<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1999
REGISTRATION NO. 333-63641
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CLASSIC COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 4841 74-2630019
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
515 CONGRESS AVENUE
SUITE 2626
AUSTIN, TEXAS 78701
512/476-9095
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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J. MERRITT BELISLE
CHAIRMAN OF THE BOARD
CLASSIC COMMUNICATIONS, INC.
515 CONGRESS AVENUE
SUITE 2626
AUSTIN, TEXAS 78701
512/476-9095
(Name, address including zip code, and telephone number, including area code, of
agent for service)
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Copies of all communications to:
TIMOTHY E. YOUNG, ESQ.
WINSTEAD SECHREST & MINICK P.C.
100 CONGRESS AVE., SUITE 800
AUSTIN, TEXAS 78701
512/370-2844
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED REGISTRATION FEE(1)
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<S> <C> <C>
13 1/4% Senior Discount Notes due 2009...................... $114,000,000 $33,630
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</TABLE>
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value, which has been computed as of July 31, 1998, of the
outstanding 13 1/4% Senior Discount Notes due 2009 of the Registrant to be
canceled in the exchange transaction hereunder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED APRIL 15, 1999
PROSPECTUS
OFFER FOR ALL OUTSTANDING
13 1/4% SENIOR DISCOUNT NOTES DUE 2009
IN EXCHANGE FOR
13 1/4% SENIOR DISCOUNT NOTES DUE 2009
OF
CLASSIC COMMUNICATIONS, INC.
[CLASSIC CABLE LOGO]
---------------------
Classic Communications, Inc. ("CCI"), a Delaware corporation, is hereby
offering, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange $114,000,000 aggregate principal amount of
registered 13 1/4% Senior Discount Notes due 2009 (the "New Notes") issued by
CCI for $114,000,000 aggregate principal amount of unregistered 13 1/4% Senior
Discount Notes due 2009 (the "Old Notes") issued by CCI, all of which remain
outstanding. The form and terms of the New Notes are identical to the form and
terms of the Old Notes, except that the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and will not bear any
legends restricting their transfer. The New Notes will evidence the same debt as
the Old Notes and will be issued pursuant to, and entitled to the benefits of,
the Indenture (as defined). The Exchange Offer is being made in order to satisfy
certain contractual obligations of CCI. See "The Exchange Offer" and
"Description of New Notes." The New Notes and the Old Notes are sometimes
collectively referred to herein as the "Notes."
Cash interest will not accrue on the New Notes prior to August 1, 2003,
from which time cash interest on the New Notes will accrue at a rate of 13 1/4%
per annum and will be payable semiannually in arrears on each February 1 and
August 1, commencing February 1, 2004. The New Notes will be redeemable at the
option of CCI, in whole or in part, on or after August 1, 2003 at the redemption
prices set forth herein plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to August 1, 2001, CCI will
have the option to redeem all, but not less than all, of the aggregate principal
amount at maturity of the New Notes at a redemption price equal to 113.25% of
the Accreted Value (as defined) thereof, on the applicable date of redemption,
with the net proceeds of one or more Equity Offerings (as defined) or Strategic
Equity Investments (as defined).
Upon the occurrence of a Change of Control (as defined), (i) CCI will have
the option to repurchase all, but not less than all, of the New Notes at a
purchase price equal to the Accreted Value thereof plus accrued and unpaid
interest to the date of redemption, plus the Applicable Premium (as defined) and
(ii) each holder of the New Notes may require CCI to repurchase all or a portion
of the New Notes held by such holder at a purchase price in cash equal to 101%
of the Accreted Value thereof, plus accrued and unpaid interest, if any, to the
date of repurchase.
The New Notes will be senior unsecured obligations of CCI and will rank
pari passu in right of payment to all existing and future unsecured senior
indebtedness of CCI, and senior in right of payment to all future senior
subordinated and subordinated indebtedness of CCI. As of December 31, 1998, CCI
on an unconsolidated basis had no indebtedness other than the Notes. The New
Notes will also be effectively subordinated to all existing and future
liabilities (including trade payables) of CCI's subsidiaries. As of December 31,
1998, CCI on a consolidated basis had approximately $301.4 million of total
liabilities.
SEE "RISK FACTORS" BEGINNING ON PAGE 9, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NEW NOTES.
CCI will accept for exchange any and all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on , 1999,
unless extended (as so extended, the "Expiration Date"). Tenders of Old Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The letter of transmittal
accompanying this Prospectus (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. CCI has
agreed, for a period of 90 days after the Expiration Date, to make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
No public market existed for the Old Notes before the Exchange Offer. CCI
currently does not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system, and no
active public market for the New Notes is currently anticipated. CCI will pay
all the expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999.
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[MAP]
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AVAILABLE INFORMATION
As a result of the Exchange Offer, CCI will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports and other
information with the Securities and Exchange Commission (the "Commission"). CCI
has filed with the Commission a Registration Statement on Form S-4 under the
Securities Act for the registration of the New Notes offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information about CCI and the New
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits and financial statement schedules thereto, which may be inspected
without charge at the public reference facility maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which may be
obtained from the Commission at prescribed rates. With respect to each document
referred to herein which is filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by such reference.
Such documents and other information filed by CCI can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and the regional offices of the Commission located
at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street,
14th Floor, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its public reference facilities in
New York, New York and Chicago, Illinois at prescribed rates. CCI makes its
filings with the Commission electronically. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically, which information can be
accessed at http://www.sec.gov.
So long as CCI is subject to the periodic reporting requirements of the
Exchange Act, they are required to furnish the information required to be filed
with the Commission to the Trustee and the holders of the Notes. CCI has agreed
that, even if it is not required under the Exchange Act to furnish such
information to the Commission, it will nonetheless continue to furnish
information that would be required to be furnished by CCI under Section 13 or
15(d) of the Exchange Act to the Trustee and the holders of the Notes as if it
were subject to such periodic reporting requirements. The annual reports so
furnished to holders of the Notes will contain financial information that has
been examined and reported upon, with an opinion expressed, by independent
auditors.
In addition, CCI has agreed that, for a period of up to 120 days after
consummation of the Exchange Offer a prospectus meeting the requirements of the
Securities Act will, upon request, provide to any holder of such Note or any
prospective transferee of any Holder in order to permit such holder to sell or
transfer such Note in compliance with Rule 144A under the Securities Act.
FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS OFFERING MEMORANDUM, INCLUDING
DOCUMENTS INCORPORATED BY REFERENCE, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS
FOR PURPOSES OF THE SECURITIES ACT AND THE EXCHANGE ACT. SUCH FORWARD-LOOKING
STATEMENTS MAY INVOLVE UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL
RESULTS AND PERFORMANCE OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE
RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. CAUTIONARY
STATEMENTS REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO THE HIGHLY
LEVERAGED NATURE OF CCI, THE RESTRICTIONS IMPOSED ON CCI BY CERTAIN
ii
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INDEBTEDNESS, THE SENSITIVITY OF CCI TO ADVERSE TRENDS IN THE GENERAL
ECONOMY, THE HIGH DEGREE OF COMPETITION IN CCI'S INDUSTRY, THE IMPACT OF NEW
TECHNOLOGIES AND CHANGES IN FEDERAL COMMUNICATIONS COMMISSION ("FCC")
REGULATIONS, THE VARIABILITY OF THE CCI'S QUARTERLY RESULTS AND CCI'S
SEASONALITY, AMONG OTHERS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO CCI ARE
EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
iii
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and historical and pro forma
financial information including the notes thereto appearing elsewhere in this
Prospectus. As used herein, the "Company" means Classic Cable, Inc., including
the cable television systems acquired from Cable One, Inc. ("Cable One"), unless
the context requires otherwise. The Company is a Delaware corporation and a
wholly owned subsidiary of CCI. CCI is a holding company and has no other
material assets or operations other than holding the capital stock of the
Company. Reference should be made to "Selected Historical and Pro Forma
Consolidated Financial and Operating Data" for the definition of certain
financial terms appearing throughout this Prospectus.
THE COMPANY
The Company, currently the 35th largest cable television operator in the
United States, owns, operates and develops cable television systems in selected
non-metropolitan markets across eight contiguous states primarily located in the
central United States. Founded in 1992, the Company has completed and integrated
17 acquisitions, including the recent acquisition of approximately 28,009
subscribers from Cable One (the "Cable One Acquisition"). The Company's cable
television systems (the "Systems") pass approximately 297,000 homes and serve
approximately 189,000 basic subscribers. In pursuing its business strategy, the
Company has focused its acquisition efforts on cable television systems in
growing non-metropolitan markets and has sought to build geographic clusters of
such systems. See "Business -- Business Strategy."
J. Merritt Belisle, Chairman and Chief Executive Officer, and Steven E.
Seach, President and Chief Financial Officer, founded the Company in 1992 and
have assembled a management team with significant business experience operating
cable television systems and providing quality customer service to cable
subscribers. Messrs. Seach and Belisle, together with certain other members of
the Company's management team, collectively own or have options with respect to
approximately 14% of CCI's Common Stock, on a fully diluted basis. See
"Management."
CCI PRIVATE OFFERING
On July 29, 1998, CCI closed its private offering under Rule 144A of the
Securities Act, for 114,000 Units consisting of the Old Notes and 342,000 shares
of CCI common stock (the "CCI Private Offering"). Each Unit consisted of one
13 1/4% Senior Discount Note due 2009 ($1,000 principal amount at maturity) and
three shares of CCI common stock.
FINANCING PLAN
At the same time CCI completed the CCI Private Offering, the Company
completed its private offering of $125 million aggregate principal amount of its
9 7/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes").
Concurrently, the Company entered into a senior credit agreement (the "Senior
Credit Agreement") with a group of banks and other financial institutions led by
Union Bank of California, N.A. and Goldman Sachs Credit Partners, L.P., as
co-agents. See "Credit Arrangements of the Company." The proceeds of the private
offerings of the Company and CCI and the Senior Credit Agreement were used in
order to (a) prepay the Company's prior Senior Credit Agreement, (the "Prior
Credit Agreement") (b) fund the Cable One Acquisition, (c) redeem outstanding
preferred stock of CCI, (d) repay prior subordinated debt of CCI, and (e) pay
fees and expenses of these transactions. These transactions are collectively
referred to herein as the "Financing Plan."
CABLE ONE ACQUISITION
On July 29, 1998, Black Creek Communications, L.P., a wholly owned
subsidiary of the Company, purchased 14 cable television systems in Kansas,
Missouri, Oklahoma and Texas from Cable One formerly Post-Newsweek Cable) for
$41.7 million. The systems are in close geographic proximity to those currently
owned and operated by the Company, further enhancing its clusters. As of the
acquisition date, in the aggregate, the systems passed 40,628 homes and had
28,009 basic and 16,212 premium subscribers.
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RISK FACTORS
In connection with an investment in the New Notes, prospective investors
should consider, among other things, that: (i) CCI is, and will continue to be,
highly leveraged; (ii) the consolidated historical earnings of CCI have been
insufficient to cover its fixed charges; (iii) CCI is a holding company which
has no significant assets other than its investments in and advances to the
Subsidiaries; (iv) there are restrictions imposed by the terms of CCI's
indebtedness; (v) CCI's business is substantially dependent upon the performance
of certain key individuals; (vi) CCI has a limited operating history; and (vii)
CCI may be unable to make expected capital expenditures to upgrade a significant
portion of its cable television distribution systems. See "Risk Factors."
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CCI's principal executive offices are located at 515 Congress Avenue, Suite
2626, Austin, Texas 78701, the telephone number is (512) 476-9095, and its
Internet website is www.classic-cable.com.
THE EXCHANGE OFFER
The Exchange Offer......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, Old Notes representing $114
million aggregate principal amount are outstanding.
The terms of the New Notes and the Old Notes are
substantially identical in all material respects,
except that the New Notes will be freely
transferable by the holders thereof except as
otherwise provided herein. See "Description of New
Notes."
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to CCI, CCI believes that
New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
sold and otherwise transferred by any person
receiving the New Notes, whether or not that person
is the registered holder (other than any such
holder or such other person that is an "affiliate"
of CCI within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that (i) the New Notes
are acquired in the ordinary course of business of
that holder or such other person, (ii) neither the
holder nor such other person is engaging in or
intends to engage in a distribution of the New
Notes, and (iii) neither the holder nor such other
person has an arrangement or understanding with any
person to participate in the distribution of the
New Notes. See "The Exchange Offer -- Purpose and
Effect." Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes,
where those Old Notes were acquired by the broker-
dealer as a result of its market-making activities
or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any
resale of these New Notes. See "Plan of
Distribution."
Registration Rights
Agreement.................. The Old Notes were sold by CCI on July 29, 1998 in
the CCI Private Offering. In connection with the
Offering, CCI entered into a Registration Rights
Agreement with the initial purchaser of the Old
Notes (the "Registration Rights Agreement")
requiring CCI to make the Exchange Offer. See "The
Exchange Offer -- Purpose and Effect."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, , 1998, or such
later date and time to which it is extended by CCI
(the "Expiration Date").
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<PAGE> 8
Withdrawal................. The tender of the Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Interest on the New Notes
and Old Notes.............. Interest on each Note will not accrue until August
1, 2003. No additional interest will be paid on Old
Notes tendered and accepted for exchange.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by CCI.
See "The Exchange Offer -- Conditions to the
Exchange Offer."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the Exchange Agent (as defined) at the address
set forth herein. Persons holding the Old Notes
through the Depository Trust Company ("DTC") and
wishing to accept the Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program, by which each tendering participant will
agree to be bound by the Letter of Transmittal. By
executing or agreeing to be bound by the Letter of
Transmittal, each holder will represent to CCI
that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Notes, whether or not
such person is the registered holder of the Old
Notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the
holder nor any such other person has an arrangement
or understanding with any person to participate in
the distribution of such New Notes, and (iv)
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of CCI. Pursuant to the
Registration Rights Agreement, CCI is required to
file a "shelf" registration statement for a
continuous offering pursuant to Rule 415 under the
Securities Act in respect of the Old Notes if (i)
because of any change in law or applicable
interpretations of the staff of the Commission, CCI
is not permitted to effect the Exchange Offer, (ii)
the Exchange Offer is not consummated within 150
days of the Offering, or the Registration Statement
related to this Exchange Offer is not declared
effective within 120 days of the Offering, (iii)
the Initial Purchasers request, (iv) any applicable
law or interpretations do not permit any holder of
Old Notes to participate in the Exchange Offer, (v)
any holder of Old Notes participates in the
Exchange Offer and does not receive freely
transferrable New Notes in exchange for Old Notes
or (vi) CCI so elects.
Acceptance of Old Notes and
Delivery of New Notes.... CCI will accept for exchange any and all Old Notes
that are properly tendered (and not withdrawn) in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New Notes
issued
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<PAGE> 9
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent............. Bank One, N.A. is serving as Exchange Agent (the
"Exchange Agent") in connection with the Exchange
Offer.
Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. See "United States Federal Income Tax
Considerations."
Effect of Not Tendering.... Old Notes that are not tendered or that are
improperly tendered and not accepted will,
following the completion of the Exchange Offer,
continue to be subject to the existing restrictions
upon transfer thereof. CCI will have no further
obligation to provide for the registration under
the Securities Act of such Old Notes.
THE NEW NOTES
Issuer..................... Classic Communications, Inc.
Securities Offered......... $114,000,000 aggregate principal amount at maturity
of 13 1/4% Senior Discount Notes due 2009.
Maturity Date.............. August 1, 2009.
Interest Payment Dates..... Cash interest will not accrue on the New Notes
prior to August 1, 2003, at which time cash
interest will accrue on the New Notes at a rate of
13 1/4% per annum, payable semiannually on February
1 and August 1 of each year, commencing February 1,
2004.
Original Issue Discount.... Each Old Note was sold with original issue discount
for United States federal income tax purposes.
Thus, although cash interest will not begin to
accrue on the Notes until August 1, 2003, and there
will be no periodic payments of interest on the
Notes prior to February 1, 2004, the total amount
of original issue discount (i.e., the difference
between the stated redemption price at maturity of
the Notes and the amount of the issue price
allocated to the Old Notes) will start to accrue
from the issue date and will be includable as
interest income periodically in a holder's gross
income for federal income tax purposes in advance
of receipt of the cash payments to which the income
is attributable. See "Certain United States Federal
Income Tax Considerations."
Optional Redemption........ The New Notes will be redeemable at the option of
CCI, in whole or in part, at any time on or after
August 1, 2003 at a premium to the aggregate
principal amount at maturity with the premium
declining ratably to 100% of the principal amount
at maturity on August 1, 2006, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the applicable date of
redemption.
In addition, at any time on or prior to August 1,
2001, CCI will have the option to redeem all (but
not less than all) of the New Notes at a redemption
price equal to 113.25% of the accreted value
thereof, plus accrued and unpaid interest, if any,
to the applicable date of redemption, with the Net
Cash Proceeds of one or more Equity Offerings or of
a Strategic Equity Investment.
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<PAGE> 10
Ranking.................... The New Notes will be senior unsecured obligations
of CCI and will rank pari passu in right of payment
to all existing and future unsecured senior
indebtedness of CCI, and senior in right of payment
to all future senior subordinated and subordinated
indebtedness of CCI. As of December 31, 1998, CCI
on an unconsolidated basis had no indebtedness
other than the Notes. The New Notes will also be
effectively subordinated to all existing and future
liabilities (including trade payables) of CCI's
subsidiaries. As of December 31, 1998, CCI on a
consolidated basis had approximately $301.4 million
of total liabilities. See "Description of the New
Notes -- Subordination."
Change of Control.......... Upon the occurrence of a Change of Control, (i) CCI
will have the option to redeem all, but not less
than all of the New Notes, at a redemption price
equal to the Accreted Value thereof on the date of
redemption, plus the Applicable Premium (as
defined), and (ii) each holder of New Notes will
have the right to require CCI to repurchase all or
a portion of the Accreted Value of the New Notes
held by such holder at a purchase price equal to
101% of the Accreted Value thereof, plus accrued
and unpaid interest, if any, to the date of
repurchase. See "Description of the New
Notes -- Change of Control."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit the ability of CCI to:
(i) incur Indebtedness (as defined); (ii) make
Restricted Payments (as defined); (iii) create
certain liens; (iv) enter into transactions with
affiliates; (v) create certain dividend and other
payment restrictions affecting subsidiaries; (vi)
make certain Asset Sales (as defined); and (vii)
engage in any merger, consolidation or sale of
substantially all assets. See "Description of the
New Notes -- Certain Covenants."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
There is currently no market for the Old Notes. The New Notes will be new
securities for which there currently is no market. Although Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Initial Purchaser") has informed CCI
that it currently intends to make a market in the Notes, it is not obligated to
do so and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the New Notes and, if issued, the Exchange Notes. CCI does not intend
to apply for listing of the New Notes, on any securities exchange; however, the
Notes are designated for trading by qualified institutional buyers in the NASD's
Private Offerings, Resales and Trading Through Automatic Linkages ("PORTAL")
market. See "Plan of Distribution."
USE OF PROCEEDS
There will be no cash proceeds to CCI from the exchange pursuant to the
Exchange Offer. The Exchange Offer is intended to satisfy certain of CCI's
obligations under the Registration Rights Agreement. See "Use of Proceeds."
RISK FACTORS
Purchasers of the New Notes should carefully consider the risk factors set
forth under the caption "Risk Factors" and the other information included in
this Prospectus prior to making an investment decision. See "Risk Factors."
5
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
The following table sets forth certain summary historical and pro forma
financial and operating data of CCI and the systems acquired from Cable One. The
historical data for each of the three years ended December 31, 1996, 1997 and
1998 has been derived from the audited consolidated financial statements of CCI.
The unaudited pro forma data gives effect to the Financing Plan as if all
such transactions had been consummated on January 1, 1998. The pro forma data
has been derived from the Unaudited Pro Forma Consolidated Financial Information
of CCI which is included elsewhere herein. The unaudited pro forma data does not
purport to be indicative of the results that would have been obtained had such
transactions been completed as of the assumed date and for the periods presented
nor is it necessarily indicative of results that may be obtained in the future.
The data presented below should be read in conjunction with the historical
consolidated financial statements of CCI and the notes related thereto, the
Unaudited Pro Forma Consolidated Financial Information and the notes related
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which appear elsewhere in this Offering
Memorandum. Acquisitions of cable television systems during the periods for
which the summary financial and operating data are presented below materially
affect the comparability of such data from one period to another.
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<PAGE> 12
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------- ----------
1996 1997 1998 1998
--------- --------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues.................................................... $ 59,821 $ 60,995 $ 69,802 $ 76,418
Costs and expenses.......................................... 33,553 36,555 42,070 45,911
Depreciation and amortization............................... 27,510 27,832 30,531 33,230
-------- -------- -------- --------
Operating income (loss)..................................... (1,242) (3,392) (2,799) (2,723)
Interest expense............................................ (20,633) (21,299) (24,442) (36,334)
Gain on sale of cable systems............................... 4,901 3,644 -- --
Write-off of abandoned telephone operations................. (2,994) (500) (220) (220)
Other income (expense)...................................... -- 71 192 (401)
-------- -------- -------- --------
Loss before income tax benefit and extraordinary loss....... (19,968) (21,476) (27,269) (39,678)
Income tax benefit.......................................... 6,802 7,347 1,930 1,930
Extraordinary loss.......................................... -- -- (5,524) --
-------- -------- -------- --------
Net loss.................................................... $(13,166) $(14,129) $(30,863) $(37,748)
======== ======== ======== ========
CCI BALANCE SHEET DATA (end of period):
Total assets................................................ $245,922 $220,162 $254,604 $ --
Total debt.................................................. 197,504 191,990 282,842 --
Total liabilities........................................... 219,232 206,643 301,392 --
Total redeemable preferred stock............................ 22,726 26,705 -- --
Total stockholders equity (deficit)......................... 3,965 (13,186) (46,788) --
OTHER FINANCIAL DATA:
Cash flows from operating activities........................ 7,933 7,892 14,262 16,191
Cash flows from investing activities........................ 3,387 (1,341) (57,245) (57,245)
Cash flows from financing activities........................ (12,155) (6,588) 45,146 49,993
EBITDA(1)................................................... 27,326 25,498(12) 28,840(13) 31,615(13)
EBITDA margin(11)........................................... 45.7% 41.8% 41.3% 41.4%
Capital expenditures........................................ 8,212 10,135 13,759 13,759
Deficiency of earnings to fixed charges(2).................. (19,968) (21,476) (27,269) (39,678)
OPERATING DATA (end of period, except avg.):
Homes passed(3)............................................. 259,181 254,649 296,995 296,995
Basic subscribers(4)(5)..................................... 171,657 165,737 188,871 188,871
Basic penetration(5)(6)..................................... 66.2% 65.1% 63.6% 63.6%
Premium subscribers(7)...................................... 62,458 63,819 71,702 71,702
Premium penetration(8)...................................... 36.4% 38.5% 38.0% 38.0%
Average monthly basic revenue per basic subscriber(9)....... $22.77 $25.22 $ 27.87 $27.83
Average monthly total revenue per basic subscriber(10)...... 27.68 30.14 33.24 33.30
</TABLE>
(Footnotes
on following page)
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<PAGE> 13
(1) EBITDA is defined as operating income (loss) plus depreciation and
amortization plus non-cash operating charges. EBITDA is presented because
management believes it is a widely accepted financial indicator of a
company's ability to incur and service debt. Management believes that
EBITDA is not intended to be a performance measure that should be regarded
as an alternative to, or more meaningful than, either operating income or
net income as an indicator of operating performance or to the statement of
cash flows as a measure of liquidity, is not intended to represent funds
available for dividends, reinvestment or other discretionary uses, and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. EBITDA measures presented may not be comparable to similarly
titled measures presented by other companies.
(2) Deficiency of earnings to fixed charges consists of loss before income tax
benefit and extraordinary loss. Fixed charges consist of interest expense
and the interest portion of rental expense.
(3) Homes passed refers to estimates by the Company of the approximate number
of dwelling units in a particular community that can be connected to the
Company's cable television distribution system without any further
extension of principal transmission lines.
(4) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on an
equivalent basic unit ("EBU") basis in which the total monthly bill for the
account is divided by the basic monthly charge for a single outlet in the
area. End of period basic and premium subscribers are net of system sales
that occurred during 1996 and 1997.
(5) End of period subscribers reflect asset sales that were consummated during
the third quarter of 1996 and the second quarter of 1997.
(6) Penetration is described as basic subscribers as a percentage of homes
passed.
(7) Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. A subscriber may purchase more than one
premium service, each of which is counted as a separate premium service
unit.
(8) Premium service units as a percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals basic revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(10) Average monthly total revenue per basic subscriber equals total revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(11) EBITDA margin represents EBITDA as a percentage of revenues. This
measurement is used by management, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. Management believes that EBITDA margin
is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as prepared in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures presented by
other companies.
(12) Included in EBITDA for 1997 are legal, consultant and other fees totaling
$1,411,000 incurred in connection with the settlement of certain claims
that arose in connection with divorce proceedings of an officer of the
Company. In addition, the Company paid $400,000 in fees to certain of its
executive management team in connection with completed acquisition and
divestiture transactions.
(13) Included in EBITDA for 1998 are fees totaling $775,000 paid to certain of
the executive management team in connection with completed acquisition and
financing transactions.
8
<PAGE> 14
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully review the following risk factors before
deciding to purchase the New Notes. References to "Company" in this section do
not include the Cable One Acquisition, unless the context requires otherwise.
SUBSTANTIAL LEVERAGE
CCI and the Company are, and will continue to be, highly leveraged as a
result of the substantial indebtedness they have incurred, and intend to incur,
to finance acquisitions and expand their operations. At December 31, 1998, CCI's
aggregate consolidated indebtedness was approximately $282.8 million. The
Company will have significant cash interest expense relating to the Senior
Subordinated Notes and its indebtedness under the Senior Credit Agreement, and a
substantial portion of the Company's cash flow will be required for debt
service. In addition, although a portion of the proceeds of the Old Notes were
contributed to the Company as equity and the New Notes will not be obligations
of the Company, CCI will be dependent on the Company's ability to distribute
cash to CCI to meet its cash payment obligations on the New Notes when such
obligations commence on February 1, 2004, and distributions to CCI to make such
payments will, in general, be subordinate under the Indenture relating to the
Senior Subordinated Notes and will be structurally subordinated to all of the
Company's obligations. See "Description of the New Notes -- Ranking." The
average interest rate accrued on CCI's long-term indebtedness during the year
ended December 31, 1998 was 10.0%. CCI and the Company may incur other
indebtedness to make additional acquisitions in the future.
