. and Subsidiaries
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
FrontierVision Holdings Capital II Corporation
Independent Auditors' Report F-19
Balance Sheet as of December 31, 1998 F-20
Note to the Balance Sheet F-21
FrontierVision Partners, L.P.
Independent Auditors' Report F-22
Balance Sheets as of December 31, 1998 and 1997 F-23
Note to the Balance Sheets F-24
Central Ohio Cluster (Selected Assets Acquired From Cox Communications, Inc. by FVOP)
Independent Auditor's Report F-36
Combined Statements of Net Assets as of September 30, 1997 (unaudited) and December 31, 1996 F-37
Combined Statements of Income for the nine-month periods ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-38
Combined Statements of Changes in Net Assets for the nine-month period ended September 30, 1997
(unaudited) and for the year ended December 31, 1996 F-39
Combined Statements of Cash Flows for the nine-month periods ended September 30, 1997(unaudited)
and September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-40
Notes to Combined Financial Statements F-41
State Cable TV Corporation and Subsidiary
Independent Auditor's Report F-48
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 F-49
Consolidated Statements of Operations and Deficit for the nine months ended September 30, 1997 and
1998 (unaudited) and the year ended December 31, 1997 F-50
Consolidated Statements of Cash Flow for the nine months ended September 30, 1997 and 1998
(unaudited) and the year ended December 31, 1997 F-51
Notes to Consolidated Financial Statements F-52
New England Cablevision of Massachusetts, Inc.
Independent Auditors' Report F-60
Balance Sheets as of March 31, 1998(unaudited), December 31, 1997 and 1996 F-61
Statements of Earnings for the three months ended March 31, 1998 and 1997 (unaudited) and the years
ended December 31, 1997 and 1996 F-63
Statements of Changes in Stockholders' Equity for the three months ended March 31, 1998 (unaudited)
and the years ended December 31, 1997 and 1996 F-64
Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) and the
years ended December 31, 1997 and 1996 F-66
Notes to Financial Statements F-68
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
To the Partners of
FrontierVision Holdings, L.P.:
We have audited the accompanying consolidated balance sheets of FrontierVision
Holdings, L.P. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, partners' capital and cash flows
for each of the years in the three year period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FrontierVision
Holdings, L. P. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Denver, Colorado
March 19, 1999
F-2
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
<TABLE>
-------------------------------------
December 31, December 31,
1998 1997
---------------- --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,091 $ 4,728
Accounts receivable, net of allowance for doubtful accounts
of $666 and $767 13,602 8,071
Other receivables 174 -
Prepaid expenses and other 4,046 2,785
Investment in cable television systems, net:
Property and equipment 342,754 247,724
Franchise cost and other intangible assets 820,524 637,725
------------ ------------
Total investment in cable television systems, net 1,163,278 885,449
------------ ------------
Deferred financing costs, net 24,080 24,242
Earnest money deposits 150 2,000
------------ ------------
Total assets $ 1,210,421 $ 927,275
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 18,233 $ 2,770
Accrued liabilities 17,169 15,126
Subscriber prepayments and deposits 3,312 1,828
Accrued interest payable 9,547 5,064
Deferred income taxes 11,856 -
Debt 1,121,142 787,047
------------ ------------
Total liabilities 1,181,259 811,835
------------ ------------
Partners' capital:
FrontierVision Partners, L.P. 29,133 115,325
FrontierVision Holdings, LLC 29 115
------------ ------------
Total partners' capital 29,162 115,440
Commitments
------------ ------------
Total liabilities and partners' capital $ 1,210,421 $ 927,275
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
In Thousands
<TABLE>
-------------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended
December 31, December 31, December 31,
1998 1997 1996
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Revenue $ 245,134 $ 145,126 $ 76,464
Expenses:
Operating expenses 123,296 74,314 39,181
Corporate administrative expenses 6,965 4,418 2,930
Depreciation and amortization 114,155 65,502 35,724
Storm costs 522 -- --
--------- --------- ---------
Total expenses 244,938 144,234 77,835
--------- --------- ---------
Operating income/(loss) 196 892 (1,371)
Interest expense, net (88,875) (48,005) (22,422)
Other expense (526) (57) (8)
--------- --------- ---------
Loss before income tax benefit and
extraordinary item (89,205) (47,170) (23,801)
Income tax benefit 2,927 - -
--------- --------- ---------
Loss before extraordinary item (86,278) (47,170) (23,801)
Extraordinary item - Loss on early
retirement of debt - (5,046) -
--------- --------- ---------
Net loss $ (86,278) $ (52,216) $ (23,801)
========= ========= =========
Net loss allocated to:
FrontierVision Partners, L.P.
(General Partner) $ (86,192) $ (52,164) $ (23,776)
FrontierVision Holdings, LLC
(Limited Partner) (86) (52) (25)
--------- --------- ---------
$ (86,278) $ (52,216) $ (23,801)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
In Thousands
<TABLE>
------------------------------------------------------------
FrontierVision FrontierVision
Partners, L.P. Holdings, LLC
(General Partner) (Limited Partner) Total
----------------- ----------------- -----
<S> <C> <C> <C>
Balance, December 31, 1995 $ 46,361 $ 46 $ 46,407
Capital contributions 107,289 108 107,397
Net loss (23,776) (25) (23,801)
--------- --------- ---------
Balance, December 31, 1996 129,874 129 130,003
Capital contributions 37,615 38 37,653
Net loss (52,164) (52) (52,216)
--------- --------- ---------
Balance, December 31, 1997 115,325 115 115,440
Net loss (86,192) (86) (86,278)
--------- --------- ---------
Balance, December 31, 1998 $ 29,133 $ 29 $ 29,162
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
<TABLE>
----------------------------------------------------
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1998 1997 1996
----------------- ----------------- --------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (86,278) $ (52,216) $ (23,801)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Extraordinary item - Loss on early retirement of debt - 5,046 -
Depreciation and amortization 114,155 65,502 35,724
Gain on swap of assets (2,362) - -
Deferred tax benefit (2,927) - -
Amortization of deferred debt issuance costs 2,965 1,825 999
Accretion of interest on indebtedness 19,485 5,768 924
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable (3,480) (582) (1,946)
Receivable from seller - 846 1,377
Prepaid expenses and other (870) (249) (1,266)
Accounts payable and accrued liabilities 15,698 3,152 3,423
Subscriber prepayments and deposits 1,086 (1,523) (2,393)
Accrued interest payable 4,483 (1,226) 5,870
--------- --------- ---------
Total adjustments 148,233 78,559 42,712
--------- --------- ---------
Net cash flows from operating activities 61,955 26,343 18,911
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures (65,570) (32,738) (9,304)
Pending acquisition costs (22) (146) -
Cash paid for franchise costs (12) (406) (2,009)
Earnest money deposits (200) (2,000) (500)
Proceeds from disposition of cable television systems - - 15,065
Cash paid in acquisitions of cable television systems (307,595) (392,631) (421,467)
--------- --------- ---------
Net cash flows from investing activities (373,399) (427,921) (418,215)
--------- --------- ---------
Cash Flows From Financing Activities:
Debt borrowings 316,485 523,000 137,700
Payments on debt borrowings (76,875) (289,845) (33,600)
Proceeds of issuance of Senior Subordinated Notes - - 200,000
Proceeds of issuance of Senior Discount Notes 75,000 150,000 -
Principal payments on capital lease obligations - (70) (16)
Increase in deferred financing fees (395) (11,357) (3,771)
Offering costs related to Senior Subordinated Notes - (129) (7,417)
Offering costs related to Senior Discount Notes (2,408) (6,585) -
Partner capital contributions - 37,653 107,397
--------- --------- ---------
Net cash flows from financing activities 311,807 402,667 400,293
--------- --------- ---------
Net Increase in Cash and Cash Equivalents 363 1,089 989
Cash and Cash Equivalents, at beginning of period 4,728 3,639 2,650
--------- --------- ---------
Cash and Cash Equivalents, end of period $ 5,091 $ 4,728 $ 3,639
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 62,789 $ 42,226 $ 15,195
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(1) THE COMPANY
Organization and Capitalization
FrontierVision Holdings, L.P. ("Holdings" or the "Company"), wholly-owned by
FrontierVision Partners, L.P., a Delaware limited partnership ("FVP"), is a
Delaware limited partnership formed on September 3, 1997 for the purpose of
acting as co-issuer with its wholly-owned subsidiary, FrontierVision Holdings
Capital Corporation ("Holdings Capital"), of $237,650 aggregate principal amount
at maturity of 11 7/8% Senior Discount Notes due 2007 (the "Discount Notes").
FVP contributed to Holdings, both directly and indirectly, all of the
outstanding partnership interests of FrontierVision Operating Partners, L.P.
("FVOP") prior to the issuance of the Discount Notes on September 19, 1997 (the
"Formation Transaction") and, as a result FVOP and its wholly-owned subsidiary,
FrontierVision Capital Corporation ("Capital"), are wholly-owned, consolidated
subsidiaries of Holdings. The Formation Transaction was accounted for at
predecessor cost. As used herein, the "Company" collectively refers to Holdings,
Holdings Capital, FrontierVision Operating Partners, Inc. ("FVOP Inc."), FVOP
and Capital.
On December 2, 1998, Holding along with FrontierVision Holdings Capital II
Corporation ("Holdings Capital II"), co-issued $91,298 aggregate principal
amount at maturity of Discount Notes, Series B. Net proceeds from the issuance
were contributed to FVOP as a capital contribution.
The Company owns and operates cable television systems in three primary
operating clusters - New England, Ohio and Kentucky - with a fourth, smaller
group of cable television systems in the Southeast.
FVOP was initially capitalized in November 1995 with approximately $38 from its
sole limited partner, FVOP Inc., a Delaware corporation, and approximately
$38,300 from at the time its sole general partner, FVP. During the year ended
December 31, 1997, the Company received additional capital contributions of
approximately $37,653 from its partners. These capital contributions and a
portion of the proceeds from the Discount Notes was used by FVOP to repay
certain bank indebtedness with the remainder placed in escrow to finance pending
acquisitions.
Allocation of Profits, Losses and Distributions
Generally, Holdings' Partnership agreement provides that profits, losses and
distributions will be allocated to the general partner and the limited partner
pro rata based on capital contributions.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings and those
of its wholly-owned subsidiaries, Holdings Capital, FVOP Inc., FVOP, Capital,
FrontierVision New England Cable, Inc. ("New England"), New England Cable
Television of Massachusetts, Inc. ("NECMA") and FrontierVision Access Partners,
LLC ("Access"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-7
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
For purposes of the financial statements, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost and include the following:
distribution facilities, support equipment and leasehold improvements.
Replacements, renewals and improvements are capitalized and costs for repairs
and maintenance are charged to expense when incurred. The Company capitalized
direct labor and overhead related to installation and construction activities.
Depreciation is computed on a straight-line basis using an average estimated
useful life of 8 years.
Franchise Costs, Covenants not to Compete, Subscriber Lists and Goodwill
Franchise costs, covenants not to compete, subscriber lists and goodwill result
from the application of the purchase method of accounting to business
combinations. Such amounts are amortized on a straight-line basis over the
following periods: 15 years for franchise costs (which reflects the Company's
ability to renew existing franchise agreements), 5 years for covenants not to
compete, 7 years for subscriber lists and 15 years for goodwill.
Impairment of Long-lived Assets
The Company periodically reviews the carrying amount of its property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates.
Deferred Financing Costs and Deferred Bond Issue Costs
Deferred financing costs and deferred bond issue costs are being amortized using
the straight line method over the life of the loans and the bonds. Accumulated
amortization at December 31, 1998 and 1997 is $4,236 and $1,246, respectively.
Revenue Recognition
Revenue is recognized in the period in which the related services are provided
to the subscribers. Installation revenue is recognized in the period that
installation services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the estimated average period
that customers are expected to remain connected to the cable television system.
Derivative Financial Instruments
The Company manages risk arising from fluctuations in interest rates by using
interest rate swap agreements, as required by its credit agreements. These
agreements are treated as off-balance sheet financial instruments. The interest
rate swap agreements are being accounted for as a hedge of the debt obligation,
and accordingly, the net settlement amount is recorded as an adjustment to
interest expense in the period incurred.
F-8
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company and its direct and indirect subsidiaries, except for New England,
NECMA, Main Security Surveillance, Inc., FVOP Inc., Capital, Holdings Capital
and Holdings Capital II, are limited partnerships or limited liability companies
and pay no income taxes as entities. All of the income, gains, losses,
deductions and credits of the Company are passed through to its partners.
Nominal taxes are assessed by certain state and local jurisdictions. The basis
in the Company's assets and liabilities differs for financial and tax reporting
purposes. At December 31, 1998, the book basis of the Company's net assets
exceeded its tax basis by $43.7 million.
New England, NECMA, Main Security Surveillance, FVOP, Inc., Capital, Holdings
Capital and Holdings Capital II, are corporations and are subject to federal and
state income taxes which have not been significant. Deferred taxes relate
principally to the difference between book and tax basis of the cable television
assets owned by NECMA, partially offset by the tax effect of related net
operating loss carryforwards.
New Accounting Standard
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133"), which is effective for all fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities by requiring that all derivative
instruments be reported as assets or liabilities and measured at their fair
values. Under SFAS 133, changes in the fair values of derivative instruments are
recognized immediately in earnings unless those instruments qualify as hedges of
the (1) fair values of existing assets, liabilities, or firm commitments, (2)
variability of cash flows of forecasted transactions, or (3) foreign currency
exposures of net investments in foreign operations. Although management of the
Company has not completed its assessment of the impact of SFAS 133 on its
consolidated results of operations and financial position, management estimates
that the impact of SFAS 133 will not be material.
Reclassification
Certain amounts have been reclassified for comparability.
(3) STORM RELATED COSTS
During mid-January of 1998, certain of the communities served by the Company in
Maine experienced devastating ice storms. For the year ended December 31, 1998,
the Company has recognized a loss due to service outages and increased labor
costs of approximately $522 due to the ice storms. Additionally, the Company has
incurred approximately $540 of capital expenditures to replace damaged
subscriber drops. The Company received $183 subsequent to December 31, 1998
related to a claim on its business interruption insurance for the storm damage.
F-9
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(4) INVESTMENT IN CABLE TELEVISION SYSTEMS
The Company's investment in cable television systems is comprised of the
following:
<TABLE>
--------------------------------------
December 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Property and equipment $ 435,531 $ 297,229
Less--accumulated depreciation (92,777) (49,505)
----------- -----------
Property and equipment, net 342,754 247,724
----------- -----------
Franchise costs 717,614 523,096
Covenants not to compete 16,856 14,983
Subscriber lists 146,411 106,270
Goodwill 53,937 44,702
----------- -----------
934,818 689,051
Less--accumulated amortization (114,294) (51,326)
----------- -----------
Franchise costs and other intangible assets, net 820,524 637,725
----------- -----------
Total investment in cable television systems, net $ 1,163,278 $ 885,449
=========== ===========
</TABLE>
(5) ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Company has completed several acquisitions since its inception through
December 31, 1998. All of the acquisitions have been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based upon the
estimated fair values at the respective dates of acquisition. Such allocations
are subject to adjustments as final appraisal information is received by the
Company. Amounts allocated to property and equipment and to intangible assets
will be respectively depreciated and amortized, prospectively from the date of
acquisition based upon remaining useful lives and amortization periods. The
following table lists the acquisitions and the purchase price for transactions
occurring in the most recent two years.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
Predecessor Owner Primary Location of Systems Date Acquired Acquisition Cost (a)
----------------- --------------------------- ------------- --------------------
<S> <C> <C> <C>
Bluegrass Cable Partners, L.P. Kentucky March 20, 1997 $10,400
Clear Cable T.V., Inc. and B&G Cable T.V. Systems, Inc. Kentucky March 31, 1997 $1,800
Milestone Communications of New York, L.P. Ohio March 31, 1997 $3,000
Triax Associates I, L.P. ("Triax I") Ohio May 30, 1997 $34,800
Phoenix Front Row Cablevision Ohio May 30, 1997 $6,900
PCI Incorporated Michigan August 29, 1997 $13,600
SRW, Inc.'s Blue Ridge Cable Systems, L.P. Tennessee and North Carolina September 3, 1997 $4,100
A-R Cable Services - ME, Inc. ("Cablevision") Maine October 31, 1997 $78,600
Harold's Home Furnishings, Inc. Pennsylvania and Maryland October 31, 1997 $1,600
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture ("TCI-VT/NH") Vermont and New Hampshire December 2, 1997 $34,800
Cox Communications, Inc.("Cox-Central Ohio") Ohio December 19, 1997 $204,100
TVC-Sumpter Limited Partnership and North Oakland Cablevision
Partners Limited Partnership Michigan March 6, 1998 $14,400
TCI Cablevision of Ohio, Inc. Ohio April 1, 1998 $10,000
New England Cablevision of Massachusetts, Inc. ("NECMA") Massachusetts April 3, 1998 $44,900
Ohio Cablevision Network, Inc. ("TCI-Bryan") Ohio July 31, 1998 $37,400
Unity Cable Television, Inc. Maine September 30, 1998 $800*
Appalachian Cablevision of Ohio Ohio September 1, 1998 $300
State Cable TV Corporation ("State") Maine, New Hampshire October 23, 1998 $190,200*
Paint Valley Cable Ohio October 30, 1998 $1,900*
CASCO Maine November 30, 1998 $3,200*
- ---------------
</TABLE>
F-10
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) ACQUISITIONS AND DISPOSITIONS (continued)
(a) Acquisition cost represents the purchase price allocation between tangible
and intangible assets including certain purchase accounting adjustments as of
December 31, 1998.
* Subject to adjustment.
The combined purchase price of certain of these acquisitions has been allocated
to the acquired assets and liabilities as follows:
<TABLE>
---------------------------------------------------
1998 1997 1996
Acquisitions(a) Acquisitions(a) Acquisitions(a)
--------------- --------------- ---------------
<S> <C> <C> <C>
Property and equipment $ 79,526 $ 48,805 $ 169,240
Franchise costs and other intangible assets 244,492 344,490 268,836
--------- --------- ---------
Subtotal 324,018 393,295 438,076
--------- --------- ---------
Net working capital (deficit) 410 (164) (7,107)
Deferred income taxes (14,783) - -
Less - Earnest money deposits applied (2,050) (500) (9,502)
--------- --------- ---------
Total cash paid for acquisitions $ 307,595 $ 392,631 $ 421,467
========= ========= =========
</TABLE>
- ------------
(a) The combined purchase price includes certain purchase price adjustments for
acquisitions consummated prior to the respective periods.
The Company has reported the operating results of its acquired cable systems
from the dates of their respective acquisition. Unaudited pro forma summarized
operating results of the Company, assuming the Triax I, Cablevision, TCI-VT/NH,
Cox-Central Ohio, NECMA, TCI-Bryan and State Cable acquisitions (the
"Acquisitions") had been consummated on January 1, 1997, are as follows:
<TABLE>
-------------------------------------------------
Year Ended December 31, 1998
-------------------------------------------------
Historical Pro Forma
Results Acquisitions Results
------------ ---------------- ---------------
<S> <C> <C> <C>
Revenue $ 245,134 $ 31,842 $ 276,976
Operating, selling, general and administrative expenses (130,783) (20,245) (151,028)
Depreciation and amortization (114,155) (15,546) (129,701)
--------- --------- ---------
Operating income (loss) 196 (3,949) (3,753)
Interest and other expenses (86,474) (20,624) (107,098)
--------- --------- ---------
Net loss $ (86,278) $ (24,573) $(110,851)
========= ========= =========
-------------------------------------------------
Year Ended December 31, 1997
-------------------------------------------------
Historical Pro Forma
Results Acquisitions Results
------------ ---------------- ---------------
<S> <C> <C> <C>
Revenue $ 145,126 $ 105,533 $ 250,659
Operating, selling, general and administrative expenses (78,732) (56,312) (135,044)
Depreciation and amortization (65,502) (47,543) (113,045)
--------- --------- ---------
Operating income 892 1,678 2,570
Interest and other expenses (53,108) (47,237) (100,345)
--------- --------- ---------
Net loss $ (52,216) $ (45,559) $ (97,775)
========= ========= =========
</TABLE>
The pro forma financial information presented above has been prepared for
comparative purposes only and does not purport to be indicative of the operating
results which actually would have resulted had the Acquisitions been consummated
on the dates indicated. Furthermore, the above pro forma financial information
does not include the effect of certain acquisitions and dispositions of cable
systems because these transactions were not material on an individual or
aggregate basis.
F-11
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) ACQUISITIONS AND DISPOSITIONS (continued)
Dispositions
The Company has completed two dispositions from its inception through December
1996.
On July 24, 1996, the Company sold certain cable television system assets
located primarily in Chatsworth, Georgia to an affiliate of Helicon Partners for
an aggregate sales price of approximately $7,900.
On September 30, 1996, the Company sold certain cable television system assets
located in Virginia to Shenandoah Cable Television Company, an affiliate of
Shenandoah Telephone Company, for an aggregate sales price of approximately
$7,100.
On January 7, 1999, the Company sold certain cable television system assets
located in the Southeast region to Helicon Partners I, LP, for an aggregate
sales price of approximately $5,220.
(6) DEBT
The Company's debt was comprised of the following:
<TABLE>
-------------------------------
December 31, December 31,
1998 1997
---- ----
Bank Credit Facility (a) --
Revolving Credit Facility, interest based on various floating rate options
<S> <C> <C>
(7.25% average at December 31, 1998), payable monthly $ 172,000 $ -
Term loans, interest based on various floating libor rate options
(7.46% and 8.33% weighted average at December 31, 1998 and 1997,
respectively), payable monthly 498,125 432,000
11% Senior Subordinated Notes due 2006 (b) 200,000 200,000
11 7/8% Senior Discount Notes due 2007 (c) 249,532 155,047
Capital leases 1,485 -
------------ ------------
Total debt $ 1,121,142 $ 787,047
============ ===========
</TABLE>
(a) Bank Credit Facility.
On December 19, 1997, the Company entered into a Second Amended and
Restated Credit Agreement (the "Amended Credit Facility") increasing the
available senior debt by $535.0 million, for a total availability of
$800.0 million. The amount available under the Amended Credit Facility
includes two term loans of $250.0 million each ("Facility A Term Loan"
and "Facility B Term Loan") and a $300.0 million revolving credit
facility ("Revolving Credit Facility"). The Facility A Term Loan and the
Revolving Credit Facility both mature on September 30, 2005. The entire
outstanding principal amount of the Revolving Credit Facility is due on
September 30, 2005, with escalating principal payments due quarterly
beginning December 31, 1998 under the Facility A Term Loan. The Facility
B Term Loan matures March 31, 2006 with 95% of the principal being repaid
in the last two quarters of the term of the facility.
Under the terms of the Amended Credit Facility, with certain exceptions,
the Company has a mandatory prepayment obligation upon a change of
control of the Company and the sale of any of its operating systems. This
obligation may be waived with the consent of the majority of the lenders.
Further, beginning with the year ending December 31, 2001, the Company is
required to make prepayments equal to 50% of its excess cash flow, as
defined in the Amended Credit Facility. The
F-12
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(6) DEBT (continued)
Company also payscommitment fees ranging from 1/2% - 3/8% per annum on
the average unborrowed portion of the total amount available under the
Amended Credit Facility.
The Amended Credit Facility also requires the Company to maintain
compliance with various financial covenants including, but not limited
to, covenants relating to total indebtedness, debt ratios, interest
coverage ratio and fixed charges ratio. In addition, the Amended Credit
Facility has restrictions on certain partnership distributions by the
Company.
All partnership interests in the Company and all assets of the Company
and its subsidiaries are pledged as collateral for the Amended Credit
Facility.
(b) Senior Subordinated Notes
On October 7, 1996, the Company issued, pursuant to a public offering
(the "Offering"), $200,000 aggregate principal amount of the Notes. Net
proceeds from the Offering of $192,500, after costs of approximately
$7,500, were available to the Company on October 7, 1996.
In connection with the anticipated issuance of the Notes in connection
with the Offering, the Company entered into deferred interest rate
setting agreements to reduce the Company's interest rate exposure in
anticipation of issuing the Notes. The cost of such agreements, amounting
to $1,390, are recognized as a component of interest expense over the
term of the Notes.
The Notes are unsecured subordinated obligations of the Company
(co-issued by Capital) that mature on October 15, 2006. Interest accrues
at 11% per annum beginning from the date of issuance, and is payable each
April 15 and October 15, commencing April 15, 1997.
The Subordinated Notes Indenture (the "Indenture") has certain
restrictions on incurrence of indebtedness, distributions, mergers, asset
sales and changes in control of the Company.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc.
("Equity Holders") are affiliates of the Company, owning in the aggregate, a
37.6% limited partnership interest in FVP. Affiliates of the Equity Holders
received underwriting fees of approximately $3.6 million in connection with the
issuance of the Notes.
(c) Senior Discount Notes
On September 19, 1997, Holdings issued, pursuant to a private offering,
the Discount Notes. The Discount Notes were sold at approximately 63.1%
of the stated principal amount at maturity and provided net proceeds of
$144,750, after underwriting fees of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering,
the Discount Notes, Series B. The Discount Notes were sold at at
approximately 82.149% of the stated principal amount at maturity and
provided net proceeds of $72,750, after underwriting fees of
approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital (collectively, the "Issuers"), ranking pari passu in right of
payment to all existing and future unsecured indebtedness of the
Issuers and will mature on September 15, 2007. The discount on the
Discount Notes is being accreted using the interest method until
September 15, 2001, the date at which cash interest begins to accrue.
Cash interest will accrue at a rate of 11 7/8% per annum and will be
payable each March 15 and September 15, commencing March 15, 2002.
F-13
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(6) DEBT (continued)
The Discount Notes are redeemable at the option of the Issuers, in
whole or in part, at any time on or after September 15, 2001, at
redemption prices set forth in the Indenture for the Discount Notes
(the "Discount Notes Indenture"), plus any unpaid interest, if any, at
the date of the redemption. The Issuers may redeem, prior to September
15, 2001, up to 35% of the principal amount at maturity of the Discount
Notes with the net cash proceeds received from one or more public
equity offerings or strategic equity investments at a redemption prices
set forth in the Discount Notes Indenture, plus any unpaid interest, if
any, at the date of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in
control of Holdings.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc.
("Equity Holders") are affiliates of the Company, owning in the aggregate, a
37.6% limited partnership interest in FVP. Affiliates of the Equity Holders
received underwriting fees of approximately $3.6 million in connection with the
issuance of the Notes and received compensation in the aggregate of
approximately $3.1 million in connection with the issuance of the Discount
Notes.
(d) Interest Rate Protection Agreements
In order to convert effectively certain of the interest payable at
variable rates under the Amended Credit Facility to interest at fixed
rates, the Company has entered into interest rate swap agreements for
notional amounts totaling $187,500, and maturing between November 15,
1999 and October 7, 2001. According to these agreements, the Company
pays or receives the difference between (1) an average fixed rate of
5.84% and (2) a floating rate of the three month libor applied to the
same $187,500 notional amount every three months during the term of the
interest rate swap agreement. On April 7, 1998, the Company terminated
one of its interest rate swap agreements for a notional amount of
$82,500 and entered into a new interest rate swap agreement for
$100,000.There was no termination fee associated with this transaction.
On April 8, 1998, the Company entered into a collar interest rate swap
agreement ("Collar Agreement") for a notional amount of $100,000,
maturing on January 8, 2001. The Collar Agreement provides for
different exchanges between the Company and the counterparty depending
on the level of the floating three month LIBOR rate (5.32% at December
31, 1998). Such exchanges occur every three months during the term of
the Collar Agreement. The different exchanges are as follows:
(1) When LIBOR is below 5.05%, the Company pays to the counterparty the
difference between the fixed rate of 5.65% and the LIBOR rate,
applied to the $100,000 notional amount;
(2) When LIBOR is between 5.65% and 6.65%, the Company receives from
the counterparty the difference between the fixed rate of 5.65% and
LIBOR rate, applied to the $100,000 notional amount;
(3) When LIBOR is in excess of 6.65% or between 5.65% and 5.05%, the
Collar Agreement has no financial effect.
On October 3, 1997, in order to convert certain of the interest payable
at variable rates under indebtedness, the Company entered into a
forward interest rate swap agreement. This commenced on October 15,
1998, for a notional amount totaling $150,000, maturing on October 15,
2001. According to this agreement, the Company will pay or receive the
difference between (1) a fixed rate of 6.115% and (2) a floating rate
based on three month libor applied to the same $150,000 notional amount
every three months during the term of the interest rate swap agreement.
F-14
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(6) DEBT (continued)
For the years ended December 31, 1998 and 1997, the Company had
recognized an increase in interest expense of approximately $585 and
$312, respectively, as a result of the interest rate swap agreements.
Information concerning the Company's interest rate agreements at
December 31, 1998 is as follows:
<TABLE>
Amount to be
Interest rate Notional paid upon
Expiration date to be received amount termination (i)
--------------- -------------- ------ ---------------
<S> <C> <C> <C>
November 15, 1999 5.912% $ 65,000 $ 472.5
November 15, 1999 5.188% 22,500 12.1
January 8, 2001 5.650% 100,000 1,215.3
October 7, 2001 5.940% 100,000 2,731.9
October 15, 2001 6.115% 150,000 4,340.7
------------ -------------
$ 437,500 $ 8,772.5
============ =============
</TABLE>
(i) The estimated amount that the Company would pay to terminate
the agreements on December 31, 1998. This amount takes into
consideration current interest rates, the current
creditworthiness of the counterparties and represents the fair
value of the interest rate agreements.
The debt of the Company, excluding future accretion, matures as follows:
Year Ended December 31 --
-------------------------
1999 $ 11,144
2000 24,575
2001 34,575
2002 44,575
2003 55,825
Thereafter 950,448
--------------
$ 1,121,142
==============
(7) GUARANTOR SUBSIDIARIES
The Indenture for the Discount Notes has been amended to add New England and
NECMA as guarantors ("Guarantor Subsidiaries") of the Discount Notes. The
guaranty is full and unconditional. Separate financial statements of the
Guarantor Subsidiaries are not presented because management believes that they
are not material to investors.
Following is condensed consolidating financial information for the Company:
F-15
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(7) GUARANTOR SUBSIDIARIES (continued)
Balance Sheet as of December 31, 1998
<TABLE>
--------------------------------------------------------------------------------------------
Non-Guarantor
Guarantor Subsidiaries Consolidating Consolidated
Holdings FVOP Subsidiaries Entries Holdings
---------------- --------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 200 $ 4,249 $ 559 $ 83 $ - $ 5,091
Receivables - 18,330 287 288 (5,129) 13,776
Prepaid expenses - 3,929 115 2 - 4,046
Investment in cable
Television systems - 1,137,025 56,574 4,679 (35,000) 1,163,278
Other assets 277,570 24,460 - 269 (278,069) 24,230
---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 277,770 $1,187,993 $ 57,535 $ 5,321 $ (318,198) $1,210,421
========== ========== ========== ========== ========== ==========
Accounts payable and
Accrued liabilities $ (924) $ 34,021 $ 6,705 $ 729 $ (5,129) $ 35,402
Subscriber prepayments and deposits - 3,320 (8) - - 3,312
Accrued interest payable - 9,547 - - - 9,547
Deferred income taxes - - 11,859 (3) - 11,856
Debt 249,532 871,610 35,000 - (35,000) 1,121,142
Partners' capital/
Subsidiary equity 29,162 269,495 3,979 4,595 (278,069) 29,162
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
partners' capital $ 277,770 $1,187,993 $ 57,535 $ 5,321 $ (318,198) $1,210,421
========== ========== ========== ========== ========== ==========
</TABLE>
Statement of Operations for the Year Ended December 31, 1998
<TABLE>
--------------------------------------------------------------------------------------------
Non-Guarantor
Guarantor Subsidiaries Consolidating Consolidated
Holdings FVOP Subsidiaries Entries Holdings
---------------- --------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ - $ 236,728 $ 8,219 $ 187 $ - $ 245,134
Operating expenses 39 119,532 4,112 135 - 123,818
Corporate administrative
expenses - 6,513 452 - - 6,965
Depreciation and
amortization - 106,609 7,494 52 - 114,155
------------- ------------ -------- ---------- ------------ ----------
Operating income (39) 4,074 (3,839) - - 196
Interest expense, net (20,043) (64,025) (4,807) - - (88,875)
Equity in losses of affiliate (66,196) (6,020) - (66) 72,282 -
Other expense - (225) (301) - - (526)
Income tax benefit - - 2,927 - - 2,927
------------- ------------ -------- ---------- ------------ ----------
Net loss $ (86,278) $ (66,196) $ (6,020) $ (66) $ 72,282 $ (86,278)
============= ============ ======== ========== ============ ==========
</TABLE>
F-16
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(8) DEFERRED FINANCING COSTS
The Company refinanced its Senior Credit Facility in December, 1997.
Accordingly, the deferred financing costs related to the initial debt were
written off. The effect of this write-off was a $5,046 charge to expense and was
recorded as an extraordinary item. Additional costs related to the Amended
Credit Facility were recorded as deferred financing costs during 1997.
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate their fair value
due to the nature and length of maturity of the investments.
The estimated fair value of the Company's Amended Credit Facility is based on
floating market rates at December 31, 1998; therefore, there is no material
difference in the fair market value and the carrying value of such debt
instruments. The Notes have an aggregate principal amount of $200,000 with a 11%
coupon rate. The fair value for the Notes at December 31, 1998 is $222,000. The
Discount Notes have an aggregate principal amount at maturity of $328,948 with a
11 7/8% coupon. At December 31, 1998, the approximate fair value of the
Company's Discount Notes was $273,030. The fair value of the Notes and Discount
Notes is estimated based on Portal Market quotations of the issue.
(10) COMMITMENTS AND CONTINGENCIES
The Company has annual commitments under lease agreements for office space,
equipment, pole rental and land upon which certain of its towers and antennae
are constructed. Rent expense for the years ended December 31, 1998, 1997 and
1996 was $5,806, $4,065 and $2,365, respectively.
Estimated future noncancelable lease payments under such lease obligations
subsequent to December 31, 1998 are as follows:
Year Ended December 31 --
-------------------------
1999 $ 1,404
2000 1,104
2001 781
2002 646
2003 390
Thereafter 737
------------
$ 5,062
============
F-17
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(10) COMMITMENTS AND CONTINGENCIES (continued)
In October 1992, Congress enacted the Cable Television Consumer and Competition
Act of 1992 (the "1992 Cable Act") which greatly expanded federal and local
regulation of the cable television industry. The Federal Communications
Commission ("FCC") adopted comprehensive regulations, effective September 1,
1993, governing rates charged to subscribers for basic cable and cable
programming services which allowed cable operators to justify regulated rates in
excess of the FCC benchmarks through cost of service showings at both the
franchising authority level for basic service and at the FCC level in response
to complaints on rates for cable programming services. The FCC also adopted
comprehensive and restrictive regulations allowing operators to modify their
regulated rates on a quarterly or annual basis using various methodologies that
account for the changes in the number of regulated channels, inflation, and
increases in certain external costs, such as franchise and other governmental
fees, copyright and retransmission consent fees, taxes, programming fees and
franchise related obligations. The FCC has also adopted regulations that permit
qualifying small cable operators to justify their regulated service and
equipment rates using a simplified cost-of-service formula.
As a result of such actions, the Company's basic and tier service rates and its
equipment and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. The Company believes
that it has complied in all material respects with the rate regulation
provisions of the federal law. However, the Company's rates for Regulated
Services are subject to review by the FCC, if a complaint has been filed, or by
the appropriate franchise authority if it is certified by the FCC to regulate
basic rates. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received. Any
refunds of the excess portion of tier service rates would be retroactive to the
date of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation of
the rate reductions.
The Company's agreements with franchise authorities require the payment of
annual fees which approximate 3% of system franchise revenue. Such franchises
are generally nonexclusive and are granted by local governmental authorities for
a specified term of years, generally for extended periods of up to fifteen
years.
(11) YEAR 2000 COMPLIANCE
The Company has under way a project to review and modify, as necessary, its
computer applications, hardware and other equipment to make them Year 2000
compliant. The Company has also initiated formal communications with third
parties having a substantial relationship to its business, including significant
suppliers and financial institutions, to determine the extent to which the
Company may be vulnerable to such third parties' failures to achieve Year 2000
compliance.
Failure to achieve Year 2000 compliance by the Company, its principal suppliers
and certain financial institutions with which it has relationship could
negatively affect the Company's ability to conduct business for an extended
period. There can be no assurances that all Company information technology
systems and components will be fully Year 2000 compliant; in addition, other
companies on which the Company's systems and operations rely may not be fully
compliant on a timely basis, and any such failure could have a material adverse
effect on the Company's financial position, results of operations or liquidity.
(12) SUBSEQUENT EVENT
On February 22, 1999, FVP entered into a definitive agreement with Adelphia
Communications Corporation to sell all outstanding partnership interests of FVP
in exchange for cash, the assumption of certain liabilities and 7,000,000 shares
of Adelphia Class A common stock.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholder of
FrontierVision Holdings Capital II Corporation:
We have audited the accompanying balance sheet of FrontierVision Holdings
Capital II Corporation as of December 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of FrontierVision Holdings Capital II
Corporation as of December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Denver, Colorado
March 19, 1999
F-19
<PAGE>
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
BALANCE SHEET
-------------
December 31,
1998
-------------
ASSETS
Cash $1,000
------
Total assets $1,000
======
LIABILITIES AND OWNER'S EQUITY
Owner's equity:
Common stock, par value $.01; 1,000 shares authorized;
100 shares issued and outstanding $ 10
Additional paid-in capital 990
------
Total owner's equity 1,000
Total liabilities and owner's equity $1,000
======
See accompanying note to the balance sheet.
F-20
<PAGE>
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
NOTE TO THE BALANCE SHEET
FrontierVision Holdings Capital II Corporation, a Delaware corporation
("Holdings Capital II"), is a wholly owned subsidiary of FrontierVision
Holdings, L.P. ("Holdings"), and was organized on December 2, 1998, for the sole
purpose of acting as co-issuer with Holdings of $91.3 million aggregate
principal amount at maturity of the 11 7/8% Senior Discount Notes, Series B.
Holdings Capital II had no operations from inception through December 31, 1998.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of FrontierVision Partners, L.P.:
We have audited the accompanying consolidated balance sheets of FrontierVision
Partners, L.P. and subsidiaries as of December 31, 1998 and 1997. These
consolidated balance sheets are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
balance sheets based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets referred to above present
fairly, in all material respects, the financial position of FrontierVision
Partners, L.P. and subsidiaries as of December 31, 1998 and 1997 in conformity
with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
March 19, 1999
F-22
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
<TABLE>
----------------------------------------
December 31, December 31,
1998 1997
------------------- --------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,354 $ 6,873
Accounts receivable, net of allowance for doubtful
accounts of $666 and $640 13,443 8,071
Prepaid expenses and other 4,046 2,785
Investment in cable television systems, net:
Property and equipment 342,754 247,724
Franchise cost and other intangible assets 820,524 637,725
------------ ------------
Total investment in cable television systems, net 1,163,278 885,449
------------ ------------
Deferred financing costs, net 25,812 26,283
Organization costs, net 280 377
Earnest money deposits 150 2,000
------------ ------------
Total assets $ 1,214,363 $ 931,838
============ ============
LIABILITIES
Accounts payable $ 18,233 $ 2,770
Accrued liabilities 17,169 15,126
Subscriber prepayments and deposits 3,312 1,828
Accrued interest payable 9,547 5,064
Deferred income taxes 11,856 -
Long term debt, including related party 1,355,144 994,955
------------ ------------
Total liabilities 1,415,261 1,019,743
------------ ------------
Partners' deficit
General partner (2,010) (880)
Limited partners --
Special Class A (154,139) (66,723)
Class A (44,749) (20,302)
------------ ------------
Total partners' deficit (200,898) (87,905)
Commitments
------------ ------------
Total liabilities and partners' deficit $ 1,214,363 $ 931,838
============ ============
</TABLE>
See accompanying notes to consolidated balance sheets.
F-23
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(1) THE PARTNERSHIP
Organization and Capitalization:
FrontierVision Partners, L.P. ("FVP") is a Delaware limited partnership formed
April 17, 1995, for the purpose of acquiring and operating cable television
systems. FVP was initially capitalized in August 1995 with approximately $16,600
of limited partner contributions, and approximately $168 from its sole general
partner, FVP GP, L.P., a Delaware partnership. FVP's limited partners include
individuals, corporations and partnerships. FVP's partners have committed to
provide debt and equity capital commitments totaling approximately $199,400
through two limited partnership and note purchase agreements. As of December 31,
1998, FVP had received all of these commitments. Of the total capital
contributed to FVP by December 31, 1998, approximately $27,100 is in the form of
general and limited partner capital contributions, approximately $52,700 in the
form of 14% junior subordinated notes (the "Junior Notes") and approximately
$119,600 in the form of 12% senior subordinated notes (the "Senior Notes").
Under the terms of the Limited Partnership Interest and Note Purchase Agreement
(the "FVP Partnership Agreement"), FVP agreed to issue partnership interests,
Senior Notes and Junior Notes to a limited partner, (less that limited partner's
debt and equity commitments) as a syndication fee. In 1995 and 1996, FVP
credited the capital account of the limited partner with a total of $428 related
to limited partner capital contributions received, and issued Senior Notes and
Junior Notes totaling $2,604 related to this arrangement. The amount issued
related to the Senior Notes and the Junior Notes is reflected as a deferred
financing cost in the accompanying consolidated financial statements and the
amount issued related to limited partnership interests is reflected as a
partners' capital syndication fee.
FrontierVision Holdings, L.P. ("Holdings"), a Delaware limited partnership, is
directly and indirectly a wholly-owned subsidiary of FVP and was formed on
September 3, 1997 for the purpose of acting as co-issuer with its wholly-owned
subsidiary, FrontierVision Holdings Capital Corporation ("Holdings Capital"), of
$237,650 aggregate principal amount at maturity of 11 7/8% Senior Discount Notes
due 2007 (collectively the "Discount Notes"). On December 2, 1998, Holdings,
acting as a co-issuer with its wholly owned subsidiary, FrontierVision Holdings
Capital II Corporation, issued $91,298 aggregate principal amount at maturity of
11 7/8% Senior Discount Notes Series B due 2007. FVP contributed to Holdings all
of the outstanding partnership interests of FrontierVision Operating Partners,
L.P. ("FVOP") prior to the issuance of the Discount Notes on September 19, 1997
(the "Formation Transaction") and therefore, at that time, FVOP and its
wholly-owned subsidiary, FrontierVision Capital Corporation ("Capital"), became
wholly-owned, consolidated subsidiaries of Holdings. FVP is the 99.9% general
partner of Holdings and FrontierVision Holdings, LLC ("FV Holdings") is the 0.1%
limited partner of Holdings. As used herein, the "Partnership" refers
collectively to FVP, FV Holdings, Holdings, Holdings Capital, FVOP Inc. and
FVOP.
Allocation of Profits, Losses and Distributions:
The Partnership may issue Class A, Special Class A, Class B, Special Class B and
Class C limited partnership interests. As of December 31, 1998, the Partnership
had only issued Class A, Special Class A and Class C limited partnership
interests.
Net losses are allocated to the partners in proportion to their combined debt
and capital contributions until the limited partners have been allocated amounts
equal to their capital contributions, except no losses shall be allocated to any
limited partner which would cause the limited partner's capital account to
become negative by an amount greater than the limited partner's share of the
Partnership's "minimum gain" (the excess of the Partnership's nonrecourse debt
over its adjusted basis in the assets encumbered by nonrecourse debt).
Thereafter, losses are allocated to the general partner.
F-24
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(1) THE PARTNERSHIP (continued)
Profits are allocated first to the general and limited partners to the extent of
their negative capital accounts; then to the general and limited partners to the
extent of their capital contributions; then to the general and limited partners
until the Class A and Class B limited partners receive a 12% preferred return on
their capital contributions; thereafter, 83% to the Class A and Class B limited
partners and the general partner in proportion to their capital contributions,
9% to the general partner and Class C limited partners (the "General Partner
Special Allocation"), and 8% to the Special Class A and Special Class B limited
partners.
Distributions are made first, 99% to the Class A and Class B limited partners
and 1% to the general partner until the Class A and Class B limited partners
have received a return of their contributed capital; second, 99% to the Class A
and Class B limited partners and 1% to the general partner until the Class A and
Class B limited partners receive a 12% preferred annual rate of return on their
capital contributions; thereafter, 83% to the Class A and Class B limited
partners and the general partner in proportion to their capital contributions,
9% to the general partner and Class C limited partners (the "general partner
special allocation") and 8% to the Special Class A and Special Class B limited
partners. Under the terms of the FVP Partnership Agreement, the general partner
may issue Class C limited partnership interests to employees of the Partnership
which entitle the holder to receive distributions from the Partnership. However,
in no event shall the Class C limited partners be entitled to receive more than
3% of the aggregate distributions made. The percentage of the aggregate
distributions made to the Class C limited partners shall result in a reduction
to the General Partner's Special Allocation percentage. As of December 31, 1998,
the Partnership had received total combined debt and capital contributions of
$43,132 and $154,229 from its Class A limited partners and from its Special
Class A limited partners, respectively.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership
and its direct and indirect wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the financial statements, the Partnership considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
F-25
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment
Property and equipment are stated at cost and include the following:
distribution facilities, support equipment and leasehold improvements.
Replacements, renewals and improvements are capitalized and costs for repairs
and maintenance are charged to expense when incurred. The Partnership
capitalizes direct labor and overhead related to installation and construction
activities. Depreciation is computed on a straight-line basis using an average
estimated useful life of 8 years.
Franchise Costs, Covenants not to Compete, Subscriber Lists and Goodwill
Franchise costs, covenants not to compete, subscriber lists and goodwill result
from the application of the purchase method of accounting to business
combinations. Such amounts are amortized on a straight-line basis over the
following periods: 15 years for franchise costs (which reflects the
Partnership's ability to renew existing franchise agreements), 5 years for
covenants not to compete, 7 years for subscriber lists and 15 years for
goodwill.
Impairment of Long-lived Assets
The Partnership periodically reviews the carrying amount of its property, plant
and equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates.
Deferred Financing Costs and Deferred Bond Issue Costs
Deferred financing costs and deferred bond issue costs are being amortized using
the straight line method over the life of the loans and the bonds. Accumulated
amortization at December 31, 1998 and 1997 is $5,106 and $1,808, respectively.
Derivative Financial Instruments
The Partnership manages risk arising from fluctuations in interest rates by
using interest rate swap agreements, as required by its credit agreements. These
agreements are treated as off-balance sheet financial instruments. The interest
rate swap agreements are being accounted for as a hedge of the debt obligation,
and accordingly, the net settlement amount is recorded as an adjustment to
interest expense in the period incurred.
Income Taxes
The Partnership and its direct and indirect subsidiaries, except for
FrontierVision Cable New England, Inc., New England CableVision of
Massachusettes, Inc., Main Security Surveillance, Inc., FrontierVision Operating
Partners, Inc., Capital, Holdings Capital and Holdings II Capital, are limited
partnerships or limited liability companies and pay no income taxes as entities.
All of the income, gains, losses, deductions and credits of the Partnership are
passed through to its partners. Nominal taxes are assessed by certain state and
local jurisdictions. The basis in the Partnership's assets and liabilities
differs for financial and tax reporting purposes. At December 31, 1998, the book
basis of the Partnership's net assets exceeded its tax basis by $20.4 million.
F-26
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FrontierVision Cable New England, Inc., New England CableVision of
Massachusettes, Inc., Main Security Surveillance, Inc., FrontierVision Operating
Partners, Inc., Capital, Holdings Capital and Holdings II Capital are
corporations and are subject to federal and state income taxes which have not
been significant. Deferred taxes relate principally to the difference between
book and tax basis of the cable television assets owned by New England
Cablevision of Massachusetts, Inc., partially offset by the tax effect of
related net operating loss carryforwards.
New Accounting Standards
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133"), which is effective for all fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities by requiring that all derivative
instruments be reported as assets or liabilities and measured at their fair
values. Under SFAS 133, changes in the fair values of derivative instruments are
recognized immediately in earnings unless those instruments qualify as hedges of
the (1) fair values of existing assets, liabilities, or firm commitments, (2)
variability of cash flows of forecasted transactions, or (3) foreign currency
exposures of net investments in foreign operations. Although management of the
Company has not completed its assessment of the impact of SFAS 133 on its
consolidated results of operations and financial position, management estimates
that the impact of SFAS 133 will not be material.
The American Institute of Certified Public Accountants recently issued Statement
of Position 98-5, Reporting the Costs of Start-up Activities, ("SOP 98-5"),
which is effective for all fiscal years beginning after December 15, 1998. SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. Had SOP 98-5 been adopted by the Partnership
as of December 31, 1998, the Company would have recorded an increase to net loss
of $280, as the cumulative effect of a change in accounting principle.
Reclassification
Certain amounts have been reclassified for comparability.
(3) INVESTMENT IN CABLE TELEVISION SYSTEMS
The Partnership's investment in cable television systems is comprised of the
following:
<TABLE>
--------------------------------------
December 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Property and equipment $ 435,531 $ 297,229
Less--accumulated depreciation (92,777) (49,505)
------------ ------------
Property and equipment, net 342,754 247,724
------------ ------------
Franchise costs 717,614 523,096
Covenants not to compete 16,856 14,983
Subscriber lists 146,411 106,270
Goodwill 53,937 44,702
------------ ------------
934,818 689,051
Less--accumulated amortization (114,294) (51,326)
------------ ------------
Franchise costs and other intangible assets, net 820,524 637,725
------------ ------------
Total investment in cable television systems, net $ 1,163,278 $ 885,449
============ ============
</TABLE>
F-27
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(4) ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Partnership has completed several acquisitions since its inception through
December 31, 1998. All of the acquisitions have been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based upon the
estimated fair values at the respective dates of acquisition. Such allocations
are subject to adjustments as final appraisal information is received by the
Partnership. Amounts allocated to property and equipment and to intangible
assets will be respectively depreciated and amortized, prospectively from the
date of acquisition based upon remaining useful lives and amortization periods.
The following table lists the acquisitions and the purchase price for
transactions occurring in the most recent two years.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
Predecessor Owner Primary Location of Systems Date Acquired Acquisition Cost (a)
----------------- --------------------------- ------------- --------------------
<S> <C> <C> <C>
Bluegrass Cable Partners, L.P. Kentucky March 20, 1997 $10,400
Clear Cable T.V., Inc. and B&G Cable T.V. Systems, Inc. Kentucky March 31, 1997 $1,800
Milestone Communications of New York, L.P. Ohio March 31, 1997 $3,000
Triax Associates I, L.P. ("Triax I") Ohio May 30, 1997 $34,800
Phoenix Front Row Cablevision Ohio May 30, 1997 $6,900
PCI Incorporated Michigan August 29, 1997 $13,600
SRW, Inc.'s Blue Ridge Cable Systems, L.P. Tennessee and North Carolina September 3, 1997 $4,100
A-R Cable Services - ME, Inc. ("Cablevision") Maine October 31, 1997 $78,600
Harold's Home Furnishings, Inc. Pennsylvania and Maryland October 31, 1997 $1,600
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture ("TCI-VT/NH") Vermont and New Hampshire December 2, 1997 $34,800
Cox Communications, Inc. ("Cox-Central Ohio") Ohio December 19, 1997 $204,100
TVC-Sumpter Limited Partnership and North Oakland Cablevision
Partners Limited Partnership Michigan March 6, 1998 $14,400
TCI Cablevision of Ohio, Inc. Ohio April 1, 1998 $10,000
New England Cablevision of Massachusetts, Inc. ("NECMA") Massachusetts April 3, 1998 $44,900
Ohio Cablevision Network, Inc. ("TCI-Bryan") Ohio July 31, 1998 $37,400
Unity Cable Television, Inc. Maine September 30, 1998 $800*
Appalachian Cablevision of Ohio Ohio September 1, 1998 $300
State Cable TV Corporation ("State") Maine, New Hampshire October 23, 1998 $190,200*
Paint Valley Cable Ohio October 30, 1998 $1,900*
CASCO Maine November 30, 1998 $3,200*
- ---------------
</TABLE>
(a) Acquisition cost represents the purchase price allocation between tangible
and intangible assets including certain purchase accounting adjustments as of
December 31, 1998.
* Subject to adjustment.
F-28
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(4) ACQUISITIONS AND DISPOSITIONS (continued)
The combined purchase price of certain of these acquisitions has been allocated
to the acquired assets and liabilities as follows:
<TABLE>
------------------------------------------------
1998 1997 1996
Acquisitions(a) Acquisitions(a) Acquisitions(a)
------------ ------------ ------------
<S> <C> <C> <C>
Property and equipment $ 79,526 $ 48,805 $ 169,240
Franchise costs and other intangible assets 244,492 344,490 268,836
------------ ------------ ------------
Subtotal 324,018 393,295 438,076
------------ ------------ ------------
Net working capital (deficit) 410 (164) (7,107)
Deferred income taxes (14,783) - -
Less - Earnest money deposits applied (2,050) (500) (9,502)
------------ ------------ ------------
Total cash paid for acquisitions $ 307,595 $ 392,631 $ 421,467
============ ============ ============
</TABLE>
- ------------
(a) The combined purchase price includes certain purchase price adjustments for
acquisitions consummated prior to the respective periods.