For the year ended December 31, 1998 CCI's earnings were insufficient to
cover its fixed charges by $27.3 million. However, this amount reflects non-cash
charges totaling approximately $31.6 million consisting primarily of
depreciation and amortization. After giving pro forma effect to the Financing
Plan, as if such transactions had been consummated on January 1, 1998, CCI's
consolidated earnings on a pro forma basis would have been insufficient to cover
its total fixed charges by approximately $39.7 million for the year ended
December 31, 1998. However, this amount reflects non-cash depreciation and
amortization and other charges totaling approximately $34.3 million.
The degree to which CCI and the Company are leveraged could have important
consequences to holders of the New Notes including, but not limited to, the
following: (i) CCI's and the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (ii) a substantial portion of both
CCI's and the Company's cash flow from operations will be dedicated to the
payment of the principal of, and interest on, its debt; (iii) the Senior Credit
Agreement contains certain restrictive financial and operating covenants which
could limit the Company's ability to compete as well as its ability to expand;
and (iv) CCI's and the Company's substantial leverage may make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and reduce its flexibility in responding to changing business and
economic conditions. The ability of the Company to meet its debt obligations and
to make distributions to CCI to pay interest and principal on the New Notes will
depend on the future operating performance of the Company, which could be
affected by changes in economic conditions and other factors, including factors
beyond the control of CCI or the Company. Failure to comply with the covenants
and other provisions of debt instruments by CCI or the Company could result in
events of default under such instruments, which could permit acceleration of the
debt under such instruments and, in some cases, acceleration of debt under other
instruments that contain cross-default or cross-acceleration provisions.
If CCI and the Company are unable to generate sufficient cash flow to meet
their debt obligations, they may be required to renegotiate the terms of their
long-term debt instruments or to refinance all or a portion of their long-term
debt. The Company has approximately $96.4 million of Senior Indebtedness
outstanding, $95.8 million of which is long term debt under the Senior Credit
Agreement. There can be no assurance that CCI or the Company would be able to
renegotiate the terms of or refinance the Senior Indebtedness, or, if either
were able to do so, that the terms available to them would be favorable. If CCI
or the Company were unable to refinance its indebtedness or obtain new financing
under such circumstances, it would have to consider options such as the sale of
certain assets to meet its debt service, reduction of planned capital
9
<PAGE> 15
expenditures, negotiation with its lenders to restructure applicable
indebtedness or other options available to it under law. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued at a substantial discount from their principal
amount at maturity. Although cash interest will not accrue on the Notes prior to
August 1, 2003, and there will be no payments of cash interest on the Notes
prior to February 1, 2004, Original Issue Discount (the difference between the
stated redemption price at maturity of the New Notes and the issue price of the
Old Notes) will accrue from the issue date of the Old Note and generally will be
includable as interest income in the Notes holder's gross income for United
States federal income tax purposes in advance of the cash payments to which the
income is attributable.
Furthermore, the New Notes will be subject to the high yield discount
obligation rules which will defer and may in part eliminate CCI's ability to
deduct the Original Issue Discount attributable to the New Notes. Accordingly,
CCI's after tax cash flow might be less than if the Original Issue Discount on
the Notes was deductible when it accrued. See "United States Federal Income Tax
Considerations." Similar results may apply under state tax laws.
If a bankruptcy case is commenced by or against CCI or the Company under
the Federal Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"), after
the issuance of the New Notes, the claim of a holder of New Notes with respect
to the principal amount thereof may be limited to an amount equal to the sum of
(i) the initial offering price allocable to the Notes and (ii) that portion of
the original issue discount which is not deemed to constitute "unmatured
interest" for purposes of the Bankruptcy Code. Any original issue discount that
was not amortized as of any such bankruptcy filing would constitute "unmatured
interest."
NET LOSSES
CCI reported, on a consolidated basis, a net loss of approximately $13.2
million for the year ended December 31, 1996, a net loss of $14.1 million for
the year ended December 31, 1997, a net loss of $30.9 million for the year ended
December 31, 1998. On a pro forma basis for the year ended December 31, 1998,
after giving effect to the Financing Plan, CCI would have reported, on a
consolidated basis, a net loss of approximately $37.7 million. This loss
reflects significant depreciation and amortization charges and interest expense
on debt incurred by CCI and the Company. There can be no assurance that CCI or
the Company will become profitable in the foreseeable future. Utilization of
CCI's net operating losses for federal income tax purposes in the future is
subject to certain limitations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The loss of the services of J. Merritt Belisle, CCI's Chairman and Chief
Executive Officer or Steven E. Seach, CCI's President and Chief Financial
Officer, could have an adverse impact on CCI. Although CCI has employment
agreements with J. Merritt Belisle and Steven E. Seach, there can be no
assurance that the services of such personnel will continue to be made available
to CCI. CCI does carry key man life insurance on Mr. Belisle.
Each of J. Merritt Belisle and Steven E. Seach is permitted, pursuant to
the terms of their employment agreements with CCI, to engage in and pursue the
acquisition of other business opportunities, including other cable television
businesses, so long as CCI has been given a right of first refusal to take
advantage of any such opportunity and so long as the employee continues to
devote substantially all of his time to the management of CCI. If CCI does not
exercise its right of first refusal, Messrs. Seach and Belisle might be in the
position of engaging in other businesses, including businesses that might be in
the same industry as CCI. See "Management -- Employment Agreements and
Termination of Employment Agreements."
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<PAGE> 16
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is to expand by
acquiring cable television systems and/or Internet service providers located in
reasonable proximity to existing systems or of a sufficient size to enable the
acquired system to serve as the basis for a regional cluster. There can be no
assurance that the Company will be able to identify and acquire additional cable
and Internet systems or that it will be able to finance significant acquisitions
in the future. The Company anticipates that it will likely incur substantial
additional indebtedness to finance acquisitions in the future. The Company's
ability to pay interest and principal on the New Notes and to satisfy its debt
obligations will be dependent on the future operating performance of the
Company. See "Business -- Business Strategy."
NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES
Cable television companies operate under non-exclusive franchises, permits
or licenses granted by a municipality or other state or local governmental
entity which are subject to renewal and renegotiation from time to time. The
terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. A franchise is generally granted for a fixed term ranging from
five to fifteen years, but in many cases is terminable if the franchisee fails
to comply with its material provisions. The Company's business is dependent upon
the retention and renewal of its local franchises. Franchises typically impose
conditions relating to the operation of cable television systems, including
requirements relating to the payment of fees, system bandwidth capacity,
customer service requirements, franchise renewal and termination. The Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") 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. The Cable Communications Policy
Act of 1984 (the "1984 Cable Act"), the 1992 Cable Act and the Telecommunication
Act of 1996 (the "1996 Act") (collectively, the "Cable Acts") provide, among
other things, for an orderly franchise renewal process which requires that an
incumbent franchise renewal application be assessed on its own merits and not as
part of a comparative process with competing applications. A franchise renewal
will not be unreasonably withheld or, if renewal is denied and the franchising
authority acquires ownership of the system or effects a transfer of the system
to another person, the operator generally is entitled to the "fair market value"
for the system covered by such franchise. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of their franchises. Although the Company believes that
it generally has good relationships with its franchise authorities, no assurance
can be given that the Company will be able to retain or renew such franchises or
that the terms of any such renewals will be on terms as favorable to the Company
as the Company's existing franchises. To date, the Company has never had a
franchise revoked and no request for a franchise renewal or extension has been
denied, although the renewal or extended franchises have frequently resulted in
franchise modification on terms satisfactory to the Company. Furthermore, it is
possible that a franchise authority might grant a franchise to another cable
company. The non-renewal or termination of franchises relating to a significant
portion of the Company's subscribers could have a material adverse effect on the
Company's results of operations. See "Business -- Franchises."
LEGISLATION AND REGULATION
The cable television industry is subject to extensive regulation at the
federal, state and local levels. The Cable Acts which amended the Communications
Act of 1934 (the "Communications Act"), establish a national policy to guide the
development and regulation of cable television systems. Principal responsibility
for implementing the policies of the Cable Acts has been allocated between the
FCC and state or local regulatory authorities. It is not possible to predict the
effect that ongoing or future developments may have on the cable communications
industry or on the operations of the Company.
Under the Cable Acts, franchising authorities may elect to regulate basic
cable rates and rates for tiers of service above the basic rate may be regulated
by the FCC. Under the rate-making rules adopted by the FCC, local authorities
that elected to regulate basic cable rates can require rates to be set at
"benchmark" levels or, at the cable operator's option, based on the operator's
cost of service. The FCC has adopted rules liberalizing
11
<PAGE> 17
cost of service calculations for small cable systems operated by small cable
companies. Few of the jurisdictions in which the Company operates have elected
to certify to regulate rates and the Company believes that the FCC's small
system rate regulations will afford it additional flexibility to adjust its
rates. However there can be no assurance that the Company's revenues and results
of operations will not be adversely affected in the future by regulation of
cable system rates. The 1996 Act deregulates rates for cable programming
services tiers ("CPSTs") commencing in March 1999, and, for certain small cable
operators, immediately eliminates rate regulation of CPSTs, and, in certain
limited circumstances, basic services and equipment. The FCC is currently
developing permanent regulations to implement the rate deregulation provisions
of the 1996 Act. The Company is currently unable to predict the ultimate effect
of the Cable Acts including future Congressional action, the FCC's implementing
regulations, or the litigation challenging various aspects of this federal
legislation and the FCC's regulations. The FCC and Congress continue to be
concerned that rates for regulated programming services are rising at a rate
exceeding inflation. It is therefore possible that the FCC will further restrict
the ability of cable television operators to implement rate increases and/or
Congress will enact legislation which would, for example, delay or suspend the
scheduled March 1999 termination of CPST rate regulation. Cable television
systems generally operate pursuant to non-exclusive franchises, permits or
licenses granted by a municipality or other state or local governmental entity.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. A number of states subject cable television systems to the
jurisdiction of centralized state governmental agencies. To date, no state in
which the Company currently operates has enacted state level regulation. The
Company cannot predict whether any of the states in which it currently operates
will engage in such regulation in the future. See "Business -- Legislation and
Regulation -- Cable Regulation -- Rate Regulation."
The FCC also regulates numerous other aspects of the cable television
business including terms of franchise agreements, mandatory carriage of certain
local broadcasters that elect must-carry status, ownership of cable television
systems together with telephone systems or programming providers and other
matters. See "Business -- Legislation and Regulation."
The above-described regulations may affect the Company's ability to obtain
a sufficient return on its investments. Furthermore, the regulations are
changing rapidly to allow significantly increased competition among various
service providers. The Company cannot predict the eventual effect of these
regulations. See "Business -- Legislation and Regulation."
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including videotape cassette recorders. Because the
Company's franchises are non-exclusive, there is the potential for competition
with the Company's systems from other operators of cable systems, including
systems operated by local governments and from other distribution systems
capable of delivering programming to homes or businesses, including direct
broadcast satellite ("DBS") systems and multichannel multipoint distribution
service ("wireless cable") systems which use low power microwave frequencies to
transmit video programming over the air to customers. Within the home video
programming market, the Company competes with other cable franchise holders and
with satellite and wireless cable providers. In recent years, the FCC has
adopted policies providing for a more favorable operating environment for new
and existing technologies that provide, or have the potential to provide,
substantial competition to cable systems. Programming comparable to that of
cable systems is currently available to the owners of home satellite dish earth
stations ("HSDs") through conventional-, medium- and high-powered satellites.
Several companies offer DBS. In recent years there has been significant national
growth in the number of subscribers to DBS services, and such growth would be
assisted if one or more DBS providers is successful in delivering local
broadcast signals. Legislation has been introduced in Congress to amend the
Copyright Act to authorize carriage of local broadcast signals by DBS providers.
In addition, recent FCC and judicial decisions and Federal legislation will
enable local telephone companies to provide a wide variety of video services
competitive with services provided by cable systems and
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<PAGE> 18
to provide cable services directly to customers. Company cannot predict the
extent to which competition will materialize from other cable television
operators, other distribution systems for delivering video programming to the
home or other potential competitors, or, if such competition materializes, the
extent of its effect on the Company. Various LECs (as defined) currently are
providing video programming services within and outside their telephone service
areas through a variety of distribution methods including both the deployment of
broadband wire facilities and the use of wireless transmission facilities.
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the cable industry. See "Business -- Competition" and
"Business -- Legislation and Regulation."
LIMITATIONS ON ACCESS TO CASH FLOW; RANKING
CCI will have no operations of its own. Consequently, CCI will rely on
dividends from the Company, and hence the cash flow of the Company, in order to
meet its debt service obligations. The debt instruments of the Company severely
restrict, among other things, the payment of dividends, the making of loans by
the Company or its subsidiaries to CCI and CCI's ability to purchase New Notes
tendered pursuant to a Change of Control Offer (as defined). For a further
description of these restrictions, see "Description of the Units."
As a result of the relationship of CCI and the Company, the creditors of
CCI, including the holders of the Notes, will effectively rank junior to all
creditors of the Company, including the bank lenders under the Senior Credit
Agreement, the holders of the Senior Subordinated Notes and the trade creditors
of the Company and its subsidiaries, notwithstanding that the New Notes will be
senior obligations of CCI. Accordingly, in the event of the dissolution,
bankruptcy, liquidation or reorganization of CCI and the Company, the holders of
the New Notes may not receive any amounts with respect to the New Notes until
after the payment in full of the claims of creditors of the Company. As of
December 31, 1998, the aggregate amount of indebtedness and other obligations of
the Company and its subsidiaries, to which the holders of the New Notes are
structurally subordinated was approximately $220.8 million which includes $95.8
million in secured debt under the Senior Credit Agreement, $124.4 million in
Company Notes and $0.6 million in other debt of the Company.
The New Notes will not be secured by any of CCI's assets. CCI has pledged
all of the capital stock of the Company to collateralize borrowings of the
Company under the Senior Credit Agreement. If the Company becomes insolvent or
is liquidated, or if payment under the Senior Credit Agreement is accelerated,
the lenders under the Senior Credit Agreement would be entitled to exercise the
remedies available to a secured lender under applicable law and pursuant to the
Senior Credit Agreement. Accordingly, such lenders have a prior claim on the
assets of CCI.
OWNERSHIP OF CCI'S COMMON STOCK
Austin Ventures, L.P., BT Capital Partners, Inc., The Texas Growth Fund and
NationsBank Capital Investors, and Union Bank Ventures collectively own
approximately 66.3% of the CCI Common Stock on a fully-diluted basis. Such
institutional investors have the ability to elect a majority of CCI's directors,
who, in turn, may direct the operations and business of CCI and the Company as a
whole. Although the directors of CCI have fiduciary obligations to CCI, there
may be conflicts of interest between the institutional investors and the holders
of the New Notes. There can be no assurance that any such conflict, should it
occur, will be resolved in a manner favorable to the holders of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "The Exchange Offer -- Purpose and Effect"), holders of
Old Notes not tendered will not have any further registration rights and those
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for a holder's Old Notes could be
adversely affected upon completion of the Exchange Offer if the holder does not
participate in the Exchange Offer.
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<PAGE> 19
LACK OF ESTABLISHED MARKET FOR NOTES
There is no existing trading market for the Old Notes and, although CCI has
been advised by the Initial Purchaser that it intends to make a market in the
New Notes, the Initial Purchaser is not obligated to do so and any market making
may be discontinued at any time without notice. In addition such market making
activity may be limited during the Exchange Offer. Although the Notes are
eligible for trading in the PORTAL market, there can be no assurance as to the
development of any market or the liquidity of any market that may develop for
the New Notes.
ABILITY TO PURCHASE NEW NOTES UPON A CHANGE OF CONTROL
If a Change of Control occurs, there can be no assurance that CCI will have
sufficient funds to repurchase the New Notes pursuant to the terms of the CCI
Indenture. In the event that a Change of Control occurs at a time when CCI does
not have sufficient funds available to repurchase the New Notes or at a time
when CCI is prohibited from repurchasing the New Notes under the terms of other
indebtedness of CCI (and CCI is unable either to obtain the consent of holders
of such other indebtedness or to repay such other indebtedness), an Event of
Default would occur under the CCI Indenture. Furthermore, both the Senior Credit
Agreement and the CCI Indenture for the New Notes include "change of control"
provisions that permit, in the case of the Senior Credit Agreement, the lenders
thereunder to accelerate the repayment of indebtedness thereunder and that
require, in the case of the CCI Indenture for the New Notes, CCI to offer to
purchase all of the outstanding New Notes. Any acceleration of the obligations
of the Company under the Senior Credit Agreement could materially and adversely
affect the ability of CCI to effect a purchase of the New Notes upon a Change of
Control. In addition, the existence of a holder's right to require CCI to
repurchase its New Notes upon the occurrence of a Change of Control may deter a
third party from acquiring CCI in a transaction which would constitute a Change
of Control. See "Description of the New Notes."
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<PAGE> 20
USE OF PROCEEDS
There will be no cash proceeds to CCI from the exchange pursuant to the
Exchange Offer. The Exchange Offer is intended to satisfy certain of CCI's
obligations under the Registration Rights Agreement.
The net proceeds to CCI and the Company from the offering of the Old Notes
of CCI and the Company along with the proceeds from the Senior Credit Agreement
were approximately $280.2 million and were used to (a) fund the acquisition of
certain assets of Cable One, Inc. ($41.7 million), (b) redeem existing preferred
stock and accrued dividends ($31.0 million), (c) retire the outstanding
subordinated debt and accrued interest ($4.5 million), (d) repay the previous
Senior Credit Agreement and other outstanding debt ($190.3 million) and interest
($2.6 million) and (e) pay fees and expenses of these transactions ($10.1
million). The preferred stock accrued dividends at rates ranging from 8% to 15%
and had mandatory redemption requirements in 2001 and 2005. The subordinated
debt accrued interest at rates ranging from 7.5% to 15% and matured in 2002 and
2007. The Senior Credit Agreement accrued interest at the LIBOR rate plus an
applicable margin. Principle payments were to begin in 1999 with the balance due
in 2005.
15
<PAGE> 21
CAPITALIZATION
As the New Notes have substantially the same terms as the Old Notes and are
being exchanged for the same amount of principal as is outstanding under the Old
Notes, the capitalization of CCI will be unchanged as a result of the Exchange
Offer.
16
<PAGE> 22
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
The following table sets forth certain summary historical and pro forma
financial and operating data of CCI and the systems acquired from Cable One. The
historical data as of and for the years ended December 31, 1996, 1997 and 1998
has been derived from the audited consolidated financial statements of CCI.
The unaudited pro forma data gives effect to the Financing Plan as if all
such transactions had been consummated on January 1, 1998. The pro forma data
has been derived from the Unaudited Pro Forma Consolidated Financial Information
of CCI which is included elsewhere herein. The unaudited pro forma data does not
purport to be indicative of the results that would have been obtained had such
transactions been completed as of the assumed date and for the periods presented
nor is it necessarily indicative of results that may be obtained in the future.
The data presented below should be read in conjunction with the historical
consolidated financial statements of CCI and the notes related thereto, the
Unaudited Pro Forma Consolidated Financial Information and the notes related
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which appear elsewhere in this Prospectus.
Acquisitions of cable television systems during the periods for which the
summary financial and operating data are presented below materially affect the
comparability of such data from one period to another.
17
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------------------------------------- ---------
1994 1995 1996 1997 1998 1998
-------- --------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues................................ $ 16,019 $ 36,677 $ 59,821 $ 60,995 $ 69,802 $ 76,418
Costs and expenses...................... 8,372 18,911 33,553 36,555 42,070 45,911
Depreciation and amortization........... 6,383 16,427 27,510 27,832 30,531 33,230
-------- --------- -------- -------- -------- --------
Operating income (loss)................. 1,264 1,339 (1,242) (3,392) (2,799) (2,723)
Interest expense........................ (4,975) (14,199) (20,633) (21,299) (24,442) (36,334)
Gain on sale of cable systems........... 115 -- 4,901 3,644 -- --
Write-off of abandoned telephone
operations............................ -- -- (2,994) (500) (220) (220)
Other income (expense).................. -- -- -- 71 192 (401)
-------- --------- -------- -------- -------- --------
Loss before income tax benefit, minority
interest and extraordinary loss....... (3,596) (12,860) (19,968) (21,476) (27,269) (39,678)
Income tax benefit...................... 1,121 4,533 6,802 7,347 1,930 1,930
Extraordinary loss...................... -- (4,054) -- -- (5,524) --
Minority interest in net loss of
subsidiary............................ 46 -- -- -- -- --
-------- --------- -------- -------- -------- --------
Net loss................................ $ (2,429) $ (12,381) $(13,166) $(14,129) $(30,863) $(37,748)
======== ========= ======== ======== ======== ========
CCI BALANCE SHEET DATA (end of period):
Total assets............................ $ 96,136 $ 271,516 $245,922 $220,162 $254,604 $ --
Total debt.............................. 58,161 207,706 197,504 191,990 282,842 --
Total liabilities....................... 78,251 232,531 219,232 206,643 301,392 --
Total redeemable preferred stock........ 12,332 19,260 22,726 26,705 -- --
Total stockholders equity (deficit)..... 5,553 19,725 3,965 (13,186) (46,788) --
OTHER FINANCIAL DATA:
Cash flows from operating activities.... 4,724 5,520 7,933 7,892 14,262 16,191
Cash flows from investing activities.... (38,028) (176,672) 3,387 (1,341) (57,245) (57,245)
Cash flows from financing activities.... 34,883 170,090 (12,155) (6,588) 45,146 49,993
EBITDA(1)............................... 7,647 17,766 27,326 25,498(12) 28,840(13) 31,615(13)
EBITDA margin(11)....................... 47.7% 48.4% 45.7% 41.8% 41.3 41.4%
Capital expenditures.................... 1,879 3,931 8,212 10,135 13,759 13,759
Deficiency of earnings to fixed
charges(2)............................ (3,596) (12,860) (19,968) (21,476) (27,269) (39,678)
OPERATING DATA (end of period, except
avg.):
Homes passed(3)......................... 95,055 269,336 259,181 254,649 296,995 296,995
Basic subscribers(4)(5)................. 72,865 182,696 171,657 165,737 188,871 188,871
Basic penetration(5)(6)................. 76.7% 67.8% 66.2% 65.1% 63.6% 63.6%
Premium subscribers(7).................. 27,212 65,400 62,458 63,819 71,702 71,702
Premium penetration(8).................. 37.3% 35.8% 36.4% 38.5% 38.0% 38.0%
Average monthly basic revenue per basic
subscriber(9)......................... $ -- $ 21.40 $ 22.77 $ 25.22 $ 27.87 $ 27.83
Average monthly total revenues per basic
subscriber(10)........................ -- 26.00 27.68 30.14 33.24 33.30
</TABLE>
(Footnotes on following page)
18
<PAGE> 24
(1) EBITDA is defined as operating income (loss) plus depreciation and
amortization plus non-cash operating charges. EBITDA is presented because
management believes it is a widely accepted financial indicator of a
company's ability to incur and service debt. Management believes that
EBITDA is not intended to be a performance measure that should be regarded
as an alternative to, or more meaningful than, either operating income or
net income as an indicator of operating performance or to the statement of
cash flows as a measure of liquidity, is not intended to represent funds
available for dividends, reinvestment or other discretionary uses, and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. EBITDA measures presented may not be comparable to similarly
titled measures presented by other companies.
(2) Deficiency of earnings to fixed charges consists of loss before income tax
benefit and extraordinary loss. Fixed charges consist of interest expense
and the interest portion of rental expense.
(3) Homes passed refers to estimates by the Company of the approximate number
of dwelling units in a particular community that can be connected to the
Company's cable television distribution system without any further
extension of principal transmission lines.
(4) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on an
equivalent basic unit ("EBU") basis in which the total monthly bill for the
account is divided by the basic monthly charge for a single outlet in the
area. End of period basic and premium subscribers are net of system sales
that occurred during 1996 and 1997.
(5) End of period subscribers reflect asset sales that were consummated during
the third quarter of 1996 and the second quarter of 1997.
(6) Penetration is described as basic subscribers as a percentage of homes
passed.
(7) Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. A subscriber may purchase more than one
premium service, each of which is counted as a separate premium service
unit.
(8) Premium service units as a percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals basic revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(10) Average monthly total revenue per basic subscriber equals total revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(11) EBITDA margin represents EBITDA as a percentage of revenues. This
measurement is used by management, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. Management believes that EBITDA margin
is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as prepared in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures presented by
other companies.
(12) Included in EBITDA for 1997 are legal, consultant and other fees totaling
$1,411,000 incurred in connection with the settlement of certain claims
that arose in connection with divorce proceedings of an officer of the
Company. In addition, the Company paid $400,000 in fees to certain of its
executive management team in connection with completed acquisition and
divestiture transactions.
(13) Included in EBITDA for 1998 are fees totaling $775,000 paid to certain of
the executive management team in connection with completed acquisition and
financing transactions.
19
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding the
financial condition and results of operations of CCI for each of the years ended
December 31, 1996, 1997 and 1998. This discussion should be read in conjunction
with "Selected Historical and Pro Forma Consolidated Financial and Operating
Data" and CCI's financial statements and the notes thereto appearing elsewhere
in this Prospectus. Since its inception, CCI has completed 17 acquisitions and
five divestitures of cable systems. As a result, management believes that
period-to-period comparisons of CCI's financial results to date are not
necessarily meaningful and should not be relied upon as an indication of future
performance due to the number and timing of acquisitions and divestitures in
each period.
OVERVIEW
CCI, currently the 35th largest cable television operator in the United
States, owns, operates and develops cable television systems in selected
non-metropolitan markets across eight contiguous states primarily located in the
central United States. CCI has completed and integrated 17 acquisitions,
including the Cable One Acquisition which added 28,009 subscribers. As of
December 31, 1998, the Systems passed approximately 297,000 homes and served
approximately 189,000 basic subscribers.
Revenues. CCI's revenues are primarily attributable to monthly subscription
fees charged to basic subscribers for CCI's basic and premium cable television
programming services. Basic revenues consist of monthly subscription fees for
all services (other than premium programming) as well as monthly charges for
customer equipment rental. Premium revenues consist of monthly subscription fees
for programming provided on a per channel basis. In addition, other revenues are
derived from installation and reconnection fees charged to basic subscribers to
commence or reinstate service, pay-per-view charges, late payment fees,
advertising revenues and commissions related to the sale of merchandise by home
shopping services. At December 31, 1998, CCI served approximately 189,000 basic
subscribers and 72,000 premium units, representing a basic penetration rate of
64% and a premium penetration rate of 38%. The table below sets forth for the
periods indicated the percentage of CCI's total revenues attributable to the
various sources:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Basic....................................................... 82.3% 83.3% 83.4%
Premium..................................................... 10.9 10.4 9.8
Other....................................................... 6.8 6.3 6.8
----- ----- -----
Total revenues.............................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Operating Expenses. CCI's operating expenses consist of programming fees,
plant and operating costs, general and administrative expenses, and marketing
costs directly attributable to the systems. Programming fees have historically
increased at rates in excess of inflation due to system acquisitions, and
internal growth, as well as increases in the number, quality and cost of
programming services offered by CCI. CCI benefits from its membership in an
industry cooperative with over 10.0 million basic subscribers which provides its
members with volume discounts from programming networks and cable equipment
vendors. Plant and operating costs include expenses related to wages and
employee benefits of technical personnel, electricity, systems supplies,
vehicles and other operating costs. General and administrative expenses directly
attributable to the systems include wages and employee benefits for customer
service, accounting and administrative personnel, franchise fees and expenses
related to billing, payment processing, and office administration.
Corporate overhead consists primarily of expenses incurred by executive
management CCI and which are not directly attributable to any one system.
Operating Losses. The high level of depreciation and amortization
associated with the acquisitions and capital expenditures related to continued
construction and upgrading of the current systems, together with
20
<PAGE> 26
interest costs related to CCI's financing activities, have contributed to CCI's
net losses. CCI believes that such net losses are common for the cable
television industry.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $60,995 100.0% $69,802 100.0%
Operating expenses:.............................
Programming................................... 14,916 24.5% 17,840 25.6%
Plant and operating........................... 7,622 12.5% 8,437 12.1%
General and administrative.................... 9,257 15.2% 11,295 16.2%
Marketing and advertising..................... 438 0.7% 850 1.2%
Corporate overhead.............................. 4,322 7.1% 3,648 5.2%
Depreciation and amortization................... 27,832 45.6% 30,531 43.7%
------- ----- ------- -----
Earnings/(loss) from operations................. $(3,392) (5.6)% $(2,799) (4.0)%
======= ===== ======= =====
</TABLE>
Revenues. Revenues in 1998 were $69.8 million, an improvement of $8.8
million over revenues in 1997. Basic revenues improved by $7.4 million or 14.7%
while average monthly basic revenues per subscriber increased from $25.22 to
$27.87, or 10.5% over 1997. The improvement was due primarily to basic rate
increases in February 1998 affecting 234 systems and serving approximately
114,000 subscribers or 69% of total subscribers as well as revenue generated
from the systems acquired from Cable One on July 29, 1998. CCI has historically
increased rates in the majority of its systems during the first quarter in order
to offset increases in its operating costs such as programming which occur in
January of each year. The majority of the remaining systems also had rate
increases during 1998. The change in basic subscribers for the year ended
December 31, 1998 is primarily due to the acquisition of systems from Cable One
in 1998 and the sale of certain Kansas and Oklahoma systems serving
approximately 4,000 basic subscribers during the second quarter of 1997 as well
as bulk account EBU conversion calculations following the basic rate increases,
the increased availability and affordability of competitive video services,
non-pay disconnects, and other terminations of service. Other revenues increased
13.7%, from $10.2 million in 1997 to $11.6 million in 1998, due in large part to
continued promotion of pay-per-view events.
Operating Expenses. Operating expenses in 1998 were $38.4 million, an
increase of $6.2 million or 19.2% over 1997. The continued escalation in rates
charged by certain programming vendors as well as increases in copyright fees
and premium units were largely responsible for the $2.9 million increase in
programming costs over 1997. Plant and operating expenses increased from $7.6
million for the year ended December 31, 1997 to $8.4 million for the year ended
December 31, 1998, reflecting increases in technical wages and benefits, plant
power, and amounts paid to outside contractors to update CCI's subscriber
database. General and administrative expenses increased from $9.3 million for
the year ended December 31, 1997 to $11.3 for the year ended December 31, 1998
due to increases in administrative wages and benefits, telephone, property taxes
and bad debt expense. General and administrative expense as a percentage of
revenue increased during this period, from 15.2% to 16.2%. Marketing expenses
for the year ended December 31, 1998 were $0.9 million, an increase of 94.1%
over 1997. The majority of this increase relates to increased spending
associated with CCI's marketing initiatives. As a percentage of revenues,
operating expenses increased slightly from 52.8% in 1997 to 55.0% in 1998.
Corporate Overhead. Corporate overhead decreased $0.7 million, or 15.6%
from $4.3 million for the year ended December 31, 1997 to $3.6 million for the
year ended December 31, 1998 due primarily to a reduction in litigation costs
compared to 1997.
21
<PAGE> 27
Depreciation and amortization. Depreciation and amortization expense for
the year ended December 31, 1998 was $30.5 million, an increase of $2.7 million
over 1997. The increase is largely reflective of the inclusion of fixed assets
placed into service during 1997 and 1998.
Income Tax Benefit. The income tax benefit decreased from $7.3 million in
the year ended December 31, 1997 to $1.9 million in the year ended December 31,
1998. The pre-tax loss increased in 1998; however, the effective tax rate
decreased. The effective tax rate decreased from 34.2% to 7.1%. This decrease is
primarily due to an increase in the valuation allowance against deferred tax
assets.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $59,821 100.0% $60,995 100.0%
Operating expenses:
Programming................................. 15,106 25.3 14,916 24.5
Plant and operating......................... 7,308 12.2 7,622 12.5
General and administrative.................. 8,688 14.5 9,257 15.2
Marketing and advertising................... 238 0.4 438 0.7
Corporate overhead............................ 2,213 3.7 4,322 7.1
Depreciation and amortization................. 27,510 46.0 27,832 45.6
------- ----- ------- -----
Earnings (loss) from operations............... $(1,242) (2.1)% $(3,392) (5.6)%
======= ===== ======= =====
</TABLE>
Revenues. Revenues for the year ended December 31, 1997 were $61.0 million,
an improvement of $1.2 million or 2.0% over revenues of $59.8 million for the
year ended December 31, 1996. In 1997, basic revenues increased by $1.8 million
or 3.7% due to basic rate increases implemented primarily during the first
quarter of the year. Average monthly basic revenues per subscriber increased
from $22.77 to $25.22 or 10.8% over the same period in 1996. The decrease in
basic subscribers for the period ended December 31, 1997, is largely reflective
of the sale of Kansas and Oklahoma systems serving approximately 4,000 basic
subscribers during the second quarter of 1997 as well as bulk account EBU
conversion calculations following the basic rate increases, the increased
availability and affordability of competitive video services, non-pay
disconnects, and other terminations of service. In 1997, CCI launched a
coordinated array of marketing techniques to attract and retain customers and to
increase premium service penetration, including door-to-door and direct mail
solicitation, telemarketing, media advertising, local promotional events and
cross-channel promotions of new services and pay-per-view events. Net of the
system sales, premium subscribers increased by 2,975 units or 4.9% during 1997
with a corresponding 2.2% increase in penetration, from 36.4% in 1996 to 38.5%
at December 31, 1997. The corresponding premium revenue decreased, however, 3.2%
from $6.5 million in 1996 to $6.3 million in 1997 due in large part to the
system divestitures and discounted pricing offered in connection with the
various marketing campaigns. Other revenues also decreased 11.0%, from $4.1
million in 1996 to $3.6 million in 1997, largely as a function of the system
divestitures and free or heavily-discounted installation marketing promotions.
The decrease was partially offset by $196,698 or 181% increase in pay-per-view
event revenue.
Operating Expenses. Operating expenses increased $892,000 or 2.8% from
$31.3 million in 1996 to $32.2 million in 1997. Programming costs for the year
ended December 31, 1997 decreased $190,000 or 1.3% over the year ended December
31, 1996 to $14.9 million. Increases in copyright fees, premium units and rates
charged by certain programming vendors were offset by the renegotiation of
certain programming contracts wherein rate concessions, launch fees and other
marketing support totaling $564,000 were obtained. Plant and operating expenses
increased $314,000 or 4.3% to $7.6 million during 1997 due to the hiring of
additional technical personnel as well as increases in technical wages and
benefits and vehicle operating expenses. General and administrative expenses for
1997 were $9.3 million, an increase of $568,000 or 6.5% over 1996.
22
<PAGE> 28
The increase was due primarily to the addition of certain key management and
administrative personnel, an increase in bad debt expense and the write-off of
certain costs related to the termination of the purchase agreement and
operations associated with the proposed acquisition of telephone exchanges in
Kansas. Marketing and advertising expenses for the year ended December 31, 1997,
were $438,000, an increase of $200,000 or 84.0% over the year ended December 31,
1996, relating directly to increased spending associated with CCI's
aforementioned new marketing initiatives. As a percentage of revenues, operating
expenses increased slightly, from 52.4% in 1996 to 52.9% in 1997.
Corporate Overhead. Corporate overhead for the year ended December 31,
1997, was $4.3 million, an increase of $2.1 million over the year ended December
31, 1996. The increase was largely reflective of costs incurred in conjunction
with divorce proceedings of an officer of CCI. CCI agreed to purchase certain
stock of CCI in which the officer's wife held a community property interest and
provide monetary consideration for the release of certain claims. Legal,
consultant and other fees of approximately $1.4 million were charged to
corporate overhead for 1997 in connection with this matter. The remainder of the
increase was due primarily to the hiring of the Vice President -- Operations in
February 1997 as well as other increases in executive compensation, travel and
entertainment.
Depreciation and Amortization. Depreciation and amortization expense for
the year ended December 31, 1997, was $27.8 million, an increase of $322,000
over 1996. The increase is due primarily to the inclusion of fixed assets placed
into service during the year. The increase was partially offset by the sales of
certain systems during 1996 and 1997.
Income Tax Benefit. The benefit for income taxes increased in 1997 to $7.3
million from $6.8 million in 1996, primarily due to the increase in the pre-tax
loss from operations in 1997 and an increase in the effective tax rate from
34.1% to 34.2% in 1996 and 1997, respectively.
Total deferred tax liabilities and total deferred tax assets decreased by
$12.9 million and $6.3 million, respectively, from 1996 to 1997. Approximately
$8.1 million of the decrease in deferred tax liabilities relates to taxable
temporary differences, primarily recurring book depreciation and amortization in
excess of tax. The remaining $4.8 million decrease in deferred tax liabilities
relates to the increase in tax basis of assets held by a subsidiary of the
Company as a result of a deferred intercompany gain recognized during 1997.
Approximately $4.9 million of the decrease in total deferred tax assets relates
primarily to the utilization of net operating losses to offset taxable income
generated by the taxable temporary differences noted above. Total deferred tax
assets also decreased by $1.5 million due to the expiration of certain net
operating losses in 1997. The remaining $0.1 increase in deferred tax assets is
primarily due to recurring temporary differences.
The expiration of net operating losses in 1997 had no impact on the
provision for income taxes since a valuation allowance had previously been
provided for these loss carryforwards. The deferred tax asset for the expired
net operating loss carryforwards and the related valuation allowance were
reduced accordingly.
The net effect of the above items resulted in a current federal tax expense
of $0.3 million for alternative minimum tax and a deferred tax benefit of $7.6
million for the reduction in net deferred tax liabilities.
23
<PAGE> 29
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $36,677 100.0% $59,821 100.0 %
Operating expenses:
Programming................................. 8,221 22.4 15,106 25.3
Plant and operating......................... 4,715 12.9 7,308 12.2
General and administrative.................. 4,782 13.0 8,688 14.5
Marketing and advertising................... 72 0.2 238 0.4
Corporate overhead............................ 1,121 3.1 2,213 3.7
Depreciation and amortization................. 16,427 44.8 27,510 46.0
------- ----- ------- -----
Earnings (loss) from operations............... $1,339 3.7% $(1,242) (2.1)%
======= ===== ======= =====
</TABLE>
Revenues. Revenues for the year ended December 31, 1996, were $59.8
million, an improvement of $23.1 million or 63.1% over revenues of $36.7 million
in 1995. In 1996, basic revenues increased by $19.0 million or 63.0% due to the
inclusion of a full year of revenues for the systems representing approximately
111,000 subscribers acquired throughout 1995. Average monthly basic revenues per
subscriber increased from $21.40 to $22.77, or 6.4% over the same period in
1995. The change in basic subscribers for the period ended December 31, 1996 is
largely reflective of the sale of certain Arkansas systems serving approximately
8,219 basic subscribers in 1996 as well as subscriber losses due to the
increased availability and affordability of competitive video services, bulk
account EBU conversion calculations following basic rate increases, non-pay
disconnects, and other terminations of service. Net of the system sales, premium
penetration increased from 35.8% in 1995 to 36.4% in 1996. Premium revenues
increased $2.1 million or 47.4%, from $4.4 million in 1995 to $6.5 million in
1996.
Operating Expenses. Operating expenses increased $13.5 million from $17.8
million in 1995 to $31.3 million in 1996. Programming costs for the year ended
December 31, 1996, increased $6.9 million or 83.7%, over the year ended December
31, 1995, to $15.1 million. As a percentage of revenues, programming expense
increased from 22.4% in 1995 to 25.3% in 1996. The increase was due primarily to
an increase in the number and quality of programming services offered by CCI,
specifically, the addition of The Disney Channel to the basic channel lineup in
a majority of the systems acquired in 1995. Plant and operating expenses
increased $2.6 million or 55.0% to $7.3 million during 1996, reflecting the
addition of the cable systems and subscribers acquired in 1995. Plant and
operating expenses as a percent of revenues decreased from 12.9% in 1995 to
12.2% in 1996, reflecting the continued benefits derived from CCI's clustered
operating strategy. General and administrative expenses for 1996 were $8.7
million, an increase of $3.9 million, or 81.7% over 1995. The increase was due
primarily to the addition of the cable systems and subscribers acquired
throughout 1995. As a percentage of revenues, general and administrative
expenses increased from 13.0% in 1995 to 14.5% in 1996, due primarily to
increases in salaries and benefits, property taxes, and general insurance.
Marketing and advertising expenses for the year ended December 31, 1996, were
$238,000, an increase of $166,000 over the year ended December 31, 1995,
relating directly to increased spending associated with CCI's 1995 acquisitions.
As a percentage of revenues, operating expenses increased from 48.5% in 1995 to
52.4% in 1996.
Corporate Overhead. Corporate overhead for the year ended December 31,
1996, was $2.2 million, an increase of $1.1 million over the year ended December
31, 1995. The increase was due primarily to the addition of key accounting and
finance personnel during the year and the recognition of non-cash compensation
expense related to the restricted stock.
Depreciation and Amortization. Depreciation and amortization expense for
the year ended December 31, 1996, was $27.5 million, an increase of $11.1
million over 1995. The increase is due primarily to the
24
<PAGE> 30
inclusion of the tangible and intangible assets acquired during 1995. The
increase was partially offset by the sales of certain Arkansas systems in 1996.
Income Tax Benefit. The benefit for income taxes increased from 1996 to
$6.8 million from $4.5 million in 1995, primarily due to the increase in the
pre-tax loss from operations in 1996 while the effective tax rate decreased from
35.3% to 34.1% in 1995 and 1996, respectively.
CAPITAL EXPENDITURES
The cable television industry is a capital intensive business that
generally requires financing for the upgrade, expansion and maintenance of the
technical infrastructure. In addition, CCI has pursued, and continues to pursue,
a business strategy that includes selective acquisitions. CCI has funded its
working capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long and short term borrowings, and
equity contributions. CCI intends to continue to finance such expenditures from
similar sources.
For the three years ended December 31, 1998, CCI's capital expenditures,
other than those related to acquisitions, were approximately $32.1 million.
Capital expenditures include expansion and improvements of existing cable
properties, plant and equipment upgrades, as well as cable line drops, line
plant extensions and installations of service to new subscribers.
Beginning in August 1998 and over the following five years, CCI intends to
spend approximately: (i) $42.9 million to establish a technical standard of 550
MHz bandwidth capacity (78 analog channels) in cable television systems serving
over 70% of its basic subscribers; (ii) $28.0 million for ongoing maintenance
and replacement, for installations and extensions to improve the cable plant
related to customer growth and headend consolidation; and (iii) $7.7 million for
the purchase of additional addressable converters and headend equipment to
support the deployment of digital services. See "Business."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, CCI has been supported by equity funding from
institutional equity investors. Capital stock of CCI is owned by institutional
investors, including Austin Ventures, L.P., NationsBank Capital Investors, The
Texas Growth Fund, BT Capital Partners, Inc., certain members of its bank group
led by Chase Manhattan and Union Bank Ventures. After consummation of the
Offerings, these institutional investors comprise approximately $34.1 million of
total equity financing in CCI. At December 31, 1998, CCI had aggregate
consolidated indebtedness of approximately $282.8 million. This debt and equity
financing was utilized primarily in the acquisition of cable television systems.
CCI has no operations of its own. Consequently, CCI will rely on dividends
from the Company, and hence the cash flow of the Company, in order to meet its
debt service obligations. The Company's net cash provided by operations was
$14.3 million in 1998 compared to $7.9 million in 1997 and $7.9 million in 1996.
The Company's net cash provided by (used in) investing activities was $(57.2)
million, $(1.3) million and $3.4 million in 1998, 1997 and 1996, respectively.
The Company's net cash provided by (used in) financing amounted to $45.1
million, $(6.6) million and $(12.2) million, in 1998, 1997 and 1996,
respectively. The Company's EBITDA increased to $28.8 million in 1998 from $25.5
million in 1997 and $27.3 million in 1996. EBITDA as a percentage of revenue
changed to 41.3% in 1998 from 41.8% in 1997, and 45.7% in 1996. Included in
EBITDA for the year ended December 31, 1997 were charges, including divorce
litigation costs of $1,411,000 and special bonuses paid to executive officers of
$400,000. Included in EBITDA for the year ended December 31, 1998 were special
bonuses paid to executive officers of $775,000. The debt instruments of the
Company severely restrict, among other things, the payment of dividends, the
making of loans by the Company or its subsidiaries to CCI and CCI's ability to
purchase New Notes tendered pursuant to a Change of Control Offer. For a further
description of these restrictions, see "Description of the New Notes."
The Offerings provide CCI and the Company with greater flexibility by
extending the maturities of their long-term debt and reduce annual amortization
requirements. Concurrently with the closing of the Offerings, CCI repaid all of
its outstanding subordinated indebtedness and redeemable preferred stock and the
Company
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<PAGE> 31
repaid all of its existing indebtedness under the Prior Credit Agreement and
entered into the Senior Credit Agreement with maximum borrowings of $125.0
million. The Senior Credit Agreement is secured by a first priority lien on and
security interest in substantially all of the assets of the Company, and
contains certain covenants and provide for certain events of default customarily
contained in facilities of a similar type. See "Business -- Business Strategy,"
"Use of Proceeds" and "Credit Arrangements of the Company."
Beginning in 1999, CCI has debt service requirements of approximately $20
million a year over the next five years. During this time CCI also anticipates
capital expenditures averaging approximately $16 million a year. Debt covenants
dictate that the Company maintain certain ratios related to debt balances and
operating results in addition to limiting the amount that can be used for
capital expenditures. Funds to support the operations of CCI and pay the
anticipated debt service and capital expenditure requirements are anticipated to
be primarily generated from CCI's operating activities. If operating revenues
are insufficient to meet the needs of its anticipated spending, CCI will first
evaluate the need to borrow additional funds and then reduce its capital
spending. The Company has $29.2 million available under the line of credit
subject to some limitations. Although CCI has not generated earnings sufficient
to cover fixed charges, CCI has generated cash and obtained financing sufficient
to meet its debt service, working capital and capital expenditure requirements.
Although there can be no assurances, CCI expects that it will continue to
generate funds and obtain financing sufficient to meet its financial obligations
and capital expenditure requirements in the foreseeable future. See "Risk
Factors."
INFLATION
Certain of CCI's expenses, such as programming, wages and benefits,
equipment repair and maintenance, billing and marketing are subject to
inflation. However, because changes in costs are generally passed through to
subscribers, such changes historically have not had a material adverse effect on
CCI's results of operations.
YEAR 2000 COMPLIANCE
Through 1999, most large companies will be facing a potentially serious
business problem because many software applications and computer equipment
developed in the past may not properly recognize calendar dates beginning in the
year 2000. This problem could cause computers to either shutdown or provide
incorrect data. CCI has begun taking measures to address this problem. However,
CCI has not yet completed its assessment of the impact of Year 2000 on key
business applications, operational systems, or relationships with key business
partners. CCI has initiated an extensive assessment of its Year 2000 readiness
relative to its information system and communications technology. CCI has
engaged an outside consultant in performing this evaluation and expects it to be
completed by the end of the second quarter of 1999. CCI, at this time, cannot
estimate what the total cost will be to implement remediation efforts for its
critical operational systems but it is possible that such costs will be
material.
CCI has started an ongoing program to review the status of key supplier
Year 2000 compliance efforts. While CCI believes it is taking all appropriate
steps to insure Year 2000 compliance, there can be no assurance that these key
partners, which may include third-party vendors and service providers, will
complete their own Year 2000 compliance projects in a timely manner and that
failure to do so will not have an adverse impact on CCI's business. Further,
until CCI has completed its Year 2000 assessment, it cannot determine whether a
contingency plan is required nor the timetable for establishment of such a plan.
The lack of contingency plans could prevent CCI from resolving Year 2000 issues
in a timely and efficient manner, and could heighten the risk that the Year 2000
problem may have a material adverse effect on CCI's financial condition and
results of operations.
The Year 2000 problem is pervasive as virtually every computer operation
will be affected in some way. Consequently, no assurance can be given that Year
2000 compliance can be achieved without costs that might affect future financial
results or cause reported financial information not to be necessarily indicative
of future operating results or future financial condition.
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<PAGE> 32
BUSINESS
COMPANY OVERVIEW
The Company, currently the 35th largest cable television operator in the
United States, owns, operates and develops cable television systems in selected
non-metropolitan markets across eight contiguous states primarily located in the
central United States. Founded in 1992, the Company has completed and integrated
18 acquisitions, including the recent acquisition of approximately 28,000
subscribers, the Cable One Acquisition. As of December 31, 1998, the Systems
pass approximately 297,000 homes and serve approximately 189,000 basic
subscribers.
The Company believes that there are significant operating, regulatory,
competitive and economic advantages in acquiring and owning systems in
non-metropolitan markets. In pursuing its business strategy, the Company has
focused its acquisition efforts on cable television systems in growing
non-metropolitan markets and has sought to build geographic clusters of such
systems. Cable television service in these markets is generally required to
receive a full complement of off-air broadcast stations (i.e., ABC, NBC, CBS,
FOX and PBS). These off-air broadcast stations represent approximately 40% of
overall television viewing. In addition, there are typically fewer competitive
entertainment alternatives in these markets. Consequently, non-metropolitan
systems are typically characterized by higher basic penetration rates, lower
subscriber turnover and lower operating costs. The Company, generally the
dominant multi-channel video provider in its markets, has capitalized on these
market characteristics by generating more predictable revenue streams and higher
system cash flow margins than typical cable television systems serving urban
markets.
Approximately 66.9% of the Company's cable subscribers reside in a county
seat. These markets typically have larger populations, more favorable
demographics, higher growth characteristics, and stronger economic activity than
do other non-metropolitan markets. The Company has created clusters of cable
television systems around such markets and believes that clustering cable
systems provides significant operating and cost advantages. The Company owns and
manages 287 Systems in six regions across eight contiguous states. This level of
clustering allows the Company to efficiently deploy its technical staff, vehicle
fleet, and shared resources, such as system supplies and equipment, resulting in
lower operating and capital costs and greater customer response time. Clustering
also allows management to (i) more effectively manage the workforce and allocate
personnel, (ii) address the specific customer service and programming needs of
its customers, (iii) cost effectively introduce digital services such as HITS
and other new services, (iv) maximize the number of households reached with
existing marketing budgets, (v) maximize the benefits of local and regional
community relations efforts, and (vi) manage political relationships at the
local and state level.
The Company believes that providing superior customer service and
developing strong community relations are key elements to its long-term success,
and enable the Company to continue to increase subscription rates and therefore
maximize cash flow. The Company seeks to achieve a high level of customer
satisfaction by employing a well-trained staff of customer service
representatives and experienced field technicians. The Company's centralized
calling center offers 24-hour, 7-day per week coverage to all of its customers
on a toll-free basis.
J. Merritt Belisle, Chairman and Chief Executive Officer, and Steven E.
Seach, President and Chief Financial Officer, founded the Company in 1992 and
have assembled a management team with significant business experience operating
cable television systems and providing quality customer service to cable
subscribers. Messrs. Belisle and Seach have 20 years of collective experience in
acquiring, operating, integrating and developing cable television systems and
have worked together for over ten years. The Company's Vice
President--Operations and three Regional Managers have an average of 28 years of
cable television industry experience. Messrs. Seach and Belisle, together with
certain other members of the Company's management team, collectively own or have
options with respect to approximately 14% of CCI's Common Stock on a
fully-diluted basis. See "Management."
Since its inception in March 1992, the Company has been supported by equity
funding from institutional equity investors. Approximately 66.3% of CCI's
fully-diluted capital stock is owned by institutional investors, including
Austin Ventures, L.P., NationsBank Capital Investors, The Texas Growth Fund, BT
Capital
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<PAGE> 33
Partners, Inc. and Union Bank Ventures. To date, these institutional investors
have provided approximately $34.1 million of common equity financing to support
the growth of the Company's business. See "Principal Stockholders."