The Partnership has reported the operating results of its acquired cable systems
from the dates of their respective acquisition.
Dispositions
The Partnership has completed two dispositions from its inception through
December 1998.
On July 24, 1996, the Partnership sold certain cable television system assets
located primarily in Chatsworth, Georgia to an affiliate of Helicon Partners for
an aggregate sales price of approximately $7,900.
On September 30, 1996, the Partnership sold certain cable television system
assets located in Virginia to Shenandoah Cable Television Company, an affiliate
of Shenandoah Telephone Company, for an aggregate sales price of approximately
$7,100.
On January 7, 1999, the Partnership sold certain cable television system assets
located in the Southeast region to Helicon Partners I, LP, for an aggregate
sales price of approximately $5,220.
(5) DEBT
The Partnership's debt was comprised of the following:
<TABLE>
--------------------------------
December 31, December 31,
1998 1997
---- ----
Bank Credit Facility (a) --
<S> <C> <C>
Revolving Credit Facility, interest based on various floating rate $ 172,000 $ -
options (7.25% average at December 31, 1998), payable monthly
Term loans, interest based on various floating libor rate options
(7.46% and 8.33% weighted average at December 31, 1998 and 1997,
respectively), payable monthly 498,125 432,000
11% senior Subordinated Notes due 2006 (b) 200,000 200,000
11 7/8% senior Discount Notes due 2007 (c) 249,532 155,047
12% Senior Notes, due June 30, 2004 and 2007 (d) 158,593 141,642
14% Junior Notes, due June 30, 2004 and 2007 (d) 75,409 66,266
Other 1,485 -
------------ ------------
Total debt $ 1,355,144 $ 994,955
============ ============
</TABLE>
F-29
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(5) DEBT (continued)
(a) Bank Credit Facility.
On December 19, 1997, the Partnership entered into a Second Amended and
Restated Credit Agreement (the "Amended Credit Facility") increasing
the available senior debt by $535.0 million, for a total availability
of $800.0 million. The amount available under the Amended Credit
Facility includes two term loans of $250.0 million each ("Facility A
Term Loan" and "Facility B Term Loan") and a $300.0 million revolving
credit facility ("Revolving Credit Facility"). The Facility A Term Loan
and the Revolving Credit Facility both mature on September 30, 2005.
The entire outstanding principal amount of the Revolving Credit
Facility is due on September 30, 2005, with escalating principal
payments due quarterly beginning December 31, 1998 under the Facility A
Term Loan. The Facility B Term Loan matures March 31, 2006 with 95% of
the principal being repaid in the last two quarters of the term of the
facility.
Under the terms of the Amended Credit Facility, with certain
exceptions, the Partnership has a mandatory prepayment obligation upon
a change of control of the Partnership and the sale of any of its
operating systems. This obligation may be waived with the consent of
the majority of the lenders. Further, beginning with the year ending
December 31, 2001, the Partnership is required to make prepayments
equal to 50% of its excess cash flow, as defined in the Amended Credit
Facility. The Partnership also pays commitment fees ranging from 1/2% -
3/8% per annum on the average unborrowed portion of the total amount
available under the Amended Credit Facility.
The Amended Credit Facility also requires the Partnership to maintain
compliance with various financial covenants including, but not limited
to, covenants relating to total indebtedness, debt ratios, interest
coverage ratio and fixed charges ratio. In addition, the Amended Credit
Facility has restrictions on certain partnership distributions by the
Partnership.
All partnership interests in the Partnership and all assets of the
Partnership and its subsidiaries are pledged as collateral for the
Amended Credit Facility.
(b) Senior Subordinated Notes
On October 7, 1996, FVOP issued, pursuant to a public offering (the
"Offering"), $200,000 aggregate principal amount of Senior Subordinated
Notes due 2006 (the "Subordinated Notes"). Net proceeds from the
Offering of $192,500, after costs of approximately $7,500, were
available to FVOP on October 7, 1996.
In connection with the anticipated issuance of the Subordinated Notes
in connection with the Offering, FVOP entered into deferred interest
rate setting agreements to reduce the FVOP's interest rate exposure in
anticipation of issuing the Subordinated Notes. The cost of such
agreements, amounting to $1,390, are recognized as a component of
interest expense over the term of the Subordinated Notes.
The Subordinated Notes are unsecured subordinated obligations of FVOP
(co-issued by Capital) that mature on October 15, 2006. Interest
accrues at 11% per annum beginning from the date of issuance, and is
payable each April 15 and October 15, commencing April 15, 1997.
The Subordinated Notes Indenture (the "Indenture") has certain
restrictions on incurrence of indebtedness, distributions, mergers,
asset sales and changes in control of FVOP.
F-30
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(5) DEBT (continued)
(c) Senior Discount Notes
On September 19, 1997, Holdings issued, pursuant to a private offering,
the Discount Notes. The Discount Notes were sold at approximately 63.1%
of the stated principal amount at maturity of $237,650 and provided net
proceeds of $144,750, after underwriting fees of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering,
the Discount Notes, Series B. The Discount Notes were sold at at
approximately 82.149% of the stated principal amount at maturity of
$91,298 and provided net proceeds of $72,750, after underwriting fees
of approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital (collectively, the "Issuers"), ranking pari passu in right of
payment to all existing and future unsecured indebtedness of the
Issuers and will mature on September 15, 2007. The discount on the
Discount Notes is being accreted using the interest method over four
years until September 15, 2001, the date at which cash interest begins
to accrue. Cash interest will accrue at a rate of 11 7/8% per annum and
will be payable each March 15 and September 15, commencing March 15,
2002.
The Discount Notes are redeemable at the option of the Issuers, in
whole or in part, at any time on or after September 15, 2001, at
redemption prices set forth in the Indenture for the Discount Notes
(the "Discount Notes Indenture"), plus any unpaid interest, if any, at
the date of the redemption. The Issuers may redeem, prior to September
15, 2001, up to 35% of the principal amount at maturity of the Discount
Notes with the net cash proceeds received from one or more public
equity offerings or strategic equity investments at a redemption prices
set forth in the Discount Notes Indenture, plus any unpaid interest, if
any, at the date of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in
control of Holdings.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc.
("Equity Holders") are affiliates of the Partnership, owning in the aggregate, a
37.6% limited partnership interest in FVP. Affiliates of the Equity Holders
received underwriting fees of approximately $3.6 million in connection with the
issuance of the Notes and received compensation in the aggregate of
approximately $3.1 million in connection with the issuance of the Discount
Notes.
(d) Senior and Junior Notes
The Senior and Junior Notes are unsecured obligations of FVP, ranking
pari passu in right of payment to all existing and future indebtedness
of FVP. The Senior Notes bear interest at a rate of 12% per annum,
compounded annually, and are payable June 30, 2004 and 2007 or, if
earlier, the last day of the term of the Partnership. The Junior Notes
bear interest at a rate of 14% per annum, compounded annually, and are
payable June 30, 2004 and 2007 or, if earlier, the last day of the term
of the Partnership. Under the terms of the Senior Notes and the Junior
Notes, no cash interest payments are required.
F-31
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(5) DEBT (continued)
(e) Interest Rate Protection Agreements
In order to convert effectively certain of the interest payable at
variable rates under the Amended Credit Facility to interest at fixed
rates, the Partnership has entered into interest rate swap agreements
for notional amounts totaling $187,500, and maturing between November
15, 1999 and October 7, 2001. According to these agreements, the
Partnership pays or receives the difference between (1) an average
fixed rate of 5.84% and (2) a floating rate of the three month libor
applied to the same $187,500 notional amount every three months during
the term of the interest rate swap agreement. On April 7, 1998, the
Partnership terminated one of its interest rate swap agreements for a
notional amount of $82,500 and entered into a new interest rate swap
agreement for $100,000. There was no termination fee associated with
this transaction.
On April 8, 1998, the Partnership entered into a collar interest rate
swap agreement ("Collar Agreement") for a notional amount of $100,000,
maturing on January 8, 2001. The Collar Agreement provides for
different exchanges between the Partnership and the counterparty
depending on the level of the floating three month LIBOR rate (5.32% at
December 31, 1998). Such exchanges occur every three months during the
term of the Collar Agreement. The different exchanges are as follows:
(1) When LIBOR is below 5.05%, the Partnership pays to the
counterparty the difference between the fixed rate of 5.65% and
the LIBOR rate, applied to the $100,000 notional amount;
(2) When LIBOR is between 5.65% and 6.65%, the Partnership receives
from the counterparty the difference between the fixed rate of
5.65% and LIBOR rate, applied to the $100,000 notional amount;
(3) When LIBOR is in excess of 6.65% or between 5.65% and 5.05%, the
Collar Agreement has no financial effect.
On October 3, 1997, in order to convert certain of the future interest
payable at variable rates under indebtedness, the Partnership entered
into a forward interest rate swap agreement. This commenced on October
15, 1998, for a notional amount totaling $150,000, maturing on October
15, 2001. According to this agreement, the Partnership will pay or
receive the difference between (1) a fixed rate of 6.115% and (2) a
floating rate based on three month libor applied to the same $150,000
notional amount every three months during the term of the interest rate
swap agreement.
Information concerning the Partnership's interest rate agreements at
December 31, 1998 is as follows:
<TABLE>
Amount to be
Interest rate Notional paid upon
Expiration date to be received amount termination (i)
--------------- -------------- ------ ---------------
<S> <C> <C> <C>
November 15, 1999 5.912% $ 65,000 $ 472.5
November 15, 1999 5.188% 22,500 12.1
January 8, 2001 5.650% 100,000 1,215.3
October 7, 2001 5.940% 100,000 2,731.9
October 15, 2001 6.115% 150,000 4,340.7
------------ -------------
$ 437,500 $ 8,772.5
============ =============
</TABLE>
F-32
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(5) DEBT (continued)
(i) The estimated amount that the Partnership would pay to
terminate the agreements on December 31, 1998. This amount
takes into consideration current interest rates, the current
creditworthiness of the counterparties and represents the fair
value of the interest rate agreements.
The debt of the Partnership, excluding future interest accretion, matures as
follows:
Year Ended December 31 --
-------------------------
1999 $ 11,144
2000 24,575
2001 34,575
2002 44,575
2003 55,825
Thereafter 1,184,450
-----------
$ 1,355,144
===========
(6) DEFERRED FINANCING COSTS
The Partnership refinanced its Senior Credit Facility in December, 1997.
Accordingly, the deferred financing costs related to the initial debt were
written off. The effect of this write-off was a $5,046 charge to expense and was
recorded as an extraordinary item. Additional costs related to the Amended
Credit Facility were recorded as deferred financing costs during 1997.
(7) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate their fair value
due to the nature and length of maturity of the investments.
The estimated fair value of the Partnership's Amended Credit Facility is based
on floating market rates at December 31, 1998; therefore, there is no material
difference in the fair market value and the carrying value of such debt
instruments. The Notes have an aggregate principal amount of $200,000 with a 11%
coupon rate. The fair value for the Notes at December 31, 1998 is $222,000. The
Discount Notes have an aggregate principal amount at maturity of $328,948 with a
11 7/8% coupon. At December 31, 1998, the approximate fair value of the
Partnership's Discount Notes was $273,030. The fair value of the Subordinated
Notes and the Discount Notes is estimated based on Portal Market quotations of
the issue. The fair value of the Junior and Senior Notes is not determinable as
a result of the related party nature of such instruments.
(8) COMMITMENTS AND CONTINGENCIES
The Partnership has annual commitments under lease agreements for office space,
equipment, pole rental and land upon which certain of its towers and antennae
are constructed. Rent expense for the years ended December 31, 1998, 1997 and
1996 was $5,806, $4,065 and $2,365, respectively.
F-33
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(8) COMMITMENTS AND CONTINGENCIES (continued)
Estimated future noncancelable lease payments under such lease obligations
subsequent to December 31, 1998 are as follows:
Year Ended December 31 --
-------------------------
1999 $ 1,404
2000 1,104
2001 781
2002 646
2003 390
Thereafter 737
------------
$ 5,062
============
In October 1992, Congress enacted the Cable Television Consumer and Competition
Act of 1992 (the "1992 Cable Act") which greatly expanded federal and local
regulation of the cable television industry. The Federal Communications
Commission ("FCC") adopted comprehensive regulations, effective September 1,
1993, governing rates charged to subscribers for basic cable and cable
programming services which allowed cable operators to justify regulated rates in
excess of the FCC benchmarks through cost of service showings at both the
franchising authority level for basic service and at the FCC level in response
to complaints on rates for cable programming services. The FCC also adopted
comprehensive and restrictive regulations allowing operators to modify their
regulated rates on a quarterly or annual basis using various methodologies that
account for the changes in the number of regulated channels, inflation, and
increases in certain external costs, such as franchise and other governmental
fees, copyright and retransmission consent fees, taxes, programming fees and
franchise related obligations. The FCC has also adopted regulations that permit
qualifying small cable operators to justify their regulated service and
equipment rates using a simplified cost-of-service formula.
As a result of such actions, the Partnership's basic and tier service rates and
its equipment and installation charges (the "Regulated Services") are subject to
the jurisdiction of local franchising authorities and the FCC. The Partnership
believes that it has complied in all material respects with the rate regulation
provisions of the federal law. However, the Partnership's rates for Regulated
Services are subject to review by the FCC, if a complaint has been filed, or by
the appropriate franchise authority if it is certified by the
FCC to regulate basic rates. If, as a result of the review process, a system
cannot substantiate its rates, it could be required to retroactively reduce its
rates to the appropriate benchmark and refund the excess portion of rates
received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion of all
other Regulated Service rates would be retroactive to one year prior to the
implementation of the rate reductions.
The Partnership's agreements with franchise authorities require the payment of
annual fees which approximate 3% of system franchise revenue. Such franchises
are generally nonexclusive and are granted by local governmental authorities for
a specified term of years, generally for extended periods of up to fifteen
years.
(9) YEAR 2000 COMPLIANCE
The Partnership has under way a project to review and modify, as necessary, its
computer applications, hardware and other equipment to make them Year 2000
compliant. The Partnership has also initiated formal communications with third
parties having a substantial relationship to its business, including significant
suppliers and financial institutions, to determine the extent to which the
Partnership may be vulnerable to such third parties' failures to achieve Year
2000 compliance.
F-34
<PAGE>
FRONTIERVISION PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEETS
(In thousands)
(9) YEAR 2000 COMPLIANCE (continued)
Failure to achieve Year 2000 compliance by the Partnership, its principal
suppliers and certain financial institutions with which it has relationship
could negatively affect the Partnership's ability to conduct business for an
extended period. There can be no assurances that all Partnership information
technology systems and components will be fully Year 2000 compliant; in
addition, other companies on which the Partnership's systems and operations rely
may not be fully compliant on a timely basis, and any such failure could have a
material adverse effect on the Partnership's financial position, results of
operations or liquidity.
(10) SUBSEQUENT EVENT
On February 22, 1999, FVP entered into a definitive agreement with Adelphia
Communications Corporation to sell all outstanding partnership interests of FVP
in exchange for cash, the assumption of certain liabilities and 7,000,000 shares
of Adelphia Class A common stock.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cox Communications, Inc.
We have audited the accompanying combined statement of net assets of Cox
Communications, Inc.'s ("CCI") Central Ohio Cluster as of December 31, 1996, and
the related combined statements of income, changes in net assets, and cash flows
for the year then ended. These financial statements are the responsibility of
CCI's management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Cox
Communications, Inc.'s Central Ohio Cluster at December 31, 1996, and the
combined results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles.
As discussed in Note 1, CCI sold the assets and certain liabilities of the
Central Ohio Cluster.
DELOITTE & TOUCHE LLP
August 29, 1997
(December 19, 1997 as to the second paragraph in Note 1)
Atlanta, Georgia
F-36
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF NET ASSETS
<TABLE>
-------------------------------------
September 30, December 31,
1997 1996
--------------------------------
(Unaudited)
(Thousands of Dollars)
ASSETS
<S> <C> <C>
Cash $ 28 $ 239
Accounts receivable, less allowance for doubtful
accounts of $87 and $66 2,511 2,310
Net plant and equipment 24,278 24,512
Intangible assets 148,284 151,263
Other assets 853 1,448
-------- --------
Total assets $175,954 $179,772
======== ========
LIABILITIES AND NET ASSETS
Accounts payable and accrued expenses $ 667 $ 1,245
Deferred income 1,416 1,430
Deferred income taxes 62,294 63,442
Other liabilities 399 191
Amounts due to Affiliates 29,571 35,107
-------- --------
Total liabilities 94,347 101,415
Net assets 81,607 78,357
-------- --------
Total liabilities and net assets $175,954 $179,772
======== ========
</TABLE>
See notes to combined financial statements.
F-37
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF INCOME
<TABLE>
----------------------------------------------------------
Nine Months Ended Nine Months Ended Year Ended
September 30, September 30, December 31,
1997 1996 1996
---------- -------------- -------------
(Unaudited) (Unaudited)
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues $ 25,486 $ 23,389 $ 31,749
Costs and expenses:
Operating 8,387 7,371 10,132
Selling, general and administrative 3,408 3,772 5,143
Depreciation 3,735 3,579 4,846
Amortization 2,979 2,979 3,972
----- ----- -----
Operating income 6,977 5,688 7,656
Interest expense with affiliates (1,443) (1,851) (2,346)
Other, net (25) 6 5
----- ----- -----
Income before income taxes 5,509 3,843 5,315
Income taxes (2,259) (1,576) (2,176)
----- ----- -----
Net income $ 3,250 $ 2,267 $ 3,139
===== ===== =====
</TABLE>
See notes to combined financial statements.
F-38
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
---------------------
(Thousands of Dollars)
---------------------
Balance at December 31, 1995 $ 75,218
Net income 3,139
------
Balance at December 31, 1996 78,357
Net income (Unaudited) 3,250
------
Balance at September 30, 1997 (Unaudited) $ 81,607
======
See notes to combined financial statements.
F-39
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
----------------------------------------------------
Nine Months Nine Months
Ended Ended Year Ended
September 30, September 30, December 31,
1997 1996 1996
--------------- -------------- -----------
(Unaudited) (Unaudited)
(Thousands of Dollars)
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 3,250 $ 2,267 $ 3,139
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation 3,735 3,579 4,846
Amortization 2,979 2,979 3,972
Deferred income taxes (1,148) (1,245) (1,849)
(Increase) decrease in accounts receivable (201) 155 (120)
Decrease in other assets 595 348 206
Increase (decrease) in accounts payable and accrued expenses (592) 289 803
Other, net 208 (20) (42)
-------- -------- --------
Net cash provided by operating activities 8,826 8,352 10,955
-------- -------- --------
Cash flows from investing activities
Capital expenditures (3,501) (2,549) (2,939)
-------- -------- --------
Net cash used in investing activities (3,501) (2,549) (2,939)
-------- -------- --------
Cash flows from financing activities
Decrease in amounts due to Affiliates (5,536) (4,933) (7,777)
-------- -------- --------
Net cash provided by financing activities (5,536) (4,933) (7,777)
-------- -------- --------
Net increase (decrease) in cash (211) 870 239
Cash at beginning of period 239 -- --
-------- -------- --------
Cash at end of period $ 28 $ 870 $ 239
======== ======== ========
Cash paid during the period for:
Interest $ 17 $ 11 $ 14
Income taxes 788 852 905
</TABLE>
See notes to combined financial statements.
F-40
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements represent the combined operations of Cox
Communications, Inc.'s ("CCI") cable television systems serving eight
communities in Central Ohio (collectively referred to as the "Central Ohio
Cluster"). These cable television systems were acquired by CCI, an indirect
75.3% owned subsidiary of Cox Enterprises, Inc. ("CEI"), from the Times Mirror
Company ("Times Mirror") in connection with CCI's acquisition of Times Mirror
Cable Television, Inc. ("TMCT") on February 1, 1995. The historical combined
financial statements do not necessarily reflect the results of operations or
financial position that would have existed had the Central Ohio Cluster been an
independent company. All significant intercompany accounts and transactions have
been eliminated in the combined financial statements of the Central Ohio
Cluster.
On December 19, 1997, CCI sold the assets and certain liabilities of the Central
Ohio Cluster to FrontierVision Operating Partners, L.P. for approximately $204.0
million.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Central Ohio Cluster bills its customers in advance; however, revenue is
recognized as cable television services are provided. Receivables are generally
collected within 30 days. Credit risk is managed by disconnecting services to
customers who are delinquent generally greater than 75 days. Other revenues are
recognized as services are provided. Revenues obtained from the connection of
customers to the cable television systems are less than related direct selling
costs; therefore, such revenues are recognized as services are provided.
Plant and Equipment
Depreciation is computed using principally the straight-line method at rates
based upon estimated useful lives of five to 20 years for building and building
improvements, five to 12 years for cable television systems and three to 10
years for other plant and equipment.
The costs of initial cable television connections are capitalized as cable plant
at standard rates for the Central Ohio Cluster's labor and at actual cost for
materials and outside labor. Expenditures for maintenance and repairs are
charged to operating expense as incurred. At the time of retirement, sale or
other disposition of property, the original cost and related accumulated
depreciation are written off.
Intangible Assets
Intangible assets consist of goodwill and cable television franchise rights
recorded in connection with the acquisition of the Central Ohio Cluster from
TMCT and are amortized on a straight-line basis over 40 years. The Central Ohio
Cluster assesses on an on-going basis the recoverability of intangible assets
based on estimates of future undiscounted cash flows for the applicable business
acquired compared to net book value. The Central Ohio Cluster also evaluates the
amortization period of intangible assets to determine whether events or
circumstances warrant revised estimated of useful lives.
F-41
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
Effective January 1, 1996, the Central Ohio Cluster adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement requires that long-lived assets and certain intangibles be reviewed
for impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, with any impairment losses
being reported in the period in which the recognition criteria are first applied
based on the fair value of the asset. Long-lived assets and certain intangibles
to be disposed of are required to be reported at the lower of carrying amounts
or fair value less cost to sell.
Income Taxes
The accounts of the Central Ohio Cluster are included in the consolidated
federal income tax return and certain state income tax returns of CEI. Current
federal and state income tax expenses and benefits have been allocated on a
separate return basis to the Central Ohio Cluster based on the current year tax
effects of the inclusion of its income, expenses and credits in the consolidated
income tax returns of CEI or based on separate state income tax returns.
Deferred income tax assets and liabilities arise from temporary differences in
the financial reporting and income tax basis of assets and liabilities. These
differences primarily result from property and intangible assets.
Fees and Taxes
The Central Ohio Cluster incurs various fees and taxes in connection with the
operations of its cable television systems, including franchise fees paid to
various franchise authorities, copyright fees paid to the U.S. Copyright
Tribunal and business and franchise taxes paid to the State of Ohio. A portion
of these fees and taxes are passed through to the Central Ohio Cluster's
subscribers. Amounts collected from subscribers are recorded as a reduction of
operating expenses.
Pension, Postretirement and Postemployment Benefits
CCI generally provides defined pension benefits to substantially all employees
based on years of service and compensation during those years. CCI also provides
certain health care and life insurance benefits to substantially all retirees
and employees through certain CEI plans. Expense related to the CCI and CEI
plans is allocated to the Central Ohio Cluster through the intercompany account.
The amount of the allocations is generally based on actuarial determinations of
the effects of the Central Ohio Cluster employees' participation in the plans.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-42
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The unaudited combined financial statements as of and for the nine months ended
September 30, 1997 and 1996, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for this
period. Operating results for nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
(3) CASH MANAGEMENT SYSTEM
The Central Ohio Cluster participates in CEI's cash management system, whereby
the bank sends daily notification of checks presented for payment. CEI transfers
funds from other sources to cover the checks presented for payment.
(4) PLANT AND EQUIPMENT
----------------- -----------------
September 30, December 31,
1997 1996
-------- ---------
(In Thousands)
Land $ 313 $ 311
Buildings and building improvements 990 1,033
Transmission and distribution plant 43,531 41,329
Miscellaneous equipment 2,343 1,478
Construction in progress 531 825
-------- --------
Plant and equipment, at cost 47,708 44,976
Less accumulated depreciation (23,430) (20,464)
-------- --------
Net plant and equipment $ 24,278 $ 24,512
======== ========
(5) INTANGIBLE ASSETS
----------------------------------
September 30, December 31,
1997 1996
---------- ---------
(In Thousands)
Goodwill $ 158,876 $ 158,876
Less accumulated amortization (10,592) (7,613)
--------- ---------
Net intangible assets $ 148,284 $ 151,263
========= =========
F-43
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(6) INCOME TAXES
Current and deferred income tax expenses (benefits) are as follows:
------------------------------------------
Nine months ended Year ended
September 30, 1997 December 31, 1996
------- -------
(In Thousands)
Current:
Federal $ 2,906 $ 3,289
State 520 736
------- -------
Total current 3,426 4,025
------- -------
Deferred:
Federal (1,119) (1,385)
State (48) (464)
------- -------
Total deferred (1,167) (1,849)
------- -------
Net income tax expense $ 2,259 $ 2,176
======= =======
Income tax expense differs from the amount computed by applying the U.S.
statutory federal income tax rate (35%) to income (loss) before income taxes as
a result of the following items:
<TABLE>
-------------------------------------------
Nine months ended Year ended
September 30, 1997 December 31, 1996
------ ------
(In Thousands)
Computed tax expense at federal statutory
<S> <C> <C>
rates on income before income taxes $1,928 $1,860
State income taxes, net of federal tax benefit 307 177
Other, net 24 139
------ ------
Net income tax expense $2,259 $2,176
====== ======
</TABLE>
Significant components of the net deferred tax liability consist of the
following:
---------------------------------------
Nine months ended Year ended
September 30, 1997 December 31, 1996
-------- --------
(Thousands of Dollars)
Plant and equipment $ (5,618) $ (5,787)
Franchise rights (57,569) (58,638)
Other 893 983
-------- --------
Net deferred tax liability $(62,294) $(63,442)
======== ========
(7) RETIREMENT PLANS
Qualified Pension Plan
Effective January 1, 1996, CCI established the Cox Communications, Inc. Pension
Plan (the "CCI Plan"), a qualified noncontributory defined benefit pension plan
for substantially all of CCI's employees including the Central Ohio Cluster's
employees. Plan assets consist primarily of common stock, investment-
F-44
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(7) RETIREMENT PLANS (CONTINUED)
grade corporate bonds, cash and cash equivalents and U.S. government
obligations. The CCI Plan calls for benefits to be paid to eligible employees at
retirement based primarily upon years of service with CCI and compensation rates
near retirement. The funded status of the portion of the CCI Plan covering the
employees of the Central Ohio Cluster is not determinable. The fair value of the
CCI Plan assets was greater than the projected benefit obligation as of December
31, 1996.
Total pension expense attributable to the Central Ohio Cluster employees'
participation in the CCI Plan was $33,000 for the nine month period ended
September 30, 1997 and $158,000 for the year ended December 31, 1996.
The assumptions used in the actuarial computations at December 31, 1996 were:
Discount rate 7.75%
Rate of increase in compensation levels 5.50%
Expected long-term rate of return on plan assets 9.00%
Other Retirement Plans
CEI provides certain health care and life insurance benefits to substantially
all retirees of CEI and its subsidiaries. Postretirement expense allocated to
the Central Ohio Cluster by CEI was $13,000 for the nine month period ended
September 30, 1997 and $15,000 for the year ended December 31, 1996. CEI has
been contributing additional amounts to the Cox Pension Plan Trust to fund
health care benefits pursuant to Section 401(h) of the Internal Revenue Code.
CEI is funding benefits to the extent contributions are tax deductible. In
general, retiree health benefits are paid as covered expenses are incurred. The
funded status of the postretirement plan covering the employees of the Central
Ohio Cluster is not determinable. The accumulated postretirement benefit
obligation for the postretirement plan of CEI substantially exceeded the fair
value of assets held in the Cox Pension Plan Trust at December 31, 1996.
In addition, substantially all of Central Ohio Cluster's employees are eligible
to participate in the savings and investment plan of CEI. Under the terms of the
plan, the Central Ohio Cluster matches 50% of employee contributions up to a
maximum of 6% of the employee's base salary. The Central Ohio Cluster's expense
under the plan was $57,000 for the nine-month period ended September 30, 1997
and $83,000 for the year ended December 31, 1996.
(8) TRANSACTIONS WITH AFFILIATED COMPANIES
The Central Ohio Cluster borrows funds for working capital and other needs from
CCI. Certain management services are provided to the Central Ohio Cluster by CCI
and CEI. Such services include legal, corporate secretarial, tax, treasury,
internal audit, risk management, benefits administration and other support
services. The Central Ohio Cluster was allocated expenses for the nine months
ended September 30, 1997 and for the year ended December 31, 1996 of
approximately of $604,000 and $1,320,000, respectively, related to these
services. Allocated expenses are based on management's estimate of expenses
related to the services provided to the Central Ohio Cluster in relation to
those provided to other divisions of CCI and CEI. Management believes that these
allocations were made on a reasonable basis. However, the allocations are not
necessarily indicative of the level of expenses that might have been incurred
had the Central Ohio Cluster contracted directly with third parties. Management
has not made a
F-45
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(8) TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
study or any attempt to obtain quotes from third parties to determine what the
cost of obtaining such services from third parties would have been. The fees and
expenses to be paid by the Central Ohio Cluster various transactions, including
those described above. At December 31, 1996 and September 30, 1997, outstanding
amounts due to affiliates bear interest at fifty basis points above CCI's
commercial paper borrowings. This rate as of September 30, 1997 and December 31,
1996 was 6.32% and 6.6%, respectively.
In accordance with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," the Central Ohio Cluster has estimated the fair
value of its intercompany advances and notes payable. Given the short-term
nature of these advances, the carrying amounts reported in the statements of net
assets approximate fair value.
(9) COMMITMENTS AND CONTINGENCIES
The Central Ohio Cluster leases office facilities and various items of equipment
under noncancelable operating leases. Rental expense under operating leases
amounted to $259,000 for the nine month period ended September 30, 1997 and
$331,000 for the year ended December 31, 1996. Future minimum lease payments as
of September 30, 1997 for all noncancelable operating leases are as follows:
1997 $ 18
1998 40
1999 31
2000 31
2001 31
2002 7
------
Total $ 158
======
The FCC has adopted rate regulations required by the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). Beginning in
September 1995, the FCC authorized a method of implementing rate adjustments
which allows cable operators to increase rates for programming annually on the
basis of proposed increases in external costs rather than on the basis of cost
increases incurred in the preceding quarter. Local franchising authorities have
the ability to obtain certification from the FCC to regulate rates charged by
the Central Ohio Cluster for basic cable services and associated basic cable
services equipment. In addition, the rates charged by the Central Ohio Cluster
for cable programming services ("CPS") can be regulated by the FCC should any
franchising authority of the Central Ohio Cluster file rate complaints with the
FCC. To date, the local franchising authorities for the Central Ohio Cluster
have not become certified by the FCC to regulate rates for basic cable service
and associated basic cable services equipment and no complaints have been filed
by customers with the FCC regarding rates charged for CPS. Though rates for
basic and CPS are presently not regulated, management of the Central Ohio
Cluster believes the rates charged for basic and CPS comply in all material
respects with the 1992 Cable Act and that should such rates become regulated in
the future the impact on the financial position and results of operation of the
Central Ohio Cluster would not be material.
F-46
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
On February 1, 1996, Congress passed the Telecommunications Act of 1996 (the
"1996 Act"), which was signed into law by the President on February 8, 1996.
Among other provisions, the 1996 Act deregulates the CPS tier of large cable
television operators on March 31, 1999 and upon enactment, the CPS rates of
small cable television operators, where a small cable operator serves 50,000 or
fewer subscribers, revises the procedures for filing a CPS complaint and adds a
new effective competition test.
F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To State Cable TV Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of State Cable TV
Corporation and Subsidiary as of December 31, 1997, and the related consolidated
statement of operations and deficit and cash flows for the year then ended.
These consolidated financial statements referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of State
Cable TV Corporation and Subsidiary as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Boston, Massachusetts
March 13, 1998
F-48
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
Assets
December 31, September 30,
1997 1998
(Unaudited)
Current Assets:
<S> <C> <C>
Cash $ 605,832 $ 915,676
Subscriber receivables, net of allowance for doubtful accounts of $706,140 at 1,688,694 1,505,602
December, 31 1997 and $1,150,567 at September 30, 1998 (unaudited)
Other current assets 440,594 474,408
--------------- ---------------
Total current assets 2,735,120 2,895,686
--------------- ---------------
Property, Plant and Equipment, at cost:
Land and building held for sale 383,219 383,219
Land 235,674 235,674
Building and building improvements 2,317,728 2,386,357
Cable TV equipment 56,274,822 60,072,379
Office equipment 1,558,486 1,666,208
Vehicles 2,017,865 2,212,835
--------------- ---------------
62,787,794 66,956,672
Less-Accumulated depreciation (40,957,381) (44,491,861)
--------------- ---------------
21,830,413 22,464,811
Construction in process 805,422 -
--------------- ---------------
22,635,835 22,464,811
Notes Receivable from Affiliate (Note 8) 10,115,617 11,070,626
Deferred Income on Installment Sale (Note 8) (7,291,147) (7,684,897)
--------------- ---------------
Total notes receivable 2,824,470 3,385,729
--------------- ---------------
Intangible Assets, net
Franchises 2,420,280 2,221,019
Goodwill 285,409 276,877
Loan costs 1,200,807 1,011,805
--------------- ---------------
3,906,496 3,509,701
--------------- ---------------
Other Assets (Note 3) 93,543 -
--------------- ---------------
Total assets $ 32,195,464 $ 32,255,927
=============== ===============
Liabilities and Shareholders' Deficit
Current Liabilities:
Current maturities of long-term debt $ 5,254,068 $ 7,011,576
Accounts payable 2,845,415 2,438,018
Accrued expenses 1,856,008 1,719,585
Subscriptions received in advance 351,032 346,694
--------------- ---------------
Total current liabilities 10,306,523 11,515,873
--------------- ---------------
Long-Term Debt, net of current maturities 55,704,532 54,804,435
Deferred State Tax Payable 18,355 -
Other Long-Term Liabilities 102,579 311,829
--------------- ---------------
Total liabilities 66,131,989 66,632,137
--------------- ---------------
Commitments and Contingencies (Note 5)
Minority Interest 2,082,054 2,665,322
Shareholders' Deficit:
Common stock, par value $1.00 per share, authorized, issued and outstanding, 1,822 1,822 1,822
shares
Accumulated deficit (36,020,401) (37,043,354)
--------------- ---------------
Total shareholders' deficit (36,018,579) (37,041,532)
--------------- ---------------
Total liabilities and shareholders' deficit $ 32,195,464 $ 32,255,927
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-49
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations and Deficit
<TABLE>
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
1997 1997 1998 1997 1998
(Unaudited) (Unaudited)
Gross Service Revenue:
<S> <C> <C> <C> <C> <C>
Subscriber revenue $ 22,327,282 $ 16,508,075 $ 18,500,996 $ 5,736,622 $ 6,380,173
Premium services and pay per view revenue 3,274,880 2,260,703 2,488,962 826,772 958,136
Advertising revenue 1,441,866 946,370 981,967 276,455 376,642
Installation revenue 594,663 469,068 371,564 136,114 123,544
Other revenue 702,014 608,805 655,733 215,741 350,609
------------- ------------- ------------ ------------- ------------
28,340,705 20,793,021 23,126,355 7,191,704 8,089,104
Programming Costs 5,434,797 3,905,225 4,689,751 1,391,621 1,648,373
------------- ------------- ------------ ------------- ------------
Net revenue (after programming costs) 22,905,908 16,887,796 18,436,604 5,800,083 6,440,731
------------- ------------- ------------ ------------- ------------
Operating Expenses:
General and adminstrative 6,009,795 4,652,460 5,248,940 1,569,971 1,824,686
Production and advertising 3,848,847 2,869,849 2,930,704 912,574 984,781
Depreciation 4,259,092 3,653,200 3,534,480 1,238,400 1,178,160
Ice storm damage - - 1,595,567 - 71,465
------------- ------------- ------------ ------------- ------------
14,117,734 11,175,509 13,309,691 3,720,945 4,059,092
------------- ------------- ------------ ------------- ------------
Income from Operations Before Other Expenses 8,788,174 5,712,287 5,126,913 2,079,138 2,381,639
(Income)
Other Expenses (Income):
Interest expense 4,875,201 3,556,976 3,954,002 1,249,541 1,464,951
Management fees to affiliated company 687,177 506,039 566,316 174,000 188,772
Amortization of intangible assets 626,813 368,014 396,917 126,792 132,306
Gain on sale of equipment (31,051) (6,737) - - -
Interest income (71,117) (24,517) (31,693) (7,453) (12,114)
Minority interest in income of Better Cable 768,594 588,255 583,268 207,994 245,251
------------- ------------- ------------ ------------- ------------
TV Company
6,855,617 4,988,030 5,126,913 1,750,874 2,019,166
------------- ------------- ------------ ------------- ------------
Income (Loss) Before State Income Taxes 1,932,557 724,257 (341,897) 328,264 362,473
Provision for State Income Taxes 18,000 - - - -
------------- ------------- ------------ ------------- ------------
Net income (Loss) 1,914,557 640,714 (341,897) 328,264 362,473
------------- ------------- ------------ ------------- ------------
Accumulated Deficit, beginning of period (36,780,806) (36,780,806) (36,020,401) (36,384,813) (36,724,771)
Distribution to Shareholders (Note 2(g)) (1,154,152) (1,536,000) (681,056) (1,536,000) (681,056)
------------- ------------- ------------ ------------- ------------
Accumulated Deficit, end of period $ (36,020,401) $ (37,592,549) $ (37,043,354)$(37,592,549)$(37,043,354)
============= ============= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-50
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
Year Ended Nine Months Ended
December 31, September 30,
1997 1997 1998
(Unaudited)
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ 1,914,557 $ 640,714 $ (341,897)
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 4,885,905 3,866,493 3,931,397
Provision for bad debts 284,565 855,381 444,427
Gain on sale of equipment (31,051) (6,737) -
Minority interest 386,746 588,255 583,268
Deferred taxes (1,645) (20,000) (18,355)
Changes in operating assets and liabilities, net of effects
from purchase of Pegasus-
Increase in subscriber receivables (305,301) (618,571) (261,335)
Increase in other current assets (536,180) (446,422) (33,814)
Increase in notes receivable (2,024,992) (340,836) (561,259)
Decrease in other assets 377,242 440,785 93,543
Increase (decrease) in accounts payable 551,984 828,584 (407,397)
Increase (decrease) in accrued expenses 223,702 215,148 (136,423)
Increase in subscriptions received in advance 36,526 118,021 204,912
--------------- --------------- ---------------
Net cash provided by operating activities 5,762,058 6,120,815 3,497,067
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (7,463,502) (11,481,424) (3,363,456)
Payment for purchase of Pegasus, net of cash acquired (6,838,183) - -
Acquisition of intangible assets, exclusive of effects from (261,374) (2,354,232) (122)
--------------- --------------- ---------------
purchase of Pegasus
Net cash used in investing activities (14,563,059) (13,835,656) (3,363,578)
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Repayment of long-term debt (3,132,621) (2,224,971) (3,942,589)
Proceeds from long-term debt 13,200,000 11,500,000 4,800,000
Distributions to shareholders (1,154,152) (1,536,000) (681,056)
--------------- --------------- ---------------
Net cash provided by financing activities 8,913,227 7,739,029 176,355
--------------- --------------- ---------------
Net Increase in Cash 112,226 24,188 309,844
Cash, beginning of year 493,606 493,606 605,832
--------------- --------------- ---------------
Cash, end of year $ 605,832 $ 517,794 $ 915,676
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for-
Interest $ 4,681,103 $ 3,423,872 $ 3,904,574
=============== =============== ===============
Income taxes 23,634 - -
=============== =============== ===============
Supplemental Disclosures of Noncash Investing Activities:
Increase in promissory note receivable and deferred income on 525,000 393,750 393,750
=============== =============== ===============
installment sale due to accrued interest
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-51
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(1) Organization
State Cable TV Corporation and Subsidiary (the Company) is engaged
primarily in providing cable television and related services to the Maine
and New Hampshire areas.
On January 31, 1997, the Company purchased substantially all of the
assets and assumed current liabilities of Pegasus, a cable television
company that provides service to areas in the State of New Hampshire. The
total purchase price was $7,135,000, of which $300,000 was paid in 1996
and is included in deposits and other assets at December 31, 1996. The
balance due was paid utilizing the Company's credit facility in 1997. The
transaction was treated as a purchase. The fair market value of the
assets approximated the purchase price. The value of the acquired
franchises was approximately $2,000,000 which is being amortized over 10
years, which represents the lives of the franchise agreements.
(2) Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of
accounting policies described in this note and elsewhere in the
accompanying notes to consolidated financial statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and Better Cable TV Company, its 60%-owned subsidiary (see
Note 9). Material intercompany transactions and accounts have been
eliminated in consolidation. The shareholders of the Company are
the partners of a partnership (the Affiliate) that owns the
minority interest of $2,082,054 as of December 31, 1997,
representing a 40% interest in the subsidiary. Changes in minority
interest reflect Better Cable TV Company's capital adjusted by its
portion of the net gain or loss.
(b) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Property, Plant and Equipment
Property, plant and equipment is carried at cost and is being
depreciated under the straight-line method over the estimated
useful lives of the assets which range from 5 to 33 years as
described below. Repair and maintenance costs are charged to
expense as incurred.
Building and building improvements....................20-33 years
Cable TV equipment......................................5-7 years
Office equipment..........................................5 years
Vehicles..................................................5 years
F-52
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
Property and equipment include the following amounts held under
capital leases:
December 31, September 30,
1997 1998
Land $ 169,000 $ 169,000
Building and building improvements 1,606,422 1,644,230
Less--Accumulated depreciation (160,403) (240,544)
---------- ----------
$1,615,019 $1,572,686
========== ==========
(d) Intangible Assets
Intangible assets are carried at cost and are being amortized
under the straight-line method over the periods indicated in Note
3.
(e) Investment in an Affiliate
Investment in a 33-1/3%-owned affiliate, Pinetree Microwave
Corporation, is carried under the equity method and classified in
other assets in the accompanying balance sheet. The assets,
liabilities and results of operations of Pinetree are not
significant to the Company. During 1998, the Company reevaluated
the value of the asset and wrote it down to zero.
(f) Revenue Recognition
Operating revenues for cable services are recognized as services
are rendered. Revenues from services contracts are recognized in
earnings over the terms of the contract.
(g) Income Taxes
The Company has elected subchapter S Corporation status for
federal and the State of Maine income tax purposes. Provisions for
federal and Maine income taxes have not been made as the Company's
operations are included pro rata in the individual income tax
returns of its shareholders. A provision for New Hampshire income
taxes has been made in the accompanying consolidated financial
statements due to the fact New Hampshire does not recognize the
Company's S corporation status. During 1997, the Company made
distributions to shareholders of $1,154,152 to pay their estimated
tax payments.
The Company provides for New Hampshire income taxes under the
liability method in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates expected to
be in effect when these differences reverse. Temporary differences
relate mainly to depreciation and deferred interest.
F-53
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
The components of the provision for income taxes for December 31,
1997 is as follows:
December 31,
1997
Current-
State $ 20,500
Deferred-
State (2,500)
-----------
Total provision (benefit) $ 18,000
===========
(h) Cash
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, requires disclosure of any
significant off-balance-sheet and credit risk concentrations. The
Company has no significant off-balance-sheet concentration of
credit risks such as foreign exchange contracts, options contracts
or other foreign hedging arrangements. Financial instruments that
subject the Company to credit risk consist primarily of cash and
accounts receivable.
(j) Long-Lived Assets
The Company has assessed the realizability of its long-lived
assets in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be
Disposed Of. As of December 31, 1997 and September 30, 1998,
management believes there has been no impairment of long-lived
assets.
(k) Interim Financial Statements (Unaudited)
The accompan ying consolidated balance sheet as of September 30,
1998, is unaudited, but in the opinion of management, includes all
adjustments consisting of normal recurring adjustments necessary
for fair presentation of results for the interim period. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted with respect to
the nine months ended, September, 30, 1998, although the Company
believes that the disclosures included are adequate to make the
information presented not misleading. Results for the nine months
ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1998.
F-54
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
(3) Intangible Assets
Intangible assets consist of the following:
<TABLE>
December 31, September 30, Amortization
1997 1998 Period
in Years
<S> <C> <C> <C>
Customer lists $ 2,858,218 $ 2,858,218 7
Franchises 4,348,947 4,349,069 10-15
Restrictive covenants 317,921 317,921 2-10
Goodwill 454,013 454,013 40
Loan costs 1,770,629 1,770,629 5-8
Other 253,476 253,476 5-10
-------------- --------------
10,003,204 10,003,326
Less--Accumulated amortization 6,096,708 6,493,625
-------------- --------------
$ 3,906,496 $ 3,509,701
============== ==============
</TABLE>
(4) Long-Term Debt
Long-term debt consists of the following:
December 31, September 30,
1997 1998
Term loan $ 42,276,500 $ 38,363,675
Revolving line of credit 17,200,000 22,000,000
Capital lease 1,482,100 1,452,336
---------------- ----------------
60,958,600 61,816,011
Less--Current maturities 5,254,068 7,011,576
---------------- ----------------
$ 55,704,532 $ 54,804,435
================ ================
The Company has a $67,000,000 credit facility (the Facility) with The
First National Bank of Chicago (First Chicago) as agent for the lending
institutions (the Lenders) under a credit agreement (Credit Agreement).
The Facility consists of a $47,000,000 amortizing term loan maturing on
December 31, 2002 and a $20,000,000 revolving credit facility terminating
on March 31, 2004. The revolving line of credit is for capital
expenditures, system acquisitions and other general corporate purposes
subject to limitations as defined in the agreement. The Facility is
collateralized by all of the Company's assets. In addition, the
shareholders pledge the stock of the Company and the partnership interest
in Better Cable TV Company as collateral. The 40% minority interest in
Better Cable TV Company has also been pledged as collateral. The Credit
Agreement requires the Company to meet various financial covenants and as
of December 31, 1997 the Company was in compliance with these covenants.
The Credit Agreement limits the payments for capital expenditures,
management fees and dividends. The Credit Agreement requires that the
term loan be repaid by quarterly installments. The repayments are based
upon a percentage of the amount outstanding as of June 30, 1997 and these
percentages increase annually until 2002 when it decreases. Advances
under the revolving credit facility are payable quarterly beginning March
31, 2003. In addition, mandatory prepayments of an amount equal to 50% of
the excess cash flows, if positive, for the most recently ended fiscal
year are required under the revolving credit facility.
F-55
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
The Credit Agreement requires the Company to pay a commitment fee of .30%
and .40% for Facilities B and C, respectively, per annum on the average
daily unborrowed portion of the revolving credit facility. Fees paid
under this arrangement amounted to $20,466 in 1997. In addition, the
Company paid management fees associated with the agreement of $30,000 in
1997.
The Credit Agreement requires interest based on the type of advance
requested by the Company, either floating rate or Eurodollar, plus the
applicable margin, as defined in the Credit Agreement. The interest rates
at December 31, 1997 for the Facility ranged from 7.99% to 8.23% with a
weighted average rate of 8.05%.
Maturities of long-term debt are as follows:
Year Ending December 31, Amount
1998 $ 5,254,068
1999 7,602,643
2000 9,320,371
2001 10,410,565
2002 9,972,788
Thereafter 18,398,165
--------------
$ 60,958,600
==============
(5) Commitments and Contingencies
(a) Leases
The Company leases telephone and utility poles at a current annual
rental of approximately $914,000. The leases are one year
self-renewing agreements.
The Company is also obligated under leases with an affiliate and
others for microwave relay services and tower sites, the latest
expiring in 2079. The Company entered into a capital lease for its
current office location expiring in 2011, with aggregate monthly
payments of approximately $14,000. The minimum annual payments
under the leases are approximately as follows:
F-56
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
Operating Capital Lease
Leases
1998 $ 103,678 $ 168,861
1999 26,638 174,642
2000 27,143 178,954
2001 27,672 184,323
2002 28,228 189,852
Thereafter 288,658 1,697,798
---------- -----------
$ 502,017
==========
Total minimum future payments 2,594,430
Less--Amounts representing interest 1,112,330
-----------
Present value of net minimum lease 1,482,100
payments
Less--Current maturity 37,147
-----------
$ 1,444,953
===========
Rent expense, including pole attachments, charged to operations
amounted to $974,521 for the year ended, December 31, 1997 and
$763,427 for the nine months ended, September 30, 1998.
(b) Litigation
In the ordinary course of business, the Company is party to
various types of litigation. The Company believes it has
meritorious defenses to all claims, and, in its opinion, all
litigation currently pending or threatened will not have a
material adverse effect on the Company's financial position or
results of operations.
(6) Due to Affiliate and Other Related Party Transactions
(a) Affiliate
Fees for management services provided by its Affiliate amounted to
$687,177 in 1997.
Included in accounts payable and accrued expenses at December 31,
1997 was approximately $753,000 due to the Company's Affiliates.
(b) Aurora
The Company's shareholders are majority shareholders in Aurora
Telecommunications, LLC (Aurora). The Company leases fiber lines
to Aurora under seven-year operating leases. Lease income amounted
to $471 in 1997.
F-57
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
The Company issued a revolving credit line to Aurora with maximum
borrowings of $3,000,000 at an applicable federal mid-term rate
(6.02% at December 31, 1997). The credit line expires and is due
September 1, 2003. At December 31, 1997, the outstanding principle
balance due from Aurora was $1,991,002 with accrued interest of
$28,903.
Under a separate note to obtain a 5% owned investment, Aurora
issued a $5,000 note payable at an annual compounded interest rate
of 7% to the Company. The note is due and payable April 30, 1998.
Accrued interest on this note was $87 at December 31, 1997.
(7) Pension
The Company adopted a defined contribution plan, which covers
substantially all employees. Participants are fully vested after five
years. Annual contributions are based upon 5% of the participants'
compensation earned during the plan year.
The Company also has a 401(k) plan, which substantially all employees are
eligible to participate in. Participants are fully vested as to all
contributions made to the plan. The Company matches 50% of employee
contributions up to the first 4%. Expenses related to the plans charged
to operations amounted to $202,951 in 1997.
(8) Sale of Partnership Interest
On November 15, 1996, the Company sold 20% of their partnership interest
in Better Cable TV to an affiliate for a $7,500,000 promissory note
maturing on March 31, 2004 bearing interest at 7% per annum. This sale is
being treated as an installment sale for both financial reporting and
income tax purposes resulting in a deferred gain of $6,700,522. No gain
was recognized during 1997. For financial reporting purposes, accrued
interest of $590,625 for the year ended, December 31, 1997 and $984,375
for the nine months ended, September 30, 1998, is being deferred.
(9) Disclosure of Fair Market Value of Financial Instruments
The carrying amounts of cash approximate fair value because of the short
maturity of these investments. The carrying amounts of the revolving
notes receivable and long-term debt approximates fair value due to the
variable rates of these instruments. The fair value of the 7% note
receivable is estimated based on currently quoted market prices for
similar types of borrowing arrangements.
The estimated fair value of the Company's financial instruments as of
December 31, 1997 are as follows (dollars in thousands):
Carrying Value Fair
Value
Cash $ 605,832 $ 605,832
Revolving note receivable 2,019,905 2,019,905
7% note receivable 8,095,712 9,413,619
Long-term debt 60,958,600 60,958,600
F-58
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
(10) Other Events
(a) Subsequent Event
In January 1998, an ice storm severely damaged cable lines of the
Company in the Maine systems. The resulting loss of $1,595,567
reflects damages incurred.
(b) Other Developments
On February 6, 1998, the Company signed a nonbinding letter of
intent with Heathrow Land Company, L.P. (HLC) whereby the Company
and HLC agreed in principle to form a limited liability company
(LLC) to own and operate the cable television system currently
operated by Heathrow Cable in and around the private community of
Heathrow, Florida. The terms of the letter of intent provide that
the Company will pay $1,350,000 for its 80% interest in the LLC.
Upon HLC's contribution or sale of the system and the assets to
the LLC, HLC will receive that portion of the purchase price
available after payment for the Bell South assets and any
necessary working capital requirements of the LLC while becoming a
20% owner of the LLC.
(c) Sale to FrontierVision Operating Partners, L.P.
On June 24, 1998, the Company signed an asset purchase agreement
with FrontierVision Operating Partners, L.P. whereby the Company
agreed to sell the majority of its State Cable TV and Better Cable
TV assets to FrontierVision Operating Partners, L.P. for a base
price of $188,750,000. The Company closed on this sale, subject to
certain purchase price adjustments, on October 22, 1998.
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New England Cablevision of Massachusetts, Inc.