BUSINESS STRATEGY
The Company's business strategy is to (i) focus on attractive
non-metropolitan markets, (ii) increase the revenue-generating bandwidth of its
cable plant utilizing the most cost-effective and appropriate technology for the
markets served, (iii) maximize revenues and cash flow margins, (iv) expand and
improve clusters through selective acquisitions, (v) focus on customer
satisfaction and community relations, (vi) provide enhanced digital video
services, and (vii) deliver advanced telecommunications, high-speed data and
Internet services.
Focus on Attractive Non-Metropolitan Markets. The Company has followed a
systematic approach to acquiring, consolidating, operating and developing cable
television systems based on the primary goal of increasing operating cash flow
while maintaining the quality of its services. The Company's business strategy
has focused on serving growing non-metropolitan communities in the central
United States. For example, over two-thirds of the Company's cable subscribers
reside in a county seat. These markets generally tend to have more serviceable
households per mile, more robust household growth, higher income per household,
more disposable income per household and a stronger business foundation than do
other non-metropolitan markets. According to Equifax National Decisions Systems,
total households are projected to grow by approximately 6.8%, versus the
national average of 5.7%, from 1997 to 2002 in the top 76 systems owned by the
Company. Those 76 systems currently serve approximately 70.4% of the Company's
total subscribers. The Company believes that the Systems generally involve less
risk of increased competition than systems serving large urban cities. It is the
goal of the Company to continue to focus on growing non-metropolitan areas.
Increase the Revenue-Generating Bandwidth of the Systems. Through the
System Improvement Program, the Company plans to aggressively and systematically
upgrade its cable plant utilizing the most cost-effective and appropriate
technology for the market served. These upgrades include traditional rebuild to
a 550 MHz bandwidth capacity, the deployment of fiber optic cable, the
consolidation of headends, the deployment of digital compression services such
as Headend in The Sky(R) ("HITS"), a digital compression service developed by
National Digital Television Center, Inc., a subsidiary of Tele-Communications,
Inc., the deployment of addressable technology, and the activation of the return
path for two-way data transmission. The Company believes that such technical
upgrades create additional revenue opportunities, enhance operating
efficiencies, increase customer satisfaction, improve franchise relationships
and solidify the Company's position as the dominant provider of multi-channel
video services in its markets. The Company seeks to benefit from the System
Improvement Program by generating additional revenue from expanded tiers of
basic programming, multiplexed premium services, pay-per-view movies, digital
music, on-screen navigators, home shopping services, high-speed data services,
Internet access, near-video-on-demand and other interactive services.
Beginning in August 1998 and over the following five years, the Company
intends to spend approximately: (i) $42.9 million to establish a technical
standard of 550 MHz bandwidth capacity (78 analog channels) in cable television
systems serving over 70% of its basic subscribers; (ii) $28.0 million for
ongoing maintenance and replacement, for installations and extensions to improve
the cable plant related to customer growth and headend consolidation; and (iii)
$7.7 million for the purchase of additional addressable converters and headend
equipment to support the deployment of digital services. Approximately $53.1
million or 67.6% of the $78.5 million in total capital expenditures will be
spent in the three year period beginning August 1998. A select number of the
Company's larger systems will be rebuilt to 750 MHz bandwidth capacity (112
analog channels). In addition to its future upgrade plans, the Company has been
actively rebuilding and improving the technical standard of its cable plant over
the past 18 months. The most ambitious rebuild project the Company has initiated
is the 750 MHz-spaced rebuild (with 550 MHz equipment) of its 4,400-subscriber
Breckenridge, Colorado system. A fiber backbone and a fiber ring were completed
in the Breckenridge city limits in December 1997 that brought the city limits to
550 MHz. The upgrade of the outlying 40 miles of the Breckenridge, Colorado
system will be completed in 1999. The 130-mile system will be fully addressable
upon
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<PAGE> 34
completion. The Company has also completed other fiber backbone 550 MHz rebuilds
within the last 18 months including its 3,100-subscriber Paola, Kansas system
and its 1,900-subscriber Kermit, Texas system. In 1997, the Company also
completed 550 MHz rebuilds of its 1,000-subscriber Spiro, Oklahoma system and
its 800-subscriber Mason, Texas system. As a result of its active rebuild
efforts to date, approximately 34% of the Company's subscribers are served by
systems with over 50 channels of analog capacity. That figure is expected to
increase to approximately 75% of the Company's subscribers by the end of the
System Improvement Program. See "Business -- Technical Overview."
Maximize Revenues and Cash Flow Margins. The Company seeks to maximize
revenues by increasing subscriptions to basic, expanded basic, and other tiers
of satellite services and premium programming services through a combination of
innovative marketing programs, an emphasis on customer service and strong
community relations. As a result of the Company's success in facilitating
revenue growth, combined with operating efficiencies generated by the Company's
clustering strategy, economies of scale, volume discounts for cable programming,
cost control culture, and decentralized management structure, the Company
believes its operating cash flow margins compare favorably to the cable
television industry as a whole.
Expand and Improve Clusters through Selective Acquisitions. To date, the
Company has sought to acquire cable television systems in communities that are
in close geographic proximity to other cable television systems owned or managed
by the Company in order to maximize the economies of scale and operating
efficiencies associated with clusters of systems. Management plans to continue
its clustering strategy by pursuing opportunities to purchase cable television
systems in the Company's existing markets as well as by entering contiguous or
surrounding markets, if and when attractive acquisition opportunities become
available. In addition to system acquisition opportunities, management expects
to pursue opportunities to exchange certain of the Systems for other cable
television properties to further promote the Company's clustering strategy.
Factors likely to be considered by the Company in evaluating the desirability of
a potential acquisition or asset exchange opportunity include valuation,
subscriber densities, growth potential (in terms of both market and cash flow)
and whether the target system can be readily integrated into the Company's
operations.
In order to offer Internet access on a full-scale residential and
commercial basis in the communities it serves, the Company is actively seeking
to acquire incumbent Internet Service Providers ("ISPs") in and around its
markets. The Company believes that acquiring the expertise from an incumbent ISP
would allow the Company to offer services in the most effective and timely
manner enabling it to capitalize on the immediate, viable Internet opportunities
in its markets. The Company is also interested in acquiring or aligning with
other companies that provide other telecommunications services including local
and long distance telephone, utility, and direct-to-home, in addition to other
Internet technology and software firms.
Focus on Customer Satisfaction and Community Relations. The Company
believes that providing superior customer service and enhancing the quality of
life in the communities it serves are the key elements to its ultimate long-term
success, and specifically enables the Company to continue to increase
subscription rates and therefore maximize present and future cash flow. The
Company seeks to achieve a high level of customer satisfaction by employing a
well-trained staff of customer service representatives and experienced field
technicians. The Company's centralized calling center in Plainville, Kansas
offers 24-hour, 7-day per week coverage to all of its Company's customers on a
toll-free basis. The customer service center is supported by three T-1 lines and
can handle up to 60 incoming calls at any given time through a Company-owned
telephone switch. The switch is complemented by a software package that can
track call statistics ranging from average answer time to the number of calls by
type, as well as individual and group performance statistics. This sophisticated
software facilitates the movement of customer service and field service agents
in order to minimize answer times. Data is recorded daily and reports can be
generated to track trends in call volume. For the quarter ending December 31,
1998, the Company's calling center received 160,789 calls and had an average
answer time of 17 seconds compared to the 30 second FCC requirement.
The Company believes customer service is further enhanced by the Company's
44 local offices' ability to effectively coordinate technical service and
installation appointments and to quickly respond to customer inquiries. The
Company also believes that local offices increase the effectiveness of its
customer retention
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<PAGE> 35
efforts, community relations endeavors, and marketing campaigns. The Company's
customer service and technical staff attend ongoing workshops led by both a
full-time, in-house Training Specialist and outside customer service and
technical training firms that emphasize first time quality, point-of-sale
subscriber acquisition, upgrade and retention, technical support, and other
pertinent customer service issues. The Company also employs seven bilingual
customer service representatives to effectively serve its Spanish-speaking
subscriber base.
The Company maintains a site on the World Wide Web
(http://www.classic-cable.com) to help communicate and interact with its online
customers. The Company's website was also designed to help the Company's
customers make intelligent television viewing choices and to acquaint its
customers with the Company and its unique corporate mission. In December 1997,
the Company's website was selected as one of three winners in the Best System
Operator Website Competition by a panel of judges at the California Cable
Television Association, the sponsors of the technology-focused Western Cable
Show, and Ziff-Davis, the world's leading integrated media company focused on
technology.
The Company is dedicated to fostering strong community relations in the
communities it serves. The cornerstone of the Company's community relations
strategy is its Classic Cable Scholarship Fund which has provided meaningful
financial assistance to over 225 graduating high school seniors within its
service areas over the past two years. In 1997, the Company received the Best of
Texas Award and the Bronze Community Project Award from the Texas Cable and
Telecommunications Association for its community relations efforts. In 1998, the
Company received the Cable Excellence Award from the Arkansas Cable Television
Association for its community outreach projects. The Company also installs and
provides free cable television service and Internet access to public schools,
government buildings, and public libraries in its franchise areas. The Company
believes that its relations with the communities it serves are good.
Provide Enhanced Digital Video Services. The Company intends to provide
enhanced digital video in the upgraded and certain other systems using either
HITS or TVN. HITS is a digital compression service developed by National Digital
Television Center, Inc., a subsidiary of Tele-Communications, Inc. HITS will
enable the Company to deliver video services such as pay-per-view programming,
on-screen programming navigators, multiplexed premium channels such as
HBO-Family, HBO-Signature, etc., digital music, and multiple tiers of niche
satellite basic programming. TVN Entertainment also offers a similar digital
compression service which offers a robust line up of pay-per-view programming,
digital quality music channels as well as the on-screen programming navigator.
This service is then coupled with a combination of multiplexed premium services
picked up digitally direct from the program providers such as HBO, Showtime or
Encore and the HITS product. Only basic niche programming is picked up from the
HITS service. This hybrid digital delivery method may provide for a flexible,
customizable product and improved channel line ups and potentially allow for
more flexibility in pricing and packaging.
The Company believes that these enhanced digital video services will allow
it to provide digital services comparable to DBS at a lower cost. The Company
recently introduced the traditional HITS digital product in both the 4,200
subscriber Woodward, OK system and the 7,000 subscriber Nixa/Ozark, MO system.
The TVN digital products was introduced in February 1999 in the 3,200 subscriber
Fort Scott, KS system and the 2,900 subscriber Stuttgart, AR system. At least
eight additional digital launches serving approximately 24,000 subscribers are
planned for 1999. Results of the four test systems will help determine in which
systems the Company will implement traditional HITS digital launches or TVN
hybrid digital launches.
Deliver Advanced Telecommunications, High-Speed Data and Internet
Services. The Company believes that additional revenue opportunities exist in
non-metropolitan markets by providing advanced telecommunication services, such
as Internet access and the delivery of high-speed data services, including
local- and wide-area network applications, for residential and commercial
customers. The Company believes that these markets have limited appeal to the
larger telecommunications companies and that its technical platform will provide
such services at higher speeds and lower cost, giving the Company a competitive
advantage over other telecommunication providers in the markets in which it
operates. For example, a 10 megabit ("MB") cable modem provides Internet access
at download speeds 350 times faster than typical 28.8 kilobit dial-up
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<PAGE> 36
telephone modem connections. The Company plans to introduce Internet access via
the cable modem in its larger systems and will seek to complement this service
with the telephone modem connection through acquisitions of local ISPs.
As part of its effort to deliver advanced data services in the communities
it serves, the Company has successfully deployed two cable modem beta sites in
its Phillipsburg, Kansas and Oberlin, Kansas systems. The Phillipsburg project
connects four local area networks ("LAN") in three school buildings and the
district office to a broadband community area network using LanCity cable modems
that transfer up to 10 MB of data per second. The Oberlin project connects three
LANs in two schools buildings and the district office to a broadband wide area
network utilizing Zenith cable modems that can transfer up to 4 MB of data per
second. Both projects have been successful public relations and technological
undertakings for the Company. As such, the Company plans to deploy more cable
modems for school systems and commercial subscribers in several other
communities in which it provides service.
INDUSTRY OVERVIEW
A cable television system receives television, radio and data signals at
the system's "headend" site by means of off-air antennas, microwave relay
systems and satellite earth stations. These signals are then modulated,
amplified and distributed through coaxial and fiber optic distribution systems
to deliver a wide variety of channels of television programming to the homes of
subscribers who pay fees on a monthly basis for this service. A cable television
system may also originate its own television programming and other information
services for distribution through its system. Cable television systems generally
are constructed and operated pursuant to non-exclusive franchises or similar
licenses granted by local governmental authorities for a specified period of
time.
The cable television industry developed in the United States in the late
1940s and early 1950s 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 unfavorable
topography and remoteness from television broadcast towers. In the 1960s, cable
systems also developed in non-metropolitan markets that had limited availability
of off-air television station signals. All of these markets are regarded within
the cable industry as "classic cable" television system markets.
Cable television systems offer customers programming consisting of
broadcast television signals of local network affiliates, independent and
educational television stations, a limited number of television signals from
so-called "super stations" originating from distant cites (such as WGN), various
channels (such as Cable News Network ("CNN"), Music Television ("MTV"), the USA
Network ("USA"), Turner Network Television ("TNT"), and Entertainment and Sports
Programming Network ("ESPN")), programming originated locally by the cable
television system (such as public, governmental and education access programs)
and informational displays featuring news, weather and public service
announcements. For an additional monthly charge, cable television systems also
offer "premium" television services to customers on a per-channel basis. These
services (such as Home Box Office ("HBO"), Cinemax, Showtime, The Movie Channel
and selected regional sports networks) are channels that consist principally of
feature films, live sporting events, concerts and other special entertainment
features, usually presented without commercial interruption.
A customer generally pays 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 the primary source of revenues for cable television systems. In
addition to customer revenues from these services, cable television systems
generate revenues 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. Cable television systems
also frequently offer their customers home shopping services for a share of the
revenues from products sold in their service areas. The cable television
industry is changing rapidly due to new technology and new alliances between
cable television and other telecommunications companies. Providing traditional
cable television programming is only one
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aspect of the industry as potential opportunities to expand into Internet,
broadband data, telephone, and other telecommunications services continue to
develop and become more commercially viable.
OPERATING REGIONS
In order to most effectively manage and operate the systems, the Company
has established six operating regions organized primarily along state lines. The
Northern region serves 39,249 subscribers in Kansas and Nebraska, the Central
region serves 41,461 subscribers in Oklahoma, the Texas Panhandle region serves
28,585 subscribers in Texas and New Mexico, the Central Texas region serves
31,715 subscribers in Texas, the Missouri/Arkansas region serves 42,941
subscribers in Missouri and Arkansas, and the Breckenridge region serves 4,920
subscribers in Colorado. Each region is headed by a regional manager responsible
for managing local and state political and franchise relationships, maximizing
the profitability of his or her system clusters, allocating regional resources,
and supervising technical and local office customer service personnel. The
following table is a summary of selected subscriber and operating data for the
regions as of December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF HOMES BASIC BASIC PREMIUM PREMIUM
SYSTEMS PASSED SUBSCRIBERS PENETRATION SUBSCRIBERS PENETRATION
--------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Central Texas region....... 43 51,017 31,715 62.17% 12,057 38.02%
Texas Panhandle region..... 60 51,021 28,585 56.03% 7,941 27.78%
Northern region............ 71 55,858 39,249 70.27% 14,019 35.72%
Missouri/Arkansas region... 27 65,038 42,941 66.02% 16,061 37.40%
Central region............. 84 70,008 41,461 59.22% 20,191 48.70%
Breckenridge region........ 2 4,053 4,920 121.39% 1,433 29.13%
--- ------- ------- ------ ------ -----
Totals........... 287 296,995 188,871 63.59% 71,702 37.96%
=== ======= ======= ====== ====== =====
</TABLE>
MARKETING, PROGRAMMING AND RATES
The Company's marketing programs and campaigns are based upon a variety of
cable services creatively packaged and tailored to appeal to the Company's
different markets and segments within each market. The Company routinely surveys
its customer base to ensure that it is meeting the demands of its customers and
stays abreast of its competition in order to effectively counter competitors'
promotional campaigns. The Company uses a coordinated array of marketing
techniques to attract and retain customers and to increase premium service
penetration, including door-to-door and direct mail solicitation, telemarketing,
media advertising, local promotional events typically sponsored by programming
services and cross-channel promotion of new services and pay-per-view.
The Company has various contracts to obtain basic, satellite and premium
programming for the Systems from program suppliers, including, in limited
circumstances, some broadcast stations, with compensation generally based on a
fixed fee per customer or a percentage of the gross receipts for the particular
service. Some program suppliers provide volume discount pricing structures
and/or offer marketing support. In addition, the Company is a member of a
programming consortium consisting of small to medium sized MSOs and individual
cable systems serving, in the aggregate, over eight million cable subscribers.
The consortium helps 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 and medium sized cable operators.
The Company does not have long-term programming contracts for the supply of a
substantial amount of its programming. In cases where the Company does have such
contracts, they are generally for fixed periods of time ranging from one to five
years and are subject to negotiated renewal. While management believes that the
Company's relations with its programming suppliers are generally good, the loss
of contracts with certain of its programming suppliers would have a material
adverse effect on the Company's results of operations.
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<PAGE> 38
Cable programming costs are expected to continue to increase due to
additional programming being provided to customers, increased costs to purchase
cable programming, inflationary increases and other factors. In 1996, 1997 and
1998, programming costs as a percentage of revenues were 25.3%, 24.5% and 25.6%,
respectively. No assurance can be given that the Company's programming costs
will not increase substantially in the near future or that other materially
adverse terms will not be added to its programming contracts.
The Systems offer their customers programming that includes the local
network, independent and educational television stations, a limited number of
television signals from distant cities, numerous satellite-delivered,
non-broadcast channels (such as CNN, MTV, USA, ESPN and TNT) and in some systems
local information and public access channels. The programming offered by the
Company varies among the Systems depending upon each System's channel capacity
and viewer interests. Primarily for competitive reasons, the Company generally
endeavors to offer a single level of basic service containing all broadcast and
satellite-delivered programming. In a few systems, however, the Company does
offer multiple tiers of cable television programming. The Company also offers
premium programming services, both on a per-channel basis and in many systems as
part of premium service packages designed to enhance the customer's perception
of value.
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided and competitive factors. At
December 31, 1998, the Company's monthly full basic service rates for
residential customers ranged from $18.00 to $32.76 and per-channel premium
service rates (not including special promotions) ranged from $5.95 to $12.00 per
service. At December 31, 1998, the weighted average price for the Company's
monthly full basic service was approximately $28.29.
A one-time installation fee, which the Company may wholly or partially
waive during a promotional period, is usually charged to new customers. The
Company charges monthly fees for converters and remote control tuning devices.
The Company also charges administrative fees for delinquent payments for
service. Customers are free to discontinue service at any time without
additional charge but may be charged a reconnection fee to resume service.
Commercial customers, such as hotels, motels and hospitals, are charged a
negotiated, non-recurring fee for installation of service and monthly fees.
Multiple dwelling unit accounts may be offered a bulk rate in exchange for
single-point billing and basic service to all units.
In addition to customer fees, the Company derives modest revenues from the
sale of local spot advertising time on locally originated and
satellite-delivered programming. The Company also derives modest revenues from
affiliations with home shopping services, which offer merchandise for sale to
customers and compensate system operators with a percentage of their sales
receipts.
The Company also derives revenue from the sale of programming featuring
movies and special events to customers on a pay-per-view basis. In 1998, the
Company's pay-per-view revenue increased by 22.7% and the Company believes that
it will be able to further increase its pay-per-view penetration rates and
revenue as it continues to deploy addressable technology in upgraded systems and
in systems where it launches a digital compression service.
While the Company plans to offer advanced telecommunications services in
certain of the Systems, it anticipates that monthly customer fees derived from
multi-channel video services will continue to constitute the large majority of
its total revenues for the foreseeable future.
TECHNICAL OVERVIEW
As part of its commitment to customer service, the Company endeavors to
maintain high technical performance standards in all of its Systems. To
accomplish this, the Company has embarked on its System Improvement Plan to
selectively upgrade the Systems. This program, which involves the use of fiber
optic technology, will expand channel capacities, enhance signal quality,
improve technical reliability, augment addressability and provide a platform to
develop high-speed data services and Internet access. The Company believes that
such technical upgrades create additional revenue opportunities, enhance
operating efficiencies, increase customer satisfaction, improve franchising
relations and solidify the Company's position as the dominant provider of video
services in the markets in which it operates. Before committing the capital to
upgrade or rebuild a system, the Company carefully assesses: (i) the existing
technical reliability and picture
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<PAGE> 39
quality of the system; (ii) basic subscribers' demand for more channels; (iii)
requirements in connection with franchise renewals; (iv) programming
alternatives offered by competitors; (v) customers' demand for other cable
television and broadband telecommunications services; and (vi) the return on
investment of any such capital outlay.
Currently, the Company's subscribers, on average, are served by systems
with an analog capacity of 46 channels with 40 channels in use. The table below
summarizes the Company's existing technical profile as of December 31, 1998.
<TABLE>
<CAPTION>
UP TO 29 30 TO 39 40 TO 49 50 TO 59 OVER 60
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of systems.................... 19 123 91 6 48 287
Miles of plant....................... 202 1,486 2,966 244 1,347 6,245
Basic subscribers.................... 3,820 39,602 81,729 9,387 54,333 188,871
% of total basic subscribers......... 2.0% 21.0% 43.2% 5.0% 28.8% 100.0%
Basic subscribers per plant mile..... 18.9 26.7 27.6 38.5 40.3 30.2
Premium subscribers.................. 1,190 17,328 29,843 3,839 19,502 71,702
Premium penetration.................. 31.2% 43.8% 36.5% 40.9% 35.9% 38.0%
</TABLE>
Beginning in August 1998 and over the following five years, the Company
intends to spend approximately: (i) $42.9 million to establish a technical
standard of 550 MHz bandwidth capacity (78 analog channels) in cable television
systems serving over 70% of its basic subscribers; (ii) $28.0 million for
ongoing maintenance and replacement, for installations and extensions to the
cable plant related to customer growth and headend consolidation; and (iii) $7.7
million for the purchase of additional addressable converters and headend
equipment to support the deployment of digital services. The table below
summarizes the Company's expected technical profile upon completion of the
System Improvement Program.
<TABLE>
<CAPTION>
UP TO 29 30 TO 39 40 TO 49 50 TO 59 OVER 60
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of systems.................... -- 105 83 1 98 287
Miles of plant....................... -- 1,224 853 15 4,153 6,245
Basic subscribers.................... -- 57,842 58,345 182 72,502 188,871
% of total basic subscribers......... -- 30.6% 30.9% 0.1% 38.4% 100.0%
Basic subscribers per plant mile..... -- 47.3 68.4 12.1 17.5 30.2
Premium subscribers.................. -- 17,113 22,740 38 31,811 71,702
Premium penetration.................. -- 29.6% 39.0% 20.9% 43.9% 38.0%
</TABLE>
With the exception of 11 of the 14 systems acquired from Cable One, the
Company's remaining Systems do not currently use addressable technology. The
Company utilizes a "trap" scheme whereby a technician installs filters, or
traps, at each cabled home enabling the technician to configure the programming
received by each subscriber. The System Improvement Program contemplates the use
of addressable set-top boxes in selected analog upgraded systems, in addition to
digital addressable technology. This service transmits digitally compressed
signals of niche satellite programming, multiplexed premium services,
pay-per-view movies and digital music for reception by cable systems, which in
turn deliver them to their subscribers.
The Company's active use of fiber optic technology as an alternative to
coaxial cable is playing a major role in expanding channel capacity and
improving the performance of its cable television systems. Fiber optic strands
are capable of carrying hundreds of video, data and voice channels over extended
distances without the extensive signal amplification typically required for
coaxial cable. The Company expects to selectively use fiber backbone
architecture to eliminate headend facilities and to reduce amplifier cascades,
thereby improving picture quality, system reliability and headend and
maintenance expenditures. Upon completion of the System Improvement Program, the
Company expects that fiber optic technology will be utilized in systems serving
approximately half of its basic subscribers.
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<PAGE> 40
Recently, high-speed cable modems and set-top boxes using digital
compression technology have become commercially viable. These developments allow
for the introduction of high-speed data services and Internet access and will
increase programming services available to customers. Digital compression
technology has the potential to significantly expand channel capacity given that
up to 16 digital channels can be carried in the bandwidth of one analog channel
(6 MHz).
The Company also owns 285 towers and leases two towers that are used to
receive off-air broadcast signals from the nearest urban transmit site or via
intermittent microwave relay stations. The Company's towers range from 20 feet
to 600 feet in height and 125 of the Company's 287 towers are at least 200 feet
in height. The Company also leases tower space to cellular telephone, personal
communications services ("PCS"), paging and other transmission companies for a
fixed monthly charge typically dictated by long-term contract. For the year
ended December 31, 1998, the Company derived approximately 0.5% of its total
revenues from tower space leases.
FRANCHISES
Cable television systems are typically constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as (i) time limitations on
commencement and completion of construction, (ii) conditions of service,
including number of channels, types of programming and the provision of free
service to schools and certain other public institutions, and (iii) the
maintenance of insurance and indemnity bonds. Certain provisions of local
franchises are subject to federal regulation under both the 1984 Cable Act and
the 1992 Cable Act. See "Legislation and Regulation -- Cable Regulation."
At December 31, 1998, the Company held 346 franchises. These franchises,
all of which are non-exclusive, generally provide for the payment of fees to the
issuing authority. Annual franchise fees imposed on the Systems range from 0% to
5% of the gross revenues generated by the Systems. With limited exceptions,
franchise fees are passed directly through to the customers on their monthly
bills. The 1984 Cable Act prohibits franchising authorities from imposing
franchise fees in excess of 5% of gross revenues, and permits a cable operator
to seek renegotiation and modification of franchise requirements if warranted by
changed circumstances. The Company's franchises can be terminated by the
franchising authority prior to the stated expiration date for uncured breaches
by the Company of material provisions.
The following table sets forth the number of franchises by year of
franchise expiration and the approximate number and percentage of basic
subscribers at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER % OF % OF
OF TOTAL NUMBER OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
- ---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 2000................................... 28 8.1% 23,829 12.6%
2000 to 2003.................................... 143 41.3 69,480 36.8
After 2003...................................... 175 50.6 95,562 50.6
--- ----- ------- -----
Total........................................... 346 100.0% 188,871 100.0%
=== ===== ======= =====
</TABLE>
The Cable Acts provide, among other things, comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merits and not as part of a comparative process with
competing applications. See "Legislation and Regulation." The Company believes
that it has good relationships with its franchising communities. To date, the
Company has never had a franchise revoked or terminated. Additionally, no
request made by the Company for franchise renewals or extensions has been denied
although the renewal or extended franchises have frequently resulted in
franchise modifications on satisfactory terms. The Cable Acts also establish the
conditions for sale of a cable system in the event that the franchise is not
renewed or is revoked "for cause" by the franchising authority.
The 1992 Cable Act provides that a franchising authority "may not grant an
exclusive franchise," "may not unreasonably refuse to award an additional
competitive franchise" and may operate cable systems itself
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<PAGE> 41
without franchises. Under the 1992 Cable Act, franchising authorities are
immunized from monetary damages awards arising from regulation of cable
television systems or decisions made on franchise grants, renewals, transfers
and amendments. See "Legislation and Regulation -- Cable Regulation."
COMPETITION
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
DBS services, wireless cable services, newspapers, movie theaters, live sporting
events, on-line computer services and home video products. Cable communications
system's competitive position depends, in part, upon reasonable prices to
customers, greater variety of programming and other communications services, and
superior technical performance and customer service. Accordingly, cable
operators in rural areas, where off-air reception is more limited, generally
achieve higher penetration rates than cable operators in major metropolitan
areas, where numerous, high quality off-air signals are available.
Cable television systems generally operate pursuant to franchises granted
on a nonexclusive basis, so that more than one cable television system may be
built in the same area (known as an "overbuild"), with potential loss of revenue
to the operator of the original system. It is possible that a franchising
authority might grant a second franchise to another company containing terms and
conditions more favorable than those afforded the Company. The 1992 Cable Act
prohibits franchising authorities from unreasonably denying requests for
additional franchises and permits franchising authorities to operate cable
television systems without a franchise. Although a private competitor ordinarily
would seek a franchise from a local jurisdiction, municipalities have built and
operated their own systems. Overbuilds historically have been relatively rare,
as constructing and developing a cable television system is capital-intensive,
and it is difficult for the new operator to gain a marketing advantage over the
incumbent operator. The Company currently faces direct competition from
traditional overbuilds in two systems passing approximately 4,500 homes.
In recent years, the FCC and the Congress have adopted policies providing a
more favorable operating environment for new and existing technologies that
provide, or have the potential to provide, substantial competition to cable
television systems. These technologies include, among others, DBS service,
whereby signals are transmitted by satellite to receiving facilities located on
customer premises. Programming is currently available to the owners of DBS
dishes through conventional, medium and high-powered satellites. DBS systems
provide movies, broadcast stations, and other program services comparable to
those of cable television systems. DBS Service can be received anywhere in the
United States through installation of a small rooftop or side-mounted antenna.
This technology has the capability of providing more than 100 channels of
programming over a single high-powered satellite with significantly higher
capacity if multiple satellites are placed in the same orbital position. DBS is
currently being heavily marketed on a nationwide basis by three DBS providers,
and a fourth company is also proposing to provide DBS services over multiple
satellites. DBS providers provide significant competition to cable service
providers, including the Company.
The 1992 Cable Act contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to home satellite dish owners certain satellite delivered cable
programming at competitive costs. The FCC also adopted regulations that preempt
certain local restrictions on satellite and over-the-air antenna reception of
video programming services, including zoning, land-use or building regulations,
or any private covenant, homeowners' association rule or similar restriction on
property within the exclusive use or control of the antenna user. Digital
satellite service ("DSS") offered by DBS systems has certain advantages over
cable systems with respect to programming and digital quality, as well as
disadvantages that include high up-front costs and a lack of local programming,
service and equipment distribution. The Company's strategy of providing
pay-per-view and perhaps satellite niche programming via digital services in
certain of its Systems is designed to combat DSS competition. "Bundling" of the
Company's video service with advanced telecommunications services in certain of
the Systems may also be an effective tool for combating DSS competition. DBS
does suffer certain significant operating disadvantages compared to cable
television, however, including the subscriber's present inability to view
different programming on different television sets, line-of-sight reception
requirements, up-front costs associated with the dish antenna, and the lack of
local programming. DBS currently faces technical
36
<PAGE> 42
and legal obstacles to providing local broadcast signals, although at least one
DBS provider is now attempting to do so in certain major markets, and
legislation is now pending that may remove the existing legal obstacle.
Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution service ("MMDS") which
uses low power microwave to transmit video programming over the air to
customers. Additionally, the FCC recently adopted new regulations allocating
frequencies in the 28 GHz band for a new multichannel wireless video service
similar to MMDS, known as Local Multipoint Distribution Service ("LMDS"). LMDS
is also suited for providing wireless data services, including the possibility
of Internet access. Wireless distribution services generally provide many of the
programming services provided by cable systems, and digital compression
technology may increase significantly the channel capacity of the Systems.
Because MMDS service requires unobstructed "line of sight" transmission paths,
the ability of MMDS systems to compete may be hampered in some areas by physical
terrain and foliage. The Company has experienced competition from MMDS
operators, namely Heartland Wireless, in 13 systems passing approximately 20,700
homes in Oklahoma, Texas and Kansas.
Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Act eliminated
this cross-ownership restriction, making it possible for companies with
considerable resources to overbuild existing cable systems. Congress has also
repealed the prohibition against national television networks owning cable
systems. Various LECs currently are seeking to provide video programming
services within their telephone service areas through a variety of distribution
methods, primarily through the deployment of broadband wire facilities, but also
through the use of wireless (MMDS) transmission. Several telephone companies
have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. The Company has
experienced cable overbuilds by local telephone companies in seven systems
passing approximately 4,900 homes. Cable television systems could be placed at a
competitive disadvantage if the delivery of video programming services by LECs
becomes widespread, since LECs may not be required, under certain circumstances,
to obtain local franchises to deliver such video services or to comply with the
variety of obligations imposed upon cable television systems under such
franchises. The entry of telephone companies as direct competitors is likely to
continue and could adversely affect the profitability and valuation of the
Systems. Issues of cross-subsidization by LECs of video and telephony services
also pose strategic disadvantages for cable operators seeking to compete with
LECs that provide video services. The Company believes, however, that the
non-metropolitan markets in which it provides or expects to provide cable
services are unlikely to support competition in the provision of video and
telecommunications broadband services given the lower population densities and
higher costs per subscriber of installing plant.
The 1996 Telecom Act's provisions promoting facilities-based broadband
competition are primarily targeted at larger markets, and its prohibition of
buyouts and joint ventures between incumbent cable operators and LECs exempts
small operators and carriers meeting certain criteria. See "Legislation and
Regulation." The Company believes that significant growth opportunities exist
for the Company by establishing cooperative rather than competitive
relationships with LECs within service areas, to the extent permitted by law.
The entry of electric utility companies into the cable television business,
as now authorized by the 1996 Act, could also have an adverse effect on the
Company's business. Well-capitalized businesses from outside the cable industry
may become competitors for franchises or providers of competing services.
Other new technologies may become competitive with non-entertainment
services offered by cable television systems. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and businesses. The FCC also permits commercial and noncommercial FM
stations to use their sub-carrier frequencies to provide non-broadcast services
including data transmissions. The FCC has established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. The expansion of fiber optic systems and the introduction of new DSL
services by LECs and other common carriers is providing facilities for the
transmission and distribution to homes and businesses of video services,
including interactive computer-based services like the Internet, data and other
non-video services. The FCC
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<PAGE> 43
has held spectrum auctions for licenses to provide PCS. PCS will enable license
holders, including cable operators, to provide voice and data services.
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environments are constantly occurring. Thus,
it is not possible to predict the effect that ongoing or future developments
might have on the cable industry or on the operations of the Company.
EMPLOYEES
At December 31, 1998, the Company had approximately 357 full-time employees
and 39 part-time employees. None of the Company's employees are represented by a
labor union. The Company considers its relations with its employees to be good.
PROPERTIES
A cable television system consists of four principal operating components.
The first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber optic cables placed on utility poles or buried underground and
associated electronic equipment. The third component of the system is a "drop
cable," which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more than 12 channels of programming.
The Company's principal physical assets consist of cable television
systems, including signal-receiving, encoding and decoding apparatus, headends,
distribution systems and subscriber house drop equipment for each of the
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. The Company's distribution systems consist primarily of
coaxial cable and related electronic equipment. As the upgrades are completed,
the Systems will incorporate fiber optic cable. Subscriber equipment consists of
taps, house drops and converters. The Company owns its distribution systems,
various office fixtures, test equipment and certain service vehicles. The
physical components of the Systems require maintenance and periodic upgrading to
keep pace with technological advances.
The Company's 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 FCC regulates
most pole attachment rates under the federal Pole Attachment Act.
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave complexes and business offices
(including its principal executive offices). The Company believes that its
properties, both owned and leased, are in good condition and are suitable and
adequate for the Company's business operations as presently conducted.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company, CCI
or any of its affiliates are a party or to which any of their respective
properties are subject.
LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, the Company and the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state
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<PAGE> 44
and local laws. The Company believes that the regulation of its industry remains
a matter of interest to Congress, the FCC and other regulatory authorities.
There can be no assurance as to what, if any, future actions such legislative
and regulatory authorities may take or the effect thereof on the Company.
FEDERAL REGULATION
The primary federal statute dealing with the regulation of the cable
television industry is the Communications Act. The three principal amendments to
the Communications Act that shaped the existing regulatory framework for the
cable television industry were the 1984 Cable Act, the 1992 Cable Act and the
1996 Telecom Act. The 1996 Telecom Act, which became effective in February 1996,
was the most comprehensive reform of the nation's telecommunications laws since
the Communications Act. Although the long term goal of the 1996 Telecom Act is
to promote competition and decrease regulation of various communications
industries, in the short term, the law delegates to the FCC (and in some cases
to the states) broad new rulemaking authority. The FCC and state regulatory
agencies are required to conduct numerous rulemaking and regulatory proceedings
to implement the 1996 Telecom Act and such proceedings may materially affect the
cable television industry.
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain of these federal regulations as adopted to date follows.
Cable Rate Regulation
The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry. Under that regime, all cable systems are subject to rate
regulation, unless they face "effective competition" in their local franchise
area. Federal law now defines "effective competition" on a community-specific
basis as requiring either low penetration (less than 30%) by the incumbent cable
operator, appreciable penetration (more than 15%) by competing multichannel
video providers ("MVPs"), or the presence of a competing MVP affiliated with a
local telephone company.
Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable -- the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services. The
1996 Telecom Act allows operators to aggregate costs for broad categories of
equipment across geographic and functional lines. This change should facilitate
the introduction of new technology. Few of the LFAs in the Communities in which
the Company operates have elected to certify to regulate rates, and the Company
believes that the FCC's existing "Small Systems Order" will afford it additional
flexibility to adjust its rates. However there can be no assurance that the
Company's revenues and results of operations will not be adversely affected in
the future by regulation of cable system rates.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that
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<PAGE> 45
allows for the recovery of inflation and certain increased costs, as well as
providing some incentive for expanding channel carriage. The FCC has modified
its rate adjustment regulations to allow for annual rate increases and to
minimize previous problems associated with regulatory lag. Operators also have
the opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears advantageous. Premium cable services offered on a per-channel or
per-program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. As noted below, FCC regulation
of CPST rates for all cable systems sunset on March 31, 1999.
The FCC and Congress have provided various forms of rate relief for smaller
cable systems owned by smaller operators. If requisite eligibility criteria are
satisfied, a cable operator may be allowed to rely on a vastly simplified
cost-of-service rate justification of its BST rates The 1996 Telecom Act sunset
FCC regulation of CPST rates for all systems (regardless of size) on March 31,
1999.
In the former case, cable systems serving 15,000 or fewer subscribers, that
are owned by or affiliated with a cable company serving, in the aggregate, no
more than 400,000 subscribers, can submit a simplified cost-of-service filing
under which the regulated rate (including equipment charges) will be presumed
reasonable if it equates to no more than $1.24 per channel. Eligibility for this
relief remains if the small cable system is subsequently acquired by a larger
cable operator. In the latter case, the 1996 Telecom Act immediately deregulated
the CPST rates of cable systems serving communities with fewer than 50,000
subscribers, that are owned by or affiliated with entities serving, in the
aggregate, no more than one percent of the nation's cable customers
(approximately 617,000) and having no more than $250 million in annual revenues.
For qualifying cable systems that offered only a single level of regulated
service as of December 31, 1994, that entire level of service is rate
deregulated. Essentially all of the Company's existing systems qualify under
this provision, and the majority of the Cable One systems also qualify under
this provision. The 1996 Telecom Act also relaxes existing uniform rate
requirements by specifying that uniform rate requirements do not apply where the
operator faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing still may
be made to the FCC.
Federal law requires that the BST be offered to all cable subscribers. FCC
regulations adopted pursuant to the 1992 Cable Act require cable systems to
permit customers to purchase video programming on a per channel or a per program
basis without the necessity of subscribing to any tier of service, other than
the basic service tier, unless the cable system is technically incapable of
doing so. Generally, this exemption from compliance with the statute for cable
systems that do not have such technical capability is available until a cable
system obtains the capability, but not later than December 2002.
Franchise Fees
Franchising authorities may impose franchise fees, but such payments cannot
exceed 5% of a cable system's annual gross revenues derived from the operation
of the cable system in providing cable service. Under the 1996 Telecom Act,
franchising authorities may not exact cable franchise fees from revenues derived
from telecommunications services.
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<PAGE> 46
Renewal of Franchises
The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. While these
formal procedures are not mandatory unless timely invoked by either the cable
operator or the franchising authority, they can provide substantial protection
to incumbent franchisees. Even after the formal renewal procedures are invoked,
franchising authorities and cable operators remain free to negotiate a renewal
outside the formal process. Nevertheless, renewal is by no means assured, as the
franchisee must meet certain statutory standards. Even if a franchise is
renewed, a franchising authority may impose new and more onerous requirements
such as upgrading facilities and equipment, although the municipality must take
into account the cost of meeting such requirements. The 1992 Cable Act makes
several changes to the process under which a franchise is renewed, some of which
could make it easier in some cases for a franchising authority to deny renewal.
Competing Franchises
The 1992 Cable Act prohibits franchising authorities from unreasonably
refusing to grant franchises to competing cable television systems and permits
franchising authorities to operate their own cable television systems without
franchises.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992, within 120 days after receipt
of all information required by FCC regulations and by the franchising authority.
Approval is deemed to be granted if the franchising authority fails to act
within such period.
Cable Entry Into Telecommunications
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of the public rights-of-way when cable operators provide
telecommunications service. The favorable pole attachment rates afforded cable
operators under federal law can be gradually increased by utility companies
owning the poles (beginning in 2001) pursuant to an FCC prescribed formula if
the operator provides telecommunications service, as well as cable service, over
its plant. The FCC recently clarified that a cable operator's favorable pole
rates are not endangered by the provision of Internet access.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. The FCC adopted
regulations implementing the 1996 Telecom Act requirement that LECs open their
telephone networks to competition by providing competitors interconnection,
access to unbundled network elements and retail services at wholesale rates.
Numerous parties appealed these regulations. The U.S. Court of Appeals for the
Eighth Circuit, where the appeals were consolidated, recently vacated key
portions of the FCC's regulations, including the FCC's pricing and
nondiscrimination rules, and in January 1998, the United States Supreme Court
agreed to review the lower court's decision. SBC Communications, Inc. also filed
suit in Texas seeking to overturn the long distance entry provisions of the 1996
Telecom Act on constitutional grounds and obtained a favorable decision from the
U.S. District Court in Wichita Falls, Texas, which was recently reversed by the
United States Court of Appeals for the 5th Circuit. SBC is considering an appeal
to the U.S. Supreme Court. The ultimate outcome of the litigation and the FCC's
rulemakings, and the ultimate impact of the 1996 Telecom Act or any final
regulations adopted pursuant to the new law on the Company or its business
cannot be determined at this time.
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<PAGE> 47
Telephone Company Entry Into Cable Television
The 1996 Telecom Act makes far reaching changes in the regulation of
telephone companies that provide video programming services. The new law
eliminates federal legal barriers to competition in the local telephone and
cable communications businesses, preempts state and local laws and regulations
which create competitive barriers and sets basic standards for relationships
between telecommunications providers. The 1996 Telecom Act also eliminates the
requirements that LECs obtain FCC approval under Section 214 of the
Communications Act before providing video services in their telephone service
areas and removes the statutory telephone company/cable television
cross-ownership prohibition, thereby allowing LECs to offer video services in
their telephone service areas. LECs 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. LECs
could be formidable competitors to traditional cable operators, and certain LECs
have begun offering cable services, both within and outside of their service
areas. The Company has experienced telephone overbuilds in seven systems passing
approximately 4,900 homes.
The 1996 Telecom Act generally limits acquisitions and prohibits certain
joint ventures between LECs and cable operators in the same market. There are
some statutory exceptions to the buy-out and joint venture prohibitions,
including exceptions for certain small cable systems (as defined by Federal law)
and for cable systems or telephone facilities serving certain rural areas, and
the FCC is authorized to grant waivers of the prohibitions under certain
circumstances.
Electric Utility Entry Into Telecommunications/Cable Television
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television). Electric utilities must establish separate subsidiaries, known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Because of their resources, electric utilities could also be
formidable competitors to traditional cable systems.
Additional Ownership Restrictions
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition against LECs
providing video programming directly to customers within their local telephone
exchange service areas. However, with certain limited exceptions, a LEC may not
acquire more than a 10% equity interest in an existing cable system operating
within the LEC's service area. The 1996 Telecom Act also authorized LECs and
others to operate "open video systems" without obtaining a local cable
franchise. See "Business -- Competition."
The 1984 Cable Act and the FCC's rules prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's signal strength as defined by the FCC's rules) covers any portion of
the community served by the cable system. The 1996 Telecom Act eliminates the
statutory ban and directs the FCC to review its cross-ownership rule within two
years. Pursuant to the 1996 Telecom Act, the FCC eliminated its restrictions on
the cross-ownership of cable systems and national broadcasting networks, and has
commenced a proceeding to review its broadcast cable cross-ownership
restrictions. In order to encourage competition in the provision of video
programming, the FCC adopted a rule prohibiting the common ownership,
affiliation, control or interest in cable television systems and wireless cable
facilities having overlapping service areas, except in very limited
circumstances. The 1992 Cable Act codified this restriction and extended it to
co-located SMATV systems. Permitted arrangements in effect as of October 5,
1992, are grandfathered. In January 1995, the FCC adopted regulations which
permit cable operators to own and operate SMATV systems within their franchise
areas, provided that such operation is consistent with local cable franchise
requirements. The 1996 Telecom Act exempts cable systems subject to effective
competition from the wireless cable and SMATV restrictions. In addition, a cable
operator can purchase an SMATV system located within its franchise areas and
technically integrate it into its cable system. The 1992 Cable Act permits
states or local franchising authorities to adopt certain additional restrictions
on the ownership of cable television systems.
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Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services and has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of its 30%
horizontal ownership rule pending the outcome of the appeal from a U.S. District
Court decision holding the multiple ownership limit provision of the 1992 Cable
Act unconstitutional, but has recently implemented certain reporting
requirements for MSO's passing more than 20% of homes nationwide and initiated a
proceeding to examine its current horizontal ownership limitations rule and
whether it should be modified. The FCC also has initiated a rulemaking
proceeding to review its attribution rules which define what constitutes a
"cognizable interest" triggering application of various FCC rules relating to
the provision of cable services such as cross-ownership, programing access and
channel occupancy rules, and horizontal ownership limitations. In addition, the
FCC recently commenced a rulemaking proceeding to examine, among other issues,
whether any limitations on cable-DBS cross-ownership are warranted in order to
prevent anticompetitive conduct in the video services market.
There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems or the FCC licenses commonly employed by
such systems. Section 310(b)(4) of the Communications Act does, however,
prohibit foreign ownership of FCC broadcast and telephone licenses, unless the
FCC concludes that such foreign ownership is consistent with the public
interest.
Technical Requirements
The FCC has imposed technical standards applicable to the cable channels on
which broadcast stations are carried, and has prohibited franchising authorities
from adopting standards which are in conflict with or more restrictive than
those established by the FCC. Those standards are applicable to all classes of
channels which carry downstream National Television System Committee (the
"NTSC") video programming. The FCC also has adopted additional standards
applicable to cable television systems using frequencies in the 108-137 MHz and
225-400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. Periodic testing by cable operators for compliance with
the technical standards and signal leakage limits is required and an annual
filing of the results of these measurements is required. The 1992 Cable Act
requires the FCC to periodically update its technical standards to take into
account changes in technology. Under the 1996 Telecom Act, local franchising
authorities may not prohibit, condition or restrict a cable system's use of any
type of subscriber equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of the 1992
Cable Act designed to improve the compatibility of cable systems and consumer
electronics equipment. Among other things, these regulations generally prohibit
cable operators from scrambling their basic service tier. The 1996 Telecom Act
directs the FCC to rely on the marketplace and set only minimal standards to
assure compatibility between television sets, VCRs and cable systems.
Pursuant to the requirements of the 1996 Telecom Act, the FCC recently
adopted an Order implementing regulations intended to promote the commercial
availability of navigation devices (set-top converters). The new rules will
apply generally to all multichannel video programming distributors ("MVPDs"),
including MMDS, SMATV, etc., and to all equipment used to receive multichannel
video programming, including VCRs and even computers if used for that purpose.
The FCC has exempted from its rules navigation devices that operate throughout
the continental United States and are commercially available from unaffiliated
sources, which includes DBS. The Order requires that the security (descrambling)
functions presently integrated in set-top converters be separated from their
other functions and that separate security modules be available from cable
operators by July 2000. Cable operators will be allowed to provide integrated
set-top converters to their customers until January 1, 2005. After that time,
the sale of or lease by operators of new set-top converters with embedded
security functions will be prohibited, subject to the FCC's reassessment in
2000. Several parties have requested the FCC to reconsider various aspects of
its Order.
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Pole Attachments
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service commissions
are able to demonstrate that they regulate the rates, terms and conditions of
cable television pole attachments. In addition, cooperatively and municipally
owned utilities are not subject to the FCC's pole attachment regulations and in
most cases are not subject to the pole attachment regulations of the state PSC.
The Company may operate systems that utilize poles owned by cooperatively and
municipally owned utilities. None of the states where the Company operates cable
systems have certified to the FCC that they regulate the rates, terms and
conditions for pole attachments. In the absence of state regulation, and except
for cooperatively or municipally owned poles, the FCC administers such pole
attachment rates through use of a formula which it has devised. As directed by
the 1996 Telecom Act, the FCC has adopted a new rate formula for any attaching
party, including cable systems, which offer telecommunications services. This
new formula will result in significantly higher attachment rates for cable
systems which choose to offer such services, but does not begin to take effect
until 2001 and will be phased in by equal increments over the ensuing five
years. Various parties have requested the FCC to reconsider these new
regulations. The FCC has also initiated a rulemaking to consider whether it
should adjust certain elements of its existing rate formula. If adopted, these
adjustments may increase the fees paid by cable operators to utilities for pole
attachments and conduit space. The ultimate outcome of these rulemakings and the
ultimate impact of any revised FCC rate formula or of any new pole attachment
rate regulations on the Company or its business cannot be determined at this
time.
Must Carry/Retransmission Consent
The 1992 Cable Act contains broadcast signals carriage requirements that,
among other things, allow local commercial television broadcast stations to
elect once every three years between requiring a cable system to carry the
station ("must carry") or negotiating for payments for granting permission to
the cable operator to carry the station ("retransmission consent"). A cable
system generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations whether
pursuant to the mandatory carriage or retransmission consent requirements of the
1992 Cable Act. Local non-commercial television stations are also given
mandatory carriage rights, subject to certain exceptions, within the larger of:
(i) a 50-mile radius from the station's city of license; or (ii) the station's
Grade B contour (a measure of signal strength). Unlike commercial stations,
noncommercial stations are not given the option to negotiate retransmission
consent for the carriage of their signal. In addition, cable systems must obtain
retransmission consent for the carriage of all "distant" commercial broadcast
stations, except for certain "superstations," i.e., commercial
satellite-delivered independent stations, such as WGN. Must carry requests can
dilute the appeal of a cable systems' programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Company's business. The burden
associated with "must carry" may increase substantially as broadcasters proceed
with planned conversion to digital transmission and if the FCC determines that
cable systems must carry all analog and digital broadcasts in their entirety.
The FCC has initiated a rulemaking proceeding concerning whether and under what
circumstances cable operators must carry digital broadcast signals.
Access Channels
LFAs can include franchise provisions requiring cable operators set aside
certain channels for public, educational and governmental access programming.
The 1984 Cable Act further requires cable television systems with 36 or more
activated channels to designate a portion of their channel capacity for
commercial leased access by unaffiliated third parties. While the 1984 Cable Act
allowed cable operators substantial latitude in setting leased access rates, the
1992 Cable Act requires leased access rates to be set according to a formula
determined by the FCC. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of the
designated channel capacity, but use of commercial leased access channels has
been relatively limited. The FCC released revised rules in February 1997
mandating a modest rate reduction. The reduction sparked some increase in
part-time use, but did not make commercial leased access substantially more
attractive to third party programmers.
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Access to Programming
To spur the development of independent cable programmers and competition to
incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable programmers. Of special significance
from a competitive business posture, the 1992 Cable Act precludes video
programmers affiliated with cable companies from favoring cable operators over
competitors and requires such programmers to sell their programming to other
multichannel video distributors. This provision limits the ability of vertically
integrated cable programmers to offer exclusive programming arrangements to
cable companies. Recently, there has been increased interest in further
restricting the marketing practices of cable programmers, including subjecting
programmers who are not affiliated with cable operators to all of the existing
program access requirements. In an effort to increase competition in the video
marketplace, the FCC has recently adopted an Order which revised its program
access complaint procedures. Among other revisions, the Order increased
sanctions for violation of the program access rules, but the Commission declined
to widen the scope of the rules to include terrestrially delivered programming.