We have audited the accompanying balance sheets of New England Cablevision of
Massachusetts, Inc. for the years ended December 31, 1997 and 1996, and the
related statements of earnings, changes in stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Cablevision of
Massachusetts, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
February 11, 1998 /s/ Baker Newman & Noyes
Portland, Maine Limited Liability Company
F-60
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
March 31, December 31,
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
Cash $ 98,861 $ 389,703 $ 345,126
Investments available for sale (note 3) 3,812,685 6,242,464 5,899,258
Investments held to maturity (note 3) 4,100,000 9,600,000 12,838,779
Accounts receivable, less allowance for
doubtful accounts of $60,112 in 1998,
$76,450 in 1997 and $51,400 in 1996 58,087 120,529 154,626
Accrued interest receivable 62,177 100,958 97,870
Prepaid expenses 149,190 79,055 109,665
Property, plant and equipment, net:
Property and equipment 43,069 43,069 43,069
Distribution equipment 18,755,678 15,835,849 14,704,528
Support equipment, including construction
in progress 2,097,744 3,573,833 644,679
-------------- -------------- --------------
20,896,491 19,452,751 15,392,276
Less accumulated depreciation 12,004,363 11,692,462 10,532,180
-------------- -------------- --------------
Property, plant and equipment, net 8,892,128 7,760,289 4,860,096
-------------- -------------- --------------
$ 17,173,128 $ 24,292,998 $ 24,305,420
============== ============== ==============
</TABLE>
F-61
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
March 31, December 31,
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
Accounts payable $ 357,213 $ 716,957 $ 445,932
Accrued expenses 49,318 355,311 263,363
Unearned revenue 141,855 131,740 147,733
Deferred income taxes (note 5) 859,000 855,000 864,000
-------------- -------------- --------------
Total liabilities 1,407,386 2,059,008 1,721,028
Commitments (notes 4, 5, 7 and 8)
Stockholders' equity:
Common stock, par value $1.00 per share.
Authorized 500,000 shares; issued and
outstanding 464,212 shares 464,212 464,212 464,212
Additional paid-in capital 11,269,195 17,819,736 17,819,736
Retained earnings 4,032,335 3,950,042 4,300,444
-------------- -------------- --------------
Total stockholders' equity 15,765,742 22,233,990 22,584,392
-------------- -------------- --------------
$ 17,173,128 $ 24,292,998 $ 24,305,420
============== ============== ==============
</TABLE>
See accompanying notes.
F-62
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF EARNINGS
<TABLE>
Three Months
Ended Year Ended
-------------------------- ---------------------
March 31, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues, net of discounts and allowances $ 2,575,428 $ 2,360,711 $ 9,927,773 $ 9,093,028
Expenses:
Operating expenses 916,960 857,368 3,537,001 3,386,515
Local production 152,958 120,686 433,493 370,913
General and administrative (notes 2, 4 and 6) 827,785 507,425 2,391,882 2,064,929
Depreciation and amortization 311,901 370,054 1,226,449 928,427
------------ ------------ ------------ ------------
2,209,604 1,855,533 7,588,825 6,750,784
------------ ------------ ------------ ------------
Operating earnings 365,824 505,178 2,338,948 2,342,244
Other income (expense):
Interest income 162,957 251,613 1,017,564 1,203,608
Massachusetts franchise tax (10,000) (12,500) (50,000) (50,000)
Loss on disposition of property, plant
and equipment - (140) (6,398) (108,645)
------------ ------------ ------------ ------------
152,957 238,973 961,166 1,044,963
------------ ------------ ------------ ------------
Earnings before income taxes 518,781 744,151 3,300,114 3,387,207
Income tax expense (note 5) 24,000 36,900 149,000 150,000
------------ ------------ ------------ ------------
Net earnings $ 494,781 $ 707,251 $ 3,151,114 $ 3,237,207
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-63
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Net Unrealized
Gain on
Common stock Additional Investments
---------------------
Number of Paid-in Retained Available
Shares Amount Capital Earnings for Sale Total
------ ------ ------- -------- -------- -----
Balance,
December 31,
<S> <C> <C> <C> <C> <C> <C>
1995 464,212 $ 464,212 $ 17,819,736 $ 5,852,204 $ 2,514 $ 24,138,666
Net earnings - - - 3,237,207 - 3,237,207
Net change in
unrealized gain
on investments
available for sale
- - - - (2,514) (2,514)
Dividends - - - (4,788,967) - (4,788,967)
--------- ---------- -------------- ------------- --------- --------------
Balance,
December 31,
1996 464,212 464,212 17,819,736 4,300,444 - 22,584,392
Net earnings - - - 3,151,114 - 3,151,114
Dividends - - - (3,501,516) - (3,501,516)
--------- ---------- -------------- ------------- --------- --------------
Balance,
December 31,
1997 464,212 $ 464,212 $ 17,819,736 $ 3,950,042 $ - $ 22,233,990
========= ========== ============== ============= ========= ==============
</TABLE>
F-64
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
Net Unrealized
Gain on
Common stock Additional Investments
---------------------
Number of Paid-in Retained Available
Shares Amount Capital Earnings for Sale Total
------ ------ ------- -------- -------- -----
Balance,
December 31,
<S> <C> <C> <C> <C> <C> <C>
1997 464,212 $ 464,212 $ 17,819,736 $ 3,950,042 $ - $ 22,233,990
Net earnings
(unaudited) - - - 494,781 - 494,781
Dividends
(unaudited) - - - (412,488) - (412,488)
Return of capital
(unaudited)
(note 7) - - (6,550,541) - - (6,550,541)
------- ---------- -------------- ------------- ----------- --------------
Balance,
March 31, 1998
(unaudited) 464,212 $ 464,212 $ 11,269,195 $ 4,032,335 $ - $ 15,765,742
======= ========== ============== ============= =========== ==============
</TABLE>
See accompanying notes.
F-65
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Three Months
Ended Year Ended
March 31, December 31,
-------------------------- ----------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net earnings $ 494,781 $ 707,251 $ 3,151,114 $ 3,237,207
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Depreciation and amortization 311,901 370,054 1,226,449 928,427
Accretion of discounts on investments (38,607) (57,210) (100,828) (267,861)
Deferred income tax expense (benefit) 4,000 - (9,000) 1,000
Loss on disposition of property, plant
and equipment - 140 6,398 108,645
Changes in:
Accounts receivable 62,442 72,740 34,097 (46,361)
Accrued interest receivable 38,781 (57,909) (3,088) (56,270)
Prepaid expenses (70,135) 4,052 30,610 (44,867)
Accounts payable (359,744) (132,773) 271,025 157,267
Accrued expenses (305,993) (53,758) 91,948 41,698
Unearned revenue 10,115 (75,126) (15,993) 91,647
------------- ------------- ------------- -------------
Net cash flows from operating activities 147,541 777,461 4,682,732 4,150,532
Cash flows from investing activities:
Purchases of investments available for sale - (501,250) (5,544,804) (7,699,807)
Proceeds from maturities of investments
available for sale 2,750,000 500,000 6,100,000 6,585,000
Net change in investments available for sale -
money market mutual funds (2,784,793) (44,951) (874,795) 928,862
Purchases of investments held to maturity (8,100,000) (9,900,000) (48,500,000) (14,998,185)
Proceeds from maturities of investments held
to maturity 13,600,000 10,491,000 51,816,000 7,759,000
Collection of note receivable - - - 9,200,000
Additions to property, plant and equipment (1,443,740) (600,681) (4,133,040) (1,306,867)
------------- ------------- ------------- --------------
Net cash flows from investing activities 4,021,467 (55,882) (1,136,639) 468,003
Cash flows from financing activities:
Dividends paid (412,488) (734,169) (3,501,516) (4,788,967)
Return of capital (4,047,362) - - -
------------- ------------- ------------- --------------
Net cash flows from financing activities (4,459,850) (734,169) (3,501,516) (4,788,967)
------------- ------------- ------------- --------------
Net change in cash (290,842) (12,590) 44,577 (170,432)
Cash at beginning of period 389,703 345,126 345,126 515,558
------------- ------------- ------------- --------------
Cash at end of period $ 98,861 $ 332,536 $ 389,703 $ 345,126
============= ============= ============= ==============
</TABLE>
F-66
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
Three Months
Ended Year Ended
March 31, December 31,
-------------------------- ---------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Cash paid for:
<S> <C> <C> <C> <C>
Income taxes $ 69,614 $ 45,752 $ 213,674 $ 179,330
============ ========= ========= ==========
Noncash transactions:
Investments available for sale
distributed to stockholders as
a return of capital $ 2,503,179 $ - $ - $ -
Effect of changes in market value of
investments available for sale:
Investments - - - (2,614)
Deferred income taxes - - - (100)
Net unrealized gain on
investments available for sale - - - (2,514)
</TABLE>
See accompanying notes.
F-67
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
New England Cablevision of Massachusetts, Inc. (the Company) operates
cable television franchises in Massachusetts and New Hampshire.
On April 3, 1998, the Company's stock was acquired by FrontierVision
Holdings, L.P. (FrontierVision) for approximately $43,600,000.
Interim Financial Information
The accompanying interim financial statements as of March 31, 1998 and for
the three-month periods ended March 31, 1998 and 1997 are unaudited but,
in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim period
are not necessarily indicative of results for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates; however management does not anticipate significant changes in
estimates in the near term.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers cash to
consist of only cash on hand and on deposit.
Investments
Debt securities for which the Company has the ability and positive intent
to hold to maturity are classified as held to maturity and reported at
amortized cost. Debt securities which may be sold prior to maturity are
classified as available for sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of estimated income taxes.
Gains and losses on the sales of investments are based on the specific
identification of the investments sold.
If a decline in the fair value below the adjusted cost basis of an
investment is judged to be other than temporary, the cost basis of the
investment is written down to fair value as the new cost basis and the
amount of the write down is included as a charge in the statement of
earnings.
F-68
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation is provided
over the estimated useful lives of the various assets by using the
straight-line method.
Construction in Progress
The Company capitalizes certain operating costs incurred during the
construction period of cable television systems. These costs are amortized
on a straight-line basis over the estimated useful lives of the systems
once transferred to their appropriate property, plant and equipment
classification.
Unearned Revenue
Advance payments for cable services are credited to unearned revenue and
recorded as sales when earned.
Income Taxes
Effective January 1, 1995, the Company elected to be taxed as a small
business corporation (Subchapter S) under Section 1362 of the Internal
Revenue Code. Accordingly, beginning in 1995, the Company does not provide
for federal income taxes since such taxes are paid directly by the
shareholders on their individual tax returns. The Company provides for
state income taxes in its financial statements because New Hampshire does
not recognize Subchapter S status, and Massachusetts imposes a corporate
income tax on S Corporations with over $6,000,000 of total receipts.
The Company accounts for income taxes under the asset and liability
method. Deferred taxes are recognized for the future tax consequences
attributable to the differences between the financial statement and tax
basis of assets and liabilities, measured at the tax rates expected to
apply to taxable income when the temporary differences are expected to be
recovered or settled. Beginning in 1995, deferred tax expense consists
only of state taxes.
In accordance with the Internal Revenue Code, the Company may be subject
to a corporate level tax on the net built-in gains at the date of
conversion to Subchapter S status that are realized during the ten-year
period after the conversion. Consequently, the Company has retained its
net deferred tax liability existing at the date of conversion. As such,
the deferred tax liability related to the built in gains is not meant to
approximate the deferred tax liability that would be required if the
Company was taxed as a regular corporation. Any corporate level built-in
gains tax realized in excess of the amount recorded as a deferred tax
liability will be charged to earnings when and if realized.
The Company's tax status will change to a C Corporation as a result of its
acquisition by FrontierVision.
F-69
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
2. Management Agreement
The Company has a Management Agreement with Diversified Communications
under which Diversified Communications provides the Company with general
services consisting of consulting, recordkeeping, budgeting, financial
reporting, and other miscellaneous services. Diversified Communications is
also providing the Company with cable management services consisting of
marketing, customer service training and support, engineering, programming
administration, franchise relations, general management, and
refranchising, rebuild and rate regulations. The Company incurred $376,428
in 1997 and $350,352 in 1996 in management fee expenses. The Company is
allowed, under the Management Agreement, to develop the internal capacity
to provide some or all of the above services.
3. Investments
Investments held to maturity at December 31, 1997 consist of high-grade
commercial paper maturing in one year or less. Investments held to
maturity at December 31, 1996 consist of high-grade commercial paper and
U.S. Treasury obligations. At December 31, 1997 and 1996, the market value
of these investments approximates their cost.
Investments available for sale at December 31, 1997 consist of $5,214,572
of U.S. Treasury and Agency obligations (of which $4,714,752 matures in
1998 and $499,820 matures in 1999) and $1,027,892 of money market mutual
funds. At December 31, 1997 the market value of the investments
approximates their cost.
Investments available for sale at December 31, 1996 consist of $5,746,161
of U.S. Treasury and A gencyobligations substantially all maturing in
1997 and $153,097 of money market mutual funds. At December 31, 1996 the
market value of these investments approximates their cost.
4. Rental Expense
The Company leases property under operating leases. Rental expense related
to these leases was approximately $163,000 for 1997 and $132,000 in 1996.
At December 31, 1997, minimum rental payments due for the next five years
under remaining lease terms in excess of one year are approximately as
follows:
1998 $163,000
1999 149,000
2000 109,000
2001 102,000
2002 106,000
F-70
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes
Income tax expense (benefit) for the periods ended December 31, 1997 and
1996 consists of the following components:
1997 1996
---- ----
Current $ 158,000 $ 149,000
Deferred (9,000) 1,000
--------- ----------
$ 149,000 $ 150,000
========= ==========
The state corporate tax rate applicable to the Company in 1997 and 1996 is
approximately 4.5%.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1996 are presented below:
1997 1996
---- ----
Deferred tax assets:
Allowance for doubtful accounts $ 2,000 $ 1,000
Property, plant and equipment 4,000 -
---------- ----------
6,000 1,000
Deferred tax liabilities:
Property, plant and equipment - 4,000
Built-in gains 861,000 861,000
---------- ----------
Total gross deferred tax liabilities 861,000 865,000
---------- ----------
Net deferred tax liability $ 855,000 $ 864,000
========== ==========
6. 401(k) Plan
The Company has a 401(k) Plan that covers all employees over the age of 21
and who have completed one year of service. Participants may defer up to
14% of their compensation. The Company may make a matching contribution as
well as a discretionary contribution as determined by its Board of
Directors. Participants become fully vested in the employer's
discretionary contributions upon seven years of participation. The expense
incurred for this Plan was approximately $70,000 for 1997 and $71,000 in
1996.
F-71
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
7. Sale of the Company
On December 12, 1997, the Company's stockholders entered into a purchase
and sale agreement to sell 100% of the Company's stock to an unrelated
party. The Company was permitted to distribute cash and investments to its
stockholders prior to the consummation of the sale. These distributions
are shown as a return of capital and charged to additional paid-in
capital.
The transaction was consummated on April 3, 1998. Substantially all of the
remaining cash and investments was distributed to stockholders immediately
prior to the sale.
8. Commitments
The Company has committed to rebuild the Cape Ann and Amesbury regional
cable systems to comply with its franchise agreements. At December 31,
1997, the estimated costs to complete the rebuild were approximately $5.6
million.
F-72
<PAGE>
FINANCIAL STATEMENT SCHEDULES
FrontierVision Holdings, L.P. Page
Independent Auditors' Report S-2
Schedule I: Condensed Information of the Registrant S-3
Schedule II: Valuation and Qualifying Accounts S-7
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Under date of March 19, 1999, we reported on the consolidated balance sheets of
FrontierVision Holdings, L.P. and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of operations,
partners' capital and cash flows for each of the years in the three year period
ended December 31, 1998, as contained in this annual report on Form 10-K for the
year 1998. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedules on Pages
S-3 through S-7. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Denver, Colorado
March 19, 1999
S-2
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE FINANCIAL
POSITION OF THE REGISTRANT
In Thousands
<TABLE>
----------------- --- -----------------
December 31, December 31,
1998 1997
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 200 $ 1,315
Intercompany receivable 924 -
Deferred financing costs, net 8,074 6,252
Investment in consolidated subsidiaries 269,496 263,043
--------- ---------
Total assets $ 278,694 $ 270,610
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ - $ 123
Debt 249,532 155,047
Partners' capital:
FrontierVision Partners, L.P. 29,133 115,325
FrontierVision Holdings, LLC 29 115
--------- ---------
Total partners' capital 29,162 115,440
--------- ---------
Total liabilities and partners' capital $ 278,694 $ 270,610
========= =========
</TABLE>
See accompanying independent auditors' report
and note to the condensed information.
S-3
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE
OPERATIONS OF THE REGISTRANT
In Thousands
<TABLE>
---------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended
December 31, December 31, December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating expenses $ (39) $ -- $ --
Equity in losses of subsidiaries (66,196) (46,863) (23,801)
Interest expense, net (20,043) (5,353) --
-------- -------- --------
Net loss $(86,278) $(52,216) $(23,801)
======== ======== ========
</TABLE>
See accompanying independent auditors' report.
S-4
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE CASH
FLOWS OF THE REGISTRANT
In Thousands
<TABLE>
----------------------------------------------------------
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1998 1997 1996
----------------- ----------------- --------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (86,278) $ (52,216) $ (23,801)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Amortization of deferred debt issuance costs 586 333
Accretion of interest on indebtedness 19,485 5,047 --
Share of losses of subsidiary 66,196 46,863 23,801
Changes in operating assets and liabilities:
Intercompany receivable (924) -- --
Accounts payable and accrued liabilities (123) 123 --
--------- --------- ---------
Total adjustments 85,220 52,366 --
--------- --------- ---------
Net cash flows from operating activities (1,058) 150 --
--------- --------- ---------
Cash Flows From Investing Activities:
Investment in subsidiaries (72,649) (179,903) (107,397)
--------- --------- ---------
Net cash flows from investing activities (72,649) (179,903) (107,397)
--------- --------- ---------
Cash Flows From Financing Activities:
Proceeds of issuance of Senior Discount Notes 75,000 150,000 --
Offering costs related to Senior Discount Notes (2,408) (6,585) --
Partner capital contributions -- 37,653 107,397
--------- --------- ---------
Net cash flows from financing activities 72,592 181,068 107,397
--------- --------- ---------
Net Increase in Cash and Cash Equivalents (1,115) 1,315 --
Cash and Cash Equivalents, at beginning of period 1,315 -- --
--------- --------- ---------
Cash and Cash Equivalents, end of period $ 200 $ 1,315 $ --
========= ========= =========
</TABLE>
See accompanying independent auditors' report.
S-5
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTE TO THE CONDENSED INFORMATION OF THE REGISTRANT
In Thousands
(1) DEBT
On September 19, 1997, FrontierVision Holdings, L.P. ("Holdings") issued,
pursuant to a private offering, the Discount Notes. The Discount Notes
were sold at approximately 63.1% of the stated principal amount at
maturity and provided net proceeds of $144,750, after underwriting fees
of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering, the
Discount Notes, Series B. The Discount Notes were sold at at
approximately 82.149% of the stated principal amount at maturity and
provided net proceeds of $72,750, after underwriting fees of
approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital (collectively, the "Issuers"), ranking pari passu in right of
payment to all existing and future unsecured indebtedness of the Issuers
and will mature on September 15, 2007. The discount on the Discount Notes
is being accreted using the interest method until September 15, 2001, the
date at which cash interest begins to accrue. Cash interest will accrue
at a rate of 11 7/8% per annum and will be payable each March 15 and
September 15, commencing March 15, 2002.
The Discount Notes are redeemable at the option of the Issuers, in whole
or in part, at any time on or after September 15, 2001, at redemption
prices set forth in the Indenture for the Discount Notes (the "Discount
Notes Indenture"), plus any unpaid interest, if any, at the date of the
redemption. The Issuers may redeem, prior to September 15, 2001, up to
35% of the principal amount at maturity of the Discount Notes with the
net cash proceeds received from one or more public equity offerings or
strategic equity investments at a redemption prices set forth in the
Discount Notes Indenture, plus any unpaid interest, if any, at the date
of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in control
of Holdings.
The debt of Holdings, excluding future accretion, matures as follows:
Year Ended December 31 --
1998 $ -
1999 -
2000 -
2001 -
2002 -
Thereafter 249,532
------------
$ 249,532
============
S-6
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Amounts in Thousands
<TABLE>
--------------------------------------------------------
Charge to
Beginning Costs and Deductions/ Balance at
of Period Expenses Writeoffs End of Period
-------- ----- ------ ---
Allowance for uncollectible trade receivables:
<S> <C> <C> <C> <C>
Year ended December 31, 1996 $ 40 1,072 (345) 767
Year ended December 31, 1997 $ 767 1,761 (1,888) 640
Year ended December 31, 1998 $ 640 3,076 (3,050) 666
</TABLE>
See accompanying independent auditors'report.
S-7
<PAGE>
Part II
Information Not Required in Prospectus
Item 20: Indemnification of Directors and Officers
Section 5.6 of the First Amended and Restated Agreement of Limited Partnership
of FVP, dated as of August 11, 1995 (the "FVP Partnership Agreement"), provides
that in the absence of fraud, breach of fiduciary duty, willful misconduct or
gross negligence, FVP GP, its partners, their respective officers, directors,
employees, agents or stockholders (including when any of the foregoing is
serving at the request of FVP GP on behalf of FVP as a partner, officer,
director, employee or agent of any other entity) (as such term is defined in the
FVP Partnership Agreement) (in each case, the "Indemnitee") shall not be liable
to any other partner of FVP or FVP:
(1) for any mistake in judgment;
(2) for any action taken or omitted to be taken in good faith and in a
manner reasonably believed by such entity to be in the best interests
of FVP and to be within the scope of its authority under the FVP
Partnership Agreement; or
(3) for any loss due to the mistake, action, inaction, negligence,
dishonesty, fraud or bad faith or any broker or other agent;
provided that such broker or other agent shall have been selected and supervised
by FVP GP or other Indemnitee with reasonable care. In addition, Indemnitees
will be indemnified and held harmless by FVP against losses, damages and
expenses for which such entity has not otherwise been reimbursed actually and
pending or completed action, suit or proceeding (other than any action by or in
the name of FVP), by reason of any action taken or omitted to be taken in
connection with or arising out of such entity's activities on behalf of FVP or
in furtherance of FVP, if such actions were taken or omitted to be taken in good
faith and in a manner reasonably believed by such entity to be in the best
interests of FVP and within the scope of the FVP Partnership Agreement,
provided, that any entity entitled to indemnification shall obtain the written
consent of FVP GP (which consent will not be given without the approval of the
Advisory Committee) prior to entering into any compromise or settlement which
would result in an obligation of FVP to indemnify such entity.
Section 5.6 of the First Amended and Restated Agreement of Limited Partnership
of FVP GP, dated as of August 11, 1995 (the "FVP GP Partnership Agreement"),
provides that in the absence of fraud, breach of fiduciary duty, willful
misconduct or gross negligence, Frontier Vision Inc., its officers, directors,
employees, agents or stockholders (including when any of the foregoing is
serving at the request of FrontierVision Inc. on behalf of FVP GP or FVP as a
partner, officer, director, employee or agent of any other entity) (as such term
is defined in the FVP GP Partnership Agreement) (in each case, the "Indemnitee")
shall not be liable to any other partner of FVP GP or FVP GP:
(1) for any mistake in judgment;
(2) for any action taken or omitted to be taken in good faith an din a
manner reasonably believed by such entity to be in the best interests
of FVP GP and to be within the scope of its authority under the FVP GP
Partnership Agreement; or
(3) for any loss due to the mistake, action, inaction, negligence
dishonesty, fraud or bad faith of any broker or other agent;
provided that such broker or other agent shall have been selected and supervised
by FrontierVision Inc. or other Indemnitee with reasonable care. In addition,
Indemnitees will be indemnified and held harmless by FVP GP against losses,
damages and expenses for which such person has not otherwise been reimbursed
actually and reasonably incurred by such entity who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than any action by or in the name of FVP GP), by
reason of any action taken or omitted to be taken in connection with or arising
out of such entity's activities on behalf of FVP GP or in furtherance of FVP GP,
if such actions were taken or omitted to be taken in good faith and in a manner
II-1
<PAGE>
reasonably believed by such person to be in the best interests of FVP GP and
within the scope of the FVP GP Partnership Agreement, provided, that any entity
entitled to indemnification shall obtain the written consent of FrontierVision
Inc. (which consent will not be given without the consent of a majority in
interests of the Class X Limited Partners (as such term is defined in the FVP GP
Partnership Agreement)) prior to entering into any compromise or settlement
which would result in an obligation of FVP GP to indemnify such person.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation (in its original certificate of incorporation or
amendment thereto) may eliminate or limit the personal liability of a director
(or certain persons who, in accordance with the provisions of the certificate of
incorporation, exercise of perform duties conferred or imposed upon directors by
the DGCL) to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provisions shall not
eliminate or limit the liability of a director:
(1) for any breach of the director's duty of loyalty to the corporation or
its stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) under Section 174 of the DGCL (providing for liability of directors
for unlawful payment of dividends or unlawful stock purchases or
redemptions); or
(4) for any transaction from which the director derived an improper
personal benefit.
Article Tenth of FrontierVision Inc.'s Certificate of Incorporation and Article
Eleventh of Capital's Certificate of Incorporation each limit the liability of
directors thereof to the extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify such
persons if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
Item 21. Exhibits and Financial Data Schedules.
(a) Exhibits
2.1 Purchase Agreement dated as of February 22, 1999 among
FrontierVision Partners, L.P., FVP GP, L.P., the General Partner and
Certain Direct and Indirect Limited Partners of FrontierVision
Partners, L.P. and Adelphia Communications Corporation. (6)
3.1 Amended and Restated Agreement of Limited Partnership of FVOP. (1)
3.2 Certificate of Limited Partnership of FVOP. (2)
3.3 First Amended and Restated Agreement of Limited Partnership of FVP.
(2)
3.4 Amendment No. 1 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.5 Amendment No. 2 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.6 Amendment No. 3 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.7 Amendment No. 4 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.8 Amendment No. 5 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.9 Certificate of Limited Partnership of FVP. (2)
3.10 First Amended and Restated Agreement of Limited Partnership of FVP
GP. (2)
3.11 Amendment No. 1 to the First Amended and Restated Agreement of
Limited Partnership of FVP GP. (1)
3.12 Amendment No. 2 to the First Amended and Restated Agreement of
Limited Partnership of FVP GP. (1)
3.13 Certificate of Limited Partnership of FVP GP. (2)
3.14 Certificate of Incorporation of FrontierVision Inc. (2)
II-2
<PAGE>
3.15 Bylaws of FrontierVision, Inc. (2)
3.16 Agreement of Limited Partnership of Holdings. (1)
3.17 Certificate of Limited Partnership of Holdings. (1)
3.18 Certificate of Incorporation of FrontierVision Holdings Capital
Corporation. (1)
3.19 Bylaws of FrontierVision Holdings Capital Corporation. (1)
3.20 Certificate of Incorporation of FrontierVision Holdings Capital II
Corporation
3.21 Bylaws of FrontierVision Holdings Capital II Corporation
4.1 Indenture dated as of October 7, 1996, among FrontierVision
Operating Partners, L.P., FrontierVision Capital Corporation and
Colorado National Bank, as Trustee. (3)
4.2 Indenture dated as of September 19, 1997, among FrontierVision
Holdings, L.P., FrontierVision Holdings Capital Corporation and U.S.
Bank National Association d/b/a Colorado National Bank, as Trustee.
(1)
4.3 Purchase Agreement, dated as of September 16, 1997, by and among
FrontierVision Holdings, L.P., FrontierVision Holdings Capital
Corporation, and J.P. Morgan Securities Inc., Chase Securities Inc.,
CIBC Wood Gundy Corp. and First Union Capital Markets Corp., as
Initial Purchasers. (1)
4.4 Registration Rights Agreement, dated as of September 19, 1997, by
and among FrontierVision Holdings, L.P., FrontierVision Holdings
Capital Corporation, and J.P. Morgan Securities Inc., Chase
Securities Inc., CIBC Wood Gundy Corp. and First Union Capital
Markets Corp., as Initial Purchasers. (1)
4.5 Indenture dated as of December 9, 1998, among FrontierVision
Holdings, L.P., FrontierVision Holdings Capital II Corporation and
U.S. Bank National Association, as Trustee
4.6 Purchase Agreement dated as of December 2, 1998, by and among
FrontierVision Holdings, L.P., FrontierVision Holdings Capital II
Corporation and J.P. Morgan Securities, Inc. and Chase Securities
Inc., as Initial Purchasers.
4.7 Registration Rights Agreement dated as of December 9, 1998, by and
among Frontier Vision Holdings, L.P., FrontierVision Holdings
Capital II Corporation and J.P. Morgan Securities Inc., and Chase
Securities, Inc., as Initial Purchasers.
5.1 Opinion of Dow, Lohnes & Albertson, PLLC.*
10.1 Amended Bank Credit Facility. (2)
10.2 Employment Agreement of James C. Vaughn. (2)
10.3 Asset Purchase Agreement dated July 20, 1995 between United Video
Cablevision, Inc. and FrontierVision Operating Partners, L.P. (2)
10.4 Asset Acquisition Agreement (July 27, 1995 Auction Sale) dated as of
July 27, 1995 among Stephen S. Gray in his capacity as Receiver of
Longfellow Cable Company, Inc., Carrabassett Electronics and
Carrabassett Cable Company, Inc. and FrontierVision Operating
Partners, L.P. (2)
10.5 Asset Purchase Agreement dated October 27, 1995 among C4 Media Cable
Southeast, Limited Partnership, County Cable Company, L.P. and
FrontierVision Operating Partners, L.P. (2)
10.6 Asset Purchase Agreement dated November 17, 1995 among Cox
Communications Ohio, Inc., Times Mirror Cable Television of
Defiance, Inc., Chillicothe Cablevision, Inc., Cox Communications
Eastern Kentucky, Inc. and FrontierVision Operating Partners, L.P.
(2)
10.7 Asset Purchase Agreement dated February 27, 1996 between Americable
International Maine, Inc. and FrontierVision Operating Partners,
L.P. (2)
10.8 Asset Purchase Agreement dated May 16, 1996 among Triax Southeast
Associates, L.P., Triax Southeast General Partner, L.P. and
FrontierVision Operating Partners, L.P. (2)
10.9 Asset Purchase and Sale Agreement dated June 21, 1996 between HPI
Acquisition Co. LLC (assignee of Helicon Partners I, LP) and
FrontierVision Operating Partners, L.P. (2)
10.10 Asset Purchase Agreement dated July 15, 1996 between American Cable
Entertainment of Kentucky-Indiana, Inc. and FrontierVision Operating
Partners, L.P.(2)
10.11 Asset Purchase Agreement dated as of July 30, 1996 between
Shenandoah Cable Television Company and FrontierVision Operating
Partners, L.P. (2)
10.12 Purchase Agreement dated as of August 6, 1996 between Penn/Ohio
Cablevision, L.P. and FrontierVision Operating Partners, L.P. (2)
10.13 Asset Purchase Agreement dated July 19, 1996 between Phoenix
Grassroots Cable Systems, L.L.C. and FrontierVision Operating
Partners, L.P. (2)
10.14 Amendment No. 1 to Amended Bank Credit Facility. (2)
10.15 Consent and Amendment No. 2 to Amended Bank Credit Facility. (3)
II-3
<PAGE>
10.16 Asset Purchase Agreement dated May 8, 1997 between A-R Cable
Services--ME, Inc. and FrontierVision Operating Partners, L.P. (1)
10.17 Asset Purchase Agreement dated as of May 12, 1997 between TCI
Cablevision of Vermont, Inc., Westmarc Development Joint Venture and
FrontierVision Operating Partners, L.P. (1)
10.18 Amended Credit Facility (4)
10.19 Asset Purchase Agreement dated as of October 15, 1997 between
Coxcom, Inc. And FrontierVision Operating Partners, L.P. (1)
10.20 Asset Purchase Agreement dated as of June 24, 1998 between State
Cable TV Corporation, Better Cable TV Company and FrontierVision
Operating Partners, L.P.(5)
12.2 Statement of Computation of Ratios.
23.20 Consent of KPMG LLP (FrontierVision Holdings, L.P.).
23.21 Consent to KPMG LLP (FrontierVision Holdings Capital II
Corporation).
23.22 Consent of KPMG LLP (FrontierVision Partners, L.P.).
23.23 Consent of Deloitte & Touche LLP (Cox Central Ohio Cluster).
23.24 Consent of Arthur Andersen LLP (State CableTV Corporation and
Subsidiary).
23.25 Consent of Baker Newman & Noyes LLC (New England Cablevision of
Massachusetts, Inc.).
25.1 Statement of Eligibility and Qualification on Form T-1 of Trustee.
27.1 Financial Data Schedule as of and for the period ended December 31,
1998.
99.1 Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery
- ------------------------------
* To be filed by amendment.
(1) Incorporated by reference to the exhibits to FrontierVision Holdings,
L.P.'s and FrontierVision Holdings Capital Corporation's Registration
Statement on Form S-4, Registration No. 333-36519.
(2) Incorporated by reference to the exhibits to FVOP's and Capital's
Registration Statement on Form S-1, Registration No. 333-9535.
(3) Incorporated by reference to the exhibits to FVOP's and Capital's
Quarterly Report on Form 10-Q, File No. 333-9535 for the quarter ended
September 30, 1996.
(4) Incorporated by reference to the exhibits to FrontierVision Holdings,
L.P.'s and FrontierVision Holdings Capital Corporation's Annual Report
on Form 10-K, File No. 333-36519 for the year ended December 31, 1997.
(5) Incorporated by reference to the exhibit to FrontierVision Holdings,
L.P.'s Current Report on Form 8-K, File No. 333-36519.
(6) Incorporated by reference to the exhibits to FrontierVision Holdings,
L.P.'s and FrontierVision Holdings Capital Corporation's Annual Report
on Form 10-K, File No. 333-36519 for the year ended December 31, 1998.
(b) Financial Statement Schedules. The following Financial Statement
Schedules are submitted herewith:
Independent Auditors' Report S-2
Schedule I: Condensed Information as to the Financial
Position of the Registrant S-3
Schedule II: Valuation and Qualifying Accounts S-7
Item 22. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the
II-4
<PAGE>
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission in accordance with Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
3. That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Securities offered therein, and the
offering of such Securities at that time shall be deemed to be the initial
bona fide offering thereof.
4. To remove from registration by means of a post-effective amendment any of
the Securities which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company, FVP, FVP GP, FrontierVision Inc. and Capital pursuant to the provisions
described under Item 14 above or otherwise, the Registrants 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 and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants 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 Registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
Prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the Issuers undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
Every prospectus: (i) that is filed pursuant to the immediately preceding
paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. The undersigned registrant
hereby undertakes to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
FrontierVision Holdings, L.P. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on April 2,
1999
.
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P., its general partner,
By: FVP GP, L.P., its general partner
By: FrontierVision Inc., its general partner
By: /s/ JAMES C. VAUGHN
--------------------
James C. Vaughn
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrants and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ JAMES C. VAUGHN President, Chief Executive Officer, April 2, 1999
- --------------------
James C. Vaughn and Director of FrontierVision Inc.
(Principal Executive Officer)
/s/ JOHN S. KOO Executive Vice President, Chief April 2, 1999
- ----------------
John S. Koo Financial Officer, Secretary and
Director of FrontierVision Inc.
(Principal Financial Officer)
/s/ ALBERT D. FOSBENNER Vice President and Treasurer of April 2, 1999
- -------------------------
Albert D. Fosbenner FrontierVision Inc. (Principal
Accounting Officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
FrontierVision Holdings Capital II Corporation has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on April 2, 1999.
FRONTIERVISION HOLDINGS
CAPITAL II CORPORATION
By: /s/ JAMES C. VAUGHN
--------------------
James C. Vaughn
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrants and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ JAMES C. VAUGHN President and Director April 2, 1999
- -------------------------------
James C. Vaughn (Principal Executive Officer)
/s/ JOHN S. KOO Executive Vice President, Chief April 2, 1999
- -------------------------------
John S. Koo Financial Officer, Secretary and
Director (Principal Financial Officer)
/s/ ALBERT D. FOSBENNER Vice President and Treasurer April 2, 1999
- -------------------------------
Albert D. Fosbenner (Principal Accounting Officer)
</TABLE>
II-7
<PAGE>
Alternate Cover Page
PROSPECTUS
Date of Effectiveness
[LOGO]
FrontierVision Holdings, L.P. and
FrontierVision Holdings Capital II Corporation
$91,298,000
117/8% Senior Discount Notes due 2007, Series B
J.P. Morgan Securities Inc. will use this prospectus in connection with
offers and sales of the notes related to market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. FrontierVision Holdings, L.P. will not receive any of the
proceeds of such sales. J. P. Morgan Securities Inc. may act as a principle or
agent in such transactions. The closing of the exchange offer, which constituted
the delivery of the registered notes in place of the old notes, occurred on
_______, 1999. See "Plan of Distribution."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Company: The Notes:
o We own, operate and develop cable television o Maturity Date: September 15, 2007
systems in small and medium-sized suburban o Interest Payment: Semi-annually on each March
and exurban communities in the United States. 15 and September 15.
o FrontierVision Holdings, L.P. and o Redemption: We may redeem the notes on or
FrontierVision Holdings Capital Corporation after September 15, 2001. We may redeem up
1777 South Harrison Street, Suite P-200 to 35% of the notes prior to September 15, 2000
Denver, Colorado 80210 with net proceeds from one or more public
(303) 757-1588 equity offerings or strategic equity investments.
Trading Format: o Ranking: The notes are general, unsecured
o The PORTAL market, in the over-the-counter obligations of FrontierVision Holdings, L.P. and
market, negotiated transactions or through a FrontierVision Holdings Capital Corporation
combination of such methods. and:
o rank ratably in right of payment to all
existing and future senior indebtedness
o are effectively subordinated to all existing
and future indebtedness and other liabilities
of FrontierVision Holdings, L.P.'s
subsidiaries and future secured debt of
FrontierVision Holdings, L.P.
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page [ ].
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 passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
J.P. Morgan & Co.
II-8
<PAGE>
Alternate Risk Factor
Trading Market For The Exchange Notes
There is no existing trading market for the exchange notes, and there can be no
assurance regarding the future development of a market for the exchange notes or
the ability of the holders of the exchange notes to sell their exchange notes or
the price at which such holders may be able to sell their exchange notes. If
such market were to develop, the exchange notes could trade at prices that may
be higher or lower than their initial offering price depending on many factors,
including prevailing interest rates, FrontierVision's operating results and the
market for similar securities. Although it is not obligated to do so, J.P.
Morgan Securities Inc. intends to make a market in the exchange notes. Any such
market-making activity may be discontinued at any time, for any reason, without
notice at the sole discretion of J.P. Morgan Securities Inc. No assurance can be
given as to the liquidity of or the trading market for the exchange notes.
J.P. Morgan Securities Inc. may be deemed to be an affiliate of FrontierVision
and, as such, may be required to deliver a prospectus in connection with its
market-making activities in the exchange notes. Pursuant to the registration
rights agreement, Holdings and Holdings Capital II agreed to file and maintain a
registration statement that would allow J.P. Morgan Securities Inc. to engage in
market-making transactions in the exchange notes. Subject to certain exceptions
set forth in the registration rights agreement, the registration statement will
remain effective for as long as J.P. Morgan Securities Inc. may be required to
deliver a prospectus in connection with market-making transactions in the
exchange notes. Holdings has agreed to bear substantially all the costs and
expenses related to such registration statement.
Alternate Use of Proceeds
This prospectus is delivered in connection with the sale of the exchange notes
by J.P. Morgan Securities Inc. in market-making transactions. Holdings and
Holdings Capital II will not receive any of the proceeds from such transactions.
II-9
<PAGE>
Alternate Plan of Distribution
This prospectus is to be used by J.P. Morgan Securities Inc. in connection with
offers and sales of the notes in market-making transactions in the
over-the-counter market at negociated prices related to prevailing market prices
at the time of sale. J.P. Morgan Securities Inc. may act as a principal or agent
in such transactions and have no obligation to make a market in the notes and
may discontinue their market-making activities at any time without notice, at
their sole discretion. There is currently no trading market for the notes. No
assurances can be given as to the development or liquidity of any trading market
for the notes.
We have agreed to indemnify jointly and severally J.P. Morgan Securities Inc.
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that J.P. Morgan Securities Inc. may be required to
make in respect thereof.
J.P. Morgan Investment Corporation, an affiliate of J.P. Morgan Securities Inc.,
beneficially owns approximately 22.8% of the partnership interests of the
Company. Subject to certain conditions, J.P. Morgan Investment Corporation is
entitled to designate one member of the advisory committee of FVP. See "Certain
Relationships and Related Transactions," "Management--The Advisory Committee,"
"Principal Security Holders" and "The Partnership Agreements." Its current
designee is John W. Watkins. Mr. Watkins is Manager and a director of each of
J.P. Morgan Investment Corporation and J.P. Morgan Capital Corporation, which
are affiliates of J.P. Morgan Securities Inc.
J.P. Morgan Securities Inc. or its affiliates have provided investment banking
and other financial services to us in the past and may do so in the future. In
addition, an affiliate of J.P. Morgan Securities Inc. serves as a lender and an
agent under the amended bank credit facility and has received customary fees for
acting in such capacities. See "Certain Relationships and Related Transactions."
II-10
<PAGE>
================================================================================
INDENTURE
Dated as of December 9, 1998
Among
FRONTIERVISION HOLDINGS, L.P.
and
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION, as Issuers
and
U.S. BANK NATIONAL ASSOCIATION, as Trustee
-----------------
$91,298,000 Principal Amount at Maturity
11 7/8% Senior Discount Notes due 2007, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
Indenture
Trust Indenture Act Section Section
ss. 310 (a)(1)..................................... 7.10
(a)(2)..................................... 7.10
(a)(3)..................................... N.A.
(a)(4)..................................... N.A.
(a)(5)..................................... N.A.
(b)........................................ 7.08; 7.10; 13.02
(c)........................................ N.A.
ss. 311 (a)........................................ 7.11
(b)........................................ 7.11
(c)........................................ N.A.
ss. 312 (a)........................................ 2.05
(b)........................................ 13.03
(c)........................................ 13.03
ss. 313 (a)........................................ 7.06
(b)(1)..................................... N.A.
(b)(2)..................................... 7.06
(c)........................................ 7.06; 13.02
(d)........................................ 7.06
ss. 314 (a)........................................ 4.11; 4.12; 13.02
(b)........................................ N.A.
(c)(1)..................................... 13.04
(c)(2)..................................... 13.04
(c)(3)..................................... N.A.
(d)........................................ N.A.
(e)........................................ 13.05
(f)........................................ N.A.
ss. 315 (a)........................................ 7.01(b)
(b)........................................ 7.05; 13.02
(c)........................................ 7.01(a)
(d)........................................ 7.01(c)
(e)........................................ 6.11
ss. 316 (a)(last sentence)......................... 2.09
(a)(1)(A).................................. 6.05
(a)(1)(B).................................. 6.04
(a)(2)..................................... N.A.
(b)........................................ 6.07
(c)........................................ 10.04
ss. 317 (a)(1)..................................... 6.08
(a)(2)..................................... 6.09
(b)........................................ 2.04
ss. 318 (a)........................................ 13.01
- ----------------
N.A. means Not Applicable.
Note:This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01 Definitions......................................................................1
SECTION 1.02 Other Definitions...............................................................27
SECTION 1.03 Incorporation by Reference of Trust Indenture Act...............................28
SECTION 1.04 Rules of Construction...........................................................28
ARTICLE TWO
THE SECURITIES
SECTION 2.01 Form and Dating.................................................................29
SECTION 2.02 Execution and Authentication....................................................31
SECTION 2.03 Registrar; Paying Agent; Depository.............................................32
SECTION 2.04 Paying Agent To Hold Money in Trust.............................................33
SECTION 2.05 Securityholder Lists............................................................34
SECTION 2.06 Transfer and Exchange...........................................................34
SECTION 2.07 Replacement Securities..........................................................46
SECTION 2.08 Outstanding Securities..........................................................46
SECTION 2.09 Treasury Securities.............................................................47
SECTION 2.10 Temporary Securities............................................................47
SECTION 2.11 Cancellation....................................................................47
SECTION 2.12 Defaulted Interest..............................................................48
SECTION 2.13 Payments of Interest............................................................48
ARTICLE THREE
REDEMPTION
SECTION 3.01 Notices to Trustee..............................................................49
SECTION 3.02 Selection of Securities To Be Redeemed..........................................50
SECTION 3.03 Notice of Redemption............................................................50
SECTION 3.04 Effect of Notice of Redemption..................................................51
SECTION 3.05 Deposit of Redemption Price.....................................................51
SECTION 3.06 Securities Redeemed in Part.....................................................52
ARTICLE FOUR
COVENANTS
SECTION 4.01 Payment of Securities...........................................................52
i
<PAGE>
SECTION 4.02 Maintenance of Office or Agency.................................................53
SECTION 4.03 Limitation on Transactions with Affiliates and Related
Persons.....................................................................53
SECTION 4.04 Limitation on Indebtedness......................................................55
SECTION 4.05 Disposition of Proceeds of Asset Sales..........................................58
SECTION 4.06 Limitation on Restricted Payments...............................................61
SECTION 4.07 Corporate Existence.............................................................65
SECTION 4.08 Payment of Taxes and Other Claims...............................................66
SECTION 4.09 Notice of Defaults..............................................................66
SECTION 4.10 Maintenance of Properties.......................................................67
SECTION 4.11 Compliance Certificate..........................................................67
SECTION 4.12 Provision of Financial Information..............................................68
SECTION 4.13 Waiver of Stay, Extension or Usury Laws.........................................69
SECTION 4.14 Change of Control...............................................................69
SECTION 4.15 [Intentionally Omitted].........................................................70
SECTION 4.16 Limitations on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries...........................................70
SECTION 4.17 Designation of Unrestricted Subsidiaries........................................72
SECTION 4.18 Limitation on Liens.............................................................74
SECTION 4.19 Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries................................................................74
SECTION 4.20 Limitation on Conduct of Business of Capital....................................76
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01 Merger, Sale of Assets, etc.....................................................76
SECTION 5.02 Successor Corporation Substituted...............................................78
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01 Events of Default...............................................................78
SECTION 6.02 Acceleration....................................................................81
SECTION 6.03 Other Remedies..................................................................82
SECTION 6.04 Waiver of Past Default..........................................................83
SECTION 6.05 Control by Majority.............................................................83
SECTION 6.06 Limitation on Suits.............................................................84
SECTION 6.07 Rights of Holders To Receive Payment............................................85
SECTION 6.08 Collection Suit by Trustee......................................................85
SECTION 6.09 Trustee May File Proofs of Claim................................................85
ii
<PAGE>
SECTION 6.10 Priorities......................................................................86
SECTION 6.11 Undertaking for Costs...........................................................87
ARTICLE SEVEN
TRUSTEE
SECTION 7.01 Duties of Trustee...............................................................87
SECTION 7.02 Rights of Trustee...............................................................89
SECTION 7.03 Individual Rights of Trustee....................................................90
SECTION 7.04 Trustee's Disclaimer............................................................90
SECTION 7.05 Notice of Defaults..............................................................91
SECTION 7.06 Reports by Trustee to Holders...................................................91
SECTION 7.07 Compensation and Indemnity......................................................92
SECTION 7.08 Replacement of Trustee..........................................................93
SECTION 7.09 Successor Trustee by Merger, etc................................................94
SECTION 7.10 Eligibility; Disqualification...................................................95
SECTION 7.11 Preferential Collection of Claims Against Company...............................95
ARTICLE EIGHT
[INTENTIONALLY OMITTED]
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01 Termination of Issuers' Obligations.............................................96
SECTION 9.02 Application of Trust Money......................................................98
SECTION 9.03 Repayment to Issuers............................................................98
SECTION 9.04 Reinstatement...................................................................99
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01 Without Consent of Holders......................................................99
SECTION 10.02 With Consent of Holders........................................................101
SECTION 10.03 Compliance with Trust Indenture Act............................................103
SECTION 10.04 Effect of Consents.............................................................103
SECTION 10.05 Notation on or Exchange of Securities..........................................104
SECTION 10.06 Trustee To Sign Amendments, etc................................................104
ARTICLE ELEVEN
SUBSIDIARY GUARANTEE
SECTION 11.01 Unconditional Guarantee........................................................105
iii
<PAGE>
SECTION 11.02 Severability...................................................................106
SECTION 11.03 Release of a Guarantor.........................................................106
SECTION 11.04 Limitation of Subsidiary Guarantor's Liability.................................107
SECTION 11.05 Contribution...................................................................108
SECTION 11.06 Execution of Subsidiary Guarantee..............................................108
SECTION 11.07 Additional Subsidiary Guarantors...............................................109
SECTION 11.08 Subordination of Subrogation and Other Rights..................................109
ARTICLE TWELVE
[INTENTIONALLY OMITTED]
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01 Trust Indenture Act Controls...................................................110
SECTION 13.02 Notices........................................................................110
SECTION 13.03 Communications by Holders with Other Holders...................................112
SECTION 13.04 Certificate and Opinion as to Conditions Precedent.............................112
SECTION 13.05 Statements Required in Certificate or Opinion..................................113
SECTION 13.06 Rules by Trustee, Paying Agent, Registrar......................................113
SECTION 13.07 Governing Law..................................................................114
SECTION 13.08 No Recourse Against Others.....................................................114
SECTION 13.09 Successors.....................................................................114
SECTION 13.10 Counterpart Originals..........................................................114
SECTION 13.11 Severability...................................................................115
SECTION 13.12 No Adverse Interpretation of Other Agreements..................................115
SECTION 13.13 Legal Holidays.................................................................115
SIGNATURES.................................................................................................S-1
EXHIBIT A - Form of Security...............................................................................A-1
EXHIBIT B - Form of Certificate of Transfer................................................................B-1
EXHIBIT C - Form of Certificate of Exchange................................................................C-1
</TABLE>
- ------------
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
iv
<PAGE>
INDENTURE dated as of December 9, 1998, among FRONTIERVISION HOLDINGS,
L.P., a Delaware limited partnership (the "Company"), FRONTIERVISION HOLDINGS
CAPITAL II CORPORATION, a Delaware corporation ("Capital" and together with the
Company, the "Issuers"), and U.S. BANK NATIONAL ASSOCIATION, as trustee.
Each party hereto agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the 11 7/8% Senior Discount
Notes due 2007, Series B, of the Issuers:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 original principal amount at maturity of Securities:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accrual Date"), the amount set forth opposite such date below:
Semi-Annual Accreted
Accrual Date Value
Issue Date............................. $726.76
March 15, 1999......................... 750.42
September 15, 1999..................... 794.97
March 15, 2000......................... 842.17
September 15, 2000..................... 892.18
March 15, 2001......................... 945.15
September 15, 2001..................... $1,000.00
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately
preceding the Specified Date and (b) an amount equal to the product of (x) the
Accreted Value for the immediately following Semi-Annual Accrual Date less the
Accreted Value for the immediately preceding Semi-Annual Accrual Date and (y) a
fraction, the numerator of which is the number of days actu-
<PAGE>
2
ally elapsed from the immediately preceding Semi-Annual Accrual Date to the
Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is after September 15, 2001, $1,000;
provided, however, that if the Company makes the Cash Interest Election, the
Accreted Value shall be, and remain through the Stated Maturity of the
Securities, the Accreted Value as of the Semi-Annual Accrual Date on which the
Cash Interest Election is made.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person or (b) existing at the
time such Person becomes a Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Additional Interest" shall mean the meaning set forth in the Registration
Rights Agreement.
"Advisory Committee" means the Advisory Committee of the General Partner
established pursuant to the provisions of Article VI of the First Amended and
Restated Agreement of Limited Partnership of the General Partner, as amended to
the date of issuance of the Securities.
"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" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or co-Registrar. See Section
2.03.
"Applicable Procedures" means, with respect to any transfer or exchange of
interests in a Global Security, the rules and procedures of DTC, Euroclear and
Cedel that apply to such transfer or exchange.
<PAGE>
3
"Asset Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated, merged with or into the Company
or any Restricted Subsidiary or (ii) any acquisition by the Company or any
Restricted Subsidiary of the assets of any Person which constitute substantially
all of an operating unit or line of business of such Person or which is
otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary, (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary, (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business of the Company or any Restricted
Subsidiary or (iv) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any transaction
consummated in compliance with Section 5.01 and the creation of any Lien not
prohibited by Section 4.18, (ii) sales of property or equipment that has become
worn out, obsolete or damaged or otherwise unsuitable for use in connection with
the business of the Company or any Restricted Subsidiary, as the case may be,
and (iii) any transaction consummated in compliance with Section 4.06. In
addition, solely for purposes of Section 4.05, any sale, conveyance, transfer,
lease or other disposition of any property or asset, whether in one transaction
or a series of related transactions, involving assets with a Fair Market Value
not in excess of $1.0 million individually or $2.0 million in any fiscal year
shall be deemed not to be an Asset Sale.
"Board of Directors" means (i) in the case of a Person that is a
partnership, the board of directors of such Person's corporate general partner
(or if such general partner is itself a partnership, the board of directors of
such general
<PAGE>
4
partner's corporate general partner), (ii) in the case of a Person that is a
corporation, the board of directors of such Person and (iii) in the case of any
other Person, the board of directors, management committee or similar governing
body or any authorized committee thereof responsible for the management of the
business and affairs of such Person. By way of illustration, as of the date of
this Indenture, any reference herein to the Board of Directors of any of the
Company, the General Partner or FVP GP means the board of directors of FV Inc.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the City of New York are
authorized or obligated by law, resolution or executive order to close.
"Capitalized Lease Obligation" means, with respect to any Person for any
period, an obligation of such Person to pay rent or other amounts under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP; and the amount of such obligation shall be the capitalized
amount shown on the balance sheet of such Person as determined in accordance
with GAAP.
"Cash Equivalents" means (i) any security, maturing not more than six
months after the date of acquisition, issued by the United States of America, or
an instrumentality or agency thereof and guaranteed fully as to principal,
premium, if any, and interest by the United States of America, (ii) any
certificate of deposit, time deposit, money market account or bankers'
acceptance maturing not more than six months after the date of acquisition
issued by any commercial banking institution that is a member of the Federal
Reserve System and that has combined capital and surplus and undivided profits
of not less than $500.0 million whose debt has a rating, at the time as of which
any investment therein is made, of "P-1" (or
<PAGE>
5
higher) according to Moody's Investors Service, Inc. or any successor rating
agency, or "A-1" (or higher) according to Standard & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc., or any successor rating agency and
(iii) commercial paper maturing not more than three months after the date of
acquisition issued by any corporation (other than an Affiliate of the Company)
organized and existing under the laws of the United States of America with a
rating, at the time as of which any investment therein is made, of "P-1" (or
higher) according to Moody's Investors Service, Inc. or any successor rating
agency, or "A-1" (or higher) according to Standard & Poor's Rating Services, a
division of the McGraw-Hill Companies, Inc., or any successor rating agency.
"Cash Interest Election" means the election by the Issuers on any
Semi-Annual Accrual Date (with written notice of such election to be given by
the Issuers to the Trustee and the Holders on such date) to begin accruing cash
interest on the Securities (which election shall be irrevocable) on such
Semi-Annual Accrual Date.
"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 the 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
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 50% or more of the total voting power of the outstanding Voting
Equity Interests of the Company, the General Partner, FVP GP or FV Inc., as the
case may be; (b) the Company, the General Partner, FVP GP or FV Inc., as the
case may be, 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, the General Partner, FVP GP or FV Inc., as
the case may be, in any such event pursuant to a transaction in which the
outstanding Voting Equity Interests of the Company, the General Partner, FVP GP
or FV Inc., as the case may
<PAGE>
6
be, are converted into or exchanged for cash, securities or other property,
other than any such transaction where the outstanding Voting Equity Interests of
the Company, the General Partner, FVP GP or FV Inc., as the case may be, are
converted into or exchanged for Voting Equity Interests (other than Disqualified
Equity Interests) of the surviving or transferee Person and, immediately after
such transaction, the Permitted Holders or the holders of the Voting Equity
Interests of the Company, the General Partner, FVP GP or FV Inc., as the case
may be, immediately prior thereto own, directly or indirectly, more than 50% of
the total voting power of the outstanding Voting Equity Interests of the
surviving or transferee Person; (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board of
Directors of the Company, the General Partner, FVP GP or FV Inc., as the case
may be (together with any new directors whose election to such Board of
Directors was approved by the Permitted Holders or by a vote of at least a
majority 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 (other than by action of the
Permitted Holders) to constitute a majority of the Board of Directors of the
Company, the General Partner, FVP GP or FV Inc., as the case may be, then in
office in any such case in connection with any actual or threatened solicitation
to which Rule 14a-11 of Regulation 14A promulgated under the Exchange Act
applies or other actual or threatened solicitation of proxies or consents; (d)
any Person or Persons, other than Permitted Holders, are or become entitled to
appoint or designate more than 25% of the members of the Advisory Committee; or
(e) the admission of any Person as a general partner of the Company, the General
Partner or FVP GP, as the case may be, after which the General Partner, FVP GP
or FV Inc., as the case may be, does not have the sole power to take all of the
actions it is entitled or required to take under the limited partnership
agreement of the Company, the General Partner or FVP GP, as the case may be, as
in effect on the Issue Date; provided, however, that a Change of Control will be
deemed not to have occurred in any of the foregoing circumstances (i) with
respect to FV Inc. (either in its own capacity or in its capacity as a direct or
indirect corporate general partner of any other Person), (ii) with respect to or
as a result of the conversion of the general partnership interest of FVP GP in
the General Partner into a limited partnership interest, or (iii) with respect
to the events in clause (e) if the change, event or condition giving rise
thereto has been approved by the Permitted Holders holding a majority in
interest of the total outstanding Equity Interests of the General Partner held
by the Permitted Holders.
"Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Sub-
<PAGE>
7
sidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (a) any amortization of debt discount,
(b) the net cost under Interest Rate Protection Obligations (including any
amortization of discounts), (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and (e) all
capitalized interest and all accrued interest, (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP and (iii) dividends
and distributions in respect of Disqualified Equity Interests actually paid in
cash by the Company during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
of the Company and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (i) all
extraordinary gains or losses and all gains and losses from the sale or other
disposition of assets out of the ordinary course of business (net of taxes, fees
and expenses relating to the transaction giving rise thereto) for such period,
(ii) that portion of such net income derived from or in respect of investments
in Persons other than Restricted Subsidiaries, except to the extent actually
received in cash by the Company or any Restricted Subsidiary, (iii) the portion
of such net income (or loss) allocable to minority interests in unconsolidated
Persons for such period, except to the extent actually received in cash by the
Company or any Restricted Subsidiary (subject, in the case of any Restricted
Subsidiary, to the provisions of the immediately following sentence of this
definition), and (iv) net income (or loss) of any other Person combined with the
Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination. In calculating
Consolidated Net Income as a component of Consolidated Operating Cash Flow (x)
for purposes of calculating the Debt to Operating Cash Flow Ratio in connection
with determining whether an Incurrence of Indebtedness by the Company (but not
the Restricted Subsidiaries) is permitted under the Debt to Operating Cash Flow
Ratio of the first paragraph of Section 4.04 and (y) for purposes of calculating
(I) Cumulative Available Cash Flow pursuant to clause (c)(1) of Section 4.06 and
(II) the Debt to Operating Cash Flow Ratio pursuant to clause (b) of Section
4.06 in con-
<PAGE>
8
nection with determining whether a Restricted Payment by the Company pursuant to
clause (i), (ii) or (iii) of Section 4.06 is permitted under such covenant, the
net income of any Restricted Subsidiary shall be excluded to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is not at the time (regardless of any waiver) permitted, directly
or indirectly, by reason of any Payment Restriction; provided, however, that net
income shall not be so excluded in determining whether the Company could incur
$1.00 of Indebtedness under the Debt to Operating Cash Flow Ratio of the first
paragraph of Section 4.04 (A) (or in calculating Cumulative Available Cash Flow)
for purposes of determining whether any Restricted Payment other than those
referred to in clause (y) of this sentence is permitted under Section 4.06, (B)
for purposes of determining whether a Designation is permitted pursuant to
clause (b) of the first paragraph of Section 4.17 and (C) for purposes of
determining compliance with clause (a)(iii) of Section 5.01 (unless the
applicable transaction involves the Incurrence by the Company of additional
Indebtedness).
"Consolidated Net Worth" with respect to any Person means the equity of the
holders of Qualified Equity Interests of such Person and its Restricted
Subsidiaries, as reflected in a balance sheet of such Person determined on a
consolidated basis and in accordance with GAAP.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of (i) Consolidated Income Tax Expense accrued according to GAAP for such
period to the extent deducted in determining Consolidated Net Income for such
period; (ii) Consolidated Interest Expense (other than dividends on Preferred
Equity Interests) for such period to the extent deducted in determining
Consolidated Net Income for such period; and (iii) depreciation, amortization
and any other non-cash items for such period to the extent deducted in
determining Consolidated Net Income for such period (other than any non-cash
item which requires the accrual of, or a reserve for, cash charges for any
future period) of the Company and the Restricted Subsidiaries, including,
without limitation, amortization of capitalized debt issuance costs for such
period, all of the foregoing determined on a consolidated basis in accordance
with GAAP minus non-cash items to the extent they increase Consolidated Net
Income (including the partial or entire reversal of reserves taken in prior
periods) for such period.
<PAGE>
9
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 or such other address as the Trustee may give
notice to the Issuers.
"Cumulative Available Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the 1997 Notes 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 Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Debt to Operating Cash Flow Ratio" means the ratio of (i) the Total
Consolidated Indebtedness as of the date of calculation (the "Determination
Date") to (ii) four times the Consolidated Operating Cash Flow for the latest
fiscal quarter for which financial information is available immediately
preceding such Determination Date (the "Measurement Period"). For purposes of
calculating Consolidated Operating Cash Flow for the Measurement Period
immediately prior to the relevant Determination Date, (I) any Person that is a
Restricted Subsidiary on the Determination Date (or would become a Restricted
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such Consolidated Operating Cash Flow) will be
deemed to have been a Restricted Subsidiary at all times during such Measurement
Period, (II) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted 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) any operating business during such
Measurement Period or after the end of such period and on or prior to such
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
<PAGE>
10
Sale or termination or discontinuance of activities constituting such operating
business, all such transactions had been consummated prior to the first day of
such Measurement Period.
"Default" means any event that is or with the passing of time or giving of
notice or both would be an Event of Default.
"Depository" means, with respect to Securities issued in the form of one or
more Global Securities, DTC or another Person designated as Depository by the
Issuers, which Person must be a clearing agency registered under Section 17A of
the Exchange Act.
"Designation" has the meaning set forth in Section 4.17.
"Designation Amount" has the meaning set forth in Section 4.17.
"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 Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Securities or the date on which no Securities remain
outstanding.
"DTC" means The Depository Trust Company.
"Equity Interest" in 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, in
such Person, including any Preferred Equity Interests.
<PAGE>
11
"Euroclear" means Morgan Guaranty Trust Company of New York (Brussels
Office) as operator of the Euroclear System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Exchange Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under pressure
or compulsion to complete the transaction; provided, however, that the Fair
Market Value of any such asset or assets shall be determined by the Board of
Directors of the Company, acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"FV Inc." means FrontierVision Inc., a Delaware corporation.
"FVOP" means FrontierVision Operating Partners, L.P., a Delaware limited
partnership.
"FVOP Indenture" means the Indenture dated as of October 7, 1996 among
FVOP, FrontierVision Capital Corporation and Colorado National Bank, as trustee.
"FVP GP" means FVP GP, L.P., a Delaware limited partnership.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"General Partner" means FrontierVision Partners, L.P., a Delaware limited
partnership.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business),
<PAGE>
12
direct or indirect, in any manner, of any part or all of such obligation and
(ii) an agreement, direct or indirect, contingent or otherwise, the practical
effect of which is to assure in any way the payment or performance (or payment
of damages in the event of non-performance) of all or any part of such
obligation, including, without limiting the foregoing, the payment of amounts
drawn down by letters of credit. A guarantee shall include, without limitation,
any agreement to maintain or preserve any other person's financial condition or
to cause any other Person to achieve certain levels of operating results.
"Holder" or "Securityholder" means the Person in whose name a Security is
registered on the books of the Registrar or any co-Registrar.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
(or is merged into or consolidates with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary (or being
merged into or consolidated with the Company or any Restricted Subsidiary),
shall be deemed Incurred at the time any such Person becomes a Restricted
Subsidiary or merges into or consolidates with the Company or any Restricted
Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or
<PAGE>
13
other accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith), (v) every Capitalized
Lease Obligation of such Person, (vi) every net obligation under interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements of such Person, (vii) every obligation of the type referred to in
clauses (i) through (vi) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise, and (viii) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (i) through (vii) above. Indebtedness
(i) shall never be calculated taking into account any cash and Cash Equivalents
held by such Person, (ii) shall not include obligations of any Person (x)
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently drawn against insufficient funds in
the ordinary course of business, provided that such obligations are extinguished
within two Business Days of their incurrence unless covered by an overdraft
line, (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices and (z) under standby letters of credit to the extent collateralized
by cash or Cash Equivalents, (iii) which provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination, (iv) shall include the
liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Restricted
Subsidiary and (v) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, incurred in the ordinary course of business, including in
connection with the requirements of cable television franchising authorities,
and otherwise consistent with industry practice.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Independent Financial Advisor" means a nationally recognized investment
banking firm (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the Board of Directors of the
<PAGE>
14
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"Initial Global Securities" means the Regulation S Global Security and the
144A Global Security, each of which contains a Securities Act Legend.
"Initial Securities" means the Securities containing a Securities Act
Legend.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
of Regulation D promulgated under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
"Interest Rate Protection Obligations" means, with respect to any Person,
the obligations of such Person under (i) interest rate swap agreements, 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.
"Investment" means, with respect to any Person, any advance, loan, account
receivable (other than an account receivable arising in the ordinary course of
business), or other extension of credit (including, without limitation, by means
of any guarantee) or any capital contribution to (by means of transfers of
property to others, payments for property or services for the account or use of
others, or otherwise) or any purchase or ownership of any stocks, bonds, notes,
debentures or other securities of, any other Person.
"Issue Date" means the original issue date of the Securities, December 9,
1998.
"Issuer Request" or "Issuer Order" means a written request or order signed
in the name of each of the Issuers by its respective Chairman of the Board of
Directors, Vice Chairman of the Board of Directors, President or a Vice
President, and by its respective Treasurer, an Assistant Treasurer, Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or
<PAGE>
15
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Maturity Date" means the date which is set forth on the face of the
Securities on which the Securities will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (i) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, (ii) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), (iii) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale, (iv) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve) and (v) with
respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiaries.
"1997 Notes" means the $237,650,000 aggregate principal amount at maturity
11 7/8% Senior Discount Notes due 2007 of the Company and FrontierVision
Holdings Capital Corporation issued under the 1997 Notes Indenture.
"1997 Notes Indenture" means the Indenture dated as of September 19, 1997
among the Company, FrontierVision Holdings Capital Corporation, as issuers, and
U.S. Bank National Association (d/b/a Colorado National Bank), as trustee.
"1997 Notes Issue Date" means September 19, 1997.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
<PAGE>
16
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first class mail, postage prepaid, to each Holder at
his address appearing in the register for the Securities on the date of the
Offer offering to purchase up to the Accreted Value of Securities specified in
such Offer at the purchase price specified in such Offer (as determined pursuant
to this Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be not less than 20 Business Days nor more than 60 days after the
date of such Offer and a settlement date (the "Purchase Date") for purchase of
Securities to occur no later than five Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain all the information required
by applicable law to be included therein. The Offer shall contain all
instructions and materials necessary to enable such Holders to tender Securities
pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate Principal Amount at Maturity of the outstanding
Securities offered to be purchased by the Company pursuant to the
Offer to Purchase (including, if less than all of the Securities, the
manner by which such amount has been determined pursuant to the
Section of this Indenture requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
Principal Amount at Maturity of Securities accepted for payment (as
specified pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a
Security tendered in a denomination of less than $1,000 Principal
Amount at Maturity must be tendered in whole;
<PAGE>
17
(6) the place or places where Securities are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that Securities not tendered or tendered but not purchased by the
Company pursuant to the Offer to Purchase will continue to accrete
Accreted Value as provided in this Indenture;
(8) that interest on any Security not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will
continue to accrue as provided in this Indenture;
(9) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the
Offer to Purchase and that the Accreted Value thereof will cease to
increase on and that interest thereon shall cease to accrue on and
after the Purchase Date;
(10) that each Holder electing to tender all or any portion of a Security
pursuant to the Offer to Purchase will be required to surrender such
Security at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Security being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the holder thereof or his
attorney duly authorized in writing);
(11) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the fifth Business Day next
preceding the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
Principal Amount at Maturity of the Security the Holder tendered, the
certificate number of the Security the holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender;
(12) that (a) if Securities with an aggregate Accreted Value less than or
equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Se-
<PAGE>
18
curities and (b) if Securities with an aggregate Accreted Value in
excess of the Purchase Amount are tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase Securities with
an aggregate Accreted Value equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that no
Securities in denominations of less than $1,000 Principal Amount at
Maturity are purchased in part); and
(13) that in the case of any Holder whose Security is purchased only in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the holder of such Security without service charge a new
Security or Securities, of any authorized denomination as requested by
such Holder, in an aggregate Principal Amount at Maturity equal to and
in exchange for the unpurchased portion of the Security so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Officer" means, with respect to any Person, the Chairman of the Board of
Directors, the President, any Vice President, the Chief Financial Officer, the
Treasurer, or the Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or Assistant Secretary of each of FV Inc. and
Capital complying with Sections 13.04 and 13.05; provided, however, that when
the terms of this Indenture require the delivery of an Officers' Certificate of
the Company only, such Officers' Certificate shall mean a certificate signed by
two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary
of FV Inc. complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuers or the Trustee.
"Participant" means any Person who has an account with DTC.
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19
"Payment Restriction" has the meaning set forth in Section 4.16.
"Permitted Holders" means any of (a) the General Partner, FVP GP or FV Inc.
for so long as a majority of the voting power of the Voting Equity Interests of
such Person is beneficially owned by any of the Persons listed in the other
clauses of this definition, (b) James C. Vaughn, the President and Chief
Executive Officer of FV Inc. on the Issue Date, (c) John S. Koo, the Senior Vice
President and Chief Financial Officer of FV Inc. on the Issue Date, (d) any of
J.P. Morgan Investment Corporation, a Delaware corporation, Olympus Cable, Inc.,
a Delaware corporation, First Union Capital Partners, Inc., a Virginia
corporation, and 1818 II Cable Corp., a Delaware corporation, (e) any Person
controlling, controlled by or under common control with any other Person
described in clauses (a) - (d) of this definition and (f) (i) the spouse or
children of any Person named in clause (b) or (c) of this definition and any
trust for the benefit of any such Persons or their respective spouses or
children; provided, however, that with respect to any such trust, such Persons
have the sole right to direct and control such trust and any Voting Equity
Interest owned by such trust, and (ii) any such Person's estate, executor,
administrator and heirs.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed $1
million in the aggregate at any one time outstanding; (d) Interest Rate
Protection Obligations; (e) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under Section 4.05 not to exceed
25% of the total consideration for such Asset Sales; (f) transactions with
officers, directors and employees of the Company, the General Partner, FVP GP,
FV Inc. or any Restricted Subsidiary entered into in ordinary course of business
(including compensation or employee benefit arrangements with any such director
or employee) and consistent with past business practices; (g) Investments
existing as of the 1997 Notes Issue Date and any amendment, extension, renewal
or modification thereof to the extent that any such amendment, extension,
renewal or modification does not require the Company or any Restricted
Subsidiary to make any additional cash or non-cash payments or provide
additional services in connection therewith; (h) any Investment for which the
sole consideration provided is Qualified Equity Interests of the Company; and
(i) any Investment
<PAGE>
20
consisting of a guarantee permitted under clause (e) of Section 4.04.
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company; provided,
however, that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not secure any property or assets of the Company
or any Restricted Subsidiary other than the property or assets subject to the
Liens prior to such merger or consolidation; (b) Liens imposed by law such as
carriers', warehousemen's and mechanics' Liens and other similar Liens arising
in the ordinary course of business which secure payment of obligations not more
than sixty (60) days past due or which are being contested in good faith and by
appropriate proceedings; (c) Liens existing on the 1997 Notes Issue Date; (d)
Liens securing only (i) the Securities or (ii) the 1997 Notes in accordance with
the terms of the 1997 Notes Indenture as in effect on the Issue Date; (e) Liens
for taxes, assessments or governmental charges claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded; provided, however, that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (f) easements, reservations of rights of
way, restrictions and other similar easements, licenses, restrictions on the use
of properties, or minor imperfections of title that in the aggregate are not
material in amount and do not in any case materially detract from the properties
subject thereto or interfere with the ordinary conduct of the business of the
Company and the Restricted Subsidiaries; (g) Liens resulting from the deposit of
cash or securities in connection with contracts, tenders or expropriation
proceedings, or to secure workers' compensation, surety or appeal bonds, costs
of litigation when required by law and public and statutory obligations or
obligations under franchise arrangements entered into in the ordinary course of
business; (h) Liens securing Indebtedness consisting of Capitalized Lease
Obligations of the Company, Purchase Money Indebtedness of the Company, mortgage
financings, industrial revenue bonds of the Company or other monetary
obligations of the Company, in each case incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or the Restricted
Subsidiaries, or repairs, additions or improvements to such assets, provided,
however, that (I) such Liens secure Indebtedness in an amount not in excess of
the original purchase price or the original cost of any such assets or repair,
addition or improvement thereto (plus an
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21
amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by Section
4.04 and (IV) such Liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement; (i) Liens to secure any
refinancings, renewals, extensions, modifications or replacements (collectively,
"refinancing") (or successive refinancings), in whole or in part, of any
Indebtedness secured by Liens referred to in the clauses above so long as such
Lien does not extend to any other property (other than improvements thereto);
and (j) Liens securing letters of credit entered into in the ordinary course of
business and consistent with past business practice.
"Permitted Strategic Investment" means an Investment in a Person
(including, without limitation, a Restricted Subsidiary which is not a Wholly
Owned Restricted Subsidiary and an Unrestricted Subsidiary) engaged in a Related
Business if, at the time of and immediately after giving pro forma effect to
such Investment (and any related transaction or series of transactions), the
Debt to Operating Cash Flow Ratio would be less than or equal to (i) 7.0 to 1.0
if the date of such Investment is on or before December 31, 1998 and (ii) 6.5 to
1.0 thereafter.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Preferred Equity Interest," in any Person, means an Equity Interest 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 in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Principal Amount at Maturity" means, with respect to each $1,000 original
principal amount at maturity of the Secu-
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22
rities, (i) $1,000 if no Cash Interest Election is made by the Issuers, or (ii)
if the Cash Interest Election is made, the Accreted Value of such Securities as
of the Semi-Annual Accrual Date on which the Cash Interest Election is made.
"Private Exchange Securities" has the meaning set forth in the Registration
Rights Agreement.
"Public Equity Offering" means, with respect to any Person, a public
offering by such Person of some or all of its Qualified Equity Interests, the
net proceeds of which (after deducting any underwriting discounts and
commissions) exceed $25.0 million.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Qualified Institutional Buyer" or "QIB" shall have the meaning specified
under Rule 144A under the Securities Act.
"redemption date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be redeemed,
means the price fixed for such redemption pursuant to this Indenture as set
forth in the form of Security annexed as Exhibit A.
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23
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof among the Issuers, J.P. Morgan Securities Inc. and Chase
Securities Inc.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means a cable or broadcast television,
telecommunications, Internet or data transmission business or a business
reasonably related thereto.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Physical Security" means a Physical Security containing, or
required to contain, a Securities Act Legend.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to Section 4.17. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities" means the 11 7/8% Senior Discount Notes due 2007, Series B, as
amended or supplemented from time to time pursuant to the terms of this
Indenture, that are issued under this Indenture.
"Securities Custodian" means Colorado National Bank, as custodian with
respect to the Securities in global form, or any successor entity thereto.
"Semi-Annual Accrual Date" has the meaning set forth in the definition of
"Accreted Value."
"Senior Credit Facility" means the Amended and Restated Credit Agreement,
dated as of April 9, 1996, between the Company, the lenders named therein, The
Chase Manhattan Bank,
<PAGE>
24
as Administrative Agent, J.P. Morgan Securities Inc., as Syndication Agent, and
CIBC Inc., as Managing Agent, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto (including the Second Amended and Restated Credit
Agreement dated as of December 19, 1997) and any agreement providing therefor,
whether by or with the same or any other lender, creditor, group of lenders or
group of creditors, and including related notes, guarantee and security
agreements and other instruments and agreements executed in connection
therewith.
"Shelf Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries, (i) for the most recent fiscal year of the
Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% of the consolidated assets of the Company and the
Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (8) of Section 6.01 has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Strategic Equity Investment" means the issuance and sale of Qualified
Equity Interests of the Company for net proceeds to the Company of at least
$25.0 million to a Person engaged primarily in the cable television, wireless
cable television, telephone, or interactive television business.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.
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25
"Subsidiary" means, with respect to any Person, (i) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (ii) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Subsidiary Guarantee" has the meaning set forth in Section 4.19.
"Subsidiary Guarantor" means any Subsidiary of the Company that enters into
a Subsidiary Guarantee.
"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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in
Section 10.03.
"Total Consolidated Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all Indebtedness and Disqualified
Equity Interests of the Company and the Restricted Subsidiaries outstanding as
of such date of determination.
"Trust Officer" means any officer within the corporate trust department (or
any successor group of the Trustee) including any vice president, assistant vice
president, assistant secretary or any other officer or assistant officer of the
Trustee customarily performing functions similar to those performed by the
persons who at that time shall be such officers, and also means, with respect to
a particular corporate trust matter, any other officer to whom such trust matter
is referred because of his knowledge of and familiarity with the particular
subject.
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
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26
"Unrestricted Global Securities" means one or more Global Securities that
do not and are not required to bear the Securities Act Legend.
"Unrestricted Physical Securities" means one or more Physical Securities
that do not and are not required to bear the Securities Act Legend.
"Unrestricted Securities" means the Securities that do not and are not
required to bear the Securities Act Legend.
"Unrestricted Subsidiary" means the Subsidiaries listed in the first
sentence of Section 4.17 and any other Subsidiary of the Company designated as
such pursuant to Section 4.17. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of Section 4.17.
"UVC Note" means all Indebtedness and other obligations of FrontierVision
Operating Partners, L.P., under that certain Subordinated Promissory Note dated
November 9, 1995 to United Video Cablevision, Inc.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"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, by (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.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
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27
SECTION 1.02. Other Definitions.
Term Defined in Section
"Affiliate Transaction" 4.03
"Bankruptcy Law" 6.01
"Custodian" 6.01
"Event of Default" 6.01
"Funding Guarantor" 11.05
"Global Security" 2.01(a)
"144A Global Security" 2.01(a)
"Other Indebtedness" 4.19
"Participants" 2.13
"Paying Agent" 2.03
"Permitted Indebtedness" 4.04
"Physical Security" 2.01(b)
"Registrar" 2.03
"Regulation S Global Security" 2.01(a)
"Required Filing Date" 4.12
"Restricted Payment" 4.06
"Revocation" 4.17
"Securities Act Legend" 2.06(f)
"United States Government Obligation" 9.01
"Unutilized Net Cash Proceeds" 4.05
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" or "obligors" on the indenture securities means the Issuers or
any other obligor on the Securities.
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28
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it
in accordance with generally accepted accounting principles in effect from time
to time, and any other reference in this Indenture to "generally accepted
accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
(a) Global Securities. Securities offered and sold to QIBs in reliance on
Rule 144A shall be issued initially substantially in the form of Exhibit A
hereto in the name of Cede & Co. as nominee of DTC, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. Such Security shall be
referred to herein as the "144A Global Security." Securities offered and sold in
reliance on Regulation S shall be issued initially substantially in the form of
Exhibit A hereto in the name of Cede & Co. as nominee of DTC, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. Such
Security shall be referred to
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29
herein as the "Regulation S Global Security." Unrestricted Global Securities
shall be issued initially in accordance with Sections 2.06(b)(iv), 2.06(c)(ii)
and 2.06(e) in the name of Cede & Co. as nominee of DTC, duly executed by the
Issuers and authenticated by the Trustee as hereinafter provided. The 144A
Global Security, Regulation S Global Security and Unrestricted Global Security
are collectively referred to herein as the "Global Securities." The aggregate
Principal Amount at Maturity of each of the Global Securities may from time to
time be increased or decreased by adjustments made on the records of the Trustee
as hereinafter provided.
Each Global Security shall represent such of the outstanding Securities as
shall be specified therein and each shall provide that it shall represent the
aggregate Principal Amount at Maturity of outstanding Securities from time to
time endorsed thereon and that the aggregate Principal Amount at Maturity of
outstanding Securities represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges, redemptions and transfers of
interests therein in accordance with the terms of this Indenture. Any
endorsement of a Global Security to reflect the amount of any increase or
decrease in the Principal Amount at Maturity of outstanding Securities
represented thereby shall be made by the Trustee in accordance with instructions
given by the Holder thereof as required by Section 2.06.
Upon the issuance of the Global Security to DTC, DTC shall credit, on its
internal book-entry registration and transfer system, its Participants' accounts
with the respective interests owned by such Participants. Interests in the
Global Securities shall be limited to Participants, including Euroclear and
Cedel, and indirect Participants.
The Participants shall not have any rights either under this Indenture or
under any Global Security with respect to such Global Security held on their
behalf by DTC, and DTC may be treated by the Issuers, the Trustee and any agent
of the Issuers or the Trustee as the absolute owner of such Global Security for
the purpose of receiving payment of or on account of the principal of and,
subject to the provisions of this Indenture, interest on the Global Securities
and for all other purposes. Notwithstanding the foregoing, nothing herein shall
prevent the Issuers, the Trustee or any agent of the Issuers or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by DTC or impair, as between DTC and its Participants, the operation
of customary
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30
practices of DTC governing the exercise of the rights of an owner of a
beneficial interest in any Global Security.
The provisions of the "Operating Procedures of the Euroclear System,"
"Terms and Conditions Governing Use of Euroclear," "General Terms and Conditions
of Cedel Bank" and "Customer Handbook" of Cedel, and successor provisions, shall
be applicable to interests in the Regulation S Global Security that are held by
the Participants through Euroclear or Cedel.
(b) Physical Securities. Securities offered and sold to Institutional
Accredited Investors who are not also QIBs shall be issued substantially in the
form of Exhibit A hereto, in certificated form and issued in the names of the
purchasers thereof (or their nominees), duly executed by the Issuers and
authenticated by the Trustee as hereinafter provided. Securities in certificated
form shall be referred to herein as the "Physical Securities."
(c) Securities. The provisions of the form of Securities contained in
Exhibit A hereto are incorporated herein by reference. The Securities and the
Trustee's Certificates of Authentication shall be substantially in the form of
Exhibit A hereto. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. The Issuers shall approve the
form of the Securities and any notation, legend or endorsement (including
notations relating to the Guarantee) on them. If required, the Securities shall
bear the appropriate legend regarding original issue discount for federal income
tax purposes. Each Security shall be dated the date of its authentication. The
terms and provisions contained in the Securities shall constitute, and are
hereby expressly made, a part of this Indenture.
SECTION 2.02. Execution and Authentication.
Two Officers of each of the Issuers shall sign the Securities for each of
the Issuers by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds that office
at the time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized officer of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be conclusive
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31
evidence that the Security has been authenticated under this Indenture.
The Trustee shall authenticate (i) Initial Securities for original issue in
the aggregate original Principal Amount at Maturity of up to $91,298,000 in one
or more series, (ii) Private Exchange Securities from time to time only in
exchange for a like Principal Amount at Maturity of Initial Global Securities as
of the date of such exchange and (iii) Unrestricted Securities from time to time
only (x) in exchange for a like Principal Amount at Maturity of Initial
Securities as of the date of such exchange or (y) in an aggregate Principal
Amount at Maturity as of the date of authentication of not more than the excess
of $91,298,000 (reduced, if the Cash Interest Election is made, by the aggregate
unaccreted portion of the Accreted Value of all Securities then outstanding
which would have accreted if no Cash Interest Election had been made) over the
sum of the aggregate Principal Amount at Maturity as of the date of
authentication of (A) Initial Securities then outstanding, (B) Private Exchange
Securities then outstanding and (C) Unrestricted Securities issued in accordance
with clause (iii)(x), in each case upon a written order signed by an Officer of
each of the Issuers. The order shall specify the amount of Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated. The order shall also provide instructions concerning
registration, amounts for each Holder and delivery. The aggregate Principal
Amount at Maturity of Securities outstanding at any time may not exceed
$91,298,000 (reduced, if the Cash Interest Election is made, by the aggregate
unaccreted portion of the Accreted Value of all Securities then outstanding
which would have accreted if no Cash Interest Election had been made) except as
provided in Section 2.07. The Securities shall be issued only in registered
form, without coupons and only in denominations of $1,000 Principal Amount at
Maturity and any integral multiple thereof.
SECTION 2.03. Registrar; Paying Agent; Depository.
The Issuers shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Securities may be presented for payment ("Paying Agent").
The Issuers may have one or more co-Registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
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32
The Issuers shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture. The agreement shall implement the provisions of
this Indenture that relate to such Agent and shall, if required, incorporate the
provisions of the TIA. The Issuers shall notify the Trustee of the name and
address of any such Agent. If the Issuers fail to maintain a Registrar or Paying
Agent, the Trustee shall act as such and shall be entitled to appropriate
compensation in accordance with the provisions of Section 7.07.
The Issuers initially appoint the Trustee as Registrar and Paying Agent.
The Issuers shall give written notice to the Trustee in the event that either of
the Issuers decides to act as Registrar or Paying Agent.
The Issuers initially appoint DTC to act as Depository with respect to any
Global Securities and initially appoint the Trustee to act as Securities
Custodian with respect to any Global Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust.
The Issuers shall require each Paying Agent to agree in writing to hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal or Accreted Value of or interest on
the Securities (whether such money has been paid to it by the Issuers or any
other obligor on the Securities), and the Issuers and the Paying Agent shall
each notify the Trustee of any default by either of the Issuers (or any other
obligor on the Securities) in making any such payment. If either of the Issuers
or a Subsidiary of either of the Issuers acts as Paying Agent, it shall
segregate the money and hold it as a separate trust fund. The Issuers at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed and the Trustee may at any time during the
continuance of any payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed. Upon making such payment the Paying Agent shall
have no further liability for the money delivered to the Trustee.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Issuers shall furnish
to the Trustee at
<PAGE>
33
least five Business Days before each Interest Payment Date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Securities. Transfer of the Global
Securities shall be by delivery. Global Securities will be exchanged by the
Issuers for Physical Securities only (i) if DTC notifies the Issuers that it is
unwilling or unable to continue to act as depositary with respect to the Global
Securities or ceases to be a clearing agency registered under the Exchange Act
and, in either case, a successor depositary registered as a clearing agency
under the Exchange Act is not appointed by the Issuers within 120 days, (ii) at
any time if the Issuers in their sole discretion determine that the Global
Securities (in whole but not in part) should be exchanged for Physical
Securities or (iii) if the owner of an interest in the Global Securities
requests such Physical Securities, following an Event of Default under this
Indenture, in a writing delivered through DTC to the Trustee.
Upon the occurrence of any of the events specified in the previous
paragraph, Physical Securities shall be issued in such names as DTC shall
instruct the Trustee in writing and the Trustee shall cause the aggregate
Principal Amount at Maturity of the applicable Global Security to be reduced
accordingly and direct DTC to make a corresponding reduction in its book-entry
system. The Issuers shall execute and the Trustee shall authenticate and make
available for delivery to the Person designated in the instructions a Physical
Security in the appropriate Principal Amount at Maturity. The Trustee shall make
available for delivery such Physical Securities to the Persons in whose names
such Securities are so registered. Physical Securities issued in exchange for an
Initial Global Security pursuant to this Section 2.06(a) shall bear the
Securities Act Legend and shall be subject to all restrictions on transfer
contained therein. Global Securities may also be exchanged or replaced, in whole
or in part, as provided in Sections 2.07 and 2.10. Every Security authenticated
and made available for delivery in exchange for, or in lieu of, a Global
Security or any portion thereof, pursuant to Section 2.07 or 2.10, shall be
authenticated and made available for delivery in the form of, and shall be, a
Global Security. A Global Security may not be exchanged for another Security
other than as provided in this Section 2.06(a).
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(b) Transfer and Exchange of Interests in Global Securities. The transfer
and exchange of interests in Global Securities shall be effected through DTC, in
accordance with this Indenture and the procedures of DTC therefor. Interests in
Initial Global Securities shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. The Trustee shall have no obligation to ascertain DTC's compliance with any
such restrictions on transfer. Transfers of interests in Global Securities shall
also require compliance with subparagraph (i) below, as well as one or more of
the other following subparagraphs as applicable:
(i) All Transfers and Exchanges of Interests in Global Securities. In
connection with all transfers and exchanges of interests in Global Securities
(other than transfers of interests in a Global Security to Persons who take
delivery thereof in the form of an interest in the same Global Security), the
transferor of such interest must deliver to the Registrar (1) instructions given
in accordance with the Applicable Procedures from a Participant or an indirect
Participant directing DTC to credit or cause to be credited an interest in the
specified Global Security in an amount equal to the interest to be transferred
or exchanged, (2) a written order given in accordance with the Applicable
Procedures containing information regarding the Participant account to be
credited with such increase and (3) instructions given by the Holder of the
Global Security to effect the transfer referred to in (1) and (2) above.
(ii) Transfer of Interests in the Same Initial Global Security. Interests
in any Initial Global Security may be transferred to Persons who take delivery
thereof in the form of an interest in the same Initial Global Security in
accordance with the transfer restrictions set forth in Section 2.06(f) hereof.
(iii) Transfer of Interests to Another Initial Global Security. Interests
in any Initial Global Security may be transferred to Persons who take delivery
thereof in the form of an interest in another Initial Global Security if the
Registrar receives the following:
(A) if the transferee will take delivery in the form of an interest in the
144A Global Security, then the transferor must deliver a certificate in the form
of Exhibit C hereto, including the certifications in item 1 thereof; or
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35
(B) if the transferee will take delivery in the form of an interest in the
Regulation S Global Security, then the transferor must deliver a certificate in
the form of Exhibit C hereto, including the certifications in item 2 thereof.
(iv) Transfer and Exchange of Interests in Initial Global Security for
Interests in an Unrestricted Global Security. Interests in any Initial Global
Security may be exchanged by the holder thereof for an interest in the
Unrestricted Global Security or transferred to a Person who takes delivery
thereof in the form of an interest in the Unrestricted Global Security if:
(A) such exchange or transfer is effected pursuant to the Exchange
Registration Statement in accordance with the Registration Rights Agreement;
(B) any such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement; or
(C) the Registrar receives the following:
(1) if the holder of such an interest in an Initial Global Security
proposes to exchange it for an interest in the Unrestricted Global Security, a
certificate from such Holder in the form of Exhibit D hereto, including the
certifications in item 1(a) thereof;
(2) if the holder of such an interest in an Initial Global Security
proposes to transfer it to a Person who shall take delivery thereof in the form
of an interest in an Unrestricted Global Security, a certificate in the form of
Exhibit C hereto, including the certification in item 4 thereof; and
(3) in each such case set forth in this paragraph (C), an Opinion of
Counsel in form reasonably acceptable to the Issuers, to the effect that such
exchange or transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in Section 2.06(f) hereof are not
required in order to maintain compliance with the Securities Act.
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36
If any such transfer is effected pursuant to paragraph (B) above at a time when
an Unrestricted Global Security has not yet been issued, the Issuers shall issue
and, upon receipt of an authentication order in accordance with Section 2.02,
the Trustee shall authenticate one or more Unrestricted Global Securities in an
aggregate Principal Amount at Maturity equal to the Principal Amount at Maturity
of interests in the Initial Global Security transferred pursuant to paragraph
(B) above.
(v) Notation by the Trustee of Transfer of Interests Among Global
Securities. Upon satisfaction of the requirements for transfer of interests in
Global Securities pursuant to clauses (iii) or (iv) above, the Trustee, as
Registrar, shall reduce or cause to be reduced the aggregate Principal Amount at
Maturity of the relevant Global Security from which the interests are being
transferred, and increase or cause to be increased the aggregate Principal
Amount at Maturity of the Global Security to which the interests are being
transferred, in each case, by the Principal Amount at Maturity so transferred
and shall direct DTC to make corresponding adjustments in its book-entry system.
No transfer of interests of a Global Security shall be effected until, and any
transferee pursuant thereto shall succeed to the rights of a holder of such
interests only when, the Registrar has made appropriate adjustments to the
applicable Global Security in accordance with this paragraph.
(c) Transfer or Exchange of Physical Securities for Interests in a Global
Security.
(i) If any Holder of Physical Securities required to contain the Securities
Act Legend proposes to exchange such Securities for an interest in a Global
Security or to transfer such Physical Securities to a Person who takes delivery
thereof in the form of an interest in a Global Security, then, upon receipt by
the Registrar of the following documentation (all of which may be submitted by
facsimile):
(A) if the Holder of such Physical Securities proposes to exchange such
Securities for an interest in an Initial Global Security, a certificate from
such Holder in the form of Exhibit D hereto, including the certifications in
item 2 thereof;
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37
(B) if such Physical Securities are being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to the effect
set forth in Exhibit C hereto, including the certifications in item 1 thereof;
or
(C) if such Physical Securities are being transferred to a Non-U.S. Person
(as defined in Regulation S) in an offshore transaction in accordance with Rule
904 under the Securities Act, a certificate to the effect set forth in Exhibit C
hereto, including the certifications in item 2 thereof,
the Trustee shall cancel the Physical Securities, increase or cause to be
increased the aggregate Principal Amount at Maturity of, in the case of clause
(B) above, the 144A Global Security or, in the case of clause (C) above, the
Regulation S Global Security, and direct DTC to make a corresponding increase in
its book-entry system.
(ii) A Holder of Physical Securities required to contain the Securities Act
Legend may exchange such Securities for an interest in the Unrestricted Global
Security or transfer such Restricted Physical Securities to a Person who takes
delivery thereof in the form of an interest in the Unrestricted Global Security
only:
(A) if such exchange or transfer is effected pursuant to the Exchange
Registration Statement in accordance with the Registration Rights Agreement;
(B) any such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) upon receipt by the Registrar of the following documentation (all of
which may be submitted by facsimile):
(1) if the Holder of such Physical Securities proposes to exchange such
Securities for an interest in the Unrestricted Global Security, a certificate
from such Holder in the form of Exhibit D hereto, including the certifications
in item 1(b) thereof;
(2) if the Holder of such Physical Securities proposes to transfer such
Securities to a
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38
Person who shall take delivery thereof in the form of an interest in the
Unrestricted Global Security, a certificate in the form of Exhibit C hereto,
including the certifications in item 4 thereof; and
(3) in each such case set forth in this paragraph (C), an Opinion of
Counsel in form reasonably acceptable to the Issuers, to the effect that such
exchange or transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in Section 2.06(f) hereof are not
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to paragraph (B) above at a time
when an Unrestricted Global Security has not yet been issued, the Issuers shall
issue and, upon receipt of an authentication order in accordance with Section
2.02, the Trustee shall authenticate one or more Unrestricted Global Securities
in an aggregate Principal Amount at Maturity equal to the Principal Amount at
Maturity of Physical Securities transferred pursuant to paragraph (B) above.
(d) Transfer and Exchange of Physical Securities.
(i) Transfer of a Physical Security to Another Physical Security. Following
the occurrence of one or more of the events specified in Section 2.06(a), a
Physical Security may be transferred to Persons who take delivery thereof in the
form of another Physical Security if the Registrar receives the following:
(A) if the transfer is being effected pursuant to and in accordance with
Rule 144A, then the transferor must deliver a certificate in the form of Exhibit
C hereto, including the certifications in item 3(a) thereof; or
(B) if the transfer is being effected pursuant to and in accordance with
Regulation S, then the transferor must deliver a certificate in the form of
Exhibit C hereto, including the certifications in item 3(b) thereof.
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39
(ii) Transfer and Exchange of Restricted Physical Securities for
Unrestricted Physical Securities. Following the occurrence of one or more of the
events specified in Section 2.06(a), a Restricted Physical Security may be
exchanged by the Holder thereof for an Unrestricted Physical Security or
transferred to a Person who takes delivery thereof in the form of an
Unrestricted Physical Security if:
(A) such exchange or transfer is effected pursuant to the Exchange
Registration Statement in accordance with the Registration Rights Agreement;
(B) any such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement; or
(C) the Registrar receives a certificate from such holder in the form of
Exhibit D hereto, including the certifications in item 1(c) thereof and an
Opinion of Counsel in form reasonably acceptable to the Issuers, to the effect
that such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in Section 2.06(f) hereof are
not required in order to maintain compliance with the Securities Act.
(iii) Exchange of Physical Securities. When Physical Securities are
presented by a Holder to the Registrar with a request to register the exchange
of such Physical Securities for an equal Principal Amount at Maturity of
Physical Securities of other authorized denominations, the Registrar shall make
the exchange as requested only if the Physical Securities are endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his attorney duly authorized in
writing and shall be issued only in the name of such Holder or its nominee. The
Physical Securities issued in exchange for Physical Securities shall bear the
Securities Act Legend and shall be subject to all restrictions on transfer
contained herein in each case to the same extent as the Physical Securities so
exchanged.
(iv) Return of Physical Securities. In the event of a transfer pursuant to
clause (i) or (ii) above and the Holder thereof has delivered certificates
representing an aggregate Principal Amount at Maturity of Securities in excess
of that to be transferred, the Issuers shall exe-
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40
cute and the Trustee shall authenticate and make available for delivery to the
Holder of such Security, without service charge, a new Physical Security or
Securities of any authorized denomination requested by the Holder, in an
aggregate Principal Amount at Maturity equal to the portion of the Security not
so transferred.
(e) Exchange Offer. Upon the occurrence of the Exchange Offer (as defined
in the Registration Rights Agreement) in accordance with the Registration Rights
Agreement, the Issuers shall issue and, upon receipt of an authentication order
in accordance with Section 2.02, the Trustee shall authenticate one or more
Unrestricted Global Securities in an aggregate Principal Amount at Maturity
equal to the Principal Amount at Maturity of the interests in the Initial Global
Securities tendered for acceptance (and not withdrawn) by persons participating
therein. Concurrently with the issuance of such Securities, the Trustee shall
cause the aggregate Principal Amount at Maturity of the applicable Initial
Global Securities to be reduced accordingly and direct DTC to make a
corresponding reduction in its book-entry system. The Trustee shall cancel any
Restricted Physical Certificates in accordance with Section 2.11 hereof.
In the case that one or more of the events specified in Section 2.06(a)
have occurred, upon the occurrence of such Exchange Offer, the Issuers shall
issue and, upon receipt of an authentication order in accordance with Section
2.02, the Trustee shall authenticate Unrestricted Physical Securities in an
aggregate Principal Amount at Maturity equal to the Principal Amount at Maturity
of the Restricted Physical Securities tendered for acceptance by persons
participating therein.
(f) Legends. Each Initial Global Security and each Restricted Physical
Security shall bear the legend (the "Securities Act Legend") in substantially
the following form:
"THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE REOFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
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41
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT OR (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (2) TO THE ISSUERS OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B)
THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE."
(g) Global Security Legend. Each Global Security shall bear a legend in
substantially the following form:
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO A NOMINEE OF DTC,
OR BY ANY SUCH NOMINEE OF DTC OR BY DTC TO A SUCCESSOR DEPOSITORY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
"TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.06 OF THE INDENTURE."
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42
(h) Cancellation and/or Adjustment of Global Securities. At such time as
all interests in the Global Securities have been exchanged for Physical
Securities, all Global Securities shall be returned to or retained and canceled
by the Trustee in accordance with Section 2.11 hereof. At any time prior to such
cancellation, if any interest in a Global Security is exchanged for an interest
in another Global Security or for Physical Securities, the Principal Amount at
Maturity of Securities represented by such Global Security shall be reduced
accordingly and an endorsement shall be made on such Global Security, by the
Trustee to reflect such reduction.
(i) General Provisions Relating to All Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Issuers shall
execute and the Trustee shall authenticate Global Securities and Physical
Securities upon a written order signed by an Officer of each of the Issuers or
at the Registrar's request.
(ii) No service charge shall be made to a Holder for any registration of
transfer or exchange, but the Issuers may require payment of a sum sufficient to
cover any stamp or transfer tax or similar governmental charge payable in
connection therewith (other than any such stamp or transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections 2.10,
3.06, 4.05, 4.14 and 10.05 hereof).
(iii) All Global Securities and Physical Securities issued upon any
registration of transfer or exchange of Global Securities or Physical Securities
shall be the valid obligations of the Issuers, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Global Securities or
Physical Securities surrendered upon such registration of transfer or exchange.
(iv) The Issuers shall not be required (A) to issue, to register the
transfer of or to exchange Securities during a period beginning at the opening
of 15 Business Days before the day of any mailing of notice of redemption of
Securities under Section 3.02 and ending at the close of business on the day of
such mailing, (B) to register the transfer of or to exchange any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part or (C) to reg-
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43
ister the transfer of or to exchange a Security between a record date and the
next succeeding Interest Payment Date.
(v) Prior to due presentment for the registration of a transfer of any
Security, the Trustee, any Agent and the Issuers may deem and treat the Person
in whose name any Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal or Accreted Value of and
interest on such Securities and for all other purposes, and none of the Trustee,
any Agent or the Issuers shall be affected by notice to the contrary.
(vi) The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfers of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interests in any Global Security) or Physical Security
other than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by the terms of, this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder of a
Security claims that the Security has been lost, destroyed or wrongfully taken,
the Issuers shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. An indemnity bond in an amount
sufficient in the judgment of the Issuers and the Trustee to protect the
Issuers, the Trustee or any Agent from any loss which any of them may suffer if
a Security is replaced may be required by the Trustee or the Issuers. The
Issuers and the Trustee each may charge such Holder for its expenses in
replacing such Security.
Every replacement Security is an additional obligation of the Issuers.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all Securities that have been
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation and
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44
those described in this Section as not outstanding. Except as provided in
paragraph 5(b) of the Securities, a Security does not cease to be outstanding
because either of the Issuers or an Affiliate of either of the Issuers holds the
Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than either of the Issuers, a Subsidiary of
either of the Issuers or an Affiliate of either of the Issuers) holds on a
redemption date or Maturity Date money sufficient to pay the principal or
Accreted Value of, and interest, if any, on Securities payable on that date,
then on and after that date such Securities cease to be outstanding and Accreted
Value ceases to accrete or interest on them ceases to accrue, as the case may
be.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required Principal Amount at
Maturity of Securities have concurred in any direction, waiver or consent,
Securities owned by either of the Issuers, any Subsidiary Guarantor or any of
their respective Affiliates shall be disregarded, except that for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities that the Trustee actually knows
are so owned shall be so disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that the Issuers consider appropriate for temporary Securities.
Without unreasonable delay, the Issuers shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities.
SECTION 2.11. Cancellation.
The Issuers at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent
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45
shall forward to the Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee and no one else shall cancel all Securities
surrendered for transfer, exchange, payment or cancellation. Except as provided
in Section 2.07, the Issuers may not issue new Securities to replace, or reissue
or resell, Securities which the Issuers have redeemed, paid, purchased on the
open market or otherwise, or otherwise acquired or have been delivered to the
Trustee for cancellation. The Trustee (subject to the record-retention
requirements of the Exchange Act) may, but shall not be required to destroy
canceled Securities.
SECTION 2.12. Defaulted Interest.
If the Issuers default in a payment of interest on the Securities, they
shall pay the defaulted interest, plus any interest payable on the defaulted
interest pursuant to Section 4.01 hereof, to the persons who are Securityholders
on a subsequent special record date, and such term, as used in this Section 2.12
with respect to the payment of any defaulted interest, shall mean the fifteenth
day next preceding the date fixed by the Issuers for the payment of defaulted
interest, whether or not such day is a Business Day. At least 15 days before
such special record date, the Issuers shall mail to each Securityholder and to
the Trustee a notice that states such special record date, the payment date and
the amount of defaulted interest to be paid.
SECTION 2.13. Payments of Interest.
(a) The Holder of a Physical Security at the close of business on the
regular record date with respect to any Interest Payment Date shall be entitled
to receive the interest payable on such Interest Payment Date notwithstanding
any transfer or exchange of such Physical Security subsequent to the regular
record date and prior to such Interest Payment Date, except if and to the extent
the Issuers shall default in the payment of the interest due on such Interest
Payment Date, in which case such defaulted interest shall be paid in accordance
with Section 2.12; and in the event of an exchange of a Physical Security for a
beneficial interest in any Global Security subsequent to a regular record date
or any special record date and prior to or on the related Interest Payment Date
or other payment date under Section 2.12, any payment of the interest payable on
such payment date with respect to any such Physical Security shall be made to
the Person in whose name such Physical Security was registered on such record
date. Payments of interest on the Global Securities will be made on
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46
each Interest Payment Date to the Holder of the Global Security on the record
date with respect thereto; provided, however, that, in the event of an exchange
of all or a portion of a Global Security for a Physical Security subsequent to
the regular record date or any special record date and prior to or on the
related Interest Payment Date or other payment date under Section 2.12, any
payment of interest payable on such Interest Payment Date or other payment date
with respect to the Physical Security shall be made to the Holder of the Global
Security as of the applicable record date.
(b) Subject to Section 4.01, interest shall be paid to DTC, with respect to
any Global Security held by DTC, on the applicable Interest Payment Date in
accordance with instructions received from DTC at least five Business Days
before the applicable Interest Payment Date.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Issuers are to effect the redemption of any Securities pursuant to
paragraph 5 of the Securities at the applicable redemption price set forth
therein, they shall notify the Trustee in writing of the redemption date and the
Principal Amount at Maturity of Securities to be redeemed.