Inside Wiring
The FCC recently adopted new procedural guidelines governing the
disposition of home run wiring (a line running to an individual subscriber's
unit from a common feeder or riser cable) in multi-dwelling units ("MDUs"). MDU
owners can use these new rules to attempt to force cable television operators
without contracts to either sell, abandon or remove home run wiring and
terminate service to MDU subscribers unless operators retain rights under common
or state law to maintain ownership rights in the home run wiring. In addition,
the FCC is reviewing the enforceability of contracts to provide exclusive video
service within an MDU complex. The FCC has sought comment on abrogating all such
contracts held by incumbent cable operators, but allowing such contracts when
held by new entrants. These changes will make it easier for an MDU complex owner
to terminate service from an incumbent cable operator in favor of a new entrant
and leave the already competitive MDU sector even more challenging for incumbent
cable operators unless operators retain rights under common or state law to
maintain ownership rights in the home run wiring.
Other FCC Regulations
In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as equal employment opportunity, subscriber
privacy, programming practices (including, among other things, syndicated
program exclusivity, network program nonduplication, local sports blackouts,
indecent programming, lottery programming, political programming, sponsorship
identification, and children's programming advertisements), registration of
cable systems and facilities licensing, maintenance of various records and
public inspection files, microwave and aeronautical frequency usage, lockbox
availability, antenna structure notification, tower marking and lighting,
consumer protection and customer service standards, technical standards, and
consumer electronics equipment capability. Federal requirements governing
Emergency Alert Systems and Closed Captioning adopted in 1997 will impose
additional costs on the operation of cable systems. The FCC has the authority to
enforce its regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities used in connection with cable
operations.
COPYRIGHT
Cable systems are subject to federal copyright licensing covering carriage
of television and radio broadcast signals. In exchange for filing certain
reports and contributing a percentage of their revenue to a federal copyright
royalty pool, cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The nature and amount of future
payments for broadcast signal carriage cannot be predicted at this time. In a
recent report to Congress, the Copyright Office recommended that Congress make
major revisions of both the cable television and satellite compulsory licenses
to make them as simple as possible to administer, to provide copyright owners
with full compensation for the use of their work, and to treat every
multichannel video delivery system the same, except to the extent that
technological differences or
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differences in the regulatory burdens placed upon the delivery system justify
different copyright treatment. The possible simplification, modification or
elimination of the compulsory copyright license is the subject of continuing
legislative review. The elimination or substantial modification of the cable
compulsory license could adversely affect the Company's ability to obtain
suitable programming and could substantially increase the cost of programming
that remained available for distribution to the Company's customers. The Company
cannot predict the outcome of this legislative activity.
Cable operators distribute programming and advertising that use music
controlled by the two major music performing rights organizations, ASCAP and
BMI. In October 1989, the special rate court of the U.S. District Court of the
Southern District of New York imposed interim rates on the cable industry's use
of ASCAP-controlled music. The same federal district court recently established
a special rate court for BMI. BMI and certain cable industry representatives
recently concluded negotiations for a standard licensing agreement covering the
usage of BMI 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. ASCAP and cable industry representatives have
met to discuss the development of a standard licensing agreement covering ASCAP
music in local origination and access channels and pay-per-view programming.
Although the Company cannot predict the ultimate outcome of these industry
negotiations or the amount of any license fees it may be required to pay for
past and future use of ASCAP-controlled music, it does not believe such license
fees will be material to the Company's operations.
STATE AND LOCAL REGULATION
Cable television systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local government entity
in order to cross public rights-of-way. Federal law now prohibits franchise
authorities from granting exclusive franchises or from unreasonably refusing to
award additional franchises. Cable franchises generally are granted for fixed
terms and in many cases include monetary penalties for non-compliance and may be
terminable if the franchisee failed to comply with material provisions.
The terms and conditions of franchises vary materially from jurisdiction.
Each franchise generally contains provisions governing cable operations, service
rates, franchise fees, system construction and maintenance obligations, system
channel capacity, design and technical performance, customer service standards,
and indemnification protections. A number of states (such as Connecticut)
subject cable television systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a character similar to
that of a public utility. Although LFAs have considerable discretion in
establishing franchise terms, there are certain federal limitations. For
example, LFAs cannot insist on franchise fees exceeding 5% of the system's gross
revenues, cannot dictate the particular technology used by the system, and
cannot specify video programming other than identifying broad categories of
programming.
The 1984 Cable Act places certain limitations on a franchising authority's
ability to control the operation of a cable system operator, and the courts have
from time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable television systems, especially in
the area of customer service and rate regulation. Moreover, franchising
authorities are immunized from monetary damage awards arising from regulation of
cable television systems or decisions made on franchise grants, renewals,
transfers and amendments.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and service or increased
franchise fees as a condition of renewal. Similarly, if a franchise authority's
consent is required for the purchase or sale of a cable system or franchise,
such authority may attempt to impose more burdensome or onerous franchise
requirements in connection with a request for consent. Historically, franchises
have been renewed for cable operators
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that have provided satisfactory services and have complied with the terms of
their franchise. The Company has generally had good experience with its cable
franchise renewals.
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of the public right-of-way when cable operators provide
telecommunications service.
OTHER MATTERS
The FCC continues to have rulemaking proceedings pending that will
implement various provisions of the 1996 Telecom Act; it also has adopted
regulations implementing various provisions of the 1992 Cable Act and the 1996
Telecom Act that are the subject of petitions requesting reconsideration of
various aspects of its rulemaking proceedings. In addition to the FCC
regulations noted above, there are other FCC regulations covering such areas as
equal employment opportunity, syndicated program exclusivity, network program
non-duplication, closed captioning of video programming, registration of cable
systems, maintenance of various records and public inspection files, microwave
frequency usage, lockbox availability, origination cablecasting and sponsorship
identification, antenna structure notification, marking and lighting, carriage
of local sports broadcast programming, application of rules governing political
broadcasts, limitations on advertising contained in non-broadcast children's
programming, programmer access to cable systems, programming agreements,
technical standards, emergency alert system requirements, consumer electronics
equipment compatibility and DBS implementation.
The 1992 Cable Act, the 1996 Telecom Act and the FCC's rules implementing
these statutory provisions generally have increased the administrative and
operational expenses of cable systems and have resulted in additional regulatory
oversight by the FCC and local franchise authorities. The Company will continue
to develop strategies to minimize the adverse impact that the FCC's regulations
and the other provisions of the 1992 Cable Act and the 1996 Telecom Act have on
the Company's business. However, no assurances can be given that the Company
will be able to develop and successfully implement such strategies to minimize
the adverse impact of the FCC's rate regulations, the 1992 Cable Act or the 1996
Telecom Act on the Company's business.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry can be
predicted at this time.
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MANAGEMENT
All of the outstanding Capital Stock of the Company is owned by CCI. The
executive officers of CCI are also the executive officers of the Company and
hold the same offices. The directors of the Company and all the subsidiaries of
the Company are J. Merritt Belisle, Steven E. Seach and Jeffery C. Garvey.
Executive officers, key operations managers and outside directors of CCI are
listed as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS OF CCI AGE POSITION
- --------------------------------------- --- --------
<S> <C> <C>
J. Merritt Belisle.................... 42 Chairman of the Board and Chief Executive
Officer
Steven E. Seach....................... 41 Director, President and Chief Financial
Officer
Kevin P. McCabe....................... 56 Executive Vice President and Chief Operating
Officer
Jeffery C. Garvey..................... 49 Director
James J. Kozlowski.................... 43 Director
Robert H. Sheridan III................ 35 Director
Robert Marakovits..................... 40 Director
</TABLE>
J. Merritt Belisle, the Company's Chairman of the Board and Chief Executive
Officer, founded the Company in March 1992 to acquire, operate, and develop
cable television systems in selected non-metropolitan markets of the United
States. From January 1988 through August 1991, he was a Vice President at Texas
Commerce Investment Banking, a division of Texas Commerce Bank, N.A., Houston,
Texas. From April 1985 to January 1988, Mr. Belisle was Chief Executive Officer
of Community Cable Incorporated ("Community Cable"), a small multi-system cable
television operator based in Austin, Texas. Community Cable was sold to a cable
television subsidiary of Time Warner, Inc. Prior to founding Community Cable,
Mr. Belisle was a corporate and securities attorney with the Houston office of
Baker & Botts. Mr. Belisle received a BBA in 1977, a MPA in 1980, and a JD in
1981 from The University of Texas at Austin.
Steven E. Seach, the Company's President and Chief Financial Officer,
helped Mr. Belisle with the founding of the Company in March 1992. Mr. Seach
became President of the Company in October 1996 and presently oversees
substantially all operational and financial aspects of the Company. Mr. Seach
became a director of CCI in 1998. From March 1992 to June 1994, Mr. Seach served
as an advisor to the Company and its Board of Directors for strategic,
operational and financial matters. Mr. Seach became the Company's Chief
Financial Officer in July 1994. Prior to his association with the Company, Mr.
Seach spent 12 years in the banking and investment banking industries, primarily
with Texas Commerce Bank, N.A., Houston, Texas. Mr. Seach received a BBA in
finance from the University of Houston in 1980.
Kevin P. McCabe, the Company's Executive Vice President and Chief Operating
Officer joined the Company in February 1999. Mr. McCabe was an advisor to the
Company from October 1998 to February 1999. Prior to his association with the
Company, Mr. McCabe spent fifteen years at KPMG Peat Marwick, the last five
years as a partner. He subsequently held increasingly responsible financial
management positions at General Foods, Colgate-Palmolive and John Wiley & Sons.
From 1991 to 1994 Mr. McCabe was Vice President, Controller of Dell Computer
Corporation. He was employed by Uniquest, Inc. from March 1994 to September
1995. From October 1995 until February 1999 Mr. McCabe was a principal in The
Austin Advisory, a financial consulting firm. Mr. McCabe received a BS in
management from Boston College.
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Jeffery C. Garvey, a General Partner of Austin Ventures, L.P., has been a
Director of CCI since July 1992. Mr. Garvey has been General Partner of Austin
Ventures, L.P. since 1984. Mr. Garvey is currently a Director of General
Communications, Inc. and Careline, Inc. From 1979 through 1986, Mr. Garvey was
the Executive Vice President and President of Rust Capital, Ltd, a small
business investment company. Prior to that, Mr. Garvey was an officer with PNC
Bank in Philadelphia. Mr. Garvey received his BA with honors from St. Lawrence
University in 1971.
James J. Kozlowski, the Executive Director of The Texas Growth Fund, has
been a Director of CCI since June 1993. Mr. Kozlowski has been the President of
TGF Management Corp. and Executive Director of The Texas Growth Fund since 1992.
Mr. Kozlowski is currently a Director of the following companies: American
Rockwool, Inc., Coastal Towing, Inc., the Lofland Company, Rehab Designs of
America Corp., Sterling Foods, Inc., Technology Works, Inc. and Veridian. Mr.
Kozlowski was a Managing Director of Fortis Private Capital in New Jersey from
1990 to 1992, and Vice President of Merrill Lynch Venture Capital in New York
from 1986 to 1990. Mr. Kozlowski received his BA degree in economics, cum laude,
from Harvard College in 1978 and his MBA from Harvard University Graduate School
of Business Administration in 1982.
Robert H. Sheridan III, has served as a Director of CCI since April 1997.
Mr. Sheridan is a Managing Director of NationsBank Capital Investors, the
principal investment group within NationsBank Corporation, and a Senior Vice
President of NationsBanc Capital Corp., NationsBanc Investment Corporation and
NationsBank, N.A. NationsBanc Capital Corp. is a stockholder of CCI. Prior to
joining NationsBank Capital Investors in January 1994, Mr. Sheridan worked in
investment banking and capital markets positions at Paine Webber, Inc., from
1986 to 1988. Mr. Sheridan currently serves as a director of Cumulus Media,
Inc., a radio broadcasting company, and Netcom Systems, Inc., a network
equipment testing systems company. Mr. Sheridan holds an MBA from Columbia
University and a BA from Vanderbilt University.
Robert Marakovits, a Managing Director of BT Capital Partners, has been a
Director of CCI since 1995. Mr. Marakovits joined BT Capital Partners in 1987.
Mr. Marakovits is a Director of Alliance Entertainment, Inc. Prior to graduate
school, he worked for three years as a financial associate at General Foods
Corporation. Mr. Marakovits holds a BBA from Pace University and an MBA from
Indiana University.
OTHER CORPORATE PERSONNEL
Bryan D. Noteboom, the Company's Vice President -- Finance &
Administration, has been with the Company since its inception and coordinates
the Company's accounting, finance, human resources and risk management
functions. Mr. Noteboom has an extensive background in cable television,
accounting, and finance through prior work experience in the cable industry and
as a senior auditor with Coopers & Lybrand. Mr. Noteboom earned a BBA in
Accounting/Finance from the University of Texas at Austin in December 1985 and
is licensed to practice as a Certified Public Accountant.
Ashley M. Kimery, the Company's Corporate Treasurer currently oversees the
Company's cash management and tax functions. Prior to joining the Company, Ms.
Kimery worked for seven years in both the audit and tax departments at Ernst &
Young LLP. Ms. Kimery received her Certificate of Public Accounting in 1990.
KEY OPERATIONS PERSONNEL
Nita M. Basgall, the Company's Regional Manager -- Northern, has been with
the Company since its inception and oversees all operational, technical and
local marketing aspects of the Company's systems in Kansas, Nebraska and
Northwest Missouri. Ms. Basgall has over 24 years of experience in the cable
television industry. Ms. Basgall serves on the Board of Directors of the Kansas
Cable Telecommunications Association.
David D. Walker, the Company's Regional Manager -- Central and
Missouri/Arkansas, has over 28 years of experience in the cable television
industry and oversees all operational, technical and local marketing aspects of
the Company's systems in Oklahoma and Arkansas. Mr. Walker serves on the Board
of Directors of the Arkansas Cable Telecommunications Association.
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<PAGE> 55
\William E. Flowers, Jr., the Company's Regional Manager -- Texas Panhandle and
Central Texas, has over 18 years of experience in the cable television industry
and oversees all operational, technical and local marketing aspects of the
Company's systems in Texas and New Mexico. Mr. Flowers joined the Company in
August 1998.
Kenneth L. Butler, the Company's Corporate Engineering Manager, has been
with the Company since its inception and is responsible for the Company's
overall technical specifications, FCC, FAA and OSHA compliance and filings and
the Company-wide engineering practices. Mr. Butler has over 16 years of
experience in the cable television industry.
Connie A. Ganoung, the Company's Customer Service Manager, has been with
the Company since its inception and is directly responsible for the supervision
and performance of the Company's Customer Service Center located in Plainville,
Kansas. Ms. Ganoung received her BBA from Fort Hays State University in 1981.
Ms. Ganoung has over 9 years of experience in the cable television industry.
Ronald G. Jansonius, the Company's Advanced Technology Manager, has been
with the Company since 1996 and is responsible for directing the Company's
advanced technology initiatives. Mr. Jansonius has over 6 years of computer,
network, and broadband technology expertise. He received a BS from Fort Hays
State University in 1982.
Rowdy O. Whittington, the Company's Plant Integrity Manager, oversees the
Company's system technical compliance standards. Mr. Whittington also manages
the operations of a select number of systems located in Missouri and Colorado.
Mr. Whittington has over 12 years of experience in the cable television
industry.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of the Company are the executive officers of CCI and
hold the same offices. Other than the executive officers of the Company and CCI
who are also directors of CCI, no other directors of the Company or CCI receive
any compensation for serving as a director. The following table summarizes the
compensation for services rendered which CCI paid to the Chief Executive Officer
and President and other executive officers as to whom the total annual
compensation exceeded $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) RESTRICTED
---------------------- OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) AWARDS(2)(3)
--------------------------- -------- -------- --------------- ------------
<S> <C> <C> <C> <C>
J. Merritt Belisle
Chairman of the Board and Chief
Executive Officer
1998.............................. $200,000 $361,534 $6,607 $ 49,609
Steven E. Seach
President and Chief Financial Officer
1998.............................. $277,084 $258,302 $6,607 $659,471
Gilbert W. Nichols(4)
Vice President - Operations
1998.............................. $103,332 $ 44,101 $3,563 $ --
</TABLE>
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<PAGE> 56
- ---------------
(1) Amounts reported as Other Annual Compensation represent the Company's
contribution under its 401(k) plan and/or vehicle fringe benefits.
(2) The executive officers of CCI received restricted stock, options, stock
appreciation rights or other compensation during 1996 under the 1996 Stock
Restricted Plan. See "-- 1996 Restricted Stock Plan." On July 29, 1998,
Messrs. Belisle and Seach held 229,050 shares and 67,283 shares of
restricted stock, respectively, and concurrently with consummation of the
Offerings, each of Messrs. Belisle and Seach exchanged their existing shares
of restricted stock for 242,209 new shares of restricted stock with revised
vesting terms and other restrictions. See "-- 1998 Restricted Stock Plan."
Long-Term Compensation amounts are calculated by multiplying the number of
1998 restricted shares issued by the per share value of CCI's unrestricted
stock as of the date of issuance, less an amount equal to the number of 1996
restricted shares exchanged therefor multiplied by the per share value of
CCI's unrestricted stock on the date of issuance.
(3) As of December 31, 1998, Messrs. Belisle and Seach each owned 242,209
restricted shares of CCI's common stock. Such shares vest 33.3% per year
over three years commencing July 29, 1998, provided that upon the occurrence
of certain events such vesting may be accelerated. The total value of all
restricted stock owned by Messrs. Belisle and Seach was approximately
$913,000 each, computed without taking into consideration any of the
restrictions. Messrs. Belisle and Seach are entitled to dividends in respect
of their restricted shares in the same manner as the holders of unrestricted
shares, but only to the extent that such dividends exceed the distribution
thresholds applicable thereto. See -- "1998 Restricted Stock Plan."
(4) Mr. Nichols resigned effective March 19, 1999.
1996 RESTRICTED STOCK PLAN
Certain members of management own restricted stock subject to the terms of
CCI's 1996 Restricted Stock Plan (the "1996 Plan"). Pursuant to the 1996 Plan,
CCI may, from time to time, grant restricted stock to officers and other key
employees of CCI or its subsidiaries upon the terms, conditions and provisions
of the 1996 Plan. Concurrently with the adoption of the 1996 Plan, CCI granted a
total of 517,626 shares of CCI Common Stock as of such date, of which only
144,940 shares are currently outstanding (see "1998 Restricted Stock Plan").
Pursuant to the granting agreement, such shares of restricted stock were to vest
25.0% per year over four years. One-half of such shares of restricted stock are
subject to a distribution threshold equal to $9.93 per share, i.e., the first
$9.93 of distributions with respect to such shares were to be withheld and
distributed instead to the other holders of CCI Common Stock, and one-fourth of
the shares were subject to a distribution threshold of $19.06 per share and
one-fourth to a threshold of $29.78 per share.
Each member of management of CCI holding shares of CCI Common Stock
(collectively, the "Management Stockholders") executed a stockholders agreement
with CCI and its other shareholders dated as of October 15, 1995, as amended
(the "Stockholders Agreement"). The Stockholders Agreement generally provides
CCI with a right of first refusal in the event of proposed sales of CCI Common
Stock owned by the Management Stockholders, and upon any termination of a
Management Stockholder's employment, to repurchase any CCI Common Stock owned by
such Management Stockholder. The Stockholders Agreement contains certain rights
of the Management Stockholders to participate in sales of CCI Common Stock and
certain obligations of the Management Stockholders to sell their CCI Common
Stock in the case of a sale for cash of all outstanding CCI Common Stock.
Finally, the Management Stockholders are required to vote their CCI Common Stock
to elect to the CCI Board of Directors the directors nominated by the other CCI
stockholders under the Stockholders Agreement. The Stockholders Agreement, and
all rights and obligations of the Management Stockholders thereunder described
above, will terminate following an initial public offering of CCI Common Stock
meeting certain criteria.
1998 RESTRICTED STOCK PLAN
CCI has adopted a new Restricted Stock Plan (the "1998 Plan"). The terms of
the 1998 Plan are similar in all material respects to the 1996 Plan. In July
1998, each of Messrs. Seach and Belisle exchanged all of their existing shares
under the 1996 Plan for 242,209 shares of restricted CCI Common Stock pursuant
to the
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<PAGE> 57
1998 Plan, each representing approximately 6.8% of CCI Common Stock on a fully
diluted basis. Pursuant to the granting agreement, such shares of restricted CCI
Common Stock are to vest 33.3% per year over three years. All of such shares of
restricted CCI Common Stock are subject to a distribution threshold equal to
$3.77 per share. All executive officers as a group own 489,724 shares of CCI
Common Stock or approximately 14%, on a fully diluted basis.
Each Management Stockholder continues to be subject to the terms of the
Stockholders Agreement.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
J. Merritt Belisle and Steven E. Seach have employment agreements with CCI,
each of which provides for their continued employment with CCI for a continuing
two year period at all times. Belisle and Seach are paid annual salaries of
$200,000 and $350,000 per year, respectively. Each employment agreement provides
that upon termination by CCI without cause, the employee will be entitled to the
pre-payment of all remaining future compensation under the agreement, i.e., two
years base compensation. Each employment agreement also prohibits the employees
from competing with CCI during their term of employment and for a period of two
years thereafter. Pursuant to the employment agreements, each employee is
permitted to engage in other businesses and to acquire and own other business
properties in the telecommunications industry so long as CCI is first provided
the opportunity to acquire or own such businesses and has declined to do so, and
so long as such businesses do not compete with CCI or its subsidiaries.
Messrs. Belisle and Seach also have an agreement with CCI to provide
consulting services for which they will receive an aggregate transaction fee of
1% of the value of all acquisitions made by the Company and 1% of the increase
of total capitalization of the Company from additional financings (provided that
duplicate fees will not be paid for financings used to consummate acquisitions).
Messrs. Belisle and Seach received transaction fees of $300,000 and $250,000,
respectively, upon consummation of the Financing Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of CCI as a whole determines the compensation of
CCI's executive officers. J. Merritt Belisle, CCI's Chief Executive Officer, and
Steven E. Seach, CCI's President, as Board members, participate in deliberations
of the Board of Directors with respect to compensation of all executive
officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the consummation of the Financing Plan, CCI and the Company had
outstanding subordinated indebtedness (including accrued interest) in the amount
of approximately $4.5 million to Austin Ventures, L.P., The Texas Growth Fund,
and BT Capital Partners, Inc. and Preferred Stock (including accrued and unpaid
dividends) in the amount of approximately $29.4 million to NationsBanc Capital
Corp. and BT Capital Partners, Inc., each a stockholder of CCI. Approximately
$3.9 million of such indebtedness bore interest at the rate of 15.0% per annum
and the remainder bore interest at the rate of 7.5% per annum. All of such
subordinated indebtedness and Preferred Stock had been incurred or issued to
fund the acquisition of various cable properties of the Company. CCI repaid such
indebtedness and redeemed the Preferred Stock from the holders thereof out of
the proceeds of the Notes. See "Use of Proceeds."
In 1997, the Company advanced $200,000 to Mr. Belisle. This loan bears
interest at the rate of 8% per annum, and is evidenced by a promissory note due
on or before August 21, 2004.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the Company is owned by CCI. The
following table sets for the certain information as of December 31, 1998,
regarding the beneficial ownership of CCI's Common Stock by (i) each executive
officer and director of CCI, (ii) each stockholder known by CCI to beneficially
own 5.0% or more of such CCI Common Stock and (iii) all directors and officers
as a group.
<TABLE>
<CAPTION>
VOTING NON-VOTING FULLY-DILUTED PERCENT OF FULLY-
COMMON COMMON COMMON DILUTED COMMON
BENEFICIAL OWNER(1) WARRANTS(2) SHARES(3) SHARES(3) SHARES STOCK OWNERSHIP(4)
------------------- ----------- --------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Austin Ventures, L.P.(5)..... -- 735,986 -- 735,986 20.5%
BT Capital Partners, Inc..... 30,225 1,326 735,986 767,537 21.4
The Texas Growth Fund........ -- -- 170,563 170,563 4.8
NationsBanc Capital Corp..... 152,418 6,631 542,995 702,044 19.6
J. Merritt Belisle........... -- 244,862 -- 244,862 6.8
Steven E. Seach.............. -- 244,862 -- 244,862 6.8
Jeffery C. Garvey(6)......... -- 735,986 -- 735,986 20.5
James J. Kozlowski(7)........ -- -- 170,563 170,563 4.8
Robert Marakovits(8)......... 30,225 1,326 735,986 767,537 21.4
Robert H. Sheridan III(9).... 152,418 6,631 542,995 702,044 19.6
All directors and officers as
a group.................... 182,643 1,233,667 1,449,544 2,865,854 79.9
</TABLE>
- ---------------
(1) The address for Austin Ventures, L.P. and Jeffery C. Garvey is 1300 Norwood
Tower, 114 West 7th Street, Austin, Texas 78701. The address for BT Capital
Partners, Inc. and Robert Marakovits is 130 Liberty Street, 25th Floor, New
York, New York 10006. The address for The Texas Growth Fund and James J.
Kozlowski is 100 Congress Ave., Suite 980, Austin, Texas 78701. The address
for NationsBanc Capital Corp. and Robert H. Sheridan III is 100 North Tryon
Street, Charlotte, North Carolina 28255. The address for J. Merritt Belisle
and Steven E. Seach is 515 Congress Ave., Suite 2626, Austin, Texas 78701.
(2) Warrants are for shares of CCI Common Stock which may be acquired at $.001
per share pursuant to a warrant which is exercisable at any time.
(3) All shares of CCI Non-Voting Common Stock are convertible into shares of
Voting Common Stock without cost and without advance notice by the holders
thereof. As a result, CCI believes that such shares should be taken into
account in considering voting interests in CCI.
(4) Assumes exercise of all outstanding warrants.
(5) Austin Ventures, L.P. owns 323,832 shares, Austin Ventures III-A, L.P. owns
223,422 shares and Austin Ventures III-B, L.P. owns 188,733 shares. AV
Partners, L.P. is the general partner of each of these partnerships.
(6) Jeffery C. Garvey is a director of CCI and a general partner of AV Partners,
L.P. Mr. Garvey is not the registered holder of any shares and disclaims the
beneficial ownership of the shares listed above except to the extent of his
indirect interest in the assets of the nominal shareholder, if any.