The Issuers shall give the notice provided for in this Section 3.01 at
least 45 days before the redemption date (unless a shorter notice shall be
agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to paragraph
5 thereof, the Trustee shall select the Securities to be redeemed pro rata or by
lot or in such other manner as the Trustee shall deem appropriate and fair. The
Trustee shall make the selection from the Securities then outstanding, subject
to redemption and not previously called for redemption. The Trustee may select
for redemption portions of the Principal Amount at Maturity of Securities but
only such
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47
that no unredeemed Security shall be in a denomination of less than $1,000
Principal Amount at Maturity. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Issuers shall mail a notice of redemption by first-class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the CUSIP number;
(4) the name and address of the Paying Agent to which the Securities are to
be surrendered for redemption;
(5) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(6) that, unless the Issuers default in making the redemption payment,
Accreted Value on Securities called for redemption ceases to accrete and
interest on Securities called for redemption ceases to accrue on and after the
redemption date and the only remaining right of the Holders is to receive
payment of the redemption price upon surrender of such Securities to the Paying
Agent; and
(7) if any Security is being redeemed in part, the portion of the Principal
Amount at Maturity of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or Securities
in Principal Amount at Maturity equal to the unredeemed portion thereof will be
issued.
At the Issuers' request, the Trustee shall give the notice of redemption on
behalf of the Issuers, in the Issuers' name and at the Issuers' expense.
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48
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price, plus accrued interest thereon, if any, to the redemption date.
SECTION 3.05. Deposit of Redemption Price.
At least one Business Day before the redemption date, the Issuers shall
deposit with the Paying Agent (or if either of the Issuers is the Paying Agent,
such Issuer shall, on or before the redemption date, segregate and hold in
trust) money sufficient to pay the redemption price of and accrued and unpaid
interest, if any, on all Securities to be redeemed on that date other than
Securities or portions thereof called for redemption on that date which have
been delivered by the Issuers to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security equal in Principal Amount at Maturity
to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Issuers shall pay the Accreted Value or principal of and interest on
the Securities in the manner provided in the Securities. An installment of
Accreted Value, principal or interest shall be considered paid on the date due
if the Trustee or Paying Agent (other than the Issuers, a Subsidiary or an
Affiliate of the Issuers) holds on that date money designated for and sufficient
to pay the installment in full and is not prohibited from paying such money to
the Holders of the Securities pursuant to the terms of this Indenture.
The Issuers shall pay cash interest on overdue Accreted Value or principal
at 11 7/8%. The Issuers shall pay
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interest on overdue installments of interest at 11 7/8%, to the extent lawful.
Payments of the Accreted Value or principal of and interest on any Global
Securities will be made to the Depository or its nominee, as the case may be, as
the registered owner thereof. None of the Issuers, the Trustee nor any Paying
Agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in any
Global Securities or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interest.
SECTION 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be surrendered for registration
of transfer or exchange or for presentation for payment and where notices and
demands to or upon the Issuers in respect of the Securities and this Indenture
may be served. The Issuers shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Issuers shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.02.
The Issuers may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided that
no such designation or rescission shall in any manner relieve the Issuers of
their obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Issuers shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
SECTION 4.03. Limitation on Transactions with Affiliates and Related Persons.
The Company will not, and will not permit, cause or suffer any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction (or series of related transactions) with or for the benefit of any
of their respective Affiliates or any beneficial holder of 10% or
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more of the Equity Interests of the Company or any officer, director or employee
of the Company or any Restricted Subsidiary (each an "Affiliate Transaction"),
unless (a) such Affiliate Transaction is on terms which are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party, (b) if
such Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments or other consideration having a Fair Market Value in
excess of $5.0 million, a majority of the disinterested members of the Board of
Directors of the Company shall have approved such transaction and determined
that such transaction complies with the foregoing provisions and (c) if such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value of $25.0
million or more, the Company shall have obtained a written opinion from an
Independent Financial Advisor stating that the consideration to be paid or
received, as the case may be, by the Company or the Restricted Subsidiary
pursuant to such Affiliate Transaction is fair to the Company or the Restricted
Subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this Section
4.03 shall not apply to (i) transactions with or among the Company and the
Wholly Owned Restricted Subsidiaries, (ii) customary directors' fees,
indemnification and similar arrangements, consulting fees, employee salaries,
bonuses or employment agreements, compensation or employee benefit arrangements
and incentive arrangements with any officer, director or employee of the Company
entered into in the ordinary course of business (including customary benefits
thereunder) and payments under any indemnification arrangements permitted by
applicable law, (iii) the Agreement of Limited Partnership of the Company or the
Agreement of Limited Partnership of FVOP, in each case, as in effect on the 1997
Notes Issue Date, including any amendment or extension thereof that does not
otherwise violate any other covenant set forth in this Indenture, and any
transactions undertaken pursuant to any other contractual obligations in
existence on the 1997 Notes Issue Date (as in effect on the 1997 Notes Issue
Date), (iv) the issue and sale by the Company to its partners or stockholders of
Qualified Equity Interests, (v) any Restricted Payments made in compliance with
Section 4.06 (including without limitation the making of any payments or
distributions permitted to be made in accordance with clauses (i) through (vi)
of the penultimate paragraph of Section 4.06), (vi) loans and advances to
officers, directors and employees of the Company and the Restricted
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Subsidiaries for travel, entertainment, moving and other relocation expenses, in
each case made in the ordinary course of business and consistent with past
business practices, (vii) customary commercial banking, investment banking,
underwriting, placement agent or financial advisory fees paid in connection with
services rendered to the Company and its Subsidiaries in the ordinary course,
(viii) the Incurrence of intercompany Indebtedness permitted pursuant to clause
(d) under the definition of "Permitted Indebtedness" set forth in Section 4.04,
(ix) the pledge of Equity Interests of Unrestricted Subsidiaries to support the
Indebtedness thereof and (x) the Senior Credit Facility.
SECTION 4.04. Limitation on Indebtedness.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness)
or issue any Disqualified Equity Interests except for Permitted Indebtedness;
provided, however, that the Company or any Restricted Subsidiary may Incur
Indebtedness and the Company or any Restricted Subsidiary may 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, the Debt to Operating
Cash Flow Ratio would be less than or equal to (i) 8.0 to 1.0 if the date of
such Incurrence is on or before December 31, 1998 and (ii) 7.50 to 1.0
thereafter.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the Securities and this Indenture;
(b) (x) Indebtedness and Disqualified Equity Interests of the Company and
the Restricted Subsidiaries outstanding on the 1997 Notes Issue Date (including
(A) Indebtedness under the 1997 Notes and 1997 Notes Indenture, (B) Indebtedness
under the FVOP Indenture and (C) Indebtedness under the UVC Note) and (y)
Indebtedness incurred after the 1997 Notes Issue Date and prior to the Issue
Date pursuant to the first paragraph of Section 4.04 of the 1997 Notes
Indenture;
(c) Indebtedness of the Company and the Restricted Subsidiaries under the
Senior Credit Facility in an aggre-
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gate principal amount at any one time outstanding not to exceed the sum of (A)
$650.0 million, which amount shall be reduced by (x) any permanent reduction of
commitments thereunder after the 1997 Notes Issue Date and (y) any other
repayment after the 1997 Notes Issue Date accompanied by a permanent reduction
of commitments thereunder (other than, in the case of either clause (x) or (y),
in connection with any refinancing thereof), plus (B) any amounts outstanding
under the Senior Credit Facility that utilize (or have utilized since the 1997
Notes Issue Date) subparagraph (i) of this paragraph of Section 4.04;
(d) (x) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Wholly Owned Restricted Subsidiary and (y) Indebtedness of the
Company owed to and held by any Wholly Owned Restricted Subsidiary which is
unsecured and subordinated in right of payment to the payment and performance of
the Issuers' obligations under this Indenture and the Securities; provided,
however, that an Incurrence of Indebtedness that is not permitted by this clause
(d) shall be deemed to have occurred upon (i) any sale or other disposition of
any Indebtedness of the Company or a Wholly Owned Restricted Subsidiary referred
to in this clause (d) to a Person (other than the Company or a Wholly Owned
Restricted Subsidiary), (ii) any sale or other disposition of Equity Interests
of a Wholly Owned Restricted Subsidiary which holds Indebtedness of the Company
or another Wholly Owned Restricted Subsidiary such that such Wholly Owned
Restricted Subsidiary ceases to be a Wholly Owned Restricted Subsidiary or (iii)
designation of a Wholly Owned Restricted Subsidiary which holds Indebtedness of
the Company as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Indebtedness of the Company;
(f) Interest Rate Protection Obligations of the Company or any Restricted
Subsidiary relating to Indebtedness of the Company or such Restricted
Subsidiary, as the case may be (which Indebtedness (i) bears interest at
fluctuating interest rates and (ii) is otherwise permitted to be Incurred under
this Section 4.04); provided, however, that the notional principal amount of
such Interest Rate Protection Obligations does not exceed the principal amount
of the Indebtedness to which such Interest Rate Protection Obligations relate;
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(g) Purchase Money Indebtedness and Capitalized Lease Obligations of the
Company or any Restricted Subsidiary which do not exceed $10.0 million in the
aggregate at any one time outstanding (whether incurred after the 1997 Notes
Issue Date and prior to the Issue Date or after the Issue Date);
(h) Indebtedness or Disqualified Equity Interests of the Company or any
Restricted Subsidiary to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness or Disqualified Equity Interests of the Company or any Restricted
Subsidiary Incurred in compliance with the Debt to Operating Cash Flow Ratio of
the first paragraph of this Section 4.04 or clause (a) or (b) of this paragraph
of this Section 4.04; provided, however, that (i) Indebtedness or Disqualified
Equity Interests of the Company may not be refinanced under this clause (h) with
Indebtedness or Disqualified Equity Interests of any Restricted Subsidiary, (ii)
any such refinancing shall not exceed the sum of the principal amount (or, if
such Indebtedness or Disqualified Equity Interests provide for a lesser amount
to be due and payable upon a declaration of acceleration thereof at the time of
such refinancing, an amount no greater than such lesser amount) of the
Indebtedness or Disqualified Equity Interests being refinanced plus the amount
of accrued interest or dividends thereon and the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and such
reasonable fees and expenses incurred in connection therewith, (iii)
Indebtedness representing a refinancing of Indebtedness of the Company shall
have a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of the Indebtedness being refinanced, and (iv)
Subordinated Indebtedness of the Company or Disqualified Equity Interests of the
Company may only be refinanced with the Subordinated Indebtedness of the Company
or Disqualified Equity Interests of the Company; and
(i) in addition to the items referred to in clauses (a) through (h) above,
Indebtedness of the Company (including any Indebtedness under the Senior Credit
Facility that utilizes this clause (i)) having an aggregate principal amount not
to exceed $25.0 million at any time outstanding (whether incurred after the 1997
Notes Issue Date and prior to the Issue Date or after the Issue Date).
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SECTION 4.05. Disposition of Proceeds of Asset Sales.
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, make any Asset Sale, unless (i) the Company or such
Restricted 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 and (ii) either (A) at least 75% of such consideration
consists of cash or Cash Equivalents or (B) at least 75% of such consideration
consists of (x) properties and capital assets (including franchises and licenses
required to own or operate such properties) to be used in the same lines of
business being conducted by the Company or any Restricted Subsidiary at such
time or (y) Equity Interests in one or more Persons which thereby become Wholly
Owned Restricted Subsidiaries whose assets consist primarily of such properties
and capital assets. The amount of any (i) liabilities of the Company or any
Restricted Subsidiary that are actually assumed by the transferee in such Asset
Sale and from which the Company and the Restricted Subsidiaries are fully
released shall be deemed to be cash for purposes of determining the percentage
of cash consideration received by the Company or the Restricted Subsidiaries and
(ii) notes or other similar obligations received by the Company or the
Restricted Subsidiaries from such transferee that are immediately converted (or
are converted within thirty days of the related Asset Sale) by the Company or
the Restricted Subsidiaries into cash shall be deemed to be cash, in an amount
equal to the net cash proceeds realized upon such conversion, for purposes of
determining the percentage of cash consideration received by the Company or the
Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof
to repay (x) Indebtedness of the Company secured by a Lien on the property or
assets subject to such Asset Sale or (y) Indebtedness of any Restricted
Subsidiary or (z) Indebtedness under the 1997 Notes and 1997 Notes Indenture
and, in each case permanently reduce any related commitment; provided, however,
that if Indebtedness under the revolving credit portion of the Senior Credit
Facility is repaid, the Company need not reduce the commitments for such
revolving credit portion, or (ii) commit in writing to acquire, construct or
improve properties and capital assets (including franchises and licenses
required to own or operate any such assets or properties) to be used in the same
line of business being conducted by the Company or any Restricted Sub-
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sidiary at such time and so apply such Net Cash Proceeds within 365 days of the
receipt thereof.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not so applied within 365 days of such Asset Sale (such Net Cash Proceeds, the
"Unutilized Net Cash Proceeds"), the Company shall, within 30 days of such 365th
day, make an Offer to Purchase from all Holders of Securities Securities with an
aggregate Accreted Value as of such Purchase Date equal to such Unutilized Net
Cash Proceeds, at a purchase price in cash equal to 100% of such Accreted Value
thereof plus accrued and unpaid interest, if any, to the applicable Purchase
Date; provided, however, that the Offer to Purchase may be deferred until there
are aggregate Unutilized Net Cash Proceeds equal to or in excess of $5.0
million, at which time the entire amount of such Unutilized Net Cash Proceeds,
and not just the amount in excess of $5.0 million, shall be applied as required
pursuant to this paragraph. In the event that any other Indebtedness of the
Company which ranks pari passu with the Securities requires the repayment or
prepayment thereof, or an offer to purchase to be made to repurchase such
Indebtedness, upon the consummation of any Asset Sale, the Company may apply the
Unutilized Net Cash Proceeds otherwise required to be applied to an Offer to
Purchase to repay, prepay or offer to purchase such other Indebtedness and to an
Offer to Purchase pro rata based upon (i) the aggregate Accreted Value of the
Securities then outstanding on the applicable Purchase Date and (ii) the
aggregate principal amount (or accreted amount, if less) of such other
Indebtedness then outstanding on such Purchase Date. The Offer to Purchase shall
remain open for a period of 20 Business Days or such longer period as may be
required by law. To the extent the aggregate Accreted Value of Securities
tendered pursuant to the Offer to Purchase exceeds the Unutilized Net Cash
Proceeds, Securities shall be purchased among Holders on a proportionate basis
(based on the relative aggregate Accreted Value of Securities validly tendered
for purchase by Holders thereof). To the extent the Unutilized Net Cash Proceeds
exceed the aggregate Accreted Value of Securities tendered by the Holders of the
Securities pursuant to the Offer to Purchase, the Company may retain and utilize
any portion of the Unutilized Net Cash Proceeds not applied to repurchase the
Securities for any purpose consistent with the other terms of this Indenture.
In the event that the Company makes an Offer to Purchase the Securities,
the Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Ex-
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change Act and any violation of the provisions of this Indenture relating to
such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
(b) The Company will mail the Offer for an Offer to Purchase required
pursuant to Section 4.05(a) not more than 395 days after consummation of the
Asset Sale resulting in the Offer to Purchase. Each Holder shall be entitled to
tender all or any portion of the Securities owned by such Holder pursuant to the
Offer to Purchase, subject to the requirement that any portion of a Security not
tendered must be in an integral multiple of $1,000 Principal Amount at Maturity
and subject to any proration of the Offer among tendering Holders.
(c) Not later than the date of the Offer with respect to an Offer to
Purchase pursuant to this Section 4.05, the Company shall deliver to the Trustee
an Officers' Certificate as to the Purchase Amount.
On or prior to the Purchase Date specified in the Offer to Purchase, the
Company shall (i) accept for payment (on a pro rata basis, if necessary)
Securities or portions thereof validly tendered pursuant to such Offer, (ii)
deposit with the Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 2.04) money sufficient
to pay the Purchase Price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee for cancellation all
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent (or the Company, if so acting) shall promptly mail or deliver to Holders
of Securities so accepted payment in an amount equal to the Purchase Price for
such Securities, and the Trustee shall promptly authenticate and mail or deliver
to each Holder a new Security or Securities equal in Principal Amount at
Maturity to any unpurchased portion of the Security surrendered as requested by
the Holder. Any Security not accepted for payment shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.
SECTION 4.06. Limitation on Restricted Payments.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
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(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Restricted Subsidiary or make any payment or
distribution to the direct or indirect holders (in their capacities as such) of
Equity Interests of the Company or any Restricted Subsidiary (other than
payments or distributions made to the Company or a Wholly Owned Restricted
Subsidiary and dividends or distributions payable solely in Qualified Equity
Interests of the Company or in options, warrants or other rights to purchase
Qualified Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any Restricted Subsidiary (other than any such
Equity Interests owned by the Company or a Wholly Owned Restricted Subsidiary);
(iii) purchase, redeem, defease or retire for value more than one year
prior to the stated maturity thereof any Subordinated Indebtedness of the
Company (other than any such Subordinated Indebtedness held by a Wholly Owned
Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in any Person
(other than in the Company, a Wholly Owned Restricted Subsidiary or a Person
that becomes a Wholly Owned Restricted Subsidiary, or is merged with or into or
consolidated with the Company or a Wholly Owned Restricted Subsidiary (provided
the Company or a Wholly Owned Restricted Subsidiary is the survivor), as a
result of or in connection with such Investment)
(such payments or any other actions (other than Permitted Investments)
described in (i), (ii), (iii) and (iv) collectively, "Restricted Payments"),
unless
(a) no Default or Event of Default shall have occurred and be continuing at
the time or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the Company
would be able to Incur $1.00 of Indebtedness (other than Permitted Indebtedness)
under the Debt to Operating Cash Flow Ratio of the first paragraph of Section
4.04; and
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(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
1997 Notes Issue Date does not exceed an amount equal to the sum of (1) the
difference between (x) the Cumulative Available Cash Flow determined at the time
of such Restricted Payment and (y) 140% of cumulative Consolidated Interest
Expense of the Company determined for the period commencing on the 1997 Notes
Issue Date and ending on the last day of the latest fiscal quarter for which
consolidated financial statements of the Company are available preceding the
date of such Restricted Payment, plus (2) the aggregate net proceeds (with the
value of any non-cash proceeds to be the Fair Market Value thereof as determined
by an Independent Financial Advisor) received by the Company either (x) as
capital contributions to the Company after the 1997 Notes Issue Date or (y) from
the issue and sale (other than to a Restricted Subsidiary) of its Qualified
Equity Interests after the 1997 Notes Issue Date (excluding the net proceeds
from any issuance and sale of Qualified Equity Interests financed, directly or
indirectly, using funds borrowed from the Company or any Restricted Subsidiary
until and to the extent such borrowing is repaid), plus (3) the principal amount
(or accrued or accreted amount, if less) of any Indebtedness of the Company or
any Restricted Subsidiary Incurred after the 1997 Notes Issue Date which has
been converted into or exchanged for Qualified Equity Interests of the Company,
plus (4) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the 1997 Notes Issue Date, an
amount (to the extent not included in the computation of Cumulative Available
Cash Flow) equal to the lesser of: (i) the return of capital with respect to
such Investment and (ii) the amount of such Investment which was treated as a
Restricted Payment, in either case, less the cost of the disposition of such
Investment, plus (5) the Company's proportionate interest in the lesser of the
Fair Market Value or the net worth of any Unrestricted Subsidiary that has been
redesignated as a Restricted Subsidiary after the 1997 Notes Issue Date in
accordance with Section 4.17 not to exceed in any case the Designation Amount
with respect to such Restricted Subsidiary upon its Designation, minus (6) the
Designation Amount with respect to any Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after the 1997 Notes Issue Date in
accordance with Section 4.17.
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The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
formal notice such payment or redemption would comply with the provisions of
this Indenture; (ii) so long as no Default or Event of Default shall have
occurred and be continuing, the retirement of any Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent issue and sale (other than to a Restricted Subsidiary) of, Qualified
Equity Interests of the Company; provided, however, that any such net cash
proceeds and the value of any Equity Interests issued in exchange for such
retired Equity Interests are excluded from clause (c)(2) of the preceding
paragraph (and were not included therein at any time); (iii) so long as no
Default or Event of Default shall have occurred and be continuing, the purchase,
redemption, retirement or other acquisition of Subordinated Indebtedness of the
Company made in exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of (x) Qualified Equity Interests of the Company; provided, however, that any
such net cash proceeds and the value of any Equity Interests issued in exchange
for Subordinated Indebtedness of the Company are excluded from clauses (c)(2)
and (c)(3) of the preceding paragraph (and were not included therein at any
time) or (y) other Subordinated Indebtedness of the Company having no stated
maturity for the payment of principal thereof prior to the final stated maturity
of the Securities; (iv) the payment of any dividend or distribution on Equity
Interests of the Company or any Restricted Subsidiary 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 or
such Restricted Subsidiary and attributable to them solely as a result of the
Company or such Restricted Subsidiary (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; (v) so long as no Default
or Event of Default has occurred and is continuing, any Investment made out of
the net cash proceeds of the substantially concurrent issue and sale (other than
to a Restricted Subsidiary) of Qualified Equity Interests of the Company;
provided, however, that any such net cash proceeds are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time);
(vi) the purchase, redemption or other acquisition, cancellation or retirement
for value of Equity Interests, or options, warrants, equity appreciation rights
or other rights
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to purchase or acquire Equity Interests, of the Company or any Restricted
Subsidiary, or similar securities, held by officers or employees or former
officers or employees of the Company or any Restricted Subsidiary (or their
estates or beneficiaries under their estates), upon death, disability,
retirement or termination of employment, not to exceed $2.0 million in any
calendar year; (vii) the payment of any dividend or distribution on Equity
Interests of a Restricted Subsidiary out of such Restricted Subsidiary's net
income from the 1997 Notes Issue Date to Persons other than the Company or a
Restricted Subsidiary; provided that such dividend or distribution is paid pro
rata to all holders of such Equity Interests; (viii) Investments in Persons
(including, without limitation, Restricted Subsidiaries which are not Wholly
Owned Restricted Subsidiaries and Unrestricted Subsidiaries) engaged in a
Related Business, not to exceed $30.0 million at any one time outstanding from
the 1997 Notes Issue Date; and (ix) Permitted Strategic Investments.
In determining the amount of Restricted Payments permissible under this
Section 4.06, amounts expended pursuant to clauses (i), (vi) and (ix) of the
immediately preceding paragraph shall be included as Restricted Payments and
amounts expended pursuant to clauses (ii) through (v) and (vii) and (viii) shall
be excluded. The amount of any non-cash Restricted Payment shall be deemed to be
equal to the Fair Market Value thereof at the date of the making of such
Restricted Payment.
SECTION 4.07. Corporate Existence.
Subject to Article Five, the Issuers shall do or shall cause to be done all
things necessary to preserve and keep in full force and effect their respective
corporate or partnership existence, as the case may be, and the corporate,
partnership or other existence of each of the Restricted Subsidiaries in
accordance with the respective organizational documents of each such Restricted
Subsidiary and the rights (charter and statutory), licenses and franchises of
the Issuers and the Restricted Subsidiaries; provided, however, that the Issuers
shall not be required to preserve any such right, license or franchise, or the
corporate or partnership existence of any Restricted Subsidiary, if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Issuers and the
Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and
will not be, adverse in any material respect to the Holders; provided, further,
however, that a de-
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termination of the Board of Directors of the Company shall not be required in
the event of a merger of one or more Wholly Owned Restricted Subsidiaries of the
Company with or into another Wholly Owned Restricted Subsidiary of the Company
or another Person, if the surviving Person is a Wholly Owned Restricted
Subsidiary of the Company organized under the laws of the United States or a
State thereof or of the District of Columbia.
SECTION 4.08. Payment of Taxes and Other Claims.
The Issuers shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon either of the Issuers or any of
their Restricted Subsidiaries or upon the income, profits or property of either
of the Issuers or any of their Restricted Subsidiaries and (2) all lawful claims
for labor, materials and supplies which, in each case, if unpaid, might by law
become a material liability, or Lien (other than a Permitted Lien) upon the
property, of either Issuer or any of their Restricted Subsidiaries; provided,
however, that the Issuers shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which appropriate reserves or other provision has been made.
SECTION 4.09. Notice of Defaults.
(1) In the event that any Indebtedness of either of the Issuers or any of
their Restricted Subsidiaries is declared due and payable before its maturity
because of the occurrence of any default (or any event which, with notice or
lapse of time, or both, would constitute such a default) under such
Indebtedness, the Issuers shall promptly give written notice to the Trustee of
such declaration, the status of such default or event and what action the
Issuers are taking or propose to take with respect thereto.
(2) Upon becoming aware of any Default or Event of Default, the Issuers
shall promptly deliver an Officers' Certificate to the Trustee specifying the
Default or Event of Default.
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SECTION 4.10. Maintenance of Properties.
The Company shall cause all material properties owned by or leased to it or
any of its Restricted Subsidiaries and used or useful in the conduct of its
business or the business of any of its Restricted Subsidiaries to be maintained
and kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company or any of its
Restricted Subsidiaries from discontinuing the use, operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors of the Company or of the
board of directors of the Restricted Subsidiary concerned, or of an officer (or
other agent employed by the Company or of any of its Restricted Subsidiaries) of
the Company or such Restricted Subsidiary having responsibility for any such
property, desirable in the conduct of the business of the Company or any of its
Restricted Subsidiaries, and if such discontinuance or disposal is not adverse
in any material respect to the Holders.
SECTION 4.11. Compliance Certificate.
The Issuers shall deliver to the Trustee within 100 days after the close of
each fiscal year a certificate signed by the principal executive officer,
principal financial officer or principal accounting officer of each of the
Issuers stating that a review of the activities of the Issuers has been made
under the supervision of the signing officers with a view to determining whether
a Default or Event of Default has occurred and whether or not the signers know
of any Default or Event of Default that occurred during such fiscal year. If
they do know of such a Default or Event of Default, the certificate shall
describe all such Defaults or Events of Default, their status and the action the
Issuers are taking or propose to take with respect thereto. The first
certificate to be delivered by the Issuers pursuant to this Section 4.11 shall
be for the fiscal year ending December 31, 1998.
SECTION 4.12. Provision of Financial Information.
Whether or not the Issuers are subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision
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thereto, the Issuers shall file with the SEC the annual reports, quarterly
reports and other documents which the Issuers would have been required to file
with the SEC pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if the Issuers were so required, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Issuers would have been required so to file such documents if the
Issuers were so required. The Issuers shall also in any event (a) within 15 days
of each Required Filing Date (whether or not permitted or required to file with
the SEC) (i) transmit by mail to all holders of Securities, as their names and
addresses appear in the note register, without cost to such holders, and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents which the Issuers are required to file with the SEC pursuant to the
preceding sentence or, if such filing is not so permitted, information and data
of a similar nature, and (b) if, notwithstanding the preceding sentence, filing
such documents by the Issuers with the SEC is not permitted under the Exchange
Act, promptly upon written request supply copies of such documents to any
prospective Holder. The Issuers shall not be obligated to file any such reports
with the SEC if the SEC does not permit such filings for all companies similarly
situated other than due to any action or inaction by the Issuers.
Notwithstanding the foregoing provisions, this covenant shall be deemed to have
been satisfied during the period prior to the effectiveness of the Exchange
Offer Registration Statement if the Issuers cause such annual reports, quarterly
reports and other documents to be filed with the Commission by FVOP if such
filings contain substantially the same information that would be required if
such documents were filed by the Issuers. The Issuers will also comply with ss.
314(a) of the TIA.
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
Each of the Issuers and the Subsidiary Guarantors covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive
either of the Issuers or such Subsidiary Guarantor from paying all or any
portion of the Accreted Value or principal of and/or interest on the Securities
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) each of the Issuers and the Subsidiary
Guarantors hereby expressly waives all benefit or advantage of any such law, and
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covenants that it shall not hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 4.14. Change of Control.
(a) The Company shall, within 35 days following the date of consummation of
a transaction resulting in a Change of Control, commence an Offer to Purchase
all outstanding Securities at a purchase price in cash equal to 101% of the
Accreted Value of the Securities on such Purchase Date plus accrued and unpaid
interest, if any, to such Purchase Date. Such Offer to Purchase will be
consummated not earlier than 20 Business Days and not later than 65 days after
the commencement thereof. Each Holder shall be entitled to tender all or any
portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any untendered portion of a Security
must be in an integral multiple of $1,000 Principal Amount at Maturity.
(b) On or prior to the Purchase Date specified in the Offer to Purchase,
the Company shall (i) accept for payment all Securities or portions thereof
validly tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 2.04) money sufficient to pay the Purchase Price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee for cancellation all Securities so accepted together
with an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Company. The Paying Agent (or the Company, if so
acting) shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Purchase Price for such Securities, and the
Trustee shall promptly authenticate and mail or deliver to each Holder a new
Security or Securities equal in Principal Amount at Maturity to any unpurchased
portion of the Security surrendered as requested by the Holder. Any Security not
accepted for payment shall be promptly mailed or delivered by the Company to the
Holder thereof. The Company shall publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date.
In the event that the Company makes an Offer to Purchase the Securities,
the Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Ex-
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change Act and any violation of the provisions of this Indenture relating to
such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
SECTION 4.15. [Intentionally Omitted.]
SECTION 4.16. Limitations on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions to the Company
or any other Restricted 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 Restricted Subsidiary, (b) make
loans or advances to, or guarantee any Indebtedness or other obligations of, the
Company or any other Restricted Subsidiary or (c) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary (any such
encumbrance or restriction in the foregoing clauses (a), (b) and (c), a "Payment
Restriction"), except for (i) any such encumbrance or restriction existing on
the 1997 Notes Issue Date, including, without limitation, pursuant to the Senior
Credit Facility, the FVOP Indenture or the 1997 Notes Indenture, in each case as
in effect on the 1997 Notes Issue Date, and any amendments, restatements,
renewals, replacements or refinancings (collectively, a "refinancing") thereof;
provided, however, that such refinancings are either (x) no more restrictive in
the aggregate with respect to such encumbrances or restrictions than those
contained in the FVOP Indenture as in effect on the 1997 Notes Issue Date or (y)
do not prohibit the payment of dividends or distributions to the Company in an
amount sufficient to pay cash interest on Securities (assuming no Cash Interest
Election is made) as required under this Indenture and on the 1997 Notes
(assuming no cash interest election under the 1997 Notes Indenture) as required
under the 1997 Notes Indenture or to pay the Principal Amount at Maturity of the
Securities at their Stated Maturity and the principal amount at maturity of the
1997 Notes at their stated maturity unless an event has occurred which permits
(or with the giving of notice or lapse of time or both would permit) the
acceleration of the maturity of any such Indebtedness, (ii) any such encumbrance
or restriction existing under or by reason of applicable law, (iii) any such
encum-
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brance or restriction existing under or by reason of any instrument governing
Indebtedness or Equity Interests of an Acquired Person acquired by the Company
or any Restricted Subsidiary after the 1997 Notes Issue Date as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred by
such Acquired Person in connection with, as a result of or in contemplation of
such acquisition); provided, however, that such encumbrances and restrictions
are not applicable to the Company or any Restricted Subsidiary, or the
properties or assets of the Company or any Restricted Subsidiary, other than the
Acquired Person, (iv) any such encumbrance or restriction existing under or by
reason of customary non-assignment provisions in leases or cable television
franchises entered into in the ordinary course of business and consistent with
past practices, (v) any such encumbrance or restriction existing under or by
reason of any agreement governing Purchase Money Indebtedness for property
acquired after the 1997 Notes Issue Date in the ordinary course of business that
only imposes encumbrances and restrictions on the property so acquired, (vi) any
such encumbrance or restriction existing under or by reason of any agreement for
the sale or disposition after the 1997 Notes Issue Date of the Equity Interests
or assets of any Restricted Subsidiary; provided, however, that such
encumbrances and restrictions described in this clause (vi) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with Section 4.05 to the extent applicable
thereto, (vii) any such encumbrance or restriction existing under or by reason
of any agreement governing refinancing Indebtedness permitted under clause (h)
of Section 4.04; provided, however, that the encumbrances and restrictions
contained in the agreements governing such Indebtedness are no more restrictive
in the aggregate than those contained in the agreements governing the
Indebtedness being refinanced immediately prior to such refinancing, (viii) any
such encumbrance or restriction existing under or by reason of this Indenture or
(ix) any such encumbrance or restriction existing under any other agreement,
instrument or document hereafter in effect; provided, however, that the terms
and conditions of any such encumbrance or restriction either (a) are not more
restrictive than those contained in the FVOP Indenture as in effect on the 1997
Notes Issue Date or (b) in the case of any such agreement, instrument or
document governing Indebtedness, do not prohibit the payment of dividends or
distributions to the Company in an amount sufficient to pay cash interest on the
Securities (assuming no Cash Interest Election is made) as required under this
Indenture or on the 1997 Notes (assuming no cash interest election is made) as
required under the 1997 Notes Indenture or to pay the Principal
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Amount at Maturity of the Securities at their Stated Maturity or to pay the
principal amount at maturity of the 1997 Notes at their stated maturity unless
an event has occurred which permits (or with the giving of notice or lapse of
time or both would permit) the acceleration of the maturity of any such
Indebtedness.
SECTION 4.17. Designation of Unrestricted Subsidiaries.
As of the Issue Date, there are no Unrestricted Subsidiaries other than
FrontierVision Access Partners, LLC, a Delaware limited liability company, and
Maine Security Surveillance, a Maine corporation. The Company may designate any
other Subsidiary of the Company as an "Unrestricted Subsidiary" under this
Indenture (a "Designation") only if:
(a) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation;
(b) at the time of and after giving effect to such Designation, the Company
could Incur $1.00 of additional Indebtedness under the Debt to Operating Cash
Flow Ratio of the first paragraph of Section 4.04; and
(c) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the effectiveness of
such Designation) pursuant to the first paragraph of Section 4.06 in an amount
(the "Designation Amount") equal to the Company's proportionate interest in the
Fair Market Value of such Subsidiary on such date; provided, however, that the
condition set forth in this clause (c) shall not be applicable to the
designation of a Subsidiary as an Unrestricted Subsidiary which is made as part
of an Investment or Permitted Strategic Investment made in accordance with
clause (viii) or (ix) of the penultimate paragraph of Section 4.06.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the
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holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except, in the case of clause (x)
or (y), to the extent otherwise permitted under the terms of this Indenture,
including, without limitation, pursuant to Sections 4.04 and 4.06.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(d) no Default or Event of Default shall have occurred and be continuing at
the time of and after giving effect to such Revocation; and
(e) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have been
permitted to be Incurred for all purposes of this Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
SECTION 4.18. Limitation on Liens.
The Company will not, directly or indirectly, Incur any Liens of any kind
against or upon any of its properties or assets now owned or hereafter acquired,
or any proceeds therefrom or any income or profits therefrom, to secure any
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Securities equally and ratably with such Indebtedness with a Lien on
the same properties and assets securing Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens on Equity Interests
of Subsidiaries of the Company securing obligations under the Senior Credit
Facility, (ii) Liens on Equity Interests of Unrestricted Subsidiaries and (iii)
Permitted Liens.
SECTION 4.19. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries.
In the event that any Restricted Subsidiary (other than a Subsidiary
Guarantor), directly or indirectly, guarantees any Indebtedness of the Company
other than the Securities (the "Other Indebtedness"), the Company shall cause
such Re-
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stricted Subsidiary to concurrently guarantee (a "Subsidiary Guarantee") the
Company's obligations under this Indenture and the Securities to the same extent
that such Restricted Subsidiary guaranteed the Company's obligations under the
Other Indebtedness (including waiver of subrogation, if any); provided, however,
that if such Other Indebtedness is (i) not Subordinated Indebtedness of the
Company, the Subsidiary Guarantee shall be pari passu in right of payment with
the guarantee of the Other Indebtedness or (ii) Subordinated Indebtedness of the
Company, the Subsidiary Guarantee shall be senior in right of payment to the
guarantee of the Other Indebtedness; provided, further, however, that each
Subsidiary issuing a Subsidiary Guarantee will be automatically and
unconditionally released and discharged from its obligations under such
Subsidiary Guarantee upon the release or discharge of the guarantee of the Other
Indebtedness that resulted in the creation of such Subsidiary Guarantee, except
a discharge or release by, or as a result of, any payment under the guarantee of
such Other Indebtedness by such Subsidiary Guarantor. The Company shall cause
each Restricted Subsidiary issuing a Subsidiary Guarantee to (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Securities
and this Indenture on the terms set forth in Article Eleven, (ii) execute and
deliver a Subsidiary Guarantee substantially in the form set forth on Exhibit B
hereto, (iii) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary (which opinion may be subject to
customary assumptions and qualifications) and (iv) execute and deliver to the
Initial Purchasers (as defined in the Registration Rights Agreement) a
counterpart to the Registration Rights Agreement as a Subsidiary Guarantor
thereunder. Thereafter, such Restricted Subsidiary shall (unless released in
accordance with the terms of this Indenture) be a Subsidiary Guarantor for all
purposes of this Indenture.
SECTION 4.20. Limitation on Conduct of Business of Capital.
Capital will not own any operating assets or other properties or conduct
any business other than to serve as an Issuer and an obligor on the Securities
and as a guarantor of obligations under the Senior Credit Facility.
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ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Merger, Sale of Assets, etc.
(a) The Issuers will not consolidate with or merge with or into (whether or
not such Issuer is the Surviving Person) any other entity and the Issuers will
not and will not permit any of their respective Restricted Subsidiaries to sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of such Issuer's properties and assets (determined, in the case of the Company,
on a consolidated basis for the Company and the Restricted Subsidiaries) to any
entity in a single transaction or series of related transactions, unless: (i)
either (x) such Issuer shall be the Surviving Person or (y) the Surviving Person
(if other than such Issuer) shall be, in the case of Capital, a corporation or,
in any other case, a corporation, partnership, limited liability company,
limited liability limited partnership or trust organized and validly existing
under the laws of the United States of America or any State thereof or the
District of Columbia, and shall, in any such case, expressly assume by a
supplemental indenture, the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities and the performance and
observance of every covenant of this Indenture to be performed or observed on
the part of the applicable Issuer; (ii) immediately thereafter, no Default or
Event of Default shall have occurred and be continuing; (iii) immediately after
giving effect to any such transaction involving the Incurrence by the Company or
any Restricted Subsidiary, directly or indirectly, of additional Indebtedness
(and treating any Indebtedness not previously an obligation of the Company or
any Restricted Subsidiary in connection with or as a result of such transaction
as having been Incurred at the time of such transaction), the Surviving Person
could Incur, on a pro forma basis after giving effect to such transaction as if
it had occurred at the beginning of the latest fiscal quarter for which
consolidated financial statements of the Company are available, at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the Debt to
Operating Cash Flow Ratio of the first paragraph of Section 4.04; and (iv)
immediately thereafter the Surviving Person shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of such Issuer immediately
prior to such transaction.
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(b) Subject to the requirements of the immediately preceding paragraph, 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
are 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 Restricted Subsidiary, and (ii) the Net Cash
Proceeds from such sale are used after such sale in a manner that complies with
the provisions of Section 4.05. Except as provided in the preceding sentence, 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, partnership, limited liability company,
limited liability limited partnership or trust 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 Securities and this 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
forma 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
Restricted Subsidiaries.
SECTION 5.02. Successor Corporation Substituted.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01 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 Securities and this Indenture pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of,
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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 this Indenture, the Securities or its Subsidiary Guarantee, as
the case may be.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default":
(1) failure to pay interest on any Securities when the same becomes due and
payable and such Default continues for a period of 30 days;
(2) failure to pay the Accreted Value of any Securities when the same
becomes due and payable at maturity, upon redemption or otherwise;
(3) failure to perform or comply with any of the provisions of Section
4.05, 4.14 or 5.01;
(4) failure to observe or perform any other covenant, warranty or agreement
contained in the Securities or this Indenture, and the Default continues for the
period and after the notice specified in the last paragraph of this Section
6.01;
(5) a default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of the Company or any Restricted Subsidiary
having an outstanding principal amount of $10 million or more individually or in
the aggregate that has resulted in the acceleration of the payment of such
Indebtedness or the failure to pay principal when due at the stated maturity of
any such Indebtedness;
(6) there shall have been any final judgment or judgments (not subject to
appeal) against the Company or any Restricted Subsidiary in an amount of $10
million or more (net of any amounts covered by reputable and creditworthy
insurance companies) which remains undischarged or
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unstayed for a period of 60 days after the date on which the right to appeal has
expired;
(7) any holder or holders of at least $10 million in aggregate principal
amount of Indebtedness of the Company or any Restricted 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 Restricted Subsidiary with an
aggregate Fair Market Value (as determined in good faith by the Board of
Directors of the Company) of at least $2 million 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 or any
Restricted 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;
(8) either of the Issuers or any Significant Restricted Subsidiary pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or
(D) makes a general assignment for the benefit of its creditors;
(9) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against either of the Issuers or any Significant
Restricted Subsidiary in an involuntary case or proceeding,
(B) appoints a Custodian of either of the Issuers or any Significant
Restricted Subsidiary or for all or substantially all of its property, or
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(C) orders the liquidation of either of the Issuers or any Significant
Restricted Subsidiary,
and in each case the order or decree remains unstayed and in effect for 60
consecutive days; provided, however, that if the entry of such order or decree
is appealed and dismissed on appeal then the Event of Default hereunder by
reason of the entry of such order or decree shall be deemed to have been cured;
or
(10) other than as provided in or pursuant to any Subsidiary Guarantee or
this Indenture, such Subsidiary Guarantee ceases to be in full force and effect
or is declared null and void and unenforceable or found to be invalid or any
Subsidiary Guarantor denies its liability under its Subsidiary Guarantee (other
than by reason of a release of such Subsidiary Guarantor from its Subsidiary
Guarantee in accordance with the terms of this Indenture and such Subsidiary
Guarantee).
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator or similar official under
any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the Trustee
notifies the Issuers, or the Holders of at least 25% in aggregate Principal
Amount at Maturity of the outstanding Securities notify the Issuers and the
Trustee, of the Default in writing and the Issuers do not cure the Default
within 30 days after receipt of the notice. The notice must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
Such notice shall be given by the Trustee if so requested by the Holders of at
least 25% in aggregate Principal Amount at Maturity of the Securities then
outstanding. When a Default is cured, it ceases.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Securities (other than an Event
of Default specified in clause (8) or (9) of Section 6.01 with respect to either
of the Issuers) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate Principal Amount at Maturity of the outstanding Securities by
notice in writing to the Issuers (and to the Trustee if given by the Holders)
may declare the Accreted Value of all the outstanding Securities, together with
all accrued
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and unpaid interest, if any, thereon, as of such date of declaration to be
immediately due and payable (provided that Securities whose Accreted Value
remains unpaid after such date of declaration shall continue to accrete pursuant
to the definition of "Accreted Value" and accrue interest as provided in the
Securities). Upon any such declaration, such Accreted Value and accrued and
unpaid interest, if any, shall become immediately due and payable.
If an Event of Default specified in clause (8) or (9) of Section 6.01 with
respect to either of the Issuers occurs, the Accreted Value of all of the
outstanding Securities, together with all accrued and unpaid interest, if any,
thereon, will ipso facto become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder (provided that
Securities whose Accreted Value remains unpaid after the date of such Event of
Default shall continue to accrete pursuant to the definition of "Accreted Value"
and accrue interest as provided in the Securities).
After a declaration of acceleration, but before a judgment or decree of the
money due in respect of the Securities has been obtained, the Holders of not
less than a majority in aggregate Principal Amount at Maturity of the Securities
then outstanding by written notice to the Trustee may rescind an acceleration
and its consequences if all existing Events of Default (other than the
nonpayment of Accreted Value or principal of and interest on the Securities
which has become due solely by virtue of such acceleration) have been cured or
waived and if the rescission would not conflict with any judgment or decree. No
such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy by proceeding at law or in equity to collect the payment of
Accreted Value or principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of De-
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fault. No remedy is exclusive of any other remedy. All available remedies are
cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of
acceleration of the Securities, the Holders of not less than a majority in
aggregate Principal Amount at Maturity of the then outstanding Securities, on
behalf of all the Holders, by written notice to the Trustee may waive an
existing Default or Event of Default and its consequences, except a Default in
the payment of Accreted Value or principal of or interest on any Security as
specified in clauses (1) and (2) of Section 6.01 or a Default in respect of any
term or provision of this Indenture that may not be amended or modified without
the consent of each Holder affected as provided in Section 10.02. The Issuers
shall deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Issuers, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Securities, respectively. This paragraph of this Section 6.04 shall be in lieu
of ss. 316(a)(1)(B) of the TIA and such ss. 316(a)(1)(B) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in Principal Amount at
Maturity of the then outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. In the
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event the Trustee takes any action or follows any direction pursuant to this
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against any loss or expense caused by taking such action
or following such direction. This Section 6.05 shall be in lieu of ss.
316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this Indenture
or the Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate Principal Amount at Maturity
of the then outstanding Securities make a written request to the Trustee to
pursue a remedy;
(3) such Holder or Holders offer and, if requested, provide to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 60-day period the Holders of a majority in Principal Amount
at Maturity of the then outstanding Securities (excluding Affiliates of either
of the Issuers) do not give the Trustee a direction which, in the opinion of the
Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of Accreted Value or principal of and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
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SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of interest or principal specified in
Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Issuers
or any other obligor on the Securities for the whole amount of principal and
accrued interest remaining unpaid, together with interest overdue on principal
and to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the
reasonable costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Securityholders
allowed in any judicial proceedings relative to the Issuers (or any other
obligor upon the Securities), their creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article Six,
it shall pay out the money or property in the following order:
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First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
Accreted Value or principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for Accreted Value or principal and interest, respectively; and
Third: to the Issuers.
The Trustee, upon prior written notice to the Issuers, may fix a record
date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11. Undertaking for Costs.
All parties to this Indenture agree, and each holder of any Security by his
acceptance thereof shall be deemed to have agreed, that in any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 shall not apply
to a suit by the Trustee, a suit by a Holder or group of Holders of more than
10% in aggregate Principal Amount at Maturity of the outstanding Securities, or
to any suit instituted by any Holder for the enforcement or the payment of the
Accreted Value or principal or interest on any Securities on or after the
respective due dates expressed in the Security.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture and use the same
degree of care and skill
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in their exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of such
duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions conforming to the requirements
of this Indenture; however, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee shall not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01; and
(2) The Trustee shall not be liable with respect to any action it takes or
omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or to take or omit to take any action under this
Indenture or take any action at the request or direction of Holders if it shall
have reasonable grounds for believing that repayment of such funds is not
assured to it or it does not receive an indemnity reasonably satisfactory to it
against such risk, liability, loss, fee or expense which might be incurred by it
in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree with the Issuers. Money held in trust by the
Trustee need not be
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segregated from other funds except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on an Officers' Certificate or Opinion of
Counsel.
(c) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(d) Any request or direction of the Issuers mentioned herein shall be
sufficiently evidenced by an Issuer Request or Issuer Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution.
(e) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Securityholders pursuant to this Indenture, unless such
Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and
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premises of the Issuers, personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Issuers or their
Affiliates with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Issuers' use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Issuers in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and the
Trustee knows of such Defaults or Events of Default, the Trustee shall mail to
each Securityholder notice of the Default or Event of Default within 30 days
after the occurrence thereof. Except in the case of a Default or an Event of
Default in payment of principal of or interest on any Security or a Default or
Event of Default in complying with Section 5.01, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
This Section 7.05 shall be in lieu of the proviso to ss. 315(b) of the TIA and
such proviso to ss. 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA ss. 313(a), within 60 days after each June 15 beginning
with the June 15 following the date of this Indenture, the Trustee shall mail to
each Securityholder a report dated as of such June 15 that complies with TIA ss.
313(a); provided, however, that, if no event under TIA ss. 313(a) has occurred
in a 12 month period, no such report
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need be transmitted. The Trustee also shall comply with TIA ss. 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange, if any, on which the
Securities are listed.
The Issuers shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time such compensation as
the Issuers and the Trustee shall from time to time agree in writing for its
services. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuers shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including reasonable fees, disbursements and expenses of its agents
and counsel) incurred or made by it in addition to the compensation for its
services except any such disbursements, expenses and advances as may be
attributable to the Trustee's negligence or bad faith. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents, accountants, experts and counsel and any taxes or other expenses
incurred by a trust created pursuant to Section 9.01 hereof.
The Issuers shall indemnify the Trustee for, and hold it harmless against
any and all loss, damage, claims, liability or expense, including taxes (other
than franchise taxes imposed on the Trustee and taxes based upon, measured by or
determined by the income of the Trustee), arising out of or in connection with
the acceptance or administration of the trust or trusts hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent that such loss, damage, claim, liability or
expense is due to its own negligence or bad faith. The Trustee shall notify the
Issuers promptly of any claim asserted against the Trustee for which it may seek
indemnity. However, the failure by the Trustee to so notify the Issuers promptly
shall not relieve the Issuers of their obligations hereunder except to the
extent that the Issuers are materially prejudiced thereby. The Issuers shall
defend the claim and the Trustee shall cooperate in the defense (and may employ
its own counsel)
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at the Issuers' expense; provided, however, that the Issuers' reimbursement
obligation with respect to counsel employed by the Trustee will be limited to
the reasonable fees of such counsel. The Issuers need not pay for any settlement
made without their written consent, which consent shall not be unreasonably
withheld. The Issuers need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee as a result of the violation of this
Indenture by the Trustee.
To secure the Issuers' payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Securities against all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay Accreted Value or principal of or interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(8) or (9) occurs, the expenses (including the
reasonable fees and expenses of its agents and counsel) and the compensation for
the services shall be preferred over the status of the Holders in a proceeding
under any Bankruptcy Law and are intended to constitute expenses of
administration under any Bankruptcy Law. The Issuers' obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Issuers' obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Issuers in writing.
The Holders of a majority in Principal Amount at Maturity of the then
outstanding Securities may remove the Trustee by so notifying the Trustee and
the Issuers in writing and may appoint a successor Trustee with the Issuers'
consent. The Issuers may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent under any Bankruptcy
Law;
(3) a custodian or other public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), the Issuers shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a
majority in Principal Amount at Maturity of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Issuers. As promptly as practicable after
that, the retiring Trustee shall transfer, after payment of all sums then owing
to the Trustee pursuant to Section 7.07, all property held by it as Trustee to
the successor Trustee, subject to the Lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have the rights, powers and duties of the Trustee under
this Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers or the
Holders of at least 10% in Principal Amount at Maturity of the then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Issuers' obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation or
banking corporation, the resulting, surviving or transferee corporation or
banking corporation without any further act shall be the successor Trustee,
provided such corporation shall be otherwise qualified and eligible under this
Article Seven.
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SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to act
as Trustee under TIA ss.ss. 310(a)(1) and 310(a)(2). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall acquire
any "conflicting interest" within the meaning of TIA ss. 310(b), the Trustee and
the Issuers shall comply with the provisions of TIA ss. 310(b). If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE EIGHT
[INTENTIONALLY OMITTED]
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Issuers' Obligations.
The Issuers may terminate their and the Subsidiary Guarantors' substantive
obligations in respect of the Securities by delivering all outstanding
Securities to the Trustee for cancellation and paying all sums payable by them
on account of principal of and interest on all Securities or otherwise. In
addition to the foregoing, the Issuers may, provided that no Default or Event of
Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in Section 6.01(8) or (9),
any time on or prior to the 91st calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)) terminate their and the
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Subsidiary Guarantors' substantive obligations in respect of the Securities
(except for their obligations to pay the principal of and interest on the
Securities to their Maturity Date and the Subsidiary Guarantors' guarantee
thereof) by (i) depositing with the Trustee, under the terms of an irrevocable
trust agreement, money or direct non-callable obligations of the United States
of America for the payment of which the full faith and credit of the United
States is pledged ("United States Government Obligations") sufficient (without
reinvestment) to pay all remaining Indebtedness on the Securities to their
Maturity Date, (ii) delivering to the Trustee either an Opinion of Counsel or a
ruling directed to the Trustee from the Internal Revenue Service to the effect
that the Holders of the Securities will not recognize income, gain or loss for
federal income tax purposes solely as a result of such deposit and termination
of obligations, (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Issuers' exercise of their option under this paragraph will not
result in any of the Issuers, the Trustee or the trust created by the Issuers'
deposit of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended, and
(iv) delivering to the Trustee an Officers' Certificate and an Opinion of
Counsel each stating compliance with all conditions precedent provided for
herein. In addition, the Issuers may, provided that no Default or Event of
Default has occurred and is continuing or would arise therefrom (or, with
respect to a Default or Event of Default specified in Section 6.01(8) or (9),
any time on or prior to the 91st calendar day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until after
such 91st day)) terminate all of their and the Subsidiary Guarantors'
substantive obligations in respect of the Securities (including their
obligations to pay the principal of and interest on the Securities and the
Subsidiary Guarantors' guarantee thereof) by (i) depositing with the Trustee,
under the terms of an irrevocable trust agreement, money or United States
Government Obligations sufficient (without reinvestment) to pay all remaining
indebtedness on the Securities to their Maturity Date, (ii) delivering to the
Trustee either a ruling directed to the Trustee from the Internal Revenue
Service to the effect that the Holders of the Securities will not recognize
income, gain or loss for federal income tax purposes solely as a result of such
deposit and termination of obligations or an Opinion of Counsel based upon such
a ruling addressed to the Trustee or a change in the applicable Federal tax law
since the date of this Indenture to such effect, (iii) delivering to the Trustee
an Opinion of Counsel to the effect that the Issuers' exercise of their option
under this
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paragraph will not result in any of the Issuers, the Trustee or the trust
created by the Issuers' deposit of funds pursuant to this provision becoming or
being deemed to be an "investment company" under the Investment Company Act of
1940, as amended, and (iv) delivering to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating compliance with all conditions precedent
provided for herein.
Notwithstanding the foregoing paragraph, the Issuers' obligations in
Sections 2.03, 2.05, 2.06, 2.07, 4.01 (but not with respect to termination of
substantive obligations pursuant to the third sentence of the foregoing
paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall survive until the Securities
are no longer outstanding. Thereafter the Issuers' obligations in Sections 7.07,
9.03 and 9.04 shall survive.
After such delivery or irrevocable deposit and delivery of an Officers'
Certificate and Opinion of Counsel, the Trustee upon request shall acknowledge
in writing the discharge of the Issuers' and the Subsidiary Guarantors'
obligations under the Securities and this Indenture except for those surviving
obligations specified above.
SECTION 9.02. Application of Trust Money.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 9.01, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Securities.
SECTION 9.03. Repayment to Issuers.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly pay to the
Issuers upon written request any excess money held by it at any time. The
Trustee shall pay to the Issuers upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Issuers cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining shall
be repaid to the Issuers. After payment to the Issuers, Securityholders entitled
to money must
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look to the Issuers for payment as general creditors unless an applicable
abandoned property law designates another person and all liability of the
Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 9.04. Reinstatement.
If the Trustee is unable to apply any money or United States Government
Obligations in accordance with Section 9.01 by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Issuers'
and the Subsidiary Guarantors' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.01; provided, however, that if the Issuers have made any payment of
interest on or principal of any Securities because of the reinstatement of their
obligations, the Issuers shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Issuers and the Subsidiary Guarantors, when authorized by a resolution
of their respective Boards of Directors, and the Trustee may amend or supplement
this Indenture or the Securities without notice to or consent of any
Securityholder:
(i) to cure any ambiguity, defect or inconsistency;
provided, however, that such amendment or supplement does not
materially and adversely affect the rights of any Holder under this
Indenture or the Securities;
(ii) to effect the assumption by a successor Person of all
obligations of either of the Issuers under the Securities and this
Indenture in connection with any transaction complying with Article
Five of this Indenture;
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(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities;
(iv) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(v) to make any change that would provide any additional
benefit or rights to the Holders;
(vi) to make any other change that does not materially and
adversely affect the rights of any Holder under this Indenture or the
Securities;
(vii) to evidence the succession of another Person to any
Subsidiary Guarantor and the assumption by any such successor of the
covenants of such Subsidiary Guarantor herein and in the Subsidiary
Guarantee;
(viii) to add to the covenants of the Issuers or the Subsidiary
Guarantors for the benefit of the Holders, or to surrender any right or
power herein conferred upon the Issuers or any Subsidiary Guarantor;
(ix) to secure the Securities pursuant to the requirements of
or Section 4.18 or otherwise;
(x) to reflect the release of a Subsidiary Guarantor from
its obligations with respect to its Subsidiary Guarantee in accordance
with the provisions of Section 11.03 and to add a Guarantor pursuant to
the requirements of Sections 4.19 and 11.07;
provided, however, that the Issuers have delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Issuers and the Subsidiary Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Holders of at least a majority in aggregate Principal
Amount at Maturity of the then outstanding Securities. Subject to Section 6.07,
the Holders of a majority in aggregate Principal Amount of Maturity of the then
outstanding Securities, on behalf of all Holders, may waive compliance by the
Is-
<PAGE>
91
suers or any Subsidiary Guarantor with any provision of this Indenture or the
Securities. However, without the consent of each Securityholder affected, an
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may not:
(1) change the definition of Accreted Value or change the definition of
Principal Amount at Maturity or change the Stated Maturity of the principal of
or any installment of interest on any Security or alter the optional redemption
or repurchase provisions of any Security or this Indenture in a manner adverse
to the holders of the Securities;
(2) reduce the Accreted Value of or the Principal Amount at Maturity of any
Security;
(3) reduce the rate or extend the time for payment of interest on any
Security;
(4) change the place or currency of payment of the Accreted Value of or the
principal of or interest on any Security;
(5) modify any provisions of Section 6.04 (other than to add sections of
this Indenture or the Securities subject thereto) or 6.07 or this Section 10.02
(other than to add sections of this Indenture or the Securities which may not be
amended, supplemented or waived without the consent of each Securityholder
affected);
(6) reduce the percentage of the Principal Amount of Maturity of
outstanding Securities necessary for amendment to or waiver of compliance with
any provision of this Indenture or the Securities or for waiver of any Default;
(7) waive a default in the payment of the Accreted Value or of the
principal of, interest on, or redemption payment with respect to, any Security
(except a recision of acceleration of the Securities by the Holders as provided
in Section 6.02 and a waiver of the payment of default that resulted from such
acceleration);
(8) modify the ranking or priority of the Securities or the Subsidiary
Guarantee of any Subsidiary Guarantor in any manner adverse to the Holders;
<PAGE>
92
(9) release any Subsidiary Guarantor from any of its obligations under its
Subsidiary Guarantee or this Indenture otherwise than in accordance with this
Indenture; or
(10) modify the provisions relating to any Offer to Purchase required
pursuant to Section 4.05 or 4.14 in a manner materially adverse to the Holders.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, supplement or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Issuers to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
SECTION 10.04. Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of that
Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security.
The Issuers may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then those persons who were
Holders at such record date (or their duly designated proxies), and only those
persons, shall be entitled to consent to such amendment, supplement or waiver
whether or not such persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 90 days after such record
date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Securityholder, unless it makes a change described in any of clauses (1)
through (10) of Sec-
<PAGE>
93
tion 10.02. In that case the amendment, supplement or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the consenting
Holder's Security.
SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Issuers or the Trustee
so determines, the Issuers in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected in
relying upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Ten is authorized or
permitted by this Indenture and that such amendment, supplement or waiver
constitutes the legal, valid and binding obligation of the Issuers and the
Subsidiary Guarantors, enforceable in accordance with its terms (subject to
customary exceptions). The Trustee may, but shall not (except to the extent
required in the case of a supplemental indenture entered into pursuant to
Section 10.01(iv)) be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise. In signing any amendment, supplement or waiver, the
Trustee shall be entitled to receive an indemnity reasonably satisfactory to it.
<PAGE>
94
ARTICLE ELEVEN
SUBSIDIARY GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Subsidiary Guarantor hereby unconditionally, jointly and severally,
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns that: the Accreted
Value or principal of and interest on the Securities will be promptly paid in
full when due, subject to any applicable grace period, whether at maturity, by
acceleration or otherwise, and interest on the overdue Accreted Value or
principal and interest on any overdue interest on the Securities and all other
obligations of the Issuers to the Holders or the Trustee hereunder or under the
Securities will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; subject, however, to the limitations set forth in
Section 11.04. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Issuers, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Issuers, any right to require a proceeding first against the
Issuers, protest, notice and all demands whatsoever and covenants that the
Subsidiary Guarantee will not be discharged except by complete performance of
the obligations contained in the Securities, this Indenture, and this Subsidiary
Guarantee. If any Holder or the Trustee is required by any court or otherwise to
return to the Issuers, any Subsidiary Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Issuers or any
Subsidiary Guarantor, any amount paid by the Issuers or any Subsidiary Guarantor
to the Trustee or such Holder, this Subsidiary Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article Six for the purpose of this Subsidiary Guaran-
<PAGE>
95
tee, notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of this Subsidiary
Guarantee.
SECTION 11.02. Severability.
In case any provision of this Subsidiary Guarantee shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
(a) In the event that each holder of Other Indebtedness which resulted in
the creation of a Subsidiary Guarantee unconditionally releases a Subsidiary
Guarantor of all of its obligations under its guarantee of such Other
Indebtedness pursuant to a written agreement in form and substance satisfactory
to the Trustee (other than a release resulting from payment under such
guarantee) such Subsidiary Guarantor shall be automatically and unconditionally
released from all obligations under its Subsidiary Guarantee.
(b) Additionally, if the Securities are defeased in accordance with the
terms of this Indenture, or if all or substantially all of the assets of any
Subsidiary Guarantor or all of the Equity Interests of any Subsidiary Guarantor
is sold (including by issuance or otherwise) by the Company or any of its
Subsidiaries in a transaction constituting an Asset Sale and if (x) the Net Cash
Proceeds from such Asset Sale are used in accordance with Section 4.05 or (y)
the Company delivers to the Trustee an Officers' Certificate covenanting that
the Net Cash Proceeds from such Asset Sale shall be used in accordance with
Section 4.05 and within the time limits specified by such Section 4.05, then
such Subsidiary Guarantor (in the event of a sale or other disposition of all of
the Equity Interests of such Subsidiary Guarantor) or the corporation acquiring
such assets (in the event of a sale or other disposition of all or substantially
all of the assets of such Subsidiary Guarantor), shall be deemed released from
all obligations under this Article Eleven without any further action required on
the part of the Trustee or any Holder.
<PAGE>
96
(c) The Trustee shall, at the sole cost and expense of the Issuers, upon
receipt of a request by the Issuers accompanied by an Officers' Certificate
certifying as to the compliance with this Section and, with respect to clause
(b) of this Section 11.03, upon receipt at the reasonable request of the Trustee
of an Opinion of Counsel that the provisions of this Section 11.03 have been
complied with, deliver an appropriate instrument evidencing such release. Any
Subsidiary Guarantor not so released remains liable for the full amount of
Accreted Value or principal of and interest on the Securities and the other
obligations of the Issuers hereunder as provided in this Article Eleven.
SECTION 11.04. Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of title 11 of the
United States Code, as amended, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar U.S. Federal or state or other
applicable law or that the obligations of such Subsidiary Guarantor under
Section 11.01 would otherwise be held or determined to be void, invalid or
unenforceable on account of the amount of its liability under said Section
11.01. To effectuate the foregoing intention, the Holders and such Subsidiary
Guarantor hereby irrevocably agree that the obligations of such Subsidiary
Guarantor under the Subsidiary Guarantee shall be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to Section 11.05, result in the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee not constituting such
fraudulent transfer or conveyance and not being held or determined to be void,
invalid or unenforceable.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Subsidiary Guarantee, such Funding Guarantor
shall be
<PAGE>
97
entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount, based on the net assets of each Subsidiary Guarantor (including the
Funding Guarantor), determined in accordance with GAAP, subject to Section
11.04, for all payments, damages and expenses incurred by that Funding Guarantor
in discharging the Issuers' obligations with respect to the Securities or any
other Subsidiary Guarantor's obligations with respect to the Subsidiary
Guarantee.
SECTION 11.06. Execution of Subsidiary Guarantee.
To further evidence their Subsidiary Guarantee to the Holders, the
Subsidiary Guarantors hereby agree to execute the Subsidiary Guarantee in
substantially the form set forth in Exhibit A to be endorsed on each Security
authenticated and delivered by the Trustee after such Subsidiary Guarantee is
executed. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth
in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on any particular Security a notation of such Subsidiary
Guarantee. Each such Subsidiary Guarantee shall be signed on behalf of each
Subsidiary Guarantor by its Chairman of the Board of Directors, its President or
one of its Vice Presidents prior to the authentication of the Security on which
it is endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Subsidiary Guarantee on behalf of such Subsidiary Guarantor. Such signature upon
the Subsidiary Guarantee may be the manual or facsimile signature of such
officer and may be imprinted or otherwise reproduced on the Subsidiary
Guarantee, and in case such officer who shall have signed the Subsidiary
Guarantee shall cease to be such officer before the Security on which such
Subsidiary Guarantee is endorsed shall have been authenticated and delivered by
the Trustee or disposed of by the Company, such Security nevertheless may be
authenticated and delivered or disposed of as though the Person who signed the
Subsidiary Guarantee had not ceased to be such officer of the Subsidiary
Guarantor.
SECTION 11.07. Additional Subsidiary Guarantors.
Any Restricted Subsidiary of the Company which is required pursuant to
Section 4.19 to become a Subsidiary Guarantor shall execute and deliver to the
Trustee (a) a supplemental indenture in form and substance reasonably
satisfactory to the Trustee which subjects such Restricted Subsidiary to the
provisions of this Indenture as a Subsidiary Guarantor, and (b) an Opinion of
Counsel to the effect that such supplemental inden-
<PAGE>
98
ture has been duly authorized and executed by such Restricted Subsidiary and
constitutes the legal, valid, binding and enforceable obligation of such
Restricted Subsidiary (subject to such customary exceptions concerning
fraudulent conveyance laws, creditors' rights and equitable principles).
SECTION 11.08. Subordination of Subrogation and Other Rights.
Each Subsidiary Guarantor hereby agrees that any claim against
the Issuers that arises from the payment, performance or enforcement of such
Subsidiary Guarantor's obligations under its Subsidiary Guarantee or this
Indenture, including, without limitation, any right of subrogation, shall be
subject and subordinate to, and no payment with respect to any such claim of
such Subsidiary Guarantor shall be made before, the payment in full in cash of
all outstanding Securities in accordance with the provisions provided therefor
in this Indenture.
ARTICLE TWELVE
[INTENTIONALLY OMITTED]
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that are required to
be a part of this Indenture, and shall, to the extent applicable, be governed by
such provisions. If any provision of this Indenture modifies any TIA provision
that may be so modified, such TIA provision shall be deemed to apply to this
Indenture as so modified. If any provision of this Indenture excludes any TIA
provision that may be so excluded, such TIA provision shall be excluded from
this Indenture.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included unless expressly
excluded by this Indenture) are a part of and govern this Indenture, whether or
not physically contained herein.
<PAGE>
99
SECTION 13.02. Notices.
Any notice or communication required or permitted to be given under this
Indenture shall be sufficiently given if in writing and delivered in person, by
facsimile and confirmed by overnight courier, or mailed by first-class mail
addressed as follows:
if to the Issuers:
FrontierVision Holdings, L.P.
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
Attention: Mr. John S. Koo, Senior Vice
President and Chief Financial
Officer
Facsimile: (303) 757-6115
Telephone: (303) 757-1588
with a copy to:
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
Facsimile: (202) 776-2222
Telephone: (202) 776-2000
if to the Trustee:
U.S. Bank National Association
(d/b/a Colorado National Bank)
950 17th Street, Suite 650
Denver, Colorado 80202
Attention: Gretchen L. Middents
Facsimile: (303) 585-6865
Telephone: (303) 585-4596
The Issuers or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
<PAGE>
100
Any notice or communication mailed, first class, postage prepaid, to a
Securityholder, including any notice delivered in connection with TIA ss.
310(b), TIA ss. 313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be mailed to
him at his address as set forth on the registration books of the Registrar and
shall be sufficiently given to him if so mailed within the time prescribed. To
the extent required by the TIA, any notice or communication shall also be mailed
to any Person described in TIA ss. 313(c).
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
Except for a notice to the Trustee, which is deemed given only when received, if
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Issuers, the Trustee, the Registrar and any other person shall
have the protection of TIA ss. 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee to take or
refrain from taking any action under this Indenture, the Issuers shall furnish
to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
<PAGE>
101
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion has read
such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture, the
Securities and the Subsidiary Guarantee without regard to principles of
conflicts of law.
SECTION 13.08. No Recourse Against Others.
A director, officer, employee, incorporator, limited or general partner or
stockholder, as such, of the Issuers or any Subsidiary Guarantor shall not have
any liability for any obligations of the Issuers or any Subsidiary Guarantor
under the Securities, any Subsidiary Guarantee or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability.
<PAGE>
102
SECTION 13.09. Successors.
All agreements of the Issuers in this Indenture and the Securities shall
bind their successors. All agreements of each Subsidiary Guarantor in this
Indenture and Securities shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of counterparts of this Indenture. Each
signed counterpart shall be an original, but all of them together represent the
same agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or in the
Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of either of the Issuers or a Subsidiary of either of Issuers. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.13. Legal Holidays.
If a payment date occurs on a day that is not a Business Day at a place of
payment, payment may be made at that place on the next succeeding day that is a
Business Day, and no interest shall accrue for the intervening period.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P.,
its general partner
By: FVP GP, L.P.,
its general partner
By: FrontierVision Inc.,
its general partner
By: __________________________________
Name:
Title:
FRONTIERVISION HOLDINGS CAPITAL II
CORPORATION
By: __________________________________
Name:
Title:
<PAGE>
S-2
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By: _____________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF SECURITY]
CUSIP No. [ ]
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
11 7/8% SENIOR DISCOUNT NOTE DUE 2007, SERIES B
No. [ ] $
This Security is issued with original issue discount for purposes of
Section 1271 et seq. of the Internal Revenue Code. For each $1,000 of original
Principal Amount at Maturity of this Security, the issue price is $821.49 and
the amount of original issue discount is $178.51. The issue date of this
Security is December 9, 1998 and the yield to maturity is 10.093%.
FrontierVision Holdings, L.P. and FrontierVision Holdings Capital II
Corporation hereby jointly and severally promise to pay to [ ] or registered
assigns on the Maturity Date of September 15, 2007 the principal sum of (x) [ ]
DOLLARS or (y) if the Cash Interest Election is made, the Accreted Value of this
Security as of the Semi-Annual Accrual Date on which the Cash Interest Election
is made.
Interest Payment Dates: March 15 and September 15, commencing on the earlier of
(x) the March 15 or September 15, as the case may be, immediately following the
date of the Cash Interest Election and (y) March 15, 2002.
Record Dates: March 1 and September 1
Reference is hereby made to the further provisions on this Security set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
A-1
<PAGE>
IN WITNESS WHEREOF, FrontierVision Holdings, L.P. and FrontierVision
Holdings Capital II Corporation have caused this instrument to be signed
manually or by facsimile by each of their respective duly authorized officers.
Dated: December 9, 1998
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P.,
its general partner
By: FVP GP, L.P.,
its general partner
By: FrontierVision Inc.,
its general partner
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
FRONTIERVISION HOLDINGS CAPITAL II
CORPORATION
By: __________________________________
Name:
Title:
By: __________________________________
Name:
Title:
Certificate of Authentication:
This is one of the 11 7/8% Senior Discount Notes due 2007, Series B,
referred to in the within-mentioned Indenture.
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By_______________________________________ Dated: December 9, 1998
Authorized Signatory
A-2
<PAGE>
(Reverse Of Security)
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
11 7/8% Senior Discount Note due 2007, Series B
1. Interest.
FrontierVision Holdings, L.P., a Delaware limited partnership (the
"Company"), and FrontierVision Holdings Capital II Corporation, a Delaware
corporation ("Capital" and together with the Company, the "Issuers"), jointly
and severally promise to pay to the registered holder of this Security, until
the principal hereof is paid or duly provided for, interest on the principal
amount set forth on the face of this Security at a rate of 11 7/8% per annum.
Interest on the Securities will accrue from and including the most recent date
to which interest has been paid or duly provided for or, if no interest has been
paid or duly provided for, from and including the earlier of (x) the date of the
Cash Interest Election and (y) September 15, 2001 through but excluding the date
on which interest is paid or duly provided for. Interest shall be payable in
arrears on each March 15 and September 15 and at stated maturity, commencing on
the earlier of (a) the Interest Payment Date immediately following the date of
the Cash Interest Election and (b) March 15, 2002. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
The principal of this Security shall not bear or accrue interest until the
earlier of (x) the date of the Cash Interest Election and (y) September 15,
2001, except in the case of a default in payment of principal and/or premium, if
any, upon acceleration, redemption or purchase and, in such case, the overdue
principal and any overdue premium shall bear interest at the rate of 11 7/8% per
annum (compounded semiannually on each March 15 and September 15) (to the extent
that the payment of such interest shall be legally enforceable), from the dates
such amounts are due until they are paid or duly provided for. To the extent,
but only to the extent, interest on amounts in default constituting original
issue discount prior to the earlier of (a) the date of the Cash Interest
Election and (b) September 15, 2001 is not permitted by law, original issue
discount shall continue to accrete until paid or duly provided for. On or after
the earlier of (a) the date of the Cash Interest Election and (b) September 15,
2001, interest on
A-3
<PAGE>
overdue principal and premium, if any, and, to the extent permitted by law, on
overdue installments of interest will accrue, until the principal and premium,
if any, is paid or duly provided for, at the rate of 11 7/8% per annum. Interest
on any overdue principal or premium shall be payable on demand.
2. Method of Payment.
The interest payable on the Securities, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security is registered at the close of
business on the regular record date, which shall be the March 1 or September 1
(whether or not a Business Day) next preceding such Interest Payment Date. Any
such interest not so punctually paid or duly provided for, and any interest
payable on such defaulted interest (to the extent lawful), will forthwith cease
to be payable to the Holder on such regular record date and shall be paid to the
person in whose name this Security is registered at the close of business on a
special record date for the payment of such defaulted interest to be fixed by
the Issuers, notice of which shall be given to Holders not less than 15 days
prior to such special record date. Payment of the principal of and interest on
this Security will be made at the agency of the Issuers maintained for that
purpose in New York, New York and at any other office or agency maintained by
the Issuers for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Issuers payment of
interest may be made by check mailed to the address of the person entitled
thereto as such address shall appear in the Security register.
3. Paying Agent and Registrar.
Initially, U.S. Bank National Association (the "Trustee") will act as
Paying Agent and Registrar. The Issuers may change any Paying Agent, Registrar
or co-Registrar without notice to the Holders of Securities. The Issuers or any
of their Subsidiaries may act as Registrar, co-Registrar or, except in certain
circumstances specified in the Indenture, Paying Agent.
4. Indenture.
This Security is one of a duly authorized issue of Securities of the
Issuers, designated as their 11 7/8% Senior Discount Notes due 2007, Series B
(the "Securities"), limited
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<PAGE>
in aggregate Principal Amount at Maturity to $91,298,000 (except for Securities
issued in substitution for destroyed, lost or stolen Securities) issuable under
an indenture dated as of December 9, 1998 (the "Indenture"), among the Issuers
and the Trustee. The terms of the Securities include those stated in the
Indenture and those required to be made part of the Indenture by the Trust
Indenture Act of 1939 (the "Act") (15 U.S. Code ss.ss. 77aaa-77bbbb) as in
effect on the date of the Indenture and the date the Indenture is qualified
under the Act. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and the Act for a statement of them.
Each Securityholder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
Capitalized terms contained in this Security to the extent not defined
herein shall have the meanings assigned to them in the Indenture.
5. Optional Redemption.
(a) The Securities are not redeemable prior to September 15, 2001, except
as provided in clause (b) below of this paragraph 5. On and after such date, the
Securities may be redeemed at any time, in whole or in part, at the option of
the Issuers, at redemption prices (expressed as percentages of the principal
amount) set forth below, if redeemed during the 12-month period beginning
September 15 of the year indicated below, in each case together with interest
accrued and unpaid to but excluding the date fixed for redemption:
Year Percentage
2001................................................. 107.917%
2002................................................. 105.937%
2003................................................. 103.958%
2004................................................. 101.979%
2005 and thereafter.................................. 100.00%
(b) At any time prior to September 15, 2000, the Issuers may redeem up to
35% of the Principal Amount at Maturity of the Securities with the net cash
proceeds received by the Company from one or more Public Equity Offerings or
Strategic Equity Investments, at a redemption price of 111.875% of the Accreted
Value thereof, together with accrued and unpaid interest, if any, to the date
fixed for redemption; provided, however, that at least 65% in aggregate
Principal Amount at Maturity of the Securities originally issued remains
outstanding im-
A-5
<PAGE>
mediately after any such redemption (excluding any Securities owned by the
Issuers or any of their Affiliates). Notice of redemption pursuant to this
paragraph must be mailed to Holders of Securities not later than 60 days
following consummation of such Public Equity Offering.
6. Notice of Redemption.
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 Principal Amount at Maturity may be redeemed in part. On and
after the redemption date, Accreted Value ceases to accrete or interest ceases
to accrue, as the case may be, on those Securities or portion of them called for
redemption.
7. Purchase upon Occurrence of a Change of Control.
Within 30 days of the occurrence of a Change of Control, the Company will
offer to purchase the Securities, in whole and not in part, at a purchase price
equal to 101% of the Accreted Value of the Securities on such Purchase Date plus
accrued and unpaid interest, if any, to such Purchase Date.
8. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons in denominations of
$1,000 original Principal Amount at Maturity and integral multiples of $1,000
original Principal Amount at Maturity. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not transfer or exchange any Securities selected for redemption.
9. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it for
all purposes.
10. Unclaimed Funds.
If funds for the payment of principal or interest remain unclaimed for two
years, the Trustee or Paying Agent will repay the funds to the Issuers at their
request. After such
A-6
<PAGE>
repayment Holders of Securities entitled to such funds must look to the Issuers
for payment unless an abandoned property law designates another person.
11. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and canceled except for certain Sections
thereof, subject to the terms of the Indenture, upon the payment of all the
Securities or upon the irrevocable deposit with the Trustee of funds or United
States Government Obligations sufficient for such payment or redemption.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in Principal Amount at Maturity of the outstanding Securities, and any past
default or compliance with any provision may be waived with the consent of the
Holders of a majority in Principal Amount at Maturity of the outstanding
Securities. Without notice to or the consent of any Holder, the Issuers, any
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency, or to make any
change that does not materially and adversely affect the rights of any Holder of
Securities.
13. Restrictive Covenants.
The Securities are general unsecured senior obligations of the Issuers
limited to the aggregate Principal Amount at Maturity of $91,298,000. The
Indenture restricts, among other things, the ability of the Company or any of
its Restricted Subsidiaries to permit any Liens to be imposed on their assets,
to make certain payments and investments, limits the Indebtedness which the
Company and its Restricted Subsidiaries may incur and limits the terms on which
the Company and its Restricted Subsidiaries may engage in Asset Sales. The
Company is also obligated under certain circumstances to make an offer to
purchase Securities with the net cash proceeds of certain Asset Sales. The
Issuers must report annually to the Trustee on compliance with certain covenants
in the Indenture.
14. Successor Corporation.
Pursuant to the Indenture, the ability of the Issuers to consolidate with,
merge with or into or transfer their as-
A-7
<PAGE>
sets to another person is conditioned upon certain requirements, including
certain financial requirements applicable to the surviving Person.
15. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the Accreted Value
of, or principal of all of the outstanding Securities, plus all accrued and
unpaid interest, if any, to the date the Securities become due and payable, as
the case may be, may be declared due and payable in the manner and with the
effect provided in the Indenture.
16. Trustee Dealings with Issuers.
The Trustee in its individual or any other capacity, may become the owner
or pledgee of Securities and make loans to, accept deposits from, and perform
services for either of the Issuers or their Affiliates, and may otherwise deal
with the Issuers or their Affiliates, as if it were not Trustee.
17. No Recourse Against Others.
A director, officer, employee, incorporator, limited or general partner or
stockholder, as such, of either of the Issuers or any Subsidiary Guarantor shall
not have any liability for any obligations of the Issuers or any Subsidiary
Guarantor under the Securities, any Subsidiary Guarantee or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of a Security by accepting a Security waives and releases
all such liability. The waiver and release are part of the consideration for the
issue of the Securities.
18. Authentication.
This Security shall not be valid until the Trustee signs the certificate of
authentication on the other side of this Security.
19. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
A-8
<PAGE>
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuers have caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
21. Governing Law.
The laws of the State of New York shall govern the Indenture, this Security
and any Subsidiary Guarantee without regard to principles of conflicts of law.
22. Subsidiary Guarantees.
This Security may after the date hereof be entitled to certain Subsidiary
Guarantees made for the benefit of the Holders. Reference is hereby made to the
Indenture for the terms of any Subsidiary Guarantee.
The Issuers will furnish to any Holder of record of Securities upon written
request and without charge a copy of the Indenture.
A-9
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Security, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Security to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Issuers. The agent may
substitute another to act for him.
Dated: ____________________________ Signed: ___________________________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:* __________________________________________________________
________________________
* Signature must be guaranteed by a member of the Medallion Signature Program.
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you the Holder want to elect to have this Security purchased by the Company,
check the box:
If you want to elect to have only part of this Security purchased by the
Company, state the Principal Amount at Maturity: $____________
Dated: _______________________________ Your Signature:_________________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee:* __________________________________________________________
________________________
* Signature must be guaranteed by a member of the Medallion Signature Program.
A-11
<PAGE>
EXHIBIT B
[FORM OF SUBSIDIARY GUARANTEE]
GUARANTEE
The Subsidiary Guarantors (as defined in the Indenture referred to in the
Security upon which this notation is endorsed) hereby, jointly and severally,
unconditionally guarantee on a senior basis (such guarantee by each Subsidiary
Guarantor being referred to herein as the "Subsidiary Guarantee") the due and
punctual payment of the Accreted Value or the principal of, premium, if any, and
interest, if any, on the Securities, whether at maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue Accreted
Value or the principal, premium and interest, if any, on the Securities, and the
due and punctual performance of all other obligations of the Issuers to the
Holders or the Trustee, all in accordance with the terms set forth in Article
Eleven of the Indenture.
The obligations of each Subsidiary Guarantor to the Holders of Securities
and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly set forth in the Indenture, and reference is hereby made to such
Indenture for the precise terms of the Subsidiary Guarantee therein made.
This Subsidiary Guarantee shall be governed by and construed in accordance
with the laws of the State of New York without regard to principles of conflicts
of law.
This Subsidiary Guarantee is subject to release upon the terms set forth in
the Indenture.
[Subsidiary Guarantor]
By:_________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF TRANSFER
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
Attention: [ ]
[Name and Address of Registrar]
Re: 11 7/8% Senior Discount Notes due 2007, Series B
Reference is hereby made to the Indenture, dated as of December 9, 1998
(the "Indenture"), among FrontierVision Holdings, L.P., FrontierVision Holdings
Capital Corporation II (the "Issuers"), and U.S. Bank National Association, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
________________ (the "Transferor") owns and proposes to transfer the
Securities specified in Annex A hereto in the Principal Amount at Maturity of
$___ in such Securities (the "Transfer") to ________ (the "Transferee"), as
further specified in Annex A hereto. In the event that Transferor holds Physical
Securities, this Certificate is accompanied by one or more certificates
aggregating at least the Principal Amount at Maturity of Securities proposed to
be Transferred. In connection with the Transfer, the Transferor hereby certifies
that:
1. |_| Check if Transferee will take an Interest in the 144A Global Security.
The Transfer is being effected pursuant to and in accordance with Rule 144A
under the United States Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, the Transferor hereby further certifies that the
Securities are being transferred to a Person that the Transferor reasonably
believes is purchasing the Securities for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A and such Transfer is in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
Security will be subject to the restrictions on transfer enumerated in the
Securities Act Legend and in the Indenture and the Securities Act.
C-1
<PAGE>
2. |_| Check if Transferee will take an Interest in the Regulation S Global
Security pursuant to Regulation S. The Transfer is being effected pursuant to
and in accordance with Rule 904 under the Securities Act and, accordingly, the
Transferor hereby further certifies that (i) the Transfer is not being made to a
person in the United States and (x) at the time the buy order was originated,
the Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 904(b) of Regulation
S under the Securities Act and (iii) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the Security will be subject to the restrictions on Transfer
enumerated in the Securities Act Legend printed on the Regulation S Global
Security and in the Indenture and the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a Restricted
Physical Security pursuant to Rule 144A or Regulation S. One or more of the
events specified in Section 2.06(a) of the Indenture have occurred and the
Transfer is being effected in compliance with the transfer restrictions
applicable to Securities bearing the Securities Act Legend and pursuant to and
in accordance with the Securities Act, and accordingly the Transferor hereby
further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in accordance
with Rule 144A under the Securities Act and the Transferor certifies to the
effect set forth in paragraph 1 above; or
(b) |_| such Transfer is being effected pursuant to and in accordance
with Rule 904 under the Securities Act and the Transferor certifies to the
effect set forth in paragraph 2 above.
4. |_| Check if Transferee will take an Interest in the Unrestricted Global
Security. The Transfer is being effected
C-2
<PAGE>
pursuant to and in accordance with Rule 144 under the Securities Act and in
compliance with the transfer restrictions contained in the Indenture, and the
restrictions on transfer contained in the Indenture and the Securities Act
Legend are not required in order to maintain compliance with the Securities Act.
Upon consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred Securities will no longer be subject to the
restrictions on transfer enumerated in the Securities Act Legend and in the
Indenture and the Securities Act.
5. |_| Check if Transferee will take an Interest in the Physical Global Security
that does not bear the Securities Act Legend. One or more of the events
specified in Section 2.06(a) of the Indenture have occurred and the Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture,
and the restrictions on transfer contained in the Indenture and the Securities
Act Legend are not required in order to maintain compliance with the Securities
Act. Upon consummation of the proposed Transfer in accordance with the terms of
the Indenture, the transferred Securities will no longer be subject to the
restrictions on transfer enumerated in the Securities Act Legend and in the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
[Insert Name of Transferor]
By:_________________________________
Name:
Title:
Dated:___________________________________
C-3
<PAGE>
FORM OF ANNEX A TO CERTIFICATE
OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| Interests in the
(i) |_| 144A Global Security (CUSIP _____), or
(ii) |_| Regulation S Global Security (CINS _____).
(b) |_| Physical Security.
2. That the Transferee will hold:
[CHECK ONE]
(a) |_| Interests in the:
(i) |_| 144A Global Security (CUSIP _____), or
(ii) |_| Regulation S Global Security (CINS _____), or
(iii) |_| Unrestricted Global Security (CUSIP _____); or
(b) |_| Physical Securities that bear the Securities Act
Legend;
(c) |_| Physical Securities that do not bear the Securities
Act Legend;
in accordance with the terms of the Indenture.
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE OF EXCHANGE
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
Attention: [ ]
[Name and Address of Registrar]
Re: 11 7/8% Senior Discount Notes due 2007, Series B
(CUSIP _______________)
Reference is hereby made to the Indenture, dated as of December 9, 1998
(the "Indenture"), among FrontierVision Holdings, L.P., FrontierVision Holdings
Capital Corporation II (the "Issuers") and U.S. Bank National Association, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
__________ (the "Holder") owns and proposes to exchange the Securities
specified herein, in the Principal Amount at Maturity of $___ in such Security
(the "Exchange"). In the event the Holder holds Physical Securities, this
Certificate is accompanied by one or more certificates aggregating at least the
Principal Amount at Maturity of Securities proposed to be Exchanged. In
connection with the Exchange, the Holder hereby certifies that:
1. Exchange of Restricted Physical Securities or Interests in the Initial Global
Security for Physical Securities that do not bear the Securities Act Legend or
Unrestricted Global Securities
(a) |_| Check if Exchange is from Initial Global Securities to the
Unrestricted Global Security. In connection with the Exchange of the Holder's
Initial Global Security for an interest in the Unrestricted Global Security in
an equal Principal Amount at Maturity, the Holder hereby certifies (i) the
Unrestricted Global Securities are being acquired for the Holder's own account
without transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Initial Global Securities and pursuant
to and in accordance with the United States Securities Act of 1933, as amended
(the "Securities Act"), and (iii) the restrictions on transfer contained in the
Indenture and the Securities Act Leg-
D-1
<PAGE>
end are not required in order to maintain compliance with the Securities Act.
(b) |_| Check if Exchange is from Restricted Physical Securities to an
Interest in the Unrestricted Global Security. In connection with the Holder's
Exchange of Restricted Physical Securities for an interest in the Unrestricted
Global Security, (i) the interest in the Unrestricted Global Security is being
acquired for the Holder's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to
Restricted Physical Securities and pursuant to and in accordance with the
Securities Act and (iii) the restrictions on transfer contained in the Indenture
and the Securities Act Legend are not required in order to maintain compliance
with the Securities Act.
(c) |_| Check if Exchange is from Restricted Physical Securities to
Physical Securities that do not bear the Securities Act Legend. In connection
with the Holder's Exchange of a Restricted Physical Security for Physical
Securities that do not bear the Securities Act Legend, the Holder hereby
certifies (i) the Physical Securities that do not bear the Securities Act Legend
are being acquired for the Holder's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Physical Securities and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Securities Act Legend are not required in order to maintain
compliance with the Securities Act and (iv) one or more of the events specified
in Section 2.06(a) of the Indenture have occurred.
2. |_| Check if Exchange is from Restricted Physical Securities to Interests in
an Initial Global Security. In connection with the Exchange of the Holder's
Restricted Physical Security for interests in an Initial Global Security [[CHECK
ONE] |_| 144A Global Security, |_| Regulation S Global Security], with an equal
Principal Amount at Maturity, (i) the interests in the Initial Global Security
are being acquired for the Holder's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Physical Security and pursuant to and in accordance
with the Securities Act. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Initial Global Security issued
will be subject to the restrictions on transfer enumerated in the Securities Act
Leg-
D-2
<PAGE>
end printed on the Initial Global Securities and in the Indenture and the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
____________________________________
[Insert Name of Holder]
By:_________________________________
Name:
Title:
Dated: __________________
D-3
<PAGE>
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
$91,298,000
11 7/8% Senior Discount Notes due 2007, Series B
Purchase Agreement
December 2, 1998
J.P. Morgan Securities Inc.
Chase Securities Inc.
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260-0060
Ladies and Gentlemen:
FrontierVision Holdings, L.P., a Delaware limited partnership (the
"Company"), and FrontierVision Holdings Capital II Corporation, a Delaware
corporation and a wholly owned subsidiary of the Company ("Capital" and,
together with the Company, the "Issuers"), propose to issue and sell to J.P.
Morgan Securities Inc. and Chase Securities Inc. (the "Initial Purchasers")
$91,298,000 aggregate principal amount at maturity of their 11 7/8% Senior
Discount Notes due 2007, Series B (the "Securities"). The Securities will be
issued pursuant to the provisions of an Indenture (the "Indenture") to be dated
as of December 9, 1998 between the Issuers and U.S. Bank National Association,
as Trustee (the "Trustee").
The offering and sale of the Securities to the Initial Purchasers will be
made without registration under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption therefrom provided by Section
4(2) of the Securities Act. Holders of Securities will have the benefits of a
Registration Rights Agreement to be dated as of December 9, 1998 among the
Issuers and the Initial Purchasers, substantially in the form attached hereto as
Exhibit A (the "Registration Rights Agreement"). This Agreement, the Indenture,
the Securities and the Registration Rights Agreement are collectively referred
to herein as the "Offering Agreements."
<PAGE>
2
The Issuers hereby agree with the Initial Purchasers as follows:
1. The Issuers agree to issue and sell the Securities to the Initial
Purchasers as hereinafter provided, and each Initial Purchaser, upon the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Issuers the respective principal amount at maturity of Securities set
forth opposite such Initial Purchaser's name in Schedule I hereto at a price
(the "Purchase Price") equal to 79.68453% of their principal amount at maturity.
2. The Issuers understand that the Initial Purchasers intend (i) to offer
privately their respective portions of the Securities as soon after this
Agreement has become effective as in the judgment of the Initial Purchasers is
advisable and (ii) initially to offer the Securities upon the terms set forth in
the Offering Memorandum (as defined below).
The Issuers confirm that they have authorized the Initial Purchasers,
subject to the restrictions set forth below, to distribute copies of the
Offering Memorandum in connection with the offering of the Securities. Each
Initial Purchaser hereby makes to the Issuers the following representations and
agreements:
(a) it is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act;
(b) (A) it will not solicit offers for, or offer to sell, the Securities by
any form of general solicitation or general advertising (as those terms are used
in Regulation D under the Securities Act) and (B) it will solicit offers for the
Securities only from, and will offer the Securities only to, (1) persons whom it
reasonably believes to be "qualified institutional buyers" within the meaning of
Rule 144A under the Securities Act or (2) upon the terms and conditions set
forth in Annex I to this Agreement; and
(c) it will deliver a copy of the Offering Memorandum to each person who
acquires Securities from it.
3. Payment for the Securities shall be made by wire transfer in immediately
available funds, to the account specified by the Company to the Initial
Purchasers no later than
<PAGE>
3
noon on the Business Day (as defined below) prior to the Closing Date (as
defined below), on December 9, 1998, or at such other time on the same or such
other date as the Initial Purchasers and the Issuers may agree upon in writing.
The time and date of such payment are referred to herein as the "Closing Date."
As used herein, the term "Business Day" means any day other than a day on which
banks are permitted or required to be closed in New York City.
Payment for the Securities shall be made against delivery to the nominee of
The Depository Trust Company for the account of the Initial Purchasers of one or
more global notes representing the Securities (collectively, the "Global Note"),
with any transfer taxes payable in connection with the transfer to the Initial
Purchasers paid by the Company. The Global Note will be made available for
inspection by the Initial Purchasers at the office of J.P. Morgan Securities
Inc. at the address set forth above, or at such other location as the Company
and the Initial Purchasers agree, not later than 1:00 P.M., New York City time,
on the Business Day prior to the Closing Date.
4. The Issuers, jointly and severally, represent and warrant to each
Initial Purchaser as follows:
(a) An offering memorandum, dated December 2, 1998 (including the documents
incorporated by reference therein, the "Offering Memorandum"), has been prepared
in connection with the offering of the Securities. The Offering Memorandum and
any amendments or supplements thereto did not and will not, as of its date or as
of the Closing Date, contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to statements or omissions in the Offering
Memorandum or any amendment or supplement thereto made in reliance upon and in
conformity with information relating to any Initial Purchaser furnished to the
Company in writing by such Initial Purchaser expressly for use therein.
(b) The financial statements, and the related notes thereto, included or
incorporated by reference in the Offering Memorandum present fairly the
financial position of the applicable entity (such entities, collectively, the
"Entities") as of the dates indicated and the results of operations of each of
the Entities and the changes in their cash flows for the periods specified; said
financial
<PAGE>
4
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The pro forma financial statements,
and the related notes thereto, and other pro forma financial information
included in the Offering Memorandum have been prepared in accordance with the
applicable requirements of the Securities Act with respect to pro forma
financial statements and are based upon good faith estimates and assumptions
believed by the Issuers to be reasonable.
(c) Since the respective dates as of which information is given in the
Offering Memorandum, there has not been any change in the equity interests or
long-term debt of the Company or any of the Subsidiaries (as defined below), or
any material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, business, prospects,
management, financial position, partners' equity or results of operations of the
Company and the Subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Offering Memorandum (a "Material Adverse Change" or a
"Prospective Material Adverse Change," respectively). Except as set forth or
contemplated in the Offering Memorandum, neither the Company nor any of the
Subsidiaries has entered into any transaction or agreement (whether or not in
the ordinary course of business) material to the Company and the Subsidiaries
taken as a whole.
(d) Each of the Issuers has been duly organized or incorporated, as the
case may be, and is validly existing as a limited partnership or corporation, as
the case may be, in good standing under the laws of the State of Delaware, with
corporate or partnership power, as the case may be, and authority and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from regulatory or governmental officials, bodies and tribunals
to (i) own its properties and conduct its business in all material respects as
described in the Offering Memorandum; and (ii) enter into, deliver, incur and
perform its obligations under the Offering Agreements; and each of the Issuers
has been duly qualified as a foreign limited partnership or foreign corporation,
as the case may be, for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, other than where
the failure to be so qualified or in good standing, singly or in the aggregate
with all other such failures, would
<PAGE>
5
not have a material adverse effect on the general affairs, business, prospects,
management, financial position, partners' equity or results of operations of the
Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect").
(e) Except as set forth in the Offering Memorandum, all of the outstanding
equity interests of the Company have been duly authorized and validly issued and
are not subject to any preemptive or similar rights; and, except as described in
or expressly contemplated by the Offering Memorandum, there are no outstanding
rights (including, without limitation, preemptive rights), warrants or options
to acquire, or instruments convertible into or exchangeable for, any equity
interests in the Company or any of the Subsidiaries, or any contract,
commitment, agreement, understanding or arrangement of any kind to which the
Company or any of the Subsidiaries is a party relating to the issuance of any
equity interests of the Company or of any such Subsidiary, any such convertible
or exchangeable securities or any such rights, warrants or options.
(f) Each of the subsidiaries of the Company (the "Subsidiaries") that is a
corporation has been duly incorporated and is validly existing as a corporation
under the laws of its jurisdiction of incorporation, with corporate power and
authority to own and lease its properties and conduct its business as described
in the Offering Memorandum, and has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, other than where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
Each Subsidiary that is a limited partnership has been duly formed and is
validly existing as a limited partnership in good standing under the laws of the
state of its organization, with partnership power and authority to own and lease
its properties and conduct its business as described in the Offering Memorandum,
and has been duly qualified as a foreign limited partnership for the transaction
of business and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business, so as to require
such qualification, other than where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. All of the issued equity
interests of each Subsidiary have been duly
<PAGE>
6
authorized and validly issued and, as to shares of capital stock of any
Subsidiary that is a corporation, are fully paid and non-assessable, and (except
as otherwise set forth in the Offering Memorandum) will be owned, as of the
Closing Date, by the Company, directly or indirectly, free and clear of all
material liens, encumbrances, security interests or claims, except for the
pledge of such stock pursuant to the Senior Credit Facility (as defined in the
Offering Memorandum) as described in the Offering Memorandum.
(g) The general partner of the Company is FrontierVision Partners, L.P., a
Delaware limited partnership (the "General Partner"), which has been duly
organized and is validly existing as a limited partnership in good standing
under the laws of the State of Delaware with full partnership power and
authority to own its properties and to conduct its business as described in the
Offering Memorandum, and has been duly qualified as a foreign limited
partnership for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases property or conducts
any business so as to require such qualification other than where the failure to
be so qualified or in good standing would not reasonably be expected to have a
Material Adverse Effect.
(h) The general partner of the General Partner is FVP GP, L.P., a Delaware
limited partnership ("FVPGP"), which has been duly organized and is validly
existing as a limited partnership in good standing under the laws of the State
of Delaware with full partnership power and authority to own its properties and
to conduct its business as described in the Offering Memorandum, and has been
duly qualified as a foreign limited partnership for the transaction of business
and is in good standing under the laws of each other jurisdiction in which it
owns or leases property or conducts any business so as to require such
qualification other than where the failure to be so qualified or in good
standing would not reasonably be expected to have a Material Adverse Effect.
(i) The general partner of FVPGP is FrontierVision Inc., a Delaware
corporation ("FV Inc."), which has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own its properties and to
conduct its business as described in the Offering Memorandum, and has been duly
qualified as a for-
<PAGE>
7
eign corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases property or
conducts any business so as to require such qualification other than (i) the
State of Tennessee, where FV Inc. is processing the necessary application for
reinstatement to be qualified to do business or (ii) where the failure to be so
qualified or in good standing would not reasonably be expected to have a
Material Adverse Effect.
(j) This Agreement has been duly authorized, executed and delivered by the
Issuers.
(k) The Registration Rights Agreement has been duly authorized, executed
and delivered by the Issuers and constitutes a valid and legally binding
agreement of the Issuers, enforceable in accordance with its terms except (a)
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium (whether general or specific), fraudulent conveyance
or similar laws relating to or affecting the enforcement of creditors' rights
generally, (b) the enforceability thereof may be subject to the application of
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (c) no representation is made herein
concerning the enforceability of (i) waivers of notice or of any other
constitutional, statutory or common law rights, including, without limitation,
waiver of stay, extension or usury laws, (ii) indemnification provisions to the
extent such provisions are deemed to violate public policy or federal or state
securities laws, and (iii) submissions to the personal jurisdiction of any
particular court.
(l) The Securities and the Exchange Securities (as defined in the
Registration Rights Agreement) have been duly authorized by each of the Issuers,
and, when issued and delivered pursuant to this Agreement or the Registration
Rights Agreement, as the case may be, and duly authenticated by the Trustee,
will have been duly executed, authenticated, issued and delivered and will
constitute valid and binding obligations of each of the Issuers, entitled to the
benefits provided by the Indenture, except (a) the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium (whether general
or specific), fraudulent conveyance or similar laws relating to or affecting the
enforcement of creditors' rights generally, (b) the enforceability
<PAGE>
8
thereof may be subject to the application of general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law) and (c) no representation is made herein concerning the enforceability of
(i) waivers of notice or of any other constitutional, statutory or common law
rights, including, without limitation, waiver of stay, extension or usury laws,
(ii) indemnification provisions to the extent such provisions are deemed to
violate public policy or federal or state securities laws, and (iii) submissions
to the personal jurisdiction of any particular court; the Indenture has been
duly authorized by each of the Issuers and, when executed and delivered by the
Issuers and the Trustee (assuming due authorization, execution and delivery by
the Trustee), the Indenture will constitute a valid and binding instrument; and
the Securities and the Indenture will conform in all material respects to the
descriptions thereof in the Offering Memorandum.
(m) Neither the Company nor any of the Subsidiaries is, or with the giving
of notice or lapse of time or both would be, in violation of or in default under
its respective Certificate of Limited Partnership, Limited Partnership
Agreement, Certificate of Incorporation or By-Laws (each an "Organizational
Document"), as the case may be, or any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which any of them is a party or by
which any of them or any of their respective properties is bound, except for
violations and defaults which would not reasonably be expected to have a
Material Adverse Effect; the issue and sale of the Securities and the
performance by each of the Issuers of all of its obligations under the Offering
Agreements and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default (including any default resulting after
notice or lapse of time or both) under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any of
the Subsidiaries is a party or by which any of them is bound or to which any of
the property or assets of any of them is subject, nor will any such action
result in any violation of the provisions of any of their respective
Organizational Documents or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
any of them or any of their respective properties, including, without
limitation, any law, statute, rule or regula-
<PAGE>
9
tion or any judgment, decree or order applicable to the cable television
industry in general, except for conflicts, breaches, defaults and violations
which would not reasonably be expected to have a Material Adverse Effect; and no
consent, approval, authorization, order, license, registration or qualification
of or with any such court or governmental agency or body, including, without
limitation, under the Communications Act of 1934, as amended (the
"Communications Act"), the Cable Communications Policy Act of 1984 (the "1984
Cable Act"), the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"), the Telecommunications Act of 1996 (the "1996
Telecom Act" and, together with the 1984 Cable Act and the 1992 Cable Act, the
"Cable Acts") or any order, rule or regulation of the Federal Communications
Commission ("FCC"), is required for the issue and sale of the Securities, the
execution and delivery by each of the Issuers of, and the performance by each of
the Issuers of its obligations under, the Offering Agreements or the
consummation by each of the Issuers of the transactions contemplated by the
Offering Agreements, except (i) such consents, approvals, authorizations,
orders, licenses, registrations or qualifications as have been obtained and are
in full force and effect under the Communications Act, the Cable Acts or any
order, rule or regulation of the FCC and such as may be required under state
securities or Blue Sky laws in connection with the purchase and resale of the
Securities by the Initial Purchasers, (ii) in the case of performance of the
Registration Rights Agreement, such as may be required under the Securities Act
and the Trust Indenture Act or (iii) where the failure to obtain such consents,
approvals, authorizations, orders, licenses, registrations or qualifications
would not reasonably be expected to have a Material Adverse Effect.
(n) Other than as set forth or contemplated in the Offering Memorandum
(including those matters referred to therein relating to general rulemakings and
similar matters relating generally to the cable television industry, in each
case on a national, regional, state or county basis), there are no legal or
governmental investigations, actions, suits or proceedings pending or, to the
best knowledge of each of the Issuers, threatened against or affecting the
Company or any of the Subsidiaries or any of their respective properties or to
which the Company or any of the Subsidiaries is or may be a party or to which
any property of the Company or any of the Subsidiaries is or may be subject
which, if determined adversely to the Co-
<PAGE>
10
mpany or any of the Subsidiaries, would individually or in the aggregate have,
or would reasonably be expected to have, a Material Adverse Effect, and, to the
best of each of the Issuers' knowledge, no such proceedings are threatened by
governmental authorities or by others; and there are no statutes, regulations,
contracts or other documents that would be required to be described in a
registration statement or prospectus filed with the Commission with respect to a
public offering of the Securities which are not described in the Offering
Memorandum.
(o) KPMG Peat Marwick LLP and Arthur Andersen LLP are each independent
public accountants as required by the Securities Act.
(p) Each of the Company and the Subsidiaries has good and marketable title
in fee simple to all material items of real property owned by it and good and
marketable title to all material items of personal property owned by it, in each
case free and clear of all liens, encumbrances and defects, except such as are
described or referred to in the Offering Memorandum or such liens, encumbrances
or defects as do not materially affect the value of such property and do not
interfere with the use made or proposed to be made of such property by the
Company or any of the Subsidiaries in such a manner as would reasonably be
expected to result in a Material Adverse Effect; and any real property and
buildings held under lease by the Company or any of the Subsidiaries are held by
the Company or such Subsidiary under valid, existing and enforceable leases with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company or any of the
Subsidiaries in such a manner as would reasonably be expected to result in a
Material Adverse Effect.