(7) James J. Kozlowski is a director of CCI and President of TGF Management
Corp., which is the executive director of the Board of Trustees of The Texas
Growth Fund -- 1991 Trust, which is the Trustee of the Texas Growth Fund.
Mr. Kozlowski is not the registered holder of any shares and disclaims the
beneficial ownership of the shares listed above except to the extent of his
indirect interest in the assets of the nominal shareholder, if any.
(8) Robert Marakovits is a managing director of BT Capital Partners, Inc. Mr.
Marakovits is not the registered holder of any shares and disclaims the
beneficial ownership of the shares listed above except to the extent of his
indirect interest in the assets of the nominal shareholder, if any.
(9) Robert H. Sheridan III is a director of CCI and managing director of
NationsBank Capital Investors. Mr. Sheridan is not the registered holder of
any shares and disclaims the beneficial ownership of the
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<PAGE> 59
shares listed above except to the extent of his indirect interest in the
assets of the nominal shareholder, if any.
CREDIT ARRANGEMENTS OF THE COMPANY
The Company is a party to a Senior Credit Agreement effective July 29, 1998
with a group of banks and other financial institutions led by Union Bank and
Goldman Sachs Credit Partners, L.P., as Co-Agents. The following is a summary of
the material provisions of the Senior Credit Agreement. For a complete
description of the terms and provisions of the Senior Credit Agreement,
reference is made to the Senior Credit Agreement.
The Senior Credit Agreement provides for revolving credit loans of $50
million and term loans of $75 million, or an aggregate of $125 million. The
revolving portion of the Senior Credit Agreement has a term of 8.5 years with
reductions in the commitment commencing 2.5 years after closing. The term
portion has a maturity of 9.25 years with reductions in commitment commencing
1.5 years after closing. In addition, the Company is required to prepay the
Senior Credit Agreement in part upon the occurrence happening of certain events,
such as a sale of assets, the incurrence of certain additional indebtedness, the
receipt of insurance proceeds and the generation of excess cash flow.
The Company's obligations under the Senior Credit Agreement are guaranteed
by each direct and indirect subsidiary of the Company and secured by (i)
substantially all the tangible and intangible assets of the Company and all of
its direct and indirect subsidiaries, and (ii) a pledge of all of the capital
stock of the Company and of all of the direct and indirect subsidiaries of the
Company.
The Senior Credit Agreement contains a number of covenants that, among
other things, restrict the ability of the Company and its respective
subsidiaries to dispose of assets, incur additional indebtedness, incur guaranty
obligations, pay dividends or make capital distributions, create liens on
assets, make investments, make acquisitions, engage in mergers or
consolidations, engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, the Senior Credit
Agreement requires compliance with certain financial covenants. Management does
not expect that such covenants will materially impact the ability of the Company
and its subsidiaries to operate their respective businesses.
The Senior Credit Agreement contains events of default, including the
failure to pay principal when due or any interest or other amount that becomes
due within a period of time after the due date thereof, any representation or
warranty being made by the Company that is incorrect in any material respect on
or as of the date made, a default in the performance of any negative covenants
or a default in the performance of certain other covenants or agreements for a
specified period, default in certain other indebtedness, certain insolvency
events, certain change of control events and a default under the Indenture.
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<PAGE> 60
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by CCI on July 29, 1998, in a transaction exempt
from registration under the Securities Act pursuant to Rule 144A under the
Securities Act. In connection with that placement, CCI entered into the
Registration Rights Agreement, which requires that CCI file the Registration
Statement under the Securities Act with respect to the New Notes and, upon the
effectiveness of that Registration Statement, offer to the holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
New Notes, which will be issued without a restrictive legend and which generally
may be reoffered and resold by the holder without registration under the
Securities Act. The Registration Rights Agreement further provides that CCI must
use its best efforts to (i) cause the Registration Statement with respect to the
Exchange Offer to be declared effective on or before November 26, 1998 and (ii)
consummate the Exchange Offer on or before December 28, 1998. Except as provided
below, upon the completion of the Exchange Offer, CCI's obligations with respect
to the registration of the Old Notes and the New Notes will terminate. A copy of
the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and the summary herein
contains the material provisions of the agreement; however, for a complete
description of the terms and provisions of the agreement, reference is made to
the Registration Rights Agreement. As a result of the filing and the
effectiveness of the Registration Statement and completion of the Exchange
Offer, certain interest rate increases on the Notes provided for in the
Registration Rights Agreement will not become payable by CCI. Following the
completion of the Exchange Offer (except as set forth in the paragraph
immediately below), holders of Old Notes not tendered will not have any further
registration rights and those Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market of the Old
Notes could be adversely affected upon completion of the Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
CCI, among other things, that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving the New Notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a distribution of the New Notes,
(iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the New
Notes and (iv) neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 promulgated under the Securities Act, of CCI. Pursuant
to the Registration Rights Agreement, CCI is required to file a "shelf"
registration statement for a continuous offering pursuant to Rule 415 under the
Securities Act in respect of the Old Notes if (i) because of any change in law
or applicable interpretations of the staff of the Commission, CCI is not
permitted to effect the Exchange Offer, (ii) the Exchange Offer is not
consummated within 150 days of the Offering or the Registration Statement
related to this Exchange Offer is not declared effective within 120 days of the
Offering, (iii) the Initial Purchaser, (iv) any applicable law or
interpretations do not permit any holder of Old Notes to participate in the
Exchange Offer, (v) any holder of Old Notes participates in the Exchange Offer
and does not receive freely transferrable New Notes in exchange for Old Notes or
(vi) CCI so elects. In the event that CCI is obligated to file a "shelf"
registration statement, it will be required to keep such "shelf" registration
statement effective for at least three years. Other than as set forth in this
paragraph, no holder will have the right to participate in the "shelf"
registration statement nor otherwise to require that CCI register such holder's
shares of Old Notes under the Securities Act. See "-- Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to CCI, CCI believes that, with the
exceptions set forth below, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any person receiving such New Notes, whether or not such person
is the registered holder (other than any such holder or such other person that
is an "affiliate" of CCI within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the New Notes are acquired in the ordinary
course of business of the holder or such other person and neither the holder nor
such other person has an arrangement or understanding with any person to
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<PAGE> 61
participate in the distribution of such New Notes. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on this interpretation by the Commission's staff and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where the 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 New Notes. See
"Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "The Exchange Offer -- Purpose and Effect"), holders of
Old Notes not tendered will not have any further registration rights and those
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for a holder's Old Notes could be
adversely affected upon completion of the Exchange Offer if the holder does not
participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, CCI 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. CCI will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of outstanding Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture pursuant to which the Old
Notes were issued.
As of July 31, 1998, the Old Notes representing $114,000,000 aggregate
principal amount at maturity were outstanding and there was one registered
holder, a nominee of DTC. This Prospectus, together with the Letter of
Transmittal, is being sent to such registered Holder and to others believed to
have beneficial interests in the Old Notes. CCI intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
CCI shall be deemed to have accepted validly tendered Old Notes when, as,
and if CCI has given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders for the purpose of
receiving the New Notes from CCI. If any tendered Old Notes are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Old Notes
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. CCI will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See "The
Exchange Offer -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
CCI 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 the Old Notes. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on , 1999, unless CCI, in its
reasonable discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. In order to extend the Exchange Offer, CCI will issue a
notice of any extension by press release or other public announcement prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. CCI reserves the right, in its
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<PAGE> 62
reasonable discretion, (i) to delay accepting any Old Notes, to extend the
Exchange Offer or, if any of the conditions set forth under "The Exchange
Offer -- Conditions to the Exchange Offer" shall not have been satisfied, to
terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer -- Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign, and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, prior to the Expiration
Date or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if that procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and CCI in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
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 CCI. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE 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 the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
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 below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
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If the 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 CCI of
their authority to so act must be submitted with the Letter of Transmittal
unless waived by CCI.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
CCI in its reasonable discretion, which determination will be final and binding.
CCI reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes CCI's acceptance of which would, in the opinion of
counsel for CCI, be unlawful. CCI also reserves the right to waive any defects,
irregularities, or conditions of tender as to particular Old Notes. CCI'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 CCI shall determine. Although CCI
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither CCI, 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.
In addition, CCI reserves the right in its reasonable discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions to the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder will represent to CCI that, among other things,
(i) the New Notes acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of business of the person receiving such New Notes, whether
or not such person is the registered holder, (ii) neither the holder nor any
such other person is engaging in or intends to engage in a distribution of such
New Notes, (iii) neither the holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such New
Notes, and (iv) neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of CCI.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes 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 the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where the 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 New
Notes. See "Plan of Distribution."
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BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by CCI (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date;
otherwise such tenders are irrevocable.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth on the back cover page
of this Prospectus prior to 5:00 p.m., New York City time, on the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) 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 register the
transfer of such Old Notes into the name of the person withdrawing the tender,
and (iv) specify
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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 CCI, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes that have been tendered for
exchange but that are not exchanged for any reason 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 under
"The Exchange Offer -- Procedures for Tendering" at any time on or prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, CCI shall not be
required to accept for exchange, or exchange New Notes for, any Old Notes, and
may terminate or amend the Exchange Offer as provided above at any time before
the Expiration Date, 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 reasonable judgment of CCI, might materially impair the
ability of CCI to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to CCI or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of CCI, might materially impair the ability of CCI to proceed with
the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to CCI; or
(c) any governmental approval has not been obtained, which approval
CCI shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If CCI determines in its reasonable discretion that any of the conditions
are not satisfied, CCI may (i) refuse to accept any Old Notes and return all
tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and
retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"-- Withdrawal of Rights") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn. CCI 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 or Old Notes.
In addition, CCI will not accept for exchange any Old Notes tendered, and
no New Notes will be issued in exchange for any such Old Notes, if at such time
any stop order shall be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Indenture under the Trust Indenture Act of 1939, as amended (the "TIA"). In
any such event CCI is required to use every reasonable effort to obtain the
withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
All executed letters of Transmittal should be directed to the Exchange
Agent. BankOne, N.A. has been appointed as Exchange Agent for the Exchange
Offer. Questions, requests for assistance and requests for
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additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
Deliver to:
BankOne, N.A., EXCHANGE AGENT
<TABLE>
<CAPTION>
By Registered or Certified Mail: By Overnight Courier: By Hand Delivery:
<S> <C> <C>
235 West Schrock Road 235 West Schrock Road 235 West Schrock Road
Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184
Attention: Corporate Trust Attention: Corporate Trust Attention: Corporate Trust
Operations Operations Operations
</TABLE>
Facsimile Transmission Number:
(For Eligible Institutions Only)
614/248-9987
Confirm Receipt of Facsimile by Telephone:
800/346-5153
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
FEES AND EXPENSES
CCI will not make any payments to brokers, dealers, or others soliciting
acceptances of the Exchange Offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
officers and employees of CCI.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by CCI and are estimated in the aggregate to be $175,000,
which includes fees and expenses of the Exchange Agent, accounting, legal,
printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
CCI to register New Notes in the name of, or request that Old Notes not tendered
or not accepted in the Exchange Offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued under the Indenture (the "CCI Indenture")
dated as of July 29, 1998, between CCI and Bank One, N.A., as Trustee (the
"Trustee"). The following statements are subject to the detailed provisions of
the CCI Indenture and are qualified in their entirety by reference to the CCI
Indenture, including the terms made apart thereof by the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Capitalized terms used herein
which are not otherwise defined shall have the meaning assigned to them in the
CCI Indenture.
The CCI common stock issued in conjunction with the CCI Private Offering
(the "Shares") is not being registered with the New Notes. Until the occurrence
of the "Separability Date" as defined below, the Shares are not separately
transferable from the Old Notes. The Shares will not be separately transferable
until the earliest of (i) February 1, 1999; (ii) the date on which a
registration statement with respect to a registered exchange offer for the New
Notes is declared effective under the Securities Act; (iii) the occurrence of an
Event of Default under the Indenture; or (iv) such earlier date as determined by
the Initial Purchaser in its sole discretion. The date of the occurrence of an
event specified in clauses (i) - (iv) above is referred to as the "Separability
Date."
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be issued in an aggregate principal amount at maturity
of up to $114 million and will mature on August 1, 2009. The Old Notes were, and
the New Notes are, being offered at a substantial discount from their principal
amount at maturity. For United States federal income tax purposes, a significant
amount of original issue discount will be recognized by a holder as ordinary
income as such discount is amortized from the Issuance Date, but holders of the
Notes will not receive any cash payments on the Notes until February 1, 2004.
See "Certain United States Federal Income and Tax Considerations -- Original
Issue Discount."
No cash interest will accrue on the Notes until August 1, 2003.
Beginning on August 1, 2003, cash interest on the Notes will accrue at the
rate of 13 1/4% per annum and will be payable semiannually in arrears on
February 1 and August 1, commencing February 1, 2004, to holders of record at
the close of business on the January 15 and July 15 immediately preceding the
interest payment date. Cash interest will accrue from the most recent Interest
Payment Date to which interest has been paid or duly provided for, or, if no
interest has been paid or duly provided for, from August 1, 2003. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of CCI
maintained for such purpose in the Borough of Manhattan, The City of New York
(which initially shall be the corporate trust office of the Trustee in care of
First Chicago Trust Company of New York, 14 Wall Street, 8th Floor, Suite 4607,
New York, New York 10005), except that, at the option of CCI, payment of
interest, if any, may be made by check mailed to the registered holders of the
Notes at their registered addresses.
The New Notes will be issued only in fully registered form without coupons,
in denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer, exchange or redemption of the
Notes, except in certain circumstances for any tax or other governmental charge
that may be imposed in connection therewith.
RANKING
The New Notes will be senior unsecured obligations of CCI, ranking pari
passu to all existing and future Senior Indebtedness, and senior in right of
payment with all existing and future unsecured senior subordinated and
subordinated Indebtedness of CCI.
CCI, on an unconsolidated basis, has no Indebtedness outstanding other than
the Old Notes.
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Substantially all of the operations of CCI are conducted through its
Subsidiaries and, therefore, CCI is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the Notes.
CCI's Subsidiaries will not be guarantors of the Notes and are separate entities
with no obligation to make payments on the Discount Notes or to make funds
available therefor. Claims of creditors of such Subsidiaries, including trade
creditors, secured creditors and creditors holding Indebtedness and guarantees
issued by such Subsidiaries, and claims of preferred stockholders (if any) of
such Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of CCI, including
holders of the Notes. The Notes, therefore, will be effectively subordinated to
all Indebtedness and other liabilities and commitments of CCI's Subsidiaries. At
December 31, 1998, the total liabilities of CCI's Subsidiaries was approximately
$239.3 million, including trade payables. Although the CCI Indenture limits the
incurrence of Indebtedness of certain of CCI's Subsidiaries, such limitation is
subject to a number of significant qualifications. Moreover, the CCI Indenture
does not impose any limitation on the incurrence by such Subsidiaries of
liabilities that are not considered Indebtedness under the CCI Indenture. See
"-- Certain Covenants -- Limitation on Indebtedness."
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to CCI or its
assets, or any liquidation, dissolution or other winding up of CCI, whether
voluntary or involuntary, or whether or not involving insolvency or bankruptcy,
or any assignment for the benefit of creditors or other marshaling of assets or
liabilities of CCI, all Senior Indebtedness must be paid in full before any
payment or distribution (excluding distributions of certain permitted equity
interests or subordinated securities) is made on account of the principal of,
premium, if any, or interest on the Notes or on account of the purchase,
redemption, defeasance or other acquisition of or in respect of the Notes (other
than payments previously made pursuant to the provisions described under
"Defeasance or Covenant Defeasance").
By reason of such subordination, in the event of liquidation or insolvency,
creditors of CCI who are holders of Senior Indebtedness may recover more,
ratably, than the holders of the Notes, and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full and
CCI may be unable to meet its obligations fully with respect to the Notes.
The CCI Indenture limits, but does not prohibit, the incurrence by CCI and
its Subsidiaries of additional Indebtedness, and the CCI Indenture prohibits the
incurrence by CCI of Indebtedness that is subordinated in right of payment to
any Senior Indebtedness of CCI and senior in right of payment to the Notes.
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at any time after August
1, 2003, at the option of CCI, on not less than 30 and not more than 60 days'
notice prior to the redemption date by first class mail to each holder of Notes
at the following redemption prices (expressed as percentages of the principal
amount at maturity), if redeemed during the twelve-month period beginning with
August 1 of the year indicated below, in each case together with accrued and
unpaid interest, if any, thereon to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003..................................................... 106.63%
2004..................................................... 104.42
2005..................................................... 102.21
2006 and thereafter...................................... 100.00
</TABLE>
In addition, at any time and from time to time, on or prior to August 1,
2001, CCI may redeem all (but not less than all) of the Notes with the Net Cash
Proceeds of one or more Equity Offerings of or Strategic Equity Investment in
CCI, at a redemption price in cash equal to 113.25% of the Accreted Value to be
redeemed plus accrued and unpaid interest, if any, to the date of redemption.
Any such redemption will be
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required to occur within 45 days following the closing of any such Equity
Offering or Strategic Equity Investment.
Upon the occurrence of a Change of Control, CCI may redeem all, but not
less than all, the Notes in cash, at a redemption price equal to the Accreted
Value thereof plus accrued and unpaid interest to the date of redemption plus
the Applicable Premium. Notice of redemption of the Notes pursuant to this
paragraph shall be mailed to holders of the Notes not more than 30 days
following the occurrence of a Change of Control. CCI may not redeem Notes
pursuant to this paragraph if it has made a Change of Control Offer with respect
to such Change of Control.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed, if the Notes are listed on a national securities exchange,
in accordance with the rules of such exchange or, if the Notes are not so
listed, on a pro rata basis or by lot or by such other method that the Trustee
deems to be fair and equitable to holders. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed and a new Note or Notes in
principal amount equal to the unredeemed principal portion thereof will be
issued; provided, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as CCI shall
have deposited with the Paying Agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the CCI Indenture.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
The CCI Indenture provides that upon the occurrence of a Change of Control,
each holder of Notes shall have the right to require CCI to repurchase all or
any part of such holder's Notes pursuant to an offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the Accreted
Value thereof plus any accrued and unpaid interest, if any, thereon to the date
of repurchase (the "Change of Control Payment").
A "Change of Control" means the occurrence of any of the following events:
(i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 35% of the total
voting power of the then outstanding Voting Equity Interest of CCI; (ii) CCI
consolidates with, or merges with or into, another Person (other than a Wholly
Owned Restricted Subsidiary) or CCI or any its Subsidiaries sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
the assets of CCI and its Subsidiaries (determined on a consolidated basis) to
any Person (other than CCI or any Wholly Owned Restricted Subsidiary); (iii) CCI
is liquidated or dissolved or adopts a plan of liquidation or dissolution
(whether or not otherwise in compliance with the provisions of the CCI
Indenture); or (iv) a majority of the members of the Board of Directors of CCI
shall consist of Persons who are not Continuing Members.
Within 30 days of the occurrence of a Change of Control, CCI shall send by
first-class mail, postage prepaid, to the Trustee and to each holder of the
Notes, at the address appearing in the register of Notes maintained by the
Registrar, a notice stating: (i) that the Change of Control Offer is being made
pursuant to this covenant and that all Notes tendered will be accepted for
payment; (2) the purchase price and the purchase date, which shall be a business
day no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"); (3) that any Note not tendered
will continue to accrue interest; (4) that, unless CCI defaults in the payment
of the Change of Control Payment, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change
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of Control Payment Date; (5) that holders accepting the offer to have their
Notes purchased pursuant to a Change of Control Offer will be required to
surrender the New Notes to the Paying Agent at the address specified in the
notice prior to the close of business on the business day preceding the Change
of Control Payment Date; (6) that holders will be entitled to withdraw their
acceptance if the Paying Agent receives, not later than the close of business on
the third Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the holder,
the principal amount of the Notes delivered for purchase, and a statement that
such holder is withdrawing its election to have such Notes purchased; (7) that
holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
provided that each Note purchased and each such New Note issued shall be in an
original principal amount in denominations of $1,000 and integral multiples
thereof; (8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and (9) the name and
address of the Paying Agent.
On the Change of Control Payment Date, CCI shall, to the extent lawful (i)
accept for payment Notes or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee Notes so accepted together with an
Officers' Certificate stating the Notes or portions thereof tendered to CCI. The
Paying Agent shall promptly mail to each holder of Notes so accepted payment in
an amount equal to the purchase price for such Notes, and CCI shall execute and
issue, and the Trustee shall promptly authenticate and mail to such holder, a
new Note equal in principal amount to any unpurchased portion of the Notes
surrendered; provided that each such new Note shall be issued in an original
principal amount in denominations of $1,000 and integral multiples thereof. The
Company will send to the Trustee and the holders of Notes on or as soon as
practicable after the Change of Control Payment Date a notice setting forth the
results of the Change of Control Offer.
CCI will not be required to make a Change of Control Offer if a third party
makes the Change of Control Offer in the manner, at the time and otherwise in
compliance with the requirements set forth in the CCI Indenture applicable to a
Change of Control Offer made by CCI and purchases all Notes or portions thereof
validly tendered and not withdrawn under such Change of Control Offer. CCI will
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act and any other securities laws or regulations in connection with the
repurchase of Notes pursuant to this covenant.
The definition of Change of Control includes a phrase relating to the sale,
assignment, conveyance, transfer, lease or other disposition of "all or
substantially all" of the assets of CCI and its Subsidiaries. Although there is
a developing body of case law interpreting the phrase "substantially all," there
is not a precise or established definition of the phrase under applicable law.
Accordingly, the ability of a holder of the Notes to require CCI to repurchase
such Notes as a result of a sale, assignment, conveyance, transfer, lease or
other disposition of less than all of the assets of CCI and its Subsidiaries to
another Person or group may be uncertain.
If a Change of Control Offer is made, there can be no assurance that CCI
will have available funds sufficient to pay the Change of Control Purchase Price
for all of the Notes that might be delivered by holders of the Notes seeking to
accept the Change of Control Offer. The Indenture governing the Notes issued by
the Company restricts the Company from paying dividends or making distributions
to CCI. See "-- Ranking." The failure of CCI to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due will give the
Trustee and the holders of the Notes the rights described under "Events of
Default."
The existence of a holder's right to require CCI to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
CCI in a transaction which constitutes a Change of Control.
The provisions of the CCI Indenture do not afford holders of the Notes the
right to require CCI to repurchase the Notes in the event of a highly leveraged
transaction or certain transactions with CCI's management or its Affiliates,
including a reorganization, restructuring, merger or similar transaction
(including, in certain circumstances, an acquisition of CCI by management or its
affiliates) involving CCI that may adversely affect holders of the Notes, if
such transaction is not a transaction defined as a Change of Control. A
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transaction involving CCI's management or its Affiliates, or a transaction
involving a recapitalization of CCI, will result in a Change of Control if it is
the type of transaction specified by such definition.
Asset Sales
The CCI Indenture provides that CCI shall not, and shall not permit any
Restricted Subsidiary to, consummate an Asset Sale unless (i) CCI or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof,
as determined in good faith by the Board of Directors of CCI and evidenced in a
board resolution; and (ii) not less than 75% of the consideration received by
CCI or such Restricted Subsidiary, as the case may be, is in the form of cash or
Cash Equivalents.
Within 365 days after the receipt of any Net Available Cash from an Asset
Sale, CCI or the applicable Restricted Subsidiary may apply such Net Available
Cash to: (A) acquire all or substantially all of the assets of a Related
Business; (B) acquire Voting Stock of a Related Business from a Person that is
not a Subsidiary of CCI; provided, that, (x) after giving effect thereto, CCI or
its Restricted Subsidiary owns a majority of such Voting Stock and (y) such
acquisition is otherwise made in accordance with the CCI Indenture, including,
without limitation, the "Limitation on Restricted Payments" covenant; (C) make a
capital expenditure or acquire other long-term assets that are used or useful in
a Related Business; or (D) prepay, repay, redeem or purchase Indebtedness
outstanding under the Senior Credit Agreement. To the extent of the balance of
such Net Available Cash after application in accordance with clauses (A), (B),
(C) or (D) ("Excess Proceeds"), CCI shall make an Offer to holders of the Notes
to purchase Notes and an offer to holders of Pari Passu Indebtedness to
repurchase such indebtedness pursuant to and subject to the conditions set forth
below.
Notwithstanding the foregoing provisions, CCI and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Sales which are not applied in accordance with this covenant exceeds $10
million. Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption by the transferee of Indebtedness of CCI (other than Indebtedness
that is subordinated to the Notes and other than any Disqualified Equity
Interest of CCI) or Indebtedness of any Restricted Subsidiary and the release of
CCI or such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Sale; (y) securities received by CCI or any
Restricted Subsidiary from the transferee that are converted by CCI or such
Restricted Subsidiary into cash within 20 days of the applicable Asset Sale (to
the extent of the cash received); and (z) any liabilities (as shown on CCI's or
such Restricted Subsidiary's most recent balance sheet) of CCI or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases CCI or any such Restricted Subsidiary from further liability.
When the aggregate amount of Excess Proceeds exceeds $10 million or more,
CCI will apply the Excess Proceeds to the repayment of the Notes and any other
Pari Passu Indebtedness outstanding with similar provisions requiring CCI to
make an offer to purchase such Indebtedness with the proceeds from any Asset
Sale as follows: (A) CCI will make an offer to purchase (an "Offer") from all
holders of the Discount Notes in accordance with the procedures set forth in the
CCI Indenture in the maximum principal amount (expressed as a multiple of
$1,000) of Notes that may be purchased out of an amount ( the "Note Amount")
equal to the product of such Excess Proceeds multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Notes, and the
denominator of which is the sum of the outstanding principal amount of the Notes
and such Pari Passu Indebtedness (subject to proration in the event such amount
is less than the aggregate Offered Price (as defined herein) of all Notes
tendered) and (B) to the extent required by such Pari Passu Indebtedness to
permanently reduce the principal amount of such Pari Passu Indebtedness, CCI
will make an offer to purchase or otherwise repurchase or redeem Pari Passu
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Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt Amount")
equal to the excess of the Excess Proceeds over the Note Amount; provided that
in no event will CCI be required to make a Pari Passu Offer in a Pari Passu Debt
Amount exceeding the principal amount of such Pari Passu Indebtedness. The offer
price for the Notes will be payable in cash in an amount equal to 100% of the
principal amount of the Notes plus accrued and unpaid interest, if any, to the
date (the "Offer Date") such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the CCI Indenture. To the extent
that the aggregate Offered Price of the Notes tendered pursuant to the Offer is
less than the Note Amount relating thereto or the aggregate amount of Pari Passu
Indebtedness that is purchased in a Pari Passu Offer is less than the Pari Passu
Debt Amount, CCI may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Discount Notes and Pari Passu
Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon the completion of the purchase of all the Notes tendered pursuant to
an Offer and the completion of a Pari Passu Offer, the amount of Net Available
Cash, if any shall be reset at zero.