(q) No relationship, direct or indirect, exists between or among the
Company or any of the Subsidiaries, on the one hand, and the directors,
officers, stockholders, holders of units of partnership interest, customers or
suppliers of the Company or any of the Subsidiaries, on the other hand, which
would be required by the Securities Act to be described in a registration
statement or prospectus filed with the Commission with respect to a public
offering of the Securities which is not described in the Offering Memorandum.
<PAGE>
11
(r) Neither of the Issuers is nor, after giving effect to the offering and
sale of the Securities, will be an "investment company" or entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act").
(s) The documents incorporated by reference in the Offering Memorandum,
when they were filed with the Commission, conformed in all material respects to
the requirements of the Exchange Act, and none of such documents contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(t) Each of the Company and the Subsidiaries owns or possesses, or can
acquire on reasonable terms, adequate licenses, trademarks, service marks, trade
names, copyrights and know-how (including trade secrets and other proprietary or
confidential information, systems or procedures) (collectively, "intellectual
property") necessary to conduct the business of the Existing Systems (as such
term is defined in the Offering Memorandum) now or proposed to be operated by it
as described in the Offering Memorandum, except where the failure to own,
possess or have the ability to acquire any such intellectual property would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect; and, except as disclosed in the Offering Memorandum, neither the
Company nor any of the Subsidiaries has received any notice of infringement of
or conflict with (and neither knows of any such infringement of or conflict
with) asserted rights of others with respect to any of such intellectual
property which, if any such assertions of infringement or conflict were
sustained, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect.
(u) Each of the Company and the Subsidiaries owns, possesses or has
obtained, or can acquire on reasonable terms, all franchises, licenses, permits,
certificates, consents, orders, approvals and other authorizations
(collectively, "Permits") from, and has made all declarations and filings
(collectively, "Filings") with, all federal, state, local and other governmental
authorities including the FCC, and all courts and other tribunals (collectively,
the "Governmental Authorities") required to own or lease, as the case may be,
and to operate the Ex-
<PAGE>
12
isting Systems and to carry on the business of the Existing Systems in the
manner and to the full extent now operated or proposed to be operated as
described in the Offering Memorandum, except where the failure to obtain such
Permits or make such Filings, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect; such Permits contain
no materially burdensome restrictions not customarily imposed by Governmental
Authorities on cable television systems of the same class and type as those
owned by the Company and the Subsidiaries other than such as would not have a
Material Adverse Effect; the execution and delivery by each of the Issuers of,
and the performance by each of the Issuers of its obligations under, the
Offering Agreements, the consummation of the transactions contemplated hereby
and thereby, and the operation of the Existing Systems in the manner and to the
full extent now operated or proposed to be operated as described in the Offering
Memorandum, did not or will not result in a violation of the Communications Act,
the Cable Acts or any order, rule or regulation of the FCC or any other
Governmental Authority except for violations that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect;
the business and operations of the Company and the Subsidiaries comply in all
respects with the Communications Act, the Cable Acts and all published orders,
rules and regulations of the FCC except for any such non-compliance as would not
reasonably be expected to have a Material Adverse Effect, and to the best of
each of the Issuers' knowledge, no event has occurred which permits, or with
notice or lapse of time or both would permit, the revocation or non-renewal of
any Permits or Filings, or which might result in any other material impairment
of the rights of the Company or any of the Subsidiaries in the Permits except
for any such revocation, non-renewal or impairment which would not reasonably be
expected to have a Material Adverse Effect; and, other than matters described in
the Offering Memorandum and except as to any other matters relating generally to
the cable television industry (in each case on a national, regional, state or
county basis), there is no proceeding pending or, to each of the Issuers' best
knowledge, threatened before the FCC or any other Governmental Authority that
has or would be reasonably expected to have a Material Adverse Effect; and each
of the Company and the Subsidiaries is in compliance with all laws and
regulations relating to the conduct of its business as conducted as of the date
hereof, except for
<PAGE>
13
any such non-compliance as would not reasonably be expected to have a Material
Adverse Effect.
(v) The statistical and market-related data included or incorporated by
reference in the Offering Memorandum are based on or derived from sources which
the Issuers believe to be reliable and accurate.
(w) To the best knowledge of each of the Issuers, there are no existing or
threatened labor disputes with the employees of the Company or any of the
Subsidiaries which are reasonably likely to have a Material Adverse Effect.
(x) Each of the Company and the Subsidiaries (i) is in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
respective businesses and (iii) is in compliance with all terms and conditions
of any such permit, license or approval, except where such non-compliance with
Environmental Laws or failure to receive required permits, licenses or other
approvals would not, singly or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
(y) Each employee benefit plan, within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is
maintained, administered or contributed to by the Company or any of the
Subsidiaries or any of their affiliates for employees or former employees of the
Company or any of the Subsidiaries and their affiliates has been maintained in
compliance in all material respects with its terms and the requirements of any
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Internal Revenue Code of 1986, as amended (the "Code"); no
prohibited transaction, within the meaning of Section 406 of ERISA or Section
4975 of the Code, has occurred with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative exemption; and
for each such plan which is subject to the funding rules of Section 412 of the
Code or Section 302 of ERISA no "accumulated funding deficiency" as defined in
Section 412 of the Code has been incurred, whether or not waived, and the
present
<PAGE>
14
value of all benefits accrued under such plan determined using reasonable
actuarial assumptions does not materially exceed the fair market value of the
assets of such plan (excluding for these purposes accrued but unpaid
contributions).
(z) [Intentionally Omitted]
(aa) Neither of the Issuers and, to the knowledge of the Issuers, no
affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act
("Regulation D")) (other than an Initial Purchaser) thereof has directly, or
through any agent, sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any security (as defined in the Securities Act) which
is or will be integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the offering contemplated
by the Offering Memorandum.
(bb) Neither of the Issuers and, to the knowledge of the Issuers, no person
acting on behalf of either of them has offered or sold the Securities by means
of any general solicitation or general advertising within the meaning of Rule
502(c) under the Securities Act or, with respect to Securities sold outside the
United States to non-U.S. persons (as defined in Rule 902 under the Securities
Act), by means of any directed selling efforts within the meaning of Rule 902
under the Securities Act, and the Issuers and all persons acting on their behalf
have complied with and will implement the "offering restriction" within the
meaning of such Rule 902.
(cc) Assuming, and subject to, the accuracy of, and compliance with, the
representations and agreements of the Initial Purchasers made herein, including,
without limitation, pursuant to Annex I, it is not necessary in connection with
the offer, sale and delivery of the Securities in the manner contemplated by
this Agreement to register the Securities under the Securities Act or to qualify
an indenture under the Trust Indenture Act.
(dd) The Securities satisfy the requirements set forth in Rule 144A(d)(3)
under the Securities Act.
5. The Issuers, jointly and severally, covenant and agree with each of the
Initial Purchasers as follows:
<PAGE>
15
(a) before distributing any amendment or supplement to the Offering
Memorandum, to furnish to the Initial Purchasers a copy of the proposed
amendment or supplement for review and not to distribute any such proposed
amendment or supplement to which the Initial Purchasers reasonably object;
(b) if, at any time prior to the completion of the Offering (as defined in
the Offering Memorandum), any event shall occur as a result of which it is
necessary to amend or supplement the Offering Memorandum in order that the
Offering Memorandum does not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances when the Offering Memorandum is delivered to a
purchaser, not misleading, or if it is necessary to amend or supplement the
Offering Memorandum to comply with law, forthwith to prepare and furnish, at the
expense of the Company, to the Initial Purchasers and to the dealers (whose
names and addresses the Initial Purchasers will furnish to the Company) to which
Securities may have been sold by the Initial Purchasers and to any other dealers
upon request, such amendments or supplements to the Offering Memorandum as may
be necessary so that the Offering Memorandum as so amended or supplemented will
not contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances
when the Offering Memorandum is delivered to a purchaser, not misleading or so
that the Offering Memorandum will comply with law;
(c) the Issuers will cooperate with the Initial Purchasers and their
counsel in connection with the registration or qualification of the Securities
for offering and sale by the Initial Purchasers and by dealers under the
securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may
reasonably request and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall any Issuer be obligated to
qualify to do business as a foreign limited partnership or corporation, as the
case may be, or as a securities dealer in any jurisdiction where it is not now
so qualified or to take any action that would subject it to taxation or service
of process in suits, other than those specifically arising out of the offering
or sale of the Securities, in any jurisdiction where it is not now so subject;
<PAGE>
16
(d) for five years from the Closing Date, to furnish to the Initial
Purchasers copies of all reports or other communications (financial or other)
furnished to holders of Securities, and copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange;
(e) during the period beginning on the date hereof and continuing to and
including the Business Day following the Closing Date, not to offer, sell,
contract to sell, or otherwise dispose of any debt securities of or guaranteed
by the Company or any of the Subsidiaries which are substantially similar to the
Securities;
(f) to use the net proceeds received by the Company from the sale of the
Securities pursuant to this Agreement in the manner specified in the Offering
Memorandum under the caption "Use of Proceeds";
(g) to use their best efforts to cause such Securities to be eligible for
the PORTAL trading system ("PORTAL") of the National Association of Securities
Dealers, Inc.;
(h) during the period of two years after the Closing Date, the Company will
not, and will not permit any of its "affiliates" (as defined in Rule 144 under
the Securities Act) (other than any of the Initial Purchasers) to, resell any of
the Securities which constitute "restricted securities" under Rule 144 that have
been reacquired by any of them;
(i) whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of their obligations hereunder,
including without limiting the generality of the foregoing, all costs and
expenses (i) incident to the preparation, issuance, execution, authentication
and delivery of the Securities, including any expenses of the Trustee, (ii)
incident to the preparation, printing and distribution of the Offering
Memorandum (including all exhibits, amendments and supplements thereto), (iii)
incurred in connection with the registration or qualification and determination
of eligibility for investment of the Securities under the laws of such
jurisdictions as the Initial Purchasers may designate (including reasonable fees
of counsel for the Initial Purchasers and their dis-
<PAGE>
17
bursements), (iv) in connection with the listing of the Securities on any
securities exchange or inclusion of the Securities on PORTAL, (v) in connection
with the printing (including word processing and duplication costs) and delivery
of the Preliminary and Supplemental Blue Sky Memoranda and any Legal Investment
Survey and the furnishing to the Initial Purchasers and dealers of copies of the
Offering Memorandum (and any amendments and supplements thereto), including
mailing and shipping, as herein provided, (vi) payable to rating agencies in
connection with the rating of the Securities, and (vii) incurred by the Issuers
in connection with a "road show" presentation to potential investors; provided,
however, that except as provided in this Section 5 or otherwise provided in
Section 7 or 10 hereof, the Initial Purchasers will pay all of their own costs
and expenses, including, without limitation, the fees of their counsel;
(j) to take all reasonable action that is appropriate or necessary to
assure that offerings of other securities will not be integrated for purposes of
the Securities Act with the offering contemplated hereby;
(k) not to solicit any offer to buy or offer to sell Securities by means of
any form of general solicitation or general advertising within the meaning of
Rule 502(c) of Regulation D under the Securities Act;
(l) while the Securities remain outstanding and are "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act, to, during any
period in which they are not subject to Section 13 or 15(d) under the Exchange
Act, make available to the Initial Purchasers and any holder of Securities in
connection with any sale thereof and any prospective purchaser of Securities, in
each case upon request, the information specified in, and meeting the
requirements of, Rule 144A(d)(4) ("Rule 144A(d)(4) Information") under the
Securities Act (or any successor thereto); and
(m) not to take any action prohibited by Regulation M under the Exchange
Act in connection with the distribution of the Securities contemplated hereby.
6. The several obligations of the Initial Purchasers hereunder to purchase
the Securities on the Closing Date are subject to the performance by each of the
Issuers of its obligations hereunder and to the following additional conditions:
<PAGE>
18
(a) The representations and warranties of the Issuers contained herein
shall be true and correct, in all material respects, on and as of the Closing
Date as if made on and as of the Closing Date and the Issuers shall have
complied, in all material respects, with all agreements and all conditions on
their part to be performed or satisfied hereunder at or prior to the Closing
Date.
(b) Except as disclosed in the Offering Memorandum, subsequent to the
execution and delivery of this Agreement and prior to the Closing Date, there
shall not have occurred any downgrading, nor shall any notice have been given of
(i) any downgrading, (ii) any intended or potential downgrading or (iii) any
review or possible change that does not indicate an improvement, in the rating
accorded any securities of or guaranteed by the Company or any of the
Subsidiaries by any "nationally recognized statistical rating organization", as
such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(c) Since the respective dates as of which information is given in the
Offering Memorandum, there shall not have been any change in the equity
interests or long-term debt of the Company or any of the Subsidiaries or any
Material Adverse Change, or any development involving a Prospective Material
Adverse Change, otherwise than as set forth or contemplated in the Offering
Memorandum, the effect of which in the judgment of the Initial Purchasers makes
it impracticable or inadvisable to proceed with the offering or the delivery of
the Securities on the Closing Date on the terms and in the manner contemplated
in the Offering Memorandum.
(d) The Initial Purchasers shall have received on and as of the Closing
Date a certificate of two executive officers of each of the Issuers, with
specific knowledge about the Issuers' financial matters, reasonably satisfactory
to the Initial Purchasers to the effect set forth in subsections (a) through (c)
of this Section and to the further effect that there has not occurred any
Material Adverse Change, or any development involving a Prospective Material
Adverse Change.
(e) Dow, Lohnes & Albertson, PLLC, counsel for the Issuers, shall have
furnished to the Initial Purchasers their written opinion, dated the Closing
Date, in form and substance reasonably satisfactory to the Initial Purchasers,
to the effect that:
<PAGE>
19
(i) each of the Company and FrontierVision Operating Partners, L.P.
("Operating Partners") has been duly organized and is validly existing as a
limited partnership in good standing under the laws of the State of Delaware,
with partnership power and authority to own its properties and conduct its
business as described in the Offering Memorandum;
(ii) each of Capital, FrontierVision Capital Corporation and FrontierVision
Operating Partners Inc. has been duly incorporated and is validy existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own its properties and conduct its business as
described in the Offering Memorandum;
(iii) based solely on a review of certificates from the appropriate
governmental authorities in each jurisdiction listed below, Operating Partners
has been duly qualified as a foreign limited partnership for the transaction of
business and is in good standing under the laws of Colorado, Georgia, Indiana,
Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, North
Carolina, Ohio, Pennsylvania, Tennessee, Vermont, Virginia and West Virginia;
(iv) the General Partner has been duly organized and is validly existing as
a limited partnership in good standing under the laws of the State of Delaware
with full partnership power and authority to own its properties and to conduct
its business as described in the Offering Memorandum, and, based solely on a
review of certificates from the appropriate governmental authorities in such
jurisdictions, has been duly qualified as a foreign limited partnership for the
transaction of business and is in good standing under the laws of Colorado,
Georgia, Maine, Maryland, Massachusetts, Michigan, New Hampshire, North
Carolina, Ohio, Pennsylvania, Tennessee, Vermont, Virginia and West Virginia;
(v) FVPGP has been duly organized and is validly existing as a limited
partnership in good standing under the laws of the State of Delaware with full
partnership power and authority to own its properties and to conduct its
business as described in the Offering Memorandum, and, based solely on a review
of certificates from the appropriate governmental
<PAGE>
20
authorities in such jurisdictions, has been duly qualified as a foreign limited
partnership for the transaction of business and is in good standing under the
laws of Colorado, Georgia, Maine, Maryland, Massachusetts, Michigan, New
Hampshire, North Carolina, Ohio, Pennsylvania, Tennessee, Vermont, Virginia and
West Virginia;
(vi) FV Inc. has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware with full
corporate power and authority to own its properties and to conduct its business
as described in the Offering Memorandum, and, based solely on a review of
certificates from the appropriate governmental authorities in such
jurisdictions, has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of Colorado,
Georgia, Maine, Maryland, Michigan, New Hampshire, North Carolina, Ohio,
Pennsylvania, Vermont, Virginia and West Virginia; such counsel shall
additionally state that they have been informed that FV Inc. is processing the
necessary application for reinstatement to be qualified to do business in the
State of Tennessee;
(vii) to such counsel's knowledge, based solely upon its review of the
publicly available records of the FCC and upon inquiry of Operating Partners'
management, and only with respect to the period that the Existing Systems have
been owned by Operating Partners, other than as set forth or contemplated in the
Offering Memorandum (including those matters referred to therein relating to
general rulemakings and similar matters relating generally to the cable
television industry (in each case on a national, regional, state or county
basis)), there are no legal or governmental investigations, actions, suits or
proceedings pending or threatened against or affecting specifically the Company
or any of the Subsidiaries or any of their respective properties or to which the
Company or any of the Subsidiaries is or may be a party or to which any property
of the Company or any of the Subsidiaries is or may be subject which, if
determined adversely to the Company or any of the Subsidiaries, would
individually or in the aggregate have, or reasonably be expected to have, a
Material Adverse Effect;
<PAGE>
21
(viii) this Agreement and the Registration Rights Agreement have been duly
authorized, executed and delivered by each of the Issuers;
(ix) assuming due authorization, execution and delivery of the Indenture by
the Trustee, the Securities have been duly authorized, executed and delivered by
each of the Issuers and, when duly authenticated in accordance with the terms of
the Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will constitute valid and binding
obligations of each of the Issuers entitled to the benefits provided by the
Indenture, enforceable in accordance with the terms thereof except (a) the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium (whether general or specific), fraudulent conveyance or similar laws
relating to or affecting the enforcement of creditors' rights generally, (b) the
enforceability thereof may be subject to the application of general principles
of equity (regardless of whether enforcement is sought in a proceeding in equity
or at law) and (c) no opinion shall be expressed concerning the enforceability
of (i) waivers of notice or of any other constitutional, statutory or common law
rights, including, without limitation, waiver of stay, extension or usury laws,
(ii) indemnification provisions to the extent such provisions are deemed to
violate public policy or federal or state securities laws, and (iii) submission
to the personal jurisdiction of any particular court;
(x) the Indenture has been duly authorized, executed and delivered by each
of the Issuers and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding instrument of each of
the Issuers, enforceable against each of the Issuers in accordance with its
terms, except (a) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium (whether general or specific), fraudulent
conveyance or other similar laws relating to or affecting creditors' rights
generally, (b) the enforceability thereof may be subject to the application of
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (c) no opinion shall be expressed concerning
<PAGE>
22
the enforceability of (i) waivers of notice or of any other constitutional,
statutory or common law rights, including, without limitation, waiver of stay,
extension or usury laws, (ii) indemnification provisions to the extent such
provisions are deemed to violate public policy or federal or state securities
laws, and (iii) submission to the personal jurisdiction of any particular court;
(xi) the Securities, the Indenture and the Registration Rights Agreement
conform in all material respects to the descriptions thereof in the Offering
Memorandum under the caption "Description of the Notes";
(xii) the execution and delivery of the Offering Agreements, the issuance
and sale of the Securities and the performance by each of the Issuers of its
obligations under the Securities and the Offering Agreements and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default (including any default resulting after notice or lapse of
time or both) under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument that has been filed as an exhibit to any
registration statement or periodic or current report filed by the Company or any
of the Subsidiaries with the Commission, nor will any such action result in any
violation of the provisions of the Organizational Documents of the Company or
any of the Subsidiaries or the Communications Act, the Cable Acts, any rule or
regulation of the FCC or any other law or statute customarily applicable to
transactions of the type contemplated by the Offering Agreements or, to such
counsel's knowledge, any other applicable law or statute or, to such counsel's
knowledge, any order, rule or regulation of any court or governmental agency or
body having jurisdiction over any of them or any of their respective properties,
including, without limitation, any federal law, statute, rule or regulation, or
to such counsel's knowledge, any judgment, decree or order specifically and
primarily applicable to the cable television industry (as opposed to such items
generally applicable to other industries), except for conflicts, breaches,
defaults and violations which individually and in the aggregate
<PAGE>
23
would not reasonably be expected to have a Material Adverse Effect;
(xiii) no consent, approval, authorization, order, license, registration or
qualification of or with any court or governmental agency or body customarily
required for transactions of the type contemplated by the Offering Agreements,
including, without limitation, under the Communications Act, the Cable Acts or
any order, rule or regulation of the FCC, is required for the issuance and sale
of the Securities, the execution and delivery by each of the Issuers of, and the
performance by each of the Issuers of its obligations under, the Offering
Agreements or the consummation by each of the Issuers of the transactions
contemplated by the Offering Agreements, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications (i) as have
been obtained and are in full force and effect under the Communications Act, the
Cable Acts or any order, rule or regulation of the FCC and such as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Securities by the Initial Purchasers, (ii) in the case
of the performance of the Registration Rights Agreement, such as may be required
under the Securities Act or the Trust Indenture Act or (iii) that may be
required in the future due to the operations or actions of the Company or any of
the Subsidiaries, the cable systems of Operating Partners or affiliated parties;
(xiv) the statements in the Offering Memorandum under the captions "Risk
Factors Regulation in the Cable Television Industry" and in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 under the caption
"Legislation and Regulation," insofar as such statements summarize applicable
provisions of the Communications Act, the Cable Acts and the published orders,
rules and regulations of the FCC promulgated thereunder, are accurate
summarizies in all material respects of the provisions purported to be
summarized under such captions in the Offering Memorandum, and the FCC statutes
and regulations summarized under such captions are the FCC statutes and
regulations that are material to the business of the Company and the
Subsidiaries as described in the Offering Memorandum;
<PAGE>
24
(xv) neither of the Issuers is nor, after giving effect to the offering and
sale of the Securities, will be an "investment company" or entity "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act;
(xvi) the statements made in the Offering Memorandum under the caption
"Certain United States Federal Income Tax Considerations," insofar as they
purport to constitute summaries of matters of United States federal tax law and
regulations or legal conclusions with respect thereto, constitute accurate
summaries of the matters described therein in all material respects;
(xvii) no registration under the Securities Act of the Securities is
required in connection with the sale of the Securities to the Initial Purchasers
as contemplated by this Agreement and the Offering Memorandum or in connection
with the initial resale of the Securities by the Initial Purchasers in
accordance with Section 2 (including Annex I) of this Agreement, and prior to
the commencement of the Exchange Offer (as defined in the Registration Rights
Agreement) or the effectiveness of the Shelf Registration Statement (as defined
in the Registration Rights Agreement), the Indenture is not required to be
qualified under the Trust Indenture Act, in each case (i) assuming that the
purchasers who buy the Securities in the initial resales are Qualified
Institutional Buyers or non-U.S. Persons (as defined in Rule 902 under the
Securities Act), and (ii) assuming, and subject to, the accuracy of, and
compliance with, the Initial Purchasers' representations and agreements and
those of the Issuers contained in this Agreement (including, without limitation,
pursuant to Annex I) regarding the absence of a general solicitation in
connection with the sale of the Securities to the Initial Purchasers and the
initial resales thereof (it being understood that no opinion is expressed as to
any subsequent resale of any of the Securities); and
(xviii) nothing has come to such counsel's attention to lead such counsel
to believe that (except for the financial statements and other financial
information and statistical data included therein as to which such counsel need
express no belief) neither
<PAGE>
25
the Offering Memorandum nor any amendment or supplement thereto made by the
Issuers prior to the Closing Date contained as of its date or contains as of the
Closing Date any untrue statement of a material fact or omitted as of its date
or omits as of the Closing Date to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinions, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Issuers and certificates or other written statements of public officials.
With respect to the matters to be covered in subparagraph (xviii) above, such
counsel's opinion may state that their opinion and belief expressed therein is
based upon their participation in conferences with officers and other
representatives of the Issuers, representatives of the independent certified
public accountants of the Issuers, and representatives and counsel of the
Initial Purchasers, at which conferences the contents of the Offering Memorandum
and related matters were discussed and that such counsel is not passing upon and
does not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Offering Memorandum and has not made an
independent investigation, check or verification of facts for the purpose of
rendering their opinion.
The opinion of Dow, Lohnes & Albertson, PLLC described above shall be
rendered to the Initial Purchasers at the request of the Issuers and shall so
state therein.
(f) The Initial Purchasers shall have received on and as of the Closing
Date an opinion of Cahill Gordon & Reindel, counsel to the Initial Purchasers,
with respect to such matters as the Initial Purchasers may reasonably request,
and such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters.
(g) On or prior to the Closing Date, each of KPMG Peat Marwick (Denver) and
Arthur Andersen LLP (Boston) shall have furnished to the Initial Purchasers
letters, dated the date of delivery thereof, in form and substance satisfactory
to the Initial Purchasers, containing statements and information of the type
customarily included in
<PAGE>
26
accountants' "comfort letters" with respect to the financial statements and
certain financial information contained in the Offering Memorandum.
(h) The Issuers shall have executed and delivered the Registration Rights
Agreement.
(i) On the Closing Date, the Senior Credit Facility (as defined in the
Offering Memorandum) shall be in full force and effect with respect to Operating
Partners on the terms described in the Offering Memorandum and no breach or
violation of any of the material terms or provisions thereof or Event of Default
(as defined in the Senior Credit Facility) (or an event which, with notice or
lapse of time or both, would constitute an Event of Default) thereunder shall
exist.
(j) On or prior to the Closing Date, the Issuers shall have furnished to
the Initial Purchasers such further certificates and documents as the Initial
Purchasers shall reasonably request.
7. The Issuers, jointly and severally, agree to indemnify and hold harmless
each Initial Purchaser, and each person, if any, that controls any Initial
Purchaser within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the reasonable legal
fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Memorandum or any
amendment or supplement thereto, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Initial Purchaser furnished to the Issuers in
writing by such Initial Purchaser expressly for use therein; provided, however,
that neither of the Issuers shall be liable to the Initial Purchasers or any
other person affiliated or associated therewith under the indemnification
provided for in this Section 7 to the extent that any such loss, claim, damage
or liability of such Initial Purchaser or other person results from the fact
that such Initial Purchaser sold Securities to a person or entity as to whom it
shall be established that there was not sent or
<PAGE>
27
given, at or prior to the written confirmation of such sale, a copy of the
Offering Memorandum or of the Offering Memorandum as then amended or
supplemented if the Company has previously furnished copies thereof in
sufficient quantity to the Initial Purchasers, and the Offering Memorandum or
the Offering Memorandum as then amended or supplemented would have cured the
defect giving rise to such loss, claim, damage or liability.
Each Initial Purchaser agrees, severally and not jointly, to indemnify and
hold harmless each of the Issuers, its directors and executive officers and each
person that controls either of the Issuers within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Issuers to each Initial Purchaser, but only with
reference to information relating to such Initial Purchaser furnished to the
Issuers in writing by such Initial Purchaser expressly for use in the
Preliminary Offering Memorandum, the Offering Memorandum or any amendment or
supplement thereto.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses of such counsel related to such proceeding. In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person
has failed within a reasonable time to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person and the
Indemnified Person and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indem-
<PAGE>
28
nified Persons, and that all such fees and expenses shall be reimbursed as they
are incurred. Any such separate firm for the Initial Purchasers and such control
persons of Initial Purchasers shall be designated in writing by J.P. Morgan
Securities Inc. and any such separate firm for the Issuers, their directors,
their respective executive officers and such control persons of either of the
Issuers shall be designated in writing by the Company. The Indemnifying Person
shall not be liable for any settlement of any proceeding effected without its
written consent (not to be unreasonably withheld or delayed), but if settled
with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Person agrees to indemnify any Indemnified Person from and against
any loss or liability by reason of such settlement or judgment to the extent
provided in this Section 7. Notwithstanding the foregoing sentence, if at any
time an Indemnified Person shall have requested an Indemnifying Person to
reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the third sentence of this paragraph, the Indemnifying Person
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such Indemnifying Person of the aforesaid request and (ii)
such Indemnifying Person shall not have reimbursed Indemnified Person in
accordance with said third sentence prior to the date of such settlement to the
extent it considers such request to be reasonable or provided written notice to
the Indemnified Person to substantiate the non-payment of the unpaid balance as
reasonable. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person (not to be unreasonably withheld or delayed), effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement includes an
unconditional written release, in form and substance reasonably satisfactory to
such Indemnified Person, of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs of
this Section 7 is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraph, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Is-
<PAGE>
29
suers on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Issuers on the one hand and the Initial
Purchasers on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Issuers
on the one hand and the Initial Purchasers on the other hand shall be deemed to
be in the same respective proportions as the net proceeds from the offering
(before deducting expenses but after deducting the discount to the Initial
Purchasers) received by the Issuers and the total discounts and commissions
received by the Initial Purchasers, in each case as set forth in the table on
the cover of the Offering Memorandum, bear to the aggregate offering price of
the Securities. The relative fault of the Issuers on the one hand and the
Initial Purchasers on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuers or by the Initial Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Issuers and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Initial Purchasers were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses incurred by such Indemnified
Person in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an Initial
Purchaser be required to contribute any amount in excess of the amount by which
the total price at which the Securities purchased by it were offered in
connection with the initial resale of the Securities exceeds the amount of any
damages that such Initial Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresenta-
<PAGE>
30
tion (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant to
this Section 7 are several in proportion to the respective principal amount at
maturity of Securities set forth opposite their names in Schedule I hereto, and
not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Issuers set forth in this Agreement
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Initial Purchaser or any person controlling any Initial Purchaser or by or
on behalf of the Issuers, such Issuers' respective officers or directors or any
other person controlling either of the Issuers and (iii) acceptance of and
payment for any of the Securities.
8. Notwithstanding anything herein contained, this Agreement may be
terminated in the absolute discretion of the Initial Purchasers, by notice given
to the Issuers, if after the execution and delivery of this Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange or the National Association of Securities
Dealers, Inc., (ii) trading of any securities of or guaranteed by the Company or
any of the Subsidiaries shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities, or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in the judgment of the Initial Purchasers, is material and adverse and
which, in the judgment of the Initial Purchasers, makes it impracticable to
market the Securities on the terms and in the manner contemplated in the
Offering Memorandum.
9. This Agreement shall become effective upon the execution and delivery
hereof by the parties hereto.
<PAGE>
31
If on the Closing Date, any one or more of the Initial Purchasers shall
fail or refuse to purchase Securities which it or they have agreed to purchase
hereunder, and the aggregate principal amount at maturity of Securities which
such defaulting Initial Purchaser or Initial Purchasers agreed but failed or
refused to purchase is not more than one-tenth of the aggregate principal amount
at maturity of Securities to be purchased on such date, the other Initial
Purchasers shall be obligated severally in the proportions that the principal
amount at maturity of Securities set forth opposite their respective names in
Schedule I bears to the aggregate principal amount at maturity of Securities set
forth opposite the names of all such non-defaulting Initial Purchasers, or in
such other proportions as the Initial Purchasers may specify, to purchase the
Securities which such defaulting Initial Purchaser or Initial Purchasers agreed
but failed or refused to purchase on such date; provided, however, that in no
event shall the principal amount at maturity of Securities that any Initial
Purchaser has agreed to purchase pursuant to Section 1 be increased pursuant to
this Section 9 by an amount in excess of one-ninth of such principal amount at
maturity of Securities without the written consent of such Initial Purchaser. If
on the Closing Date, any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase Securities which it or they have agreed to purchase
hereunder, and the aggregate principal amount at maturity of Securities with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount at maturity of Securities to be purchased, and arrangements
satisfactory to the Initial Purchasers and the Issuers for the purchase of such
Securities are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Initial Purchaser
or the Issuers. In any such case either the Initial Purchasers or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Offering
Memorandum or in any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of such Initial Purchaser under this
Agreement or the offering contemplated hereunder.
10. If this Agreement shall be terminated by the Initial Purchasers, or any
of them, because of any failure or refusal on the part of either of the Issuers
to comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason either of the Issuers shall be unable to perform its
obligations under this Agreement or any condition of
<PAGE>
32
the Initial Purchasers' obligations cannot be fulfilled, the Issuers agree to
reimburse the Initial Purchasers or such Initial Purchasers as have so
terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the reasonable fees and expenses of their
counsel) reasonably incurred by such Initial Purchasers in connection with this
Agreement or the offering contemplated hereunder, but the Issuers shall then be
under no further liability to the Initial Purchasers except as provided in
Section 5(i) and Section 7 hereof.
11. This Agreement shall inure to the benefit of and be binding upon the
Issuers, the Initial Purchasers, any controlling persons referred to herein and
their respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person, firm or
corporation any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained. No purchaser of Securities
from any Initial Purchaser shall be deemed to be a successor by reason merely of
such purchase.
12. Any action by the Initial Purchasers hereunder may be taken by J.P.
Morgan Securities Inc. alone on behalf of the Initial Purchasers, and any such
action taken by J.P. Morgan Securities Inc. alone shall be binding upon the
Initial Purchasers. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the Initial Purchasers shall
be given to the Initial Purchasers c/o J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York 10260 (telecopy: 212/648-5121 or 212/648-5951);
Attention: Syndicate Department. Notices to the Issuers shall be given at c/o
FrontierVision Holdings, L.P., 1777 South Harrison Street, Suite P-200, Denver,
CO 80210 (telecopy: (303) 757-6105); Attention: John S. Koo, Senior Vice
President and Chief Financial Officer.
13. This Agreement may be signed in counterparts, each of which shall be an
original and all of which together shall constitute one and the same instrument.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.
<PAGE>
33
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P., its general partner
By: FVP GP, L.P., its general partner
By: FrontierVision Inc., its general partner
By:
Title:
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
By:
Title:
Accepted: December 2, 1998
J.P. Morgan Securities Inc.
Chase Securities Inc.
By: J.P. Morgan Securities Inc.
By:
Title:
<PAGE>
ANNEX I
(A) The Securities have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except in accordance with Regulation
S under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Each Initial Purchaser represents that it
has offered and sold the Securities and will offer and sell the Securities (i)
as part of their distribution at any time and (ii) otherwise until 40 days after
the later of the commencement of the offering and the Closing Date, only in
accordance with Rule 903 of Regulation S, Rule 144A or pursuant to paragraph B
of this Annex under the Securities Act. Accordingly, each Initial Purchaser
agrees that neither it, its affiliates nor any persons acting on its or their
behalf has engaged or will engage in any directed selling efforts with respect
to the Securities and it and they have complied and will comply with the
offering restrictions requirement of Regulation S. Each Initial Purchaser agrees
that, at or prior to confirmation of sale of Securities (other than a sale
pursuant to Rule 144A or paragraph B of this Annex), it will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Securities from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered and sold
within the United States or to, or for the account or benefit of, U.S. persons
(i) as part of their distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the closing date, except
in either case in accordance with Regulation S (or Rule 144A if available) under
the Securities Act. Terms used above have the meaning given to them by
Regulation S."
Terms used in this paragraph have the meanings given to them by Regulation S.
Each Initial Purchaser further agrees that it has not entered and will not
enter into any contractual arrangement with respect to the distribution or
delivery of the Securities, except with its affiliates or with the prior written
consent of the Company.
(B) Notwithstanding the foregoing, Securities in registered form may be
offered, sold and delivered by the In-
<PAGE>
itial Purchasers in the United States and to U.S. persons pursuant to Section 2
of this Agreement without delivery of the written statement required by
paragraph (A) above.
(C) Each Initial Purchaser further represents and agrees that (i) it has
not offered or sold, and will not offer or sell, in the United Kingdom by means
of any document, any Securities other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or which it is reasonable
to expect will so do, or in circumstances which do not otherwise constitute an
offer to the public within the meaning of the Public Offers of Securities
Regulations 1995 of Great Britain, (ii) it has complied, and will comply, with
all applicable provisions of the Financial Services Act 1986 and any regulation
promulgated thereunder of Great Britain with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom,
and (iii) it has only issued or passed on, and will only issue or pass on, in
the United Kingdom, any document received by it in connection with the issuance
of the Securities to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
of Great Britain or is a person to whom the document may otherwise lawfully be
issued or passed on.
(D) Each Initial Purchaser agrees that it will not offer, sell or deliver
any of the Securities in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Securities in such jurisdictions. Each Initial
Purchaser understands that no action has been taken to permit a public offering
in any jurisdiction outside the United States where action would be required for
such purposes. Each Initial Purchaser agrees not to cause any advertisement of
the Securities to be published in any newspaper or periodical or posted in any
public place and not to issue any circular relating to the Securities.
2
<PAGE>
SCHEDULE I
Principal Amount
at Maturity of
Securities to Be
Initial Purchaser Purchased
J.P. Morgan Securities Inc.....................................$60,865,000
Chase Securities Inc...........................................$30,433,000
Total.....................................................$91,298,000
REGISTRATION RIGHTS AGREEMENT
Dated as of December 9, 1998
among
FRONTIERVISION HOLDINGS, L.P.,
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
and
J.P. MORGAN SECURITIES INC.
and
CHASE SECURITIES INC.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
December 9, 1998, by and among FRONTIERVISION HOLDINGS, L.P., a Delaware limited
partnership (the "Company"), FRONTIERVISION HOLDINGS CAPITAL II CORPORATION, a
Delaware corporation ("Capital," and together with the Company, the "Issuers"),
and J.P. MORGAN SECURITIES INC. and CHASE SECURITIES INC. (collectively, the
"Initial Purchasers").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of December 2, 1998, between the Issuers and the Initial Purchasers
(the "Purchase Agreement") relating to the sale by the Issuers to the Initial
Purchasers, severally, of $91,298,000 aggregate principal amount at maturity of
their 11 7/8% Senior Discount Notes due 2007, Series B (the "Securities"). In
order to induce the Initial Purchasers to enter into the Purchase Agreement, the
Issuers have agreed to provide the registration rights set forth in this
Agreement for the equal benefit of the Initial Purchasers and their direct and
indirect transferees. The execution and delivery of this Agreement is a
condition to the Initial Purchasers' obligation to purchase the Securities under
the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Additional Interest: See Section 4.
Advice: See Section 5.
Applicable Period: See Section 2(b).
Capital: See the introductory paragraph to this Agreement.
Company: See the introductory paragraph to this Agreement.
Consummation Date: The 240th day after the Issue Date.
Effectiveness Date: The 210th day after the Issue Date.
<PAGE>
2
Effectiveness Period: See Section 3(a).
Event Date: See Section 4(b).
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Offer: See Section 2(a).
Exchange Registration Statement: See Section 2(a).
Exchange Securities: See Section 2(a).
Filing Date: The 120th day after the Issue Date.
First Union: See Section 11.
Holder: Any record holder of Registrable Securities.
Indemnified Person: See Section 7.
Indemnifying Person: See Section 7.
Indenture: The Indenture, dated as of December 9, 1998, between the Issuers
and U.S. Bank National Association, as trustee, pursuant to which the Securities
are being issued, as amended or supplemented from time to time in accordance
with the terms thereof.
Initial Purchasers: See the introductory paragraph to this Agreement.
Initial Shelf Registration: See Section 3(a).
Inspectors: See Section 5(p).
Issue Date: The date of original issuance of the Securities.
Issuers: See the introductory paragraph to this Agreement.
JPMS: See Section 11.
NASD: See Section 5(t).
Participant: See Section 7.
<PAGE>
3
Participating Broker-Dealer: See Section 2(b).
Person: An individual, corporation, limited or general partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Private Exchange: See Section 2(b).
Private Exchange Securities: See Section 2(b).
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Records: See Section 5(p).
Registrable Securities: The Securities upon original issuance of the
Securities and at all times subsequent thereto, each Exchange Security as to
which Section 2(c)(1)(i) hereof is applicable upon original issuance and at all
times subsequent thereto and, if issued, the Private Exchange Securities, until
in the case of any such Securities, Exchange Securities or Private Exchange
Securities, as the case may be, (i) a Registration Statement (other than, with
respect to any Exchange Security as to which Section 2(c)(1)(i) hereof is
applicable, the Exchange Registration Statement) covering such Securities,
Exchange Securities or Private Exchange Securities has been declared effective
by the SEC and such Securities, Exchange Securities or Private Exchange
Securities, as the case may be, have been disposed of in accordance with such
effective Registration Statement, (ii) such Securities, Exchange Securities or
Private Exchange Securities, as the case may be, are sold in compliance with
Rule 144 or would be permitted to be sold pursuant to Rule 144(k), or (iii) such
Securities, Exchange Securities or Private Exchange Securities, as the case may
be, cease to be outstanding.
<PAGE>
4
Registration Statement: Any registration statement of the Issuers,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities: See the preamble to this Agreement.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
Shelf Registration: See Section 3(b).
Subsequent Shelf Registration: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee as defined in the Indenture and, if existent, the
trustee under any indenture governing the Exchange Securities and Private
Exchange Securities (if any).
<PAGE>
5
Underwritten registration or underwritten offering: A registration in which
securities of the Issuers are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
(a) The Issuers agree to file with the SEC as soon as practicable after the
Issue Date, but in no event later than the Filing Date, an offer to exchange
(the "Exchange Offer") any and all of the Registrable Securities for a like
aggregate principal amount at maturity of debt securities of the Issuers which
are identical in all material respects to the Securities (the "Exchange
Securities") (and which are entitled to the benefits of the Indenture or a trust
indenture which is identical in all material respects to the Indenture (other
than such changes as are necessary to comply with any requirements of the SEC to
effect or maintain the qualification of such trust indenture under the TIA) and
which has been qualified under the TIA), except that the Exchange Securities
shall have been registered pursuant to an effective Registration Statement under
the Securities Act and shall contain no legend thereon with respect to
restrictions on transfer pursuant to the Securities Act. The Issuers agree to
use their reasonable best efforts to keep the Exchange Offer open for at least
20 business days (or longer if required by applicable law) after the date notice
of the Exchange Offer is mailed to Holders and to consummate the Exchange Offer
on or prior to the Consummation Date. The Exchange Offer will be registered
under the Securities Act on the appropriate form (the "Exchange Registration
Statement") and will comply with all applicable tender offer rules and
regulations under the Exchange Act. If after such Exchange Registration
Statement is initially declared effective by the SEC and prior to the
consummation of the Exchange Offer, the Exchange Offer or the issuance of the
Exchange Securities thereunder is interfered with by any stop order, injunction
or other order or requirement of the SEC or any other governmental agency or
court such Exchange Registration Statement shall be deemed not to have become
effective for purposes of this Agreement. Each Holder who participates in the
Exchange Offer will be deemed to represent that any Exchange Securities received
by it will be acquired in the ordinary course of its business, that at the time
of the consummation of the Exchange Offer such Holder will have no arrangement
with any person to participate in the distribution of the Exchange Securities in
violation of the provisions of the Securities Act, and that such Holder is not
an affiliate of the Issuers within the meaning of the Securities Act. Upon
consummation of the Exchange Offer in accordance with this Section 2, the
provisions of this Agreement (other
<PAGE>
6
than the first four sentences of this Section 2(a)) shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities and Exchange Securities held by Participating
Broker-Dealers, and the Issuers shall have no further obligation to register
Registrable Securities (other than Private Exchange Securities and other than
Exchange Securities as to which clause (c)(1)(i) hereof applies) pursuant to
Section 3 of this Agreement. No securities other than the Exchange Securities
shall be included in the Exchange Registration Statement.
(b) The Issuers shall include within the Prospectus contained in the
Exchange Registration Statement one or more section(s) reasonably acceptable to
the Initial Purchasers which shall contain a summary statement of the publicly
disseminated positions of the Staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by
such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). Such
section(s) shall also allow the use of the prospectus by all persons subject to
the prospectus delivery requirements of the Securities Act (other than a
Participating Broker Dealer (an "Excluded Participating Broker Dealer") who
either (x) acquired Securities other than for its own account as a result of
market-making activities or other trading activities or (y) has entered into any
arrangement or understanding with any Issuer or any affiliate of any Issuer to
distribute the Exchange Securities) and include a statement describing the means
by which Participating Broker-Dealers may resell the Exchange Securities.
The Issuers shall use their reasonable best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein in order to permit such Prospectus to be lawfully delivered by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided, however, that such period
shall not exceed 180 days (or such longer period if extended pursuant to the
last paragraph of Section 5) (the "Applicable Period"); provided, further,
however, that, if requested by the Company in the letter of transmittal for the
Exchange Offer, such persons shall have expressed that they may be subject to
such requirements and have undertaken to use their reasonable best efforts to
notify the Company when they are no longer subject to such requirements (if they
are no longer subject to such require-
<PAGE>
7
ments at any time prior to the expiration of the Applicable Period).
If, prior to consummation of the Exchange Offer, an Initial Purchaser holds
any Securities acquired by it and having the status of an unsold allotment in
the initial distribution or if JPMS holds any Securities (whether acquired in
market making activities or having the status of an unsold allotment) after
consummation of the Exchange Offer, the Issuers upon the request of such Initial
Purchaser shall, simultaneously with the delivery of the Exchange Securities in
the Exchange Offer, issue and deliver to each such Initial Purchaser, in
exchange (the "Private Exchange") for the Securities held by such Initial
Purchaser, a like principal amount at maturity of debt securities of the Issuers
that are identical in all material respects to the Exchange Securities (the
"Private Exchange Securities") (and which are issued pursuant to the same
indenture as the Exchange Securities) except for the placement of a restrictive
legend on such Private Exchange Securities. If practicable, the Private Exchange
Securities shall bear the same CUSIP number as the Exchange Securities. Accreted
Value (as defined in the Indenture) will accrue on the Exchange Securities and
Private Exchange Securities in the same manner as the Securities.
Any indenture under which the Exchange Securities or the Private Exchange
Securities will be issued shall provide that the holders of any of the Exchange
Securities and the Private Exchange Securities will vote and consent together on
all matters (to which such holders are entitled to vote or consent) as one class
and that none of the holders of the Exchange Securities and the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter (to which such holders are entitled to vote or consent).
(c) If (1) prior to the consummation of the Exchange Offer, the Issuers
reasonably determine in good faith or Holders of a majority in aggregate
principal amount at maturity of the Registrable Securities notify the Issuers
that they have reasonably determined in good faith that (i) in the opinion of
counsel, the Exchange Securities would not, upon receipt, be tradeable by such
Holders who are not affiliates of the Issuers or Excluded Participating Broker
Dealers without registration under the Securities Act and without registration
under applicable blue sky or state securities laws or (ii) in the opinion of
counsel, the SEC is unlikely to permit the consummation of the Exchange Offer
and/or (2) subsequent to the consummation of the Private Exchange, any holder of
Private Exchange Securities
<PAGE>
8
so requests with respect to the Private Exchange Securities and/or (3) the
Exchange Offer is commenced and not consummated prior to the 60th day following
the Consummation Date for any reason, then the Issuers shall promptly deliver to
the Holders and the Trustee notice thereof (the "Shelf Notice") and shall
thereafter file an Initial Shelf Registration as set forth in Section 3 (which
only in the circumstances contemplated by clause (2) of this sentence will
relate solely to the Private Exchange Securities) pursuant to Section 3. The
parties hereto agree that, following the delivery of a Shelf Notice to the
Holders of Registrable Securities (only in the circumstances contemplated by
clauses (1) and/or (3) of the preceding sentence), the Issuers shall not have
any further obligation to conduct the Exchange Offer or the Private Exchange
under this Section 2.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Initial Shelf Registration. The Issuers shall as promptly as reasonably
practicable prepare and file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Securities (the "Initial Shelf Registration"). If the Issuers
shall have not yet filed an Exchange Offer and the Shelf Notice was delivered at
least 45 days prior to the Filing Date, the Issuers shall file with the SEC the
Initial Shelf Registration on or prior to the Filing Date. Otherwise, the
Issuers shall file with the SEC the Initial Shelf Registration within 60 days of
the delivery of the Shelf Notice. The Initial Shelf Registration shall be on
Form S-1 or another appropriate form permitting registration of such Registrable
Securities for resale by such holders in the manner or manners designated by
them (including, without limitation, one or more underwritten offerings). The
Issuers shall use their reasonable best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the 120th day after the filing thereof with the SEC and to keep the Initial
Shelf Registration continuously effective under the Securities Act until the
date which is 24 months from the Issue Date (the "Effectiveness Period"), or
such shorter period ending when (i) all Registrable Securities covered by the
Initial Shelf Registration have been sold in the manner set forth and as
contemplated in the Initial Shelf Registration or
<PAGE>
9
(ii) a Subsequent Shelf Registration covering all of the Registrable Securities
has been declared effective under the Securities Act.
Notwithstanding any other provision of this Agreement, the Issuers may
postpone or suspend the filing or effectiveness of a Registration Statement (or
any amendments or supplements thereto) if (i) such action is required by
applicable law or (ii) such action is taken by the Issuers in good faith and for
valid business reasons (not including the avoidance of the Issuers' obligations
hereunder), including the acquisition or divestiture of assets, other pending
corporate developments, public filings with the SEC or other similar events, so
long as the Issuers promptly thereafter comply with the requirements of Section
5(b) hereof, if applicable. Notwithstanding the occurrence of any event referred
to in the immediately preceding sentence, such event shall not suspend, postpone
or in any other manner affect the running of any time periods for the purpose of
determining the entitlement of the Holders to Additional Interest under Section
4 hereof.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration or
any Subsequent Shelf Registration ceases to be effective for any reason at any
time during the Effectiveness Period (other than because of the sale of all of
the securities registered thereunder), the Issuers shall use their reasonable
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such cessation
of effectiveness amend the Shelf Registration in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional "shelf" Registration Statement pursuant to Rule 415 covering all
of the Registrable Securities (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Issuers shall use their reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
as soon as practicable after such filing and to keep such Registration Statement
continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the Initial
Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
<PAGE>
10
(c) Supplements and Amendments. The Issuers shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration or if required by applicable law.
4. Additional Interest
(a) The Issuers and the Initial Purchasers agree that the Holders of
Registrable Securities will suffer damages if the Issuers fail to fulfill their
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuers agree to pay, as liquidated damages, cash interest on the
Registrable Securities (whether or not cash interest is then payable on the
Registrable Securities in accordance with the Indenture) ("Additional Interest")
under the circumstances and to the extent set forth below (each of which shall
be given independent effect and shall not be duplicative):
(i) if the Exchange Registration Statement has not been filed on or prior
to the Filing Date or the Initial Shelf Registration has not been filed on or
prior to the date by which it is required to be filed pursuant to Section 3(a)
hereof, Additional Interest shall accrue on the Registrable Securities over and
above the stated cash interest rate (if any) at a rate of 25 basis points per
annum for the first 90 days immediately following the Filing Date or such
required date, as the case may be, such Additional Interest rate increasing by
an additional 25 basis points per annum at the beginning of each subsequent
90-day period;
(ii) if Additional Interest is not then accruing pursuant to Section
4(a)(i) and the Exchange Registration Statement is not declared effective by the
SEC on or prior to the Effectiveness Date or the Initial Shelf Registration is
not declared effective on or prior to the 120th day after filing thereof,
Additional Interest shall accrue on the Registrable Securities included or which
should have been included in such Registration Statement over and above the
stated cash interest rate (if any) at a rate of 25 basis points per annum for
the first 90 days immediately following the day after the Effectiveness Date,
such Additional Interest rate increasing by an additional 25 basis points per
annum at the beginning of each subsequent 90-day period; and
<PAGE>
11
(iii) if Additional Interest is not then accruing pursuant to Section
4(a)(i) and 4(a)(ii) and (A) the Issuers have not exchanged Exchange Securities
for all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the Consummation Date (including by reason of the Exchange
Registration Statement ceasing to be effective) or (B) if applicable, the Shelf
Registration has been declared effective and such Shelf Registration ceases to
be effective at any time during the Effectiveness Period, then Additional
Interest shall be accrued on the Registrable Securities (over and above the
stated cash interest rate (if any) otherwise payable on the Registrable
Securities) at a rate of 25 basis points per annum for the first 90 days
commencing on the (x) 210th day after the Issue Date, in the case of (A) above,
or (y) the day such Shelf Registration ceases to be effective, in the case of
(B) above, such Additional Interest rate increasing by an additional 25 basis
points per annum at the beginning of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Registrable
Securities may not exceed at any one time in the aggregate 100 basis points per
annum; and provided, further, that (1) upon the filing of the Exchange
Registration Statement or a Shelf Registration as required hereunder (in the
case of clause (a)(i) of this Section 4), (2) upon the effectiveness of the
Exchange Registration Statement or the Shelf Registration as required hereunder
(in the case of clause (a)(ii) of this Section 4), or (3) upon the exchange of
Exchange Securities for all Notes tendered (in the case of clause (a)(iii)(A) of
this Section 4), or upon the effectiveness of the Shelf Registration which had
ceased to remain effective (in the case of clause (a)(iii)(B) of this Section
4), Additional Interest on the Registrable Securities as a result of such clause
(or the relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Issuers shall notify the Trustee within five business days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). The Issuers shall pay the
Additional Interest due on the Registrable Securities by depositing with the
Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date (or the calendar date which would
be a semi-annual interest payment date if cash interest were then payable on the
Registrable Securities) immediately available funds in sums suffi-
<PAGE>
12
cient to pay the Additional Interest then due to Holders of Registrable
Securities. The Additional Interest amount due shall be payable on each such
date to the record Holder of Registrable Securities on the March 1 or September
1, as the case may be, immediately preceding such semi-annual interest payment
date (or the calendar date which would be a semi-annual interest payment date if
cash interest were then payable on the Registrable Securities). The amount of
Additional Interest will be determined by applying the applicable Additional
Interest rate to the principal amount at maturity of the affected Registrable
Securities of such Holders, (determined on the basis of a 360-day year comprised
of twelve 30-day months and, in the case of a partial month, the actual number
of days elapsed). Each obligation to pay Additional Interest shall be deemed to
accrue immediately following the occurrence of the applicable Event Date. The
parties hereto agree that the Additional Interest provided for in this Section 4
constitutes the sole and exclusive remedy for a breach of Sections 2 or 3 and is
a reasonable estimate of the damages that may be incurred by Holders of
Registrable Securities by reason of the failure of a Shelf Registration or
Exchange Registration Statement to be filed or declared effective, an Exchange
Offer to be consummated or a Shelf Registration to remain effective, as the case
may be, in accordance with this Section 4.
5. Registration Procedures
In connection with the registration of any Registrable Securities pursuant
to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit
the sale of such Registrable Securities in accordance with the intended method
or methods of disposition thereof, and pursuant thereto the Issuers shall:
(a) Use their reasonable best efforts to prepare and file with the SEC a
Registration Statement or Registration Statements, as soon as practicable after
the date hereof but in any event prior to the applicable date prescribed by
Sections 2 or 3, and to use their reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registration Statement or Prospectus or any
amendments or
<PAGE>
13
supplements thereto, the Issuers shall upon written request furnish to and
afford the Holders of the Registrable Securities (which in the case of
Registrable Securities in the form of global certificates shall be The
Depository Trust Company ("DTC")) and each such Participating Broker-Dealer, as
the case may be, covered by such Registration Statement, their counsel and the
managing underwriters, if any, a reasonable opportunity to review copies of all
such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus; the Issuers shall not be deemed to have used
their reasonable best efforts to keep a Registration Statement effective during
the Applicable Period if the Issuers voluntarily take any action that would
result in selling Holders of the Registrable Securities covered thereby or
Participating Broker-Dealers seeking to sell Exchange Securities not being able
to sell such Registrable Securities or such Exchange Securities during that
period unless such action is required by applicable law or unless the Issuers
comply with this Agreement, including without limitation, the provisions of
paragraph 5(k) hereof and the last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, notify the selling Holders of Registrable Securities, or each
such Par-
<PAGE>
14
ticipating Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, who have provided the Issuers with their names and
addresses promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective
under the Securities Act (including in such notice a written statement that any
Holder may, upon request, obtain, without charge, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the initiation
of any proceedings for that purpose, (iii) of the receipt by the Issuers of any
notification with respect to the suspension of the qualification or exemption
from qualification of a Registration Statement or any of the Registrable
Securities or the Exchange Securities to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (iv) of the happening of any
event or any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and (v) of the Issuers' reasonable determination that a post-effective amendment
to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is re-
<PAGE>
15
quired to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Securities during the Applicable
Period, use their reasonable best efforts to oppose the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities or the
Exchange Securities to be sold by any Participating Broker-Dealer, for sale in
any jurisdiction, and, if any such order is issued, to use their reasonable best
efforts to obtain the withdrawal of any such order at the earliest possible
moment.
(e) If a Shelf Registration is required pursuant to Section 3, before
filing any Registration Statement or prospectus or any amendment or supplement
thereto (including any document that would be incorporated by reference therein)
furnish counsel for the Holders of Registrable Securities covered by such Shelf
Registration a reasonable opportunity to review copies of all such documents
proposed to be filed.
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, furnish to each selling Holder of Registrable Securities and
to each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, without charge, one conformed copy of the
Registration Statement or Statements and each post-effective amendment thereto,
including financial statements and schedules, and if requested, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, deliver to each selling Holder of Registrable Securities, or
each such Participating Broker-Dealer, as the case may be, their counsel, and
the underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including
<PAGE>
16
each form of preliminary prospectus) and each amendment or supplement thereto
and any documents incorporated by reference therein as such Persons may
reasonably request; and, subject to the last paragraph of this Section 5, the
Issuers hereby consent to the use of such Prospectus and each amendment or
supplement thereto by each of the selling holders of Registrable Securities or
each such Participating Broker-Dealer, as the case may be, and the underwriters
or agents, if any, and dealers (if any), in connection with the offering and
sale of the Registrable Securities covered by or the sale by Participating
Broker-Dealers of the Exchange Securities pursuant to such Prospectus and any
amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, to use their reasonable best efforts to register or qualify,
and to cooperate with the selling Holders of Registrable Securities or each such
Participating Broker-Dealer, as the case may be, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriters reasonably request in writing;
provided, however, that where Exchange Securities held by Participating
Broker-Dealers or Registrable Securities are offered other than through an
underwritten offering, the Issuers agree to cause their counsel to perform Blue
Sky investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h); keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
reasonable acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Securities held by Participating
Broker-Dealers or the Registrable Securities covered by the applicable
Registration Statement; provided, however, that no Issuer shall be required to
(A) qualify generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C) subject
itself to taxa-
<PAGE>
17
tion in excess of a nominal dollar amount in any such jurisdiction.
(i) If a Shelf Registration is filed pursuant to Section 3, reasonably
cooperate with the selling Holders of Registrable Securities and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall not bear any legends with respect to restrictions on transfer pursuant to
the Securities Act and shall be in a form eligible for deposit with DTC; and
enable such Registrable Securities to be registered in such names as the
managing underwriter or underwriters, if any, or Holders may request.
(j) Use their reasonable best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other United States governmental agencies or authorities of the United States as
may be necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities, except as may
be required solely as a consequence of the nature of such selling Holder's
business, in which case the Issuers will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(iv) or 5(c)(v) above, as promptly as practicable prepare and (subject to
Section 5(a) and the second paragraph of Section 3(a) above) file with the SEC,
solely at the expense of the Issuers, a supplement or post-effective amendment
to the Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, or file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities being sold thereunder or to the purchasers of the
Exchange Securities to whom such Prospectus will be delivered by a Participating
Broker-Dealer, any such Prospectus will not contain an untrue statement of a
material fact or omit to state a mate-
<PAGE>
18
rial fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(l) Use their reasonable best efforts to cause the Registrable Securities
covered by a Registration Statement or the Exchange Securities, as the case may
be, to be rated with the appropriate rating agencies, if so reasonably requested
by the Holders of a majority in aggregate principal amount at maturity of
Registrable Securities covered by such Registration Statement or the Exchange
Securities, as the case may be, or the managing underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Securities, (i) provide the Trustee with
certificates for the Registrable Securities in a form eligible for deposit with
DTC and (ii) provide a CUSIP number for the Registrable Securities.
(n) Use their reasonable best efforts to cause all Registrable Securities
covered by such Registration Statement or the Exchange Securities, as the case
may be, to be (i) listed on each securities exchange, if any, on which similar
securities issued by the Issuers are then listed, or (ii) authorized to be
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or the National Market System of NASDAQ if similar securities
of the Issuers are so authorized.
(o) In connection with an underwritten offering of Registrable Securities
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten offerings and take all such other actions as are
reasonably requested by the managing underwriters in order to expedite or
facilitate the registration or the disposition of such Registrable Securities,
and in such connection, (i) make such representations and warranties to the
underwriters, with respect to the business of the Issuers and their subsidiaries
and the Registration Statement, Prospectus and documents, if any, incorporated
or deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings and
consistent with past practice of the Issuers and their affiliates, and confirm
the same if and when requested; (ii) obtain an opinion of counsel to the Issuers
and updates thereof in form and
<PAGE>
19
substance reasonably satisfactory to the managing underwriters, addressed to the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings and consistent with past practice of the Issuers and
their affiliates and such other matters as may be reasonably requested by
underwriters; (iii) obtain "cold comfort" letters and updates thereof in form
and substance reasonably satisfactory to the managing underwriters from the
independent certified public accountant(s) of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to each of the underwriters, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and consistent
with past practice of the Issuers and their affiliates and such other matters as
may be reasonably requested by underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof (or such
other provisions and procedures acceptable to the Issuers and to the Holders of
a majority in aggregate principal amount at maturity of Registrable Securities
covered by such Registration Statement and the managing underwriters or agents)
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done at each closing under such underwriting agreement, or as and
to the extent required thereunder.
(p) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Securities being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Securities, if any, and any attorney, accountant or other agent
retained by any such selling holder or each such Participating Broker-Dealer, as
the case may be, or underwriter (collectively, the "Inspectors"), at the offices
where normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents
<PAGE>
20
and properties of the Issuers (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Issuers
and their subsidiaries to supply all information in each case reasonably
requested by any such Inspector in connection with such Registration Statement.
Records determined in good faith by the Issuers to be confidential shall not be
disclosed by any Inspector notified of such determination unless (i) the
disclosure of such Records is necessary to avoid or correct a material
misstatement or omission in such Registration Statement, (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) the information in such Records has been made
generally available to the public in a manner that does not otherwise involve a
breach of any confidentiality obligation by any party. Each selling Holder of
such Registrable Securities and each such Participating Broker-Dealer will be
required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Issuers unless and
until such is made generally available to the public. Each selling Holder of
such Registrable Securities and each such Participating Broker-Dealer will be
required to further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Issuers and allow them at their own expense to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(q) Provide an indenture trustee for the Registrable Securities or the
Exchange Securities, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a), as the case may be, to be qualified
under the TIA not later than the effective date of the first Registration
Statement relating to the Registrable Securities or the Exchange Offer; and in
connection therewith, cooperate with the trustee under any such indenture and
the holders of the Registrable Securities, to effect such changes to such
indenture as may be required for such indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use their reasonable best efforts to
cause such trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
<PAGE>
21
enable such indenture to be so qualified in a timely manner.
(r) Comply in all material respects with all applicable rules and
regulations of the SEC and make generally available to their securityholders
earning statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 90 days after the end of any 12-month period (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Issuers after the effective date of
a Shelf Registration Statement, which statements shall cover said 12-month
periods.
(s) If an Exchange Offer or a Private Exchange is to be consummated, upon
delivery of the Registrable Securities by Holders to the Issuers (or to such
other Person as directed by the Issuers) in exchange for the Exchange Securities
or the Private Exchange Securities, as the case may be, the Issuers shall mark,
or caused to be marked, on such Registrable Securities that such Registrable
Securities are being cancelled in exchange for the Exchange Securities or the
Private Exchange Securities, as the case may be; in no event shall such
Registrable Securities be marked as paid or otherwise satisfied.
(t) Reasonably cooperate with each seller of Registrable Securities covered
by any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD").
(u) Use their reasonable best efforts to take all other steps necessary to
effect the registration of the Registrable Securities covered by a Registration
Statement contemplated hereby.
The Issuers may require each seller of Registrable Securities or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuers such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Securities or Exchange
<PAGE>
22
Securities to be sold by such Participating Broker-Dealer, as the case may be,
as the Issuers may, from time to time, reasonably request. The Issuers may
exclude from such registration the Registrable Securities of any seller or
Participating Broker-Dealer who fails to furnish such information within a
reasonable time after receiving such request and, notwithstanding anything to
the contrary in this Agreement, such Seller or Participating Broker Dealer shall
not be entitled to receive any Additional Interest pursuant to Section 4. Each
seller as to which any Shelf Registration is being effected is deemed to agree
to furnish promptly to the Issuers all information required to be disclosed in
order to make the information previously furnished to the Issuers by such seller
not materially misleading.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities or Exchange Securities to be sold by such Holder that,
upon receipt of any notice from the Issuers of the happening of any event of the
kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv), or 5(c)(v), such Holder
shall forthwith discontinue disposition of such Registrable Securities covered
by such Registration Statement or Prospectus until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 5(k),
or until it is advised in writing (the "Advice") by the Issuers that the use of
the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Issuers shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Securities covered by such Registration Statement shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Issuers shall be borne by the Issuers whether or not the
Exchange Offer or a Shelf Registration is filed or becomes effective, including,
without limitation, (i) all registration and filing fees (including, without
limitation, (A) fees with respect to filings required to be made with the NASD
in connection with an underwritten offering and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of counsel in
<PAGE>
23
connection with Blue Sky qualifications of the Registrable Securities or
Exchange Securities and determination of the eligibility of the Registrable
Securities or Exchange Securities for investment under the laws of such
jurisdictions in the United States (x) where the holders of Registrable
Securities are located, in the case of the Exchange Securities, or (y) as
provided in Section 5(h), in the case of Registrable Securities or Exchange
Securities to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities or Exchange Securities in a
form eligible for deposit with DTC and of printing prospectuses if the printing
of prospectuses is reasonably requested by the managing underwriters, if any,
or, in respect of Registrable Securities or Exchange Securities to be sold by
any Participating Broker-Dealer during the Applicable Period, by the Holders of
a majority in aggregate principal amount at maturity of the Registrable
Securities included in any Registration Statement or of such Exchange
Securities, as the case may be), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Issuers, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(o)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incidental to such performance),
(vi) rating agency fees, (vii) Securities Act liability insurance, if the
Issuers desire such insurance, (viii) fees and expenses of all other Persons
retained by the Issuers, (ix) internal expenses of the Issuers (including,
without limitation, all salaries and expenses of officers and employees of the
Issuers performing legal or accounting duties), (x) the expense of any annual
audit, (xi) the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange, if applicable and (xii)
the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary in order to comply with this
Agreement; provided, however, that notwithstanding the foregoing, the Issuers
will not be responsible for any underwriter's discounts, commissions or fees
attributable to the sale of Registrable Securities.
(b) In connection with any Shelf Registration hereunder, the Issuers shall
reimburse the Holders of the Registrable Securities being registered in such
registration for the reasonable fees and disbursements of not more than one
counsel chosen by the Holders of a majority in aggregate principal amount at
maturity of the Registrable Securities to be included
<PAGE>
24
in such Registration Statement, subject to the reasonable approval of the
Issuers. Such Holders shall be responsible for any and all other out-of-pocket
expenses of the Holders of Registrable Securities incurred in connection with
the registration of the Registrable Securities.
7. Indemnification
The Issuers agree to indemnify and hold harmless each Holder of Registrable
Securities and each Participating Broker-Dealer selling Exchange Securities
during the Applicable Period, the officers and directors of each such person,
and each person, if any, who controls any such person within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (each,
a "Participant"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or any amendment
thereto) or Prospectus (as amended or supplemented if the Issuers shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information relating to any Participant furnished to
the Company in writing by such Participant expressly for use therein; provided,
however, that the foregoing indemnity with respect to any preliminary prospectus
shall not inure to the benefit of any Participant (or to the benefit of any
person controlling such Participant) from whom the person asserting any such
losses, claims, damages or liabilities purchased Registrable Securities or
Exchange Securities if such untrue statement or omission or alleged untrue
statement or omission made in such preliminary prospectus is eliminated or
remedied in the related Prospectus (as amended or supplemented if the Issuers
shall have furnished any amendments or supplements thereto) and a copy of the
related Prospectus (as so amended or supplemented) shall not have been furnished
to such person at or prior to the sale of such Registrable Securities or
Exchange Securities, as the case may be, to such person.
<PAGE>
25
Each Participant will be required to agree, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuers to each Participant, but only with
reference to information relating to such Participant furnished to the Company
in writing by such Participant expressly for use in any Registration Statement
or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by such Participant from sales of Registrable
Securities giving rise to such obligations.
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the
reasonable fees and expenses actually incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Person shall not relieve it of any obligation or liability which it may have
hereunder or otherwise (unless and only to the extent that such failure results
in the loss or compromise of any rights or defenses). In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and
<PAGE>
26
that all such fees and expenses shall be reimbursed as they are incurred. Any
such separate firm for the Participants and such control persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Registrable Securities sold by all such Participants and any such separate
firm for the Issuers, their directors, officers and such control persons of the
Issuers shall be designated in writing by the Issuers. The Indemnifying Person
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
non-appealable judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for reasonable fees and expenses actually
incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with said sentence prior to the date of
such settlement to the extent it considers such request to be reasonable or
provided written notice to the Indemnified Person to substantiate the
non-payment of the unpaid balance as reasonable. No Indemnifying Person shall,
without the prior written consent of the Indemnified Person, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding.
If the Indemnification provided for in the first and second paragraphs of
this Section 7 is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraph, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the Issuers on the
one hand and the Participants on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable
<PAGE>
27
considerations. The relative fault of the Issuers on the one hand and the
Participants on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuers or by the Participants and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The parties agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation (even if the
Participants were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any reasonable legal or
other expenses actually incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, in no event shall a Participant be required to
contribute any amount in excess of the amount by which proceeds received by such
Participant from sales of Registrable Securities exceeds the amount of any
damages that such Participant has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 7 will
be in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.
8. Rule 144 and Rule 144A
The Issuers covenant that they will file the reports required to be filed
by them under the Securities Act and the Exchange Act in a timely manner and, if
at any time the Issuers are not required to file such reports, they will, upon
the request of any Holder of Registrable Securities, make publicly available
other information so long as necessary to permit sales pursuant to Rule 144 and
Rule 144A under the Securities Act. The Issuers further covenant that they will
take such
<PAGE>
28
further action as any Holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
If any of the Registrable Securities covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount at maturity of such
Registrable Securities included in such offering, subject to the reasonable
approval of the Issuers.
No Holder of Registrable Securities may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Issuers and the Holders of a majority in aggregate principal
amount at maturity of the Registrable Securities included in such offering and
(b) completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Issuers have not, as of the date
hereof, entered and shall not, after the date of this Agreement, enter into any
agreement with respect to any of their securities that is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof.
(b) Adjustments Affecting Registrable Securities. Except as may be required
by the Indenture, the Issuers shall not, directly or indirectly, take any action
with respect to the Registrable Securities as a class that would adversely
affect the ability of the Holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this Agreement.
<PAGE>
29
(c) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Issuers have obtained the written consent of Holders of at least a
majority of the then outstanding aggregate principal amount at maturity of
Registrable Securities. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Securities may be given by Holders of at least a majority in
aggregate principal amount at maturity of the Registrable Securities being sold
by such Holders pursuant to such Registration Statement, provided that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications (including without
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Securities, at the most current address
given by the Trustee to the Issuers; and
(ii) if to the Issuers, c/o FrontierVision Holdings, L.P., 1777 South
Harrison Street, Suite P-200, Denver, CO. 80210 (telecopy: (303) 757-6105),
Attention: John S. Koo, Senior Vice President and Chief Financial Officer.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and when telephonic
confirmation of receipt is obtained, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
<PAGE>
30
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities; provided, that, with respect to the indemnity
and contribution agreements in Section 7, each Holder of Registrable Securities
subsequent to the Initial Purchasers shall be bound by the terms thereof if such
Holder elects to include Registrable Securities in a Shelf Registration;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assignee of a Holder unless and to the extent such
successor or assignee holds Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
<PAGE>
31
(j) Entire Agreement. This Agreement, together with the Purchase Agreement,
is intended by the parties as a final expression of their agreement, and is
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
(k) Securities Held by the Issuers or Their Affiliates. Whenever the
consent or approval of holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Issuers or
any of their affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
(l) Subsidiary Guarantor a Party. Immediately upon the designation of any
subsidiary of the Company as a Guarantor (as defined in the Indenture), the
Company shall cause such Guarantor to guarantee the obligations of the Issuers
hereunder (including, without limitation, the obligation to pay Additional
Interest, if any, pursuant to the terms of Section 4 hereof), by executing and
delivering to the Initial Purchasers an appropriate amendment to this Agreement.
11. Additional Agreements
From and after the effectiveness of any Registration Statement with respect
to the Securities, the Exchange Securities or the Private Exchange Securities,
each of the Issuers will, for the benefit of J.P. Morgan Securities Inc.
("JPMS") and for so long as any of the Securities, Exchange Securities or
Private Exchange Securities are outstanding and JPMS or any of its respective
affiliates (as defined in the Securities Act) is required by applicable law to
deliver a prospectus in connection with sales of the Securities, Exchange
Securities or Private Exchange Securities (the "Undertaking Period"), (i) (a)
periodically amend each Registration Statement covering Securities, Exchange
Securities or Private Exchange Securities so that the information contained in
such Registration Statement complies with the requirements of Section 10(a)
under the Securities Act; (b) amend each such Registration Statement within 90
days following the end of the Company's most recent fiscal year so that the
information contained in such Registration Statement complies with the
requirements of Section 10(a) under the Securities Act; (c) if requested by
JPMS, within 45 days following the end of the Company's most recent fiscal
quarter (except for the fourth fiscal quarter of any fiscal year), file
<PAGE>
32
a supplement to the Prospectus included in each such Registration Statement
which sets forth the consolidated financial results of the Issuers for the
previous quarter; and (d) promptly amend each such Registration Statement or
supplement each such Prospectus when reasonably requested by JPMS or when
necessary to reflect pro forma financial information set forth in the most
recent Form 8-K filed by the Company or to reflect any material changes in the
information provided therein or to reflect the occurrence of any fact or
information becoming known that should be set forth in an amendment to each such
Registration Statement or a supplement to each such Prospectus so that each such
Prospectus when delivered to a purchaser will comply with applicable law;
provided, however, that (x) prior to filing any amendment to any such
Registration Statement or any supplement to any such Prospectus, the Issuers
will furnish for a reasonable period of time prior to the proposed filing
thereof to each of Cahill Gordon & Reindel, acting as counsel to JPMS, and JPMS
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel and JPMS, (y) the Issuers will not file
any amendment to any such Registration Statement or any supplement to any such
Prospectus to which such counsel or JPMS shall reasonably object, and (z) the
Issuers will provide such counsel and JPMS with such number of copies of each
amendment or supplement filed as JPMS shall reasonably request; and (ii)
indemnify JPMS, and if applicable contribute to JPMS, in a manner substantially
identical to that specified in Section 7 hereof in connection with sales of the
Securities by Participants.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P.,
its general partner
By: FVP GP, L.P.,
its general partner
By: FrontierVision Inc.,
its general partner
By:
Title:
FRONTIERVISION HOLDINGS CAPITAL II
CORPORATION
By:
Title:
J.P. MORGAN SECURITIES INC.
CHASE SECURITIES INC.
By: J.P. Morgan Securities Inc.
By:
Title:
EXHIBIT 12.1
FrontierVision Holdings, L.P.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
-------- -------- --------
<S> <C> <C> <C>
Net Loss .......................... $(86,278) $(52,216) $(23,801)
Add (Deduct):
Income Tax Provision (Benefit) (2,927) -- --
Less: Minority Interest
-------- -------- --------
Pre Tax Income (Loss) ............. (89,205) $(52,216) $(23,801)
Add: Fixed Charges
Interest ..................... 90,810 48,005 23,210
-------- -------- --------
$ 1,605 $ (4,211) $ (591)
======== ======== ========
Fixed Charges ..................... $ 90,810 $ 48,005 $ 23,210
======== ======== ========
Ratio of Earnings to Fixed
Charges ...................... N/A N/A N/A
Deficiency of Earnings to Fixed
Charges ...................... $ 89,205 $ 52,216 $ 23,801
</TABLE>
EXHIBIT 23.20
To the Partners of FrontierVision Holdings, L.P.
We consent to the use of our report dated March 19, 1999, relating to the
consolidated balance sheets of FrontierVision Holdings, L.P. and subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, partners' capital and cash flows for each of the years in the three
year period ended December 31, 1998, and the related schedules included herein
and to the reference to our firm under the heading "Experts" in the registration
statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 1, 1999
EXHIBIT 23.21
To the Shareholder of FrontierVision
Holdings Capital II Corporation:
We consent to the use of our report dated March 19, 1999, relating to the
balance sheet of FrontierVision Holdings Capital II Corporation as of December
31, 1998, included herein and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 1, 1999
EXHIBIT 23.22
To the Partners of FrontierVision Partners, L.P.
We consent to the use of our report dated March 19, 1999, relating to the
consolidated balance sheets of FrontierVision Partners, L.P. and subsidiaries as
of December 31, 1998 and 1997, included herein and to the reference to our firm
under the heading "Experts" in the registration statement.
/s/ KPMG LLP
KPMG LLP
Denver, Colorado
April 1, 1999
Exhibit 23.23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of FrontierVision Holdings,
L.P. and FrontierVision Holdings Capital II Corporation on Form S-4 of our
report dated August 29, 1997 (December 19, 1997 as to the second paragraph in
Note 1) (relating to the financial statements of the Central Ohio Cluster),
appearing in the Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
April 2, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement. It should be noted that we have not audited any
financial statements of State Cable TV Corporation and Subsidiary subsequent to
December 31, 1997.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 1, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 11, 1998, with respect to the financial
statements of New England Cablevision of Massachusetts, Inc. included in the
Registration Statement (Form S-4) and related Prospectus of FrontierVision
Holdings, L.P. and FrontierVision Holdings Capital II Corporation, related the
registration of 110% senior discount notes due 2007, Series B.
March 31, 1999 /s/ Baker Newman & Noyes
Portland, Maine Limited Liability Company
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0417860
(State of Incorporation) (I.R.S. Employer
Identification No.)
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
(Exact name of registrant as specified in its charter)
Colorado
(State of Incorporation) (I.R.S. Employer
Identification No.)
1777 South Harrison Street
Denver, Colorado 80210-3925
(Address of Principal Executive Offices) (Zip Code)
Senior Discount Notes due 2007, Series B
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association. *
2. Copy of Certificate of Authority to Commence Business. *
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws. *
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority incorporated by reference to File Number
333-26679.
* Incorporated by reference to File Number 333-30939
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the
<PAGE>
obligors within three years prior to the date of filing this statement, or what
persons are owners of 10% or more of the voting securities of the obligors, or
affiliates, are based upon information furnished to the Trustee by the obligors.
While the Trustee has no reason to doubt the accuracy of any such information,
it cannot accept any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank National Association, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Denver and State of Colorado on the 1st day of April, 1999.
U.S. BANK NATIONAL ASSOCIATION
[SEAL]
Gretchen L. Middents
Assistant Vice President
- ------------------------
William W. MacMillian
Assistant Secretary
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors or affiliates, are based
upon information furnished to the Trustee by the obligors, While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank National Association, an Association organized and existing
under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Denver and State of Colorado on the 1st day of April, 1999.
U.S. BANK NATIONAL ASSOCIATION
[SEAL]
/s/ Gretchen L. Middents
Gretchen L. Middents
Assistant Vice President
/s/ William W. MacMillan
William W. MacMillan
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: April 1, 1999
U.S. BANK NATIONAL ASSOCIATION
-------------------------------
Gretchen L. Middents
Assistant Vice President
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: April 1, 1999
U.S. BANK NATIONAL ASSOCIATION
/s/ Gretchen L. Middents
Gretchen L. Middents
Assistant Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THE FORM S-4.
</LEGEND>
<CIK> 0001045710
<NAME> FRONTIERVISION HOLDINGS, LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,091
<SECURITIES> 0
<RECEIVABLES> 14,442
<ALLOWANCES> (666)
<INVENTORY> 0
<CURRENT-ASSETS> 22,913
<PP&E> 342,754<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,210,421
<CURRENT-LIABILITIES> 48,261
<BONDS> 1,121,142
0
0
<COMMON> 0
<OTHER-SE> 29,162
<TOTAL-LIABILITY-AND-EQUITY> 1,210,421
<SALES> 0
<TOTAL-REVENUES> 245,134
<CGS> 0
<TOTAL-COSTS> 123,818
<OTHER-EXPENSES> 6,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,875
<INCOME-PRETAX> (89,205)
<INCOME-TAX> 2,927
<INCOME-CONTINUING> (86,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,278)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
PURSUANT TO THE PROSPECTUS DATED ______, 1999:
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
______, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
================================================================================
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
LETTER OF TRANSMITTAL
11-7/8% SENIOR DISCOUNT NOTES DUE 2007, SERIES B
To: First Trust National Association, the Exchange Agent
By Registered or Certified Mail: By Overnight Courier:
First Trust National Association First Trust National Association
180 East 5th Street 180 East 5th Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
Attn: Special Finance (SPFT0414) Attn: Special Finance (SPFT0414)
By Hand: By Facsimile:
First Trust National Association (612) 244-1537
180 East 5th Street, 4th Floor Attn: Special Finance (SPFT0414)
Bond Drop Window
St. Paul, Minnesota 55101 Confirm by telephone:
Attn: Special Finance (SPFT0414) (612) 244-1234 or (800) 934-6802
Delivery of this instrument to an address other than as set forth above
or transmission of this instrument via a facsimile number other than the one
listed above will not constitute a valid delivery. The instructions accompanying
this Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned acknowledges receipt of the Prospectus, dated ________,
1999 (the "Prospectus") of FrontierVision Holdings, L.P. and FrontierVision
Holdings Capital II Corporation (the "Issuers") and the related Letter of
Transmittal (the "Letter of Transmittal"), which together describe the Issuers'
offer (the "Exchange Offer") to exchange $1,000 principal amount at maturity of
their 11-7/8% Senior Discount Notes due 2007, Series B (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement, for each $1,000
principal amount at maturity of their outstanding 11-7/8% Senior Discount Notes
due 2007, Series B (the "Old Notes"), of which $91,298,000 principal amount at
maturity is outstanding. The term "Expiration Date" shall mean 5:00 p.m., New
York City time, on [May ], 1999, unless the Issuers, in their sole discretion,
extend the Exchange Offer, in which case the term shall mean the latest date and
time to which the Exchange Offer is extended. The term "Holder" with respect to
the Exchange Offer means any person: (i) in whose name Old Notes are registered
on the books of the Issuers or any other person who has obtained a properly
completed bond power from the registered Holder or (ii) whose Old Notes are held
of record by The Depository Trust Company ("DTC") and who desires to deliver
such Old Notes by book entry transfer at DTC. Certain terms used herein but not
defined herein, shall have the respective meanings set forth in the Prospectus.
<PAGE>
This Letter of Transmittal is to be used by Holders if: (i)
certificates representing Old Notes are to be physically delivered to the
Exchange Agent herewith by Holders; (ii) tender of Old Notes is to be made by
book-entry transfer to the Exchange Agent's account at DTC pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering" by any financial institution that is a participant in DTC and whose
name appears on a security position listing as the owner of Old Notes (such
participants, acting on behalf of Holders, are referred to herein as "Acting
Holders"); or (iii) tender of Old Notes is to be made according to the
guaranteed delivery procedures described in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below.
Delivery of documents to DTC does not constitute delivery to the exchange agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE
EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ________________________________________
DTC Book-Entry Account No.: __________________________________________
Transaction Code No.:__________________________________________________
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING (SEE INSTRUCTION 2):
Name of Registered or Acting Holder(s): ______________________________
Window Ticket No. (if any): __________________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________
Name of Eligible Institution
that Guaranteed Delivery:______________________________________________
If Delivered by Book-Entry Transfer,
DTC Book-Entry Account No.:____________________________________________
Transaction Code Number: ______________________________________________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
PLEASE NOTE: THE ISSUERS HAVE AGREED THAT, FOR A PERIOD OF 180 DAYS
AFTER THE EXPIRATION DATE, THEY WILL MAKE COPIES OF THE PROSPECTUS
AVAILABLE TO ANY PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH
RESALES OF THE EXCHANGE NOTES (PROVIDED THAT THE ISSUERS RECEIVE NOTICE
FROM ANY PARTICIPATING BROKER-DEALER OF ITS STATUS AS A BROKER-DEALER).
Name:__________________________________________________________________
Address:_______________________________________________________________
_______________________________________________________________________
Attention:_____________________________________________________________
2
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the certificate numbers and principal amount
at maturity of Old Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<S> <C> <C> <C> <C>
|=======================================================================================================================|
| Box 1 |
| DESCRIPTION OF 11-7/8% SENIOR DISCOUNT NOTES DUE 2007, SERIS B (OLD NOTES) |
|=======================================================================================================================|
| | | Aggregate Principal | Principal Amount at |
| Name(s)and Address(es)of | | Amount at Maturity | Maturity Tendered |
| Registered Holder(s) | Certificate | Represented by | (must be in integral |
| (Please fill in, if blank) | Number(s)** | Certificate(s) | multiple of $1,000)* |
|-----------------------------------|-------------------------|-----------------------------|---------------------------|
| | | | |
|-----------------------------------|-------------------------|-----------------------------|---------------------------|
| | | | |
|-----------------------------------|-------------------------|-----------------------------|---------------------------|
| | | | |
|-----------------------------------|-------------------------|-----------------------------|---------------------------|
| | | | |
|-----------------------------------|-------------------------|-----------------------------|---------------------------|
| | Total | | |
|=======================================================================================================================|
| |
|* Need not be completed by Holders who wish to tender with respect to all Old Notes listed. |
| See Instruction 4. |
| |
| If the space provided above is inadequate, list the certificate numbers and principal |
| amounts at maturity on a separate signed schedule and affix the list to this Letter of |
| Transmittal. |
| |
|** Need not be completed by Holders tendering by book-entry transfer. |
| |
|=======================================================================================================================|
|=====================================================| |==============================================================|
| Box 2 | | Box 3 |
| SPECIAL REGISTRATION INSTRUCTIONS | | SPECIAL DELIVERY INSTRUCTIONS |
| (See Instructions 4, 5 and 6) | | (See Instructions 4, 5 and 6) |
| | | |
| | | |
|To be completed ONLY if certificates | | To be completed ONLY if certificates |
|for Old Notes in a principal amount at | | for Old Notes in a principal amount |
|maturity not tendered, or Exchange | | at maturity not tendered, or Exchange |
|Notes issued in exchange for Old Notes | | Notes issued in exchange for Old |
|accepted for exchange, are to be | | Notes accepted for exchange, are to |
|issued in a name other than the name | | be sent to an address other than the |
|appearing in Box 1 above. | | address appearing in Box 1 above, or |
| | | if Box 2 is filled in, to an address |
| | | other than the address appearing in |
| | | Box 2. |
| | | |
|Issue certificate(s) to: | | Deliver certificate(s) to: |
| | | |
|Name _________________________________ | | Name_________________________________ |
| (please print) | | (please print) |
| | | |
|Address ______________________________ | | Address______________________________ |
| | | |
|______________________________________ | | ____________________________________ |
| (include zip code) | | (include zip code) |
| | | |
|______________________________________ | | ____________________________________ |
| (tax identification or social | | (tax identification or social |
| security number) | | security number) |
|=====================================================| |==============================================================|
|=======================================================================================================================|
| Box 4 |
| BROKER-DEALER STATUS |
| [_] Check this box if the beneficial owner of the Old Notes is a participating |
| broker-dealer and such participating broker-dealer acquired the Old Notes for |
| its own account as a result of market-making activities or other trading |
| activities. |
|=======================================================================================================================|
</TABLE>
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to FrontierVision Holdings, L.P. and FrontierVision
Holdings Capital II Corporation (the "Issuers") the principal amount at maturity
of Old Notes indicated in Box 1.
Subject to and effective upon the acceptance for exchange of the
principal amount at maturity of Old Notes tendered in accordance with this
Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon
the order of, the Issuers all right, title and interest in and to the Old Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its 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 the full power of substitution to (i) present such Old
Notes and all evidences of transfer and authenticity to, or transfer ownership
of, such Old Notes on the account books maintained by DTC to, or upon, the order
of, the Issuers, (ii) deliver certificates for such Old Notes to the Issuers and
deliver all accompanying evidences of transfer and authenticity to, or upon the
order of, the Issuers and (iii) present such Old Notes for transfer on the books
of the Issuers and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Issuers will acquire good, valid and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claims, when the same are acquired
by the Issuers. The undersigned hereby further represents that (i) the Exchange
Notes are to be acquired by the Holder or the person receiving such Exchange
Notes, whether or not such person is the Holder, in the ordinary course of
business, (ii) the Holder or any such other person is not engaging and does not
intend to engage in the distribution of the Exchange Notes, (iii) the Holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, and (iv) neither the
Holder nor any such other person is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act. As indicated above, each
participating broker-dealer that receives an Exchange Note for its own account
in exchange for Old Notes must acknowledge that it (i) acquired the Old Notes
for its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with the
Issuers or any "affiliate" of the Issuers (within the meaning of Rule 405 under
the Securities Act) to distribute the Exchange Notes to be received in the
Exchange Offer and (iii) will deliver a Prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledging and by delivering a
Prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. If applicable, the
undersigned shall use its reasonable best efforts to notify the Issuers when it
is no longer subject to such Prospectus delivery requirements. Unless otherwise
notified in accordance with the instructions set forth herein in Box 4 under
"Broker-Dealer Status," the Issuers will assume that the undersigned is not a
participating broker-dealer. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in and does not intend to engage
in, a distribution of Exchange Notes.
4
<PAGE>
For purposes of the Exchange Offer, the Issuers shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuers have given oral
or written notice thereof to the Exchange Agent.
If any Old Notes tendered herewith are not accepted for exchange
pursuant to the Exchange Offer for any reason, certificates for any such
unaccepted Old Notes will be returned (except as noted below with respect to
tenders through DTC), without expense, to the undersigned at the address shown
below or to a different address as may be indicated herein in Box 3 under
"Special Delivery Instructions" as promptly as practicable after the Expiration
Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption "The
Exchange Offer--Withdrawal of Tenders."
Unless otherwise indicated in Box 2 under "Special Registration
Instructions," please issue the certificates representing the Exchange Notes
issued in exchange for the Old Notes accepted for exchange and any certificates
for Old Notes not tendered or not exchanged, in the name(s) of the registered
Holder of the Old Notes appearing in Box 1 above (or in such event in the case
of Old Notes tendered by DTC, by credit to the account of DTC). Similarly,
unless otherwise indicated in Box 3 under "Special Delivery Instructions,"
please send the certificates, if any, representing the Exchange Notes issued in
exchange for the Old Notes accepted for exchange and any certificates for Old
Notes not tendered or not exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown below in the undersigned's signature(s),
unless tender is being made through DTC. In the event that the box entitled
"Special Registration Instructions" and the box entitled "Special Delivery
Instructions" both are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Old Notes accepted for exchange in the
name(s) of, and return any certificates for Old Notes not tendered or not
exchanged to, the person(s) so indicated. The undersigned understands that the
Issuers have no obligation pursuant to the "Special Registration Instructions"
and "Special Delivery Instructions" to transfer any Old Notes from the name of
the registered Holder(s) thereof if the Issuers do not accept for exchange any
of the Old Notes so tendered.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver the Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date, may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2.
5
<PAGE>
The lines below must be signed by the registered Holder(s) exactly as
their name(s) appear(s) on the Old Notes or, if tendered by a participant in
DTC, exactly as such participant's name appears on a security position listing
as the owner of Old Notes, or by person(s) authorized to become registered
Holder(s) by a properly completed bond power from the registered Holder(s), a
copy of which must be transmitted with this Letter of Transmittal. If Old Notes
to which this Letter of Transmittal relate are held of record by two or more
joint Holders, then all such Holders must sign this Letter of Transmittal.
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X
_________________________________________________________ ___________________
date
X
_________________________________________________________ ___________________
signature(s) of registered Holder(s) date
or authorized signatory
Area Code and Telephone Number: ___________________________
If signature is by a trustee, executor, administrator, guardian,
attorney-in- fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, then such person must (i) set forth his or
her full title below and (ii) submit evidence satisfactory to the Issuers of
such person's authority so to act. See Instruction 5.
Name(s): _______________________________________________________________________
(please print)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
(include zip code)
MEDALLION SIGNATURE GUARANTEE
(If required by Instruction 5)
certain signatures must be guaranteed by an Eligible Institution
signature(s) guaranteed by an Eligible Institution:
________________________________________________________________________________
(authorized signature)
________________________________________________________________________________
(title)
________________________________________________________________________________
(name of firm)
________________________________________________________________________________
(address, include zip code)
________________________________________________________________________________
(area code and telephone number)
Dated: ____________, 1999
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR OLD
NOTES OR BOOK-ENTRY CONFIRMATIONS. Certificates representing the tendered Old
Notes (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account with DTC), as well as a properly completed and duly
executed copy of this Letter of Transmittal (or facsimile thereof) (or, in the
case of a book-entry transfer, an Agent's Message), a substitute Form W-9 (or
facsimile thereof) and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date. The method of delivery of certificates for
Old Notes and all other required documents is at the election and sole risk of
the tendering Holder and delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. As an alternative to
delivery by mail, the Holder may wish to use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. Neither the Issuers nor the Exchange Agent is under an obligation to
notify any tendering Holder of the Issuers' acceptance of tendered Old Notes
prior to the completion of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Notes but whose Old Notes are not immediately available and who cannot deliver
their certificates for Old Notes (or comply with the procedures for book-entry
transfer prior to the Expiration Date), the Letter of Transmittal and any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date must tender their Old Notes according to the guaranteed
delivery procedures set forth below. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" with the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have
received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail, or hand delivery) setting forth the name and address of the Holder,
the certificate number or numbers of the tendered Old Notes, and the
principal amount of tendered Old Notes and stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) (or, in the case of a book-entry transfer, an Agent's
Message), together with the tendered Old Notes (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account
with DTC) and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and
(iii) the certificates representing the tendered Old Notes in proper
form for transfer (or a confirmation of book-entry transfer of such Old
Notes into the Exchange Agent's account with DTC), together with the Letter
of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an agent's message) and all other documents required
by the Letter of Transmittal must be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above
will not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal
7
<PAGE>
form properly completed and executed by a Holder who attempted to use the
guaranteed delivery procedure.
3. TENDER BY HOLDER. Only a Holder or Acting Holder of Old Notes may
tender such Old Notes in the Exchange Offer. Any beneficial owner of Old Notes
who is not the registered Holder and who wishes to tender should arrange with
such Holder to execute and deliver this Letter of Transmittal on such owner's
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering such Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder.
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in
integral multiples of $1,000 principal amount at maturity. If less than the
entire principal amount at maturity of Old Notes is tendered, the tendering
Holder should fill in the principal amount at maturity tendered in the column
labeled "Principal Amount at Maturity Tendered" of the box entitled "Description
of 117/8% Senior Discount Notes Due 2007, Series B(Old Notes)" (Box 1) above.
The entire principal amount at maturity of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount at maturity of Old Notes is not tendered, Old Notes for
the principal amount at maturity of Old Notes not tendered and Exchange Notes
exchanged for any Old Notes tendered will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal or unless tender is made through DTC, as soon
as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURE. If this Letter of Transmittal is
signed by the registered Holder(s) of the Old Notes tendered herewith, the
signatures must correspond with the name(s) as written on the face of the
tendered Old Notes without alteration, enlargement, or any change whatsoever.
If any of the tendered Old Notes are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal. If any
tendered Old Notes are held in different names on several Old Notes, it will be
necessary to complete, sign, and submit as many separate copies of the Letter of
Transmittal documents as there are names in which tendered Old Notes are held.
If this Letter of Transmittal is signed by the registered Holder, and
Exchange Notes are to be issued and any untendered or unaccepted principal
amount at maturity of Old Notes are to be reissued or returned to the registered
Holder, then the registered Holder need not and should not endorse any tendered
Old Notes nor provide a separate bond power. In any other case, the registered
Holder must either properly endorse the Old Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal (executed
exactly as the name(s) of the registered Holder(s) appear(s) on such Old Notes),
with the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution unless such certificates or bond powers are signed by an Eligible
Institution.
If this Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and evidence satisfactory
to the Issuers of their authority to so act must be submitted with this Letter
of Transmittal.
No medallion signature guarantee is required if (i) this Letter of
Transmittal is signed by the registered Holder(s) of the Old Notes tendered
herewith and the issuance of Exchange Notes (and any Old Notes not tendered or
not accepted) are to be issued directly to such registered Holder(s) and neither
the "Special Registration Instructions" (Box 2) nor the "Special Delivery
Instructions" (Box 3) has been completed. In all other cases, all signatures on
this Letter of Transmittal must be guaranteed by an Eligible Institution.
8
<PAGE>
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders
should indicate, in the applicable box, the name and address in which the
Exchange Notes and/or substitute Old Notes for principal amounts at maturity not
tendered or not accepted for exchange are to be sent, if different from the name
and address or account of the person signing this Letter of Transmittal. In the
case of issuance in a different name, the employer identification number or
social security number of the person named must also be indicated and the
indicated and the tendering Holders should complete the applicable box.
If no such instructions are given, the Exchange Notes (and any Old
Notes not tendered or not accepted) will be issued in the name of and sent to
the registered Holder of the Old Notes.
7. TRANSFER TAXES. The Issuers will pay all transfer taxes, if any,
applicable to the sale and transfer of Old Notes to the Issuers or their order
pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any
reason other than the transfer and sale of Old Notes to the Issuers or their
order pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or on any other person) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption from such taxes is not submitted with this Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
Except as provided in this instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Under the 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 backup withholding at the rate
of 31%. In order to avoid such backup withholding, each tendering Holder should
complete and sign the substitute Form W-9 included in this Letter of Transmittal
and either (a) provide the correct taxpayer identification number ("TIN") and
certify, under penalties of perjury, that the TIN provided is correct and that
(i) the Holder has not been notified by the Internal Revenue Service (the "IRS")
that the Holder is subject to backup withholding as a result of failure to
report all interest or dividends or (ii) the IRS has notified the Holder that
the Holder is no longer subject to backup withholding; or (b) provide an
adequate basis for exemption. If the tendering Holder has not been issued a TIN
and has applied for one, or intends to apply for one in the near future, such
holder should write "Applied For" in the space provided for the TIN in Part I of
the substitute Form W-9, sign and date the substitute Form W-9 and sign the
certificate of payee awaiting taxpayer identification number. If "Applied For"
is written in Part I, the Issuers (or the Exchange Agent with respect to the
Exchange Notes or a broker or custodian) may still withhold 31% of the amount of
any payments made on account of the Exchange Notes until the Holder furnishes
the Issuers or the Exchange Agent with respect to the Exchange Notes, broker or
custodian with its TIN. In general, if a Holder is an individual, the taxpayer
identification number is the Social Security number of such individual. If the
Exchange Agent or the Issuers are not provided with the correct TIN, the Holder
may be subject to a $50 penalty imposed by the IRS. Certain Holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, such Holder must submit a
statement (generally, IRS Form W-8), signed under penalties of perjury,
attesting to that individual's exempt status. Such statements can be obtained
from the Exchange Agent.
Failure to complete the substitute Form W-9 will not, by itself, cause
Old Notes to be deemed invalidly tendered, but may require the Issuers or the
Exchange Agent with respect to the Exchange Notes, broker or custodian to
withhold 31% of the amount of any payments made on account of the Exchange
Notes. Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the IRS.
9
<PAGE>
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Old Notes
will be determined by the Issuers, in their sole discretion, which determination
will be final and binding. The Issuers reserve the right to reject any and all
Old Notes not validly tendered or any Old Notes, the Issuers' acceptance of
which would, in the opinion of the Issuers or their counsel, be unlawful. The
Issuers also reserve the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of notes as to any ineligibility of any
Holder who seeks to tender Old Notes in the Exchange Offer. The interpretation
of the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Issuers shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuers shall determine. The Issuers will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes,
but shall not incur any liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to
amend, waive, or modify specified conditions in the Exchange Offer in the case
of any tendered Old Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Old Notes will be accepted.
12. MUTILATED, LOST, STOLEN, OR DESTROYED OLD NOTES. Any tendering
Holder whose Old Notes have been mutilated, lost, stolen, or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus may
be directed to the Exchange Agent at the address set forth on the first page of
this Letter of Transmittal. Holders may also contact their broker, dealer,
commercial bank, trust company, or other nominee for assistance concerning the
Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF EXCHANGE NOTES;
RETURN OF OLD NOTES. Subject to the terms and conditions of the Exchange Offer,
the Issuers will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue Exchange Notes therefor as
soon as practicable thereafter. For purposes of the Exchange Offer, the Issuers
shall be deemed to have accepted tendered Old Notes when, as and if the Issuers
have given written and oral notice thereof to the Exchange Agent. If any
tendered Old Notes are not exchanged pursuant to the Exchange Offer for any
reason, such unexchanged Old Notes will be returned, without expense, to the
undersigned at the address shown above or at a different address as may be
indicated under "Special Delivery Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
(DO NOT WRITE IN SPACE BELOW)
|=======================|===========================|==========================|
| Certificate | Old Notes | Old Notes |
| Surrendered | Tendered | Accepted |
|-----------------------|---------------------------|--------------------------|
| | | |
|-----------------------|---------------------------|--------------------------|
| | | |
|-----------------------|---------------------------|--------------------------|
| | | |
|=======================|===========================|==========================|
Delivery Prepared By: _____________ Checked By: _______________ Date: __________
10
<PAGE>
<TABLE>
<S> <C>
|============================================================================================================================|
| PAYORS' NAMES: |
| FRONTIERVISION HOLDINGS, L.P. |
| FRONTIERVISION HOLDINGS CAPITAL II CORPORATION |
|------------------------|---------------------------------------------------------------------------------------------------|
| SUBSTITUTE | Name (if joint names, list first and circle the name of the |
| | person or entity whose number you enter in Part 1 below. See |
| FORM W-9 | instructions if your name has changed.) |
| |---------------------------------------------------------------------------------------------------|
| Department of | Address |
| the Treasury | |
| | |
| |---------------------------------------------------------------------------------------------------|
| Internal | City, State and ZIP Code |
| Revenue | |
| Service | |
| |---------------------------------------------------------------------------------------------------|
| | Part 1 - PLEASE PROVIDE YOUR TAXPAYER Social Security |
| | IDENTIFICATION NUMBER ("TIN") IN THE Number or TIN |
| | BOX AT RIGHT AND CERTIFY BY SIGNING AND |
| | DATING BELOW |
| |---------------------------------------------------------------------------------------------------|
| | Part 2 - Check the box if you are NOT subject to backup |
| | withholding under the provisions of section 3408(a)(1)(C) of the |
| | Internal Revenue Code because (1) you have not been notified that |
| | you are subject to backup 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 backup |
| | withholding. |
| | |_| |
| |------------------------------------------------------------|--------------------------------------|
| | CERTIFICATION--UNDER THE PENALTIES OF PERJURY, | Part 3 - |
| | I CERTIFY THAT THE INFORMATION PROVIDED ON THIS | AWAITING TIN |
| | FORM IS TRUE, CORRECT AND COMPLETE. | |_| |
| | | |
| | Signature: _________________ Date: ___________ | |
| | | |
|========================|============================================================|======================================|
</TABLE>
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administrative Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a Taxpayer Identification Number by the time of the exchange, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
______________________________________________ _____________________________
Signature Date
11
<PAGE>
Notice of Guaranteed Delivery
for
11-7/8% SENIOR DISCOUNT NOTES DUE 2007, SERIES B
of
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of FrontierVision Holdings, L.P. and FrontierVision Holdings
Capital II Corporation (the "Issuers") made pursuant to the Prospectus dated
________, 1999 (the "Prospectus") if Holders of certificates for the 11-7/8%
Senior Discount Notes Due 2007, Series B (the "Old Notes") who wish to tender
their Old Notes but whose Old Notes are not immediately available and who cannot
deliver their certificates for Old Notes (or comply with the procedures for
book-entry transfer prior to the Expiration Date), the Letter of Transmittal and
any other documents required by the Letter of Transmittal to the Exchange Agent
prior to 5:00 P.M., New York City time, on the Expiration Date (as defined in
the Letter of Transmittal). Such form may be delivered by hand or transmitted by
facsimile transmission, overnight courier or mail to the Exchange Agent. Certain
capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
To: First Trust National Association, the Exchange Agent
By Registered or Certified Mail: By Overnight Courier:
First Trust National Association First Trust National Association
180 East 5th Street 180 East 5th Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
Attn: Special Finance (SPFT0414) Attn: Special Finance (SPFT0414)
By Hand: By Facsimile:
First Trust National Association (612) 244-1537
180 East 5th Street, 4th Floor Attn: Special Finance (SPFT0414)
Bond Drop Window
St. Paul, Minnesota 55101 Confirm by telephone:
Attn: Special Finance (SPFT0414) (612) 244-1234 or (800) 934-6802
Delivery of this instrument to an address, or transmission of
instructions via a facsimile other than as set forth above, does not constitute
a valid delivery.
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to FrontierVision Holdings, L.P. and
FrontierVision Holdings Capital II Corporation (the "Issuers"), upon the terms
and subject to the conditions set forth in the Prospectus and the Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, ____________ (number of Old Notes) Old Notes pursuant to
the guaranteed delivery procedures set forth in Instruction 2 of the Letter of
Transmittal.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Certificate No(s). for Old Notes Name(s) of Record Holder(s)
(if available)
________________________________ ___________________________________
________________________________ ___________________________________
Please Print or Type
Address ___________________________
___________________________________
Telephone. No.( )_________________
Signature(s)_______________________
___________________________________
Dated: ____________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the above named person(s) "own(s)" the Old Notes tendered hereby
within the meaning of Rule 10b-4 under the Exchange Act, (b) represents that
such tender of Old Notes complies with Rule 10b-4 under the Exchange Act and (c)
guarantees that delivery to the Exchange Agent of certificates for the Old Notes
tendered hereby, in proper form for transfer, with delivery of a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signature and any other required documents, will be
received by the Exchange Agent at one of its addresses set forth above within
five business days after the Exchange Date.
Name of Firm_______________________ _________________________________
Authorized Signature
Address____________________________ Name_____________________________
Please Print or Type
___________________________________ Title____________________________
Zip Code
Telephone. No.( )_________________ Date: ___________________________
Dated: , 1999
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM; OLD NOTES SHOULD BE SENT WITH YOUR
LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT WITHIN
FIVE BUSINESS DAYS AFTER THE EXPIRATION DATE.