If CCI is required to make an Offer, CCI shall mail, within 30 days
following the Reinvestment Date, a notice to the holders of Notes stating, among
other things: (1) that such holders have the right to require CCI to apply the
Excess Proceeds to repurchase such Notes at a purchase price in cash equal to
100% of the Accreted Value thereof plus accrued and unpaid interest, if any, to
the date of purchase; (2) the purchase date, which shall be no earlier than 30
days and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by CCI, that each holder must follow in order to have
such Notes repurchased; and (4) the calculations used in determining the amount
of Excess Proceeds to be applied to the repurchase of such Notes.
CCI will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this covenant.
The Indenture governing the Notes issued by the Company restricts the
Company from paying dividends or making any distribution to CCI. If CCI is
unable to obtain dividends or receive distributions from the Company sufficient
to permit repurchase of the Notes pursuant to an Offer, CCI will not have the
financial resources to make an Offer.
EVENTS OF DEFAULT
An Event of Default is defined in the CCI Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal (or premium, if any, on) of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by CCI to comply with its
obligations under "Certain Covenants -- Merger or Sales of Assets," (iv) the
failure by CCI to comply for 30 days after notice with any of its obligations
under the covenants described under "Repurchase at the Option of
Holders -- Change of Control" or "Certain Covenants" (in each case, other than a
failure to purchase Notes), (v) the failure by CCI to comply for 60 days after
notice with its other agreements contained in the CCI Indenture, (vi) the
failure by CCI or any Restricted Subsidiary of CCI to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds $5 million or its
foreign currency equivalent (the "cross acceleration provision"), (vii) certain
events of bankruptcy, insolvency or reorganization of CCI or any Restricted
Subsidiary of CCI (the "bankruptcy provisions") or (viii) any judgment or decree
for the payment of money in excess of $5 million is rendered against CCI or any
Restricted Subsidiary of CCI and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed within 10 days of after notice (the
"judgment default provision").
The CCI Indenture provides that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, the Trustee or the
holders of not less than 25% in principal amount of the Notes then outstanding
may declare the
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Accreted Value of all the Notes to be due and payable immediately. In case an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, such amount with respect to all of the Notes shall
be due and payable immediately without any declaration or other act on the part
of the Trustee or the holders of the Notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Discount Notes outstanding by written
notice to CCI and the Trustee, may rescind and annul such declaration and its
consequences if (a) CCI has paid or deposited with the Trustee a sum sufficient
to pay (i) all sums paid or advanced by the Trustee under the CCI Indenture and
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, (ii) all overdue interest on all Notes then
outstanding, (iii) the principal of and premium, if any, on any Notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Notes; (b) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (c) all Events of
Default, other than the non-declaration of acceleration, have been cured or
waived as provided in the CCI Indenture. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the Notes outstanding may on behalf of the holders of all outstanding Notes
waive any past default under the CCI Indenture and its consequences, except a
default (i) in the payment of the principal of, premium, if any, or interest on
any Note (which may only be waived with the consent of each holder of Notes
effected) or (ii) in respect of a covenant or provision which under the CCI
Indenture cannot be modified or amended without the consent of the holder of
each Note affected by such modification or amendment.
No holder of any of the Notes has any right to institute any proceedings
with respect to the CCI Indenture or any remedy thereunder, unless the holders
of at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the CCI Indenture, the Trustee
has failed to institute such proceeding within 15 days after receipt of such
notice and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not, however,
apply to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
CCI is required to notify the Trustee within five business days of the
occurrence of any Default. CCI is required to deliver to the Trustee, on or
before a date not more than 60 days after the end of each fiscal quarter and not
more than 120 days after the end of each fiscal year, a written statement as to
compliance with the CCI Indenture, including whether or not any Default has
occurred.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee subject to certain
limitations specified in the CCI Indenture. Subject to the provisions of the CCI
Indenture relating to the duties of the Trustee, in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the CCI Indenture at the request or
direction of any of the holders of the Notes, unless such holders have offered
to the Trustee reasonable indemnity.
CERTAIN COVENANTS
Limitation on Restricted Payments
The CCI Indenture provides that, so long as any of the Notes remain
outstanding, CCI shall not, and shall not permit any Restricted Subsidiary to,
make any Restricted Payment if (i) immediately before or immediately after
giving effect to such Restricted Payment, a Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence of such
Restricted Payment; (ii) immediately after giving
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effect to such Restricted Payment, CCI would not be able to incur $1.00 of
additional Indebtedness under the Debt to Operating Cash Flow Ratio of the first
paragraph of "Limitation on Indebtedness" below; or (iii) immediately after
giving effect to any such Restricted Payment, the aggregate of all Restricted
Payments which shall have been made on or after the date of the CCI Indenture
(the amount of any Restricted Payment, if other than cash, to be based upon the
fair market value thereof on the date of such Restricted Payment) would exceed
an amount equal to the difference between (a) the Cumulative Credit and (b) 1.4
times Cumulative Interest Expense.
"Restricted Payment" means (i) any dividend (whether made in cash, property
or securities) on or with respect to any Equity Interests of CCI or of any
Restricted Subsidiary (other than any dividend made to CCI or another Wholly
Owned Restricted Subsidiary or any dividend payable in Equity Interests of CCI
or any Restricted Subsidiaries); or (ii) any distribution (whether made in cash,
property or securities) on or with respect to any Equity Interests of CCI or of
any Restricted Subsidiary (other than any distribution made to CCI or another
Wholly Owned Subsidiary or any distribution payable in Equity Interests of CCI
or any Restricted Subsidiary); or (iii) any redemption, repurchase, retirement
or other direct or indirect acquisition of any Equity Interests of CCI or a
Restricted Subsidiary, or any warrants, rights or options to purchase or acquire
any such Equity Interests or any securities exchangeable for or convertible into
any such Equity Interests; or (iv) any redemption, repurchase, retirement or
other direct or indirect acquisition for value or other payment of principal,
prior to any scheduled final maturity, scheduled repayment or scheduled sinking
fund payment, of any Subordinated Obligations; or (v) any Investment (other than
a Permitted Investment).
The provisions of the first paragraph of this covenant shall not prevent
(i) the retirement of any of CCI's Equity Interests in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of CCI or an employee stock ownership plan or to a trust established by CCI or
any Subsidiary of CCI for the benefit of its employees) of Equity Interests of
CCI (other than any Disqualified Equity Interest), provided that the Net Cash
Proceeds from the issuance are excluded from clause (i) of the definition of
Cumulative Credit; (ii) 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 such formal notice such payment
or redemption would comply with the first paragraph of this covenant and the
other provisions of the CCI Indenture; (iii) investments constituting Restricted
Payments made as a result of the receipt of non-cash consideration from any
Asset Sale made pursuant to and in compliance with the provisions described
under "Repurchase at the Option of Holders -- Asset Sales" above; (iv) the
redemption, repurchase, retirement, defeasance or other acquisition of any
Subordinated Obligations in exchange for, or out of Net Cash Proceeds of the
substantially concurrent sale (other than to a Subsidiary of CCI or any employee
stock ownership plan or to a trust established by CCI or any Subsidiary of CCI
(for the benefit of its employees)) of Equity Interests of CCI (other than any
Disqualified Equity Interest); and (v) the making and consummation of (A) an
Offer in accordance with the provisions of the CCI Indenture with any Excess
Proceeds or (B) a Change of Control Offer with respect to the Notes in
accordance with the provisions of the CCI Indenture; provided, however, that in
the case of clause (ii), no Default or Event of Default shall have occurred and
be continuing at the time of such Restricted Payment or as a result thereof. In
determining the aggregate amount of Restricted Payments made on or after the
date of the CCI Indenture, Restricted Payments made pursuant to clause (ii)
shall be included in such calculation.
Limitation on Indebtedness
The CCI Indenture provides that CCI shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) except for Permitted Indebtedness; provided,
however, that CCI or any Restricted Subsidiary which is a Subsidiary Guarantor
may incur Indebtedness if, at the time of and immediately after giving pro forma
effect to such incurrence of Indebtedness and the application of the proceeds
therefrom, the Debt to Operating Cash Flow Ratio would be less than or equal to
8.0 to 1.0.
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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 CCI Indenture;
(b) Indebtedness of CCI and the Restricted Subsidiaries outstanding on
the Issuance Date and listed on a schedule to the CCI Indenture, other than
Indebtedness described in clause (a), (c), (d), (f) or (j) of this
paragraph;
(c) Indebtedness of (x) any Wholly Owned Restricted Subsidiary owed to
or issued to and held by CCI or any Restricted Subsidiary and (y) CCI 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
CCI's obligations under the CCI Indenture and the Notes; provided, however,
that an incurrence of Indebtedness that is not permitted by this clause (c)
shall be deemed to have occurred upon (i) any sale or other disposition of
any Indebtedness of CCI or a Restricted Subsidiary referred to in this
clause (c) to any Person (other than CCI or a Wholly Owned Restricted
Subsidiary) such that such Restricted Subsidiary ceases to be a Restricted
Subsidiary or (ii) any designation of a Restricted Subsidiary which holds
Indebtedness of CCI as an Unrestricted Subsidiary;
(d) Guarantees by any Restricted Subsidiary of Indebtedness of CCI
permitted in accordance with the provisions of the CCI Indenture;
(e) Indebtedness of any Restricted Subsidiary under the Senior Credit
Agreement in the aggregate principal amount at any one time outstanding not
to exceed $125 million;
(f) Indebtedness of CCI or any Restricted Subsidiary to the extent
representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness of CCI or any
Restricted Subsidiary, as the case may be, incurred in compliance with
clause (a), (b), (e), (g) or (j) of this paragraph of this covenant;
provided, however, that (i) Indebtedness of CCI may not be refinanced under
this clause (f) with Indebtedness of any Restricted Subsidiary, (ii) any
such refinancing shall not exceed the sum of the principal amount or
liquidation preference or redemption payment value (or, if such
Indebtedness provides 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 being
refinanced plus the amount of accrued interest or dividends thereon and
such reasonable fees and expenses incurred in connection therewith, (iii)
Indebtedness representing a refinancing of Indebtedness of CCI shall not
mature prior to the stated maturity of the Indebtedness refinanced and
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iv) Subordinated Obligations of CCI may only be refinanced with
Subordinated Obligations of CCI, and (v) Other Pari Passu Debt which is
unsecured may only be refinanced with unsecured Indebtedness, which is
either Other Pari Passu Debt or Subordinated Obligations;
(g) Indebtedness of CCI or a Restricted Subsidiary represented by
Capitalized Lease Obligations, mortgage financings, performance bonds,
purchase money obligations or letters of credit, in each case incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of CCI or such Restricted Subsidiary in an aggregate principal
amount not to exceed $10 million at any time outstanding;
(h) Indebtedness incurred and outstanding on or prior to the date on
which such Restricted Subsidiary was acquired by CCI (other than
Indebtedness incurred in connection with, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by CCI); provided, however,
that on the date of such acquisition and after giving effect thereto, the
Debt to Operating Cash Flow Ratio would have been less than or equal to the
Debt to Operating Cash Flow Ratio immediately prior thereto;
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(i) Indebtedness of CCI and any Restricted Subsidiary under a Hedging
Agreement related to floating interest on Indebtedness under the Senior
Credit Agreement provided that such Hedging Agreement is designed solely to
protect against fluctuations in interest rates and does not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in interest rates;
(j) Indebtedness under the Company Notes and the related Indenture;
and
(k) In addition to any indebtedness described in clauses (a) through
(j) above, Indebtedness of CCI or any of the Restricted Subsidiary so long
as the aggregate principal amount of all such indebtedness incurred
pursuant to this clause (k) does not exceed $5 million at any one time
outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (a) through (i) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
CCI shall classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness shall be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof.
Limitation on Transactions with Affiliates. (a) CCI will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction or series of transactions (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with any Affiliate, officers or directors of CCI (an
"Affiliate Transaction") unless (i) the terms of such transaction are no less
favorable to CCI or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time of such transaction in arm's-length dealings
with a Person who is not such an Affiliate; (ii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $1.0 million, the terms of
such transaction are set forth in writing and shall have been approved by a
majority of the members of the Board of Directors having no personal stake in
such Affiliate Transaction (and such majority determines that such Affiliate
Transaction satisfies the criteria in clause (i) above) and (iii) in the event
such Affiliate Transaction involves an aggregate amount in excess of $10
million, CCI has received a written opinion from a nationally recognized
independent investment banking firm, or nationally recognized accounting or
appraisal firm, that such Affiliate Transaction is fair to CCI and its
Restricted Subsidiaries from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be made pursuant to the covenant "Limitation
on Restricted Payments," (ii) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements, stock options and stock ownership plans approved by
the Board of Directors and otherwise permitted under the CCI Indenture, (iii)
the grant of stock options or similar rights to employees and directors of CCI
in the ordinary course of business pursuant to plans approved by the Board of
Directors, and otherwise permitted under the CCI Indenture, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of CCI or its Restricted Subsidiaries, but in any event not to
exceed $1.0 million in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of CCI and its Restricted Subsidiaries
who are not employees of CCI or its Restricted Subsidiaries, (vi) any
transaction between CCI and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries or (vii) the payment of Investment Banking Fees.
Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries
CCI (a) will not, and will not permit any Restricted Subsidiary of CCI to,
directly or indirectly, transfer, convey, sell, lease or otherwise dispose of
any Equity Interest of any Restricted Subsidiary to any Person (other than to
CCI or a Wholly Owned Restricted Subsidiary), unless (i) such transfer,
conveyance, sale, lease or other disposition is of all the Equity Interest of
such Restricted Subsidiary and (ii) the Net Cash Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
provision described above under "Repurchase at the Option of Holders -- Asset
Sales" and (b) will not permit any Restricted Subsidiary to issue any of its
Equity Interest (other than, if required under applicable
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law, shares of its Equity Interest constituting directors' qualifying shares) to
any Person other than to CCI or Wholly Owned Restricted Subsidiary.
Limitation on Sale/Leaseback Transactions
CCI will not, and will not permit any Restricted Subsidiary to, enter into
any Sale/Leaseback Transaction with respect to any property unless (i) CCI or
such Restricted Subsidiary would be entitled to (A) incur Indebtedness in an
amount equal to the Attributable Indebtedness with respect to such Sale/
Leaseback Transaction pursuant to the covenant described under "-- Limitation on
Indebtedness" and (B) create a Lien on such property securing such Attributable
Indebtedness without equally and ratably securing the Notes pursuant to the
covenant described under "-- Limitations on Liens," (ii) the net cash proceeds
received by CCI or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
in good faith by the Board of Directors of CCI and certified in an Officers'
Certificate to the Trustee) of such property and (iii) the transfer of such
property is permitted by, and CCI or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with, the covenant described under
"Repurchase at the Option of Holders -- Asset Sales."
Limitation on Liens
The CCI Indenture provides that CCI shall not, and will not permit any
Restricted Subsidiary to, directly or indirectly incur any Indebtedness secured
by a Lien against or on any of its property or assets now owned or hereafter
acquired by CCI or any Restricted Subsidiary unless contemporaneously therewith,
(a) if such Indebtedness is not subordinated Indebtedness, effective provision
is made to secure the Notes equally and ratably with such secured Indebtedness,
and (b) if such Indebtedness is subordinated Indebtedness, the Notes are secured
by a lien against such assets or property that is senior in priority to the
liens securing such Subordinated Indebtedness. This restriction does not,
however, apply to Indebtedness secured by (i) Liens securing the Indebtedness
under the Senior Credit Agreement; (ii) Liens, if any, in effect on the date of
the CCI Indenture; (iii) Liens in favor of governmental bodies to secure
progress or advance payments; (iv) Liens on Equity Interests or Indebtedness
existing at the time of the acquisition thereof (including acquisition through
merger or consolidation), provided that such Liens were not incurred in
anticipation of such acquisition; (v) Liens securing the Notes; (vi) Liens
securing Indebtedness of CCI in an amount not to exceed $5 million at any time
outstanding; (vii) Other Permitted Liens; and (viii) any extension, renewal or
replacement of any Lien referred to in the foregoing clauses (i) through (vii),
inclusive, but only to the extent such Liens do not extend to any other property
or assets (other than improvements).
Limitation on Guarantees of Certain Indebtedness
The CCI Indenture provides that CCI shall not (a) permit any Restricted
Subsidiary to guarantee any Indebtedness of CCI other than the Notes (the "Other
Indebtedness"), or (b) pledge any intercompany Indebtedness representing
obligations of any of its Restricted Subsidiaries to secure the payment of Other
Indebtedness, in each case unless such Restricted Subsidiary, CCI and the
Trustee execute and deliver a supplemental indenture causing such Restricted
Subsidiary to guarantee CCI's obligations under the CCI Indenture and the New
Notes to the same extent that such Restricted Subsidiary guaranteed CCI's
obligations under the Other Indebtedness (including waiver of subrogation, if
any, except that (i) such guarantee need not be secured unless required pursuant
to "-- Limitation on Liens" and (ii) if such Indebtedness is by its terms
expressly subordinated to the Notes, any such assumption, guarantee or other
liability of such Restricted Subsidiary with respect to such Indebtedness shall
be subordinated to such Restricted Subsidiary's guarantee of the Notes at least
to the same extent as such Indebtedness is subordinated to the Notes).
Notwithstanding the foregoing, any guarantee by a Restricted Subsidiary of
the Notes shall provide by its terms that it (and all Liens securing the same)
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of CCI, of all of
CCI's Equity Interest in, or all or substantially all the assets of, such
Restricted Subsidiary, which transaction is in compliance with the terms of the
CCI Indenture and such Restricted Subsidiary is released from all
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guarantees, if any, by it of other Indebtedness of CCI or any Restricted
Subsidiaries and (with respect to any guarantees created after the date of the
CCI Indenture) the release by the holders of the Indebtedness of CCI described
in clause (a) above of their security interest or their guarantee by such
Restricted Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness), at such time as (A) no other Indebtedness
of CCI has been secured or guaranteed by such Restricted Subsidiary, as the case
may be, or (B) the holders of all such other Indebtedness which is secured or
guaranteed by such Restricted Subsidiary also release their security interest in
or guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness).
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The CCI Indenture provides that CCI shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (a) pay dividends in
cash or otherwise or make any other distributions to CCI or any Restricted
Subsidiary on its Equity Interests; (b) pay any Indebtedness owed to CCI or any
Restricted Subsidiary; (c) make loans or advances or guarantee any such loans or
advances, to CCI or any Restricted Subsidiary; (d) transfer any of its
properties or assets to CCI or any Restricted Subsidiary; (e) grant Liens on the
assets of CCI or any Restricted Subsidiary in favor of the holders of the Notes;
or (f) guarantee the Notes or any renewals or refinancings thereof (any of the
actions described in clauses (a) through (f) above is referred to herein as a
"Specified Action"), except for (i) such encumbrances or restrictions arising by
reason of Acquired Indebtedness of any Restricted Subsidiary existing at the
time such Person became a Restricted Subsidiary, provided that such encumbrances
or restrictions were not created in anticipation of such Person becoming a
Restricted Subsidiary and are not applicable to CCI or any other Restricted
Subsidiary, (ii) such encumbrances or restrictions arising under refinancing
indebtedness permitted by clause (f) of the second paragraph under
"-- Limitation on Indebtedness" above; provided that the terms and conditions of
any such restrictions are not less favorable to the holders of Notes than those
under the Indebtedness being refinanced, (iii) customary provisions restricting
the assignment of any contract of CCI or any Restricted Subsidiary, (iv) with
respect to clause (d) above, restrictions in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent the restriction
restricts the transfer of property subject to such security agreement or
mortgage; (v) restrictions pursuant to the Senior Credit Agreement; and (vi)
restrictions pursuant to the Notes of the Company and the indenture under which
such Notes were issued.
Limitation on Unrestricted Subsidiaries
CCI may designate after the Issuance Date any Subsidiary (other than a
Subsidiary which is a guarantor) as an "Unrestricted Subsidiary" under the CCI
Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) CCI 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
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the greater of (1) the net book value of CCI's interest
in such Subsidiary calculated in accordance with GAAP or (2) the Fair
Market Value of CCI's interest in such Subsidiary as determined in good
faith by CCI's board of directors;
(c) CCI would be permitted under the CCI Indenture to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "-- Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation);
(d) such Unrestricted Subsidiary does not own any Equity Interest in
any Restricted Subsidiary of CCI which is not simultaneously being
designated an Unrestricted Subsidiary;
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(e) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness, provided that an Unrestricted Subsidiary may
provide a guarantee for the Notes; and
(f) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with CCI or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to CCI or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of CCI or, in the event such condition is
not satisfied, the value of such agreement, contract, arrangement or
understanding to such Unrestricted Subsidiary shall be deemed a Restricted
Payment.
In the event of any such Designation, CCI shall be deemed to have made an
Investment constituting a Restricted Payment pursuant to the covenant
"-- Limitation on Restricted Payments" for all purposes of the CCI Indenture in
the Designation Amount.
The CCI Indenture also provides that CCI shall not and shall not cause or
permit any Restricted Subsidiary to at any time (x) provide credit support for,
or subject any of its property or assets (other than the Equity Interest of any
Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness) (other than permitted Investments in Unrestricted
Subsidiaries) or (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary. For purposes of the foregoing, the Designation of a
Subsidiary of CCI as an Unrestricted Subsidiary shall be deemed to be the
designation of all of the Subsidiaries of such Subsidiary as Unrestricted
Subsidiaries.
CCI may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(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 CCI
Indenture; and
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed Revocation,
and after giving pro forma effect to the incurrence of any such
Indebtedness of such redesignated Subsidiary as if such Indebtedness was
incurred on the date of the Revocation, CCI could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Indebtedness."
All Designations and Revocations must be evidenced by a resolution of the
board of directors of CCI delivered to the Trustee certifying compliance with
the foregoing provisions.
Reports
The CCI Indenture provides that, whether or not CCI is subject to Section
13(a) or 15(d) of the Exchange Act or any successor provision thereto, CCI shall
file with the SEC (if permitted by SEC practice and applicable law and
regulations) so long as the Notes are outstanding the annual reports, quarterly
reports and other periodic reports which CCI would have been required to file
with the SEC pursuant to Section 13(a) or 15(d) or any successor provision
thereto if CCI was so subject on or prior to the respective dates (the "Required
Filing Dates") by which CCI would have been required to file such documents if
CCI was so subject. CCI shall also in any event (a) within 15 days of each
Required Filing Date (whether or not permitted or required to be filed with the
SEC) (i) transmit or cause to be transmitted by mail to all holders of Notes, at
such holder's address appearing in the register maintained by the Registrar,
without cost to such holders, and (ii) file with the Trustee, copies of the
annual reports, quarterly reports and other documents which CCI is required to
file with the SEC pursuant to the preceding sentence, or if such filing is not
so
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permitted, information and data of a similar nature, and (b) if, notwithstanding
the preceding sentence, filing such documents by CCI with the SEC is not
permitted by SEC practice or applicable law or regulations, promptly upon
written request supply copies of such documents to any holder of Notes. CCI
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 CCI. CCI will also comply with Section 314(a) of the TIA.
In addition, for so long as any of the Notes remain outstanding and prior to the
later of the consummation of the Exchange Offer and the effectiveness of the
Shelf Registration Statement, if required, CCI shall furnish to holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Merger or Sales of Assets
The CCI Indenture provides that CCI shall not, in a single transaction or
through a series of related transactions, consolidate or merge with or into, or
sell, assign, convey, lease, transfer or otherwise dispose of, all or
substantially all of its assets to, another Person or a group of Persons, or
permit any Restricted Subsidiary to do so if such transaction would result in
the transfer of all or substantially all of the assets of CCI on a consolidated
basis, unless (i) either (A) CCI shall be the continuing Person, or (B) the
Person formed by or surviving any such consolidation or merger (if other than
CCI), or to which any such transfer shall have been made, is a corporation,
limited liability company or limited partnership organized and existing under
the laws of the United States, any State thereof or the District of Columbia;
(ii) the surviving Person (if other than CCI) expressly assumes by supplemental
indenture all the obligations of CCI under the Notes and the CCI Indenture;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; (iv) immediately after giving
effect to such transaction, the surviving Person would be able to incur $1.00 of
additional Indebtedness under the Debt to Operating Cash Flow Ratio of the first
paragraph of "-- Limitation of Indebtedness" above; and (v) CCI shall have
delivered to the Trustee prior to the proposed transaction an Officers'
Certificate and an Opinion of Counsel, each stating that the proposed
consolidation, merger or transfer and such supplemental indenture will comply
with the CCI Indenture.
In addition, each Subsidiary Guarantor shall not, and the CCI shall not
permit a Subsidiary Guarantor to, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
(other than the Issuer or any Subsidiary Guarantor) or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets to any Person or group of Persons (other than the CCI or
any Subsidiary Guarantor), unless clauses (i)-(v) above are satisfied with
respect to such Subsidiary Guarantor (rather than the CCI).
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 CCI is not the Surviving Person and the Surviving Person is to assume all
the obligations of CCI under the Notes and the CCI Indenture pursuant to a
supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of CCI and CCI would be
discharged from its obligations under the CCI Indenture and the Notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the CCI Indenture. Reference is made to the CCI Indenture
for the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
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"Accreted Value" means with respect to any Note, as of any specified date
on or prior to August 1, 2003, the amount provided below for each $1,000
principal amount at maturity of Notes:
(i) if the specified date occurs on one of the following dates after
the issue date (each a "Semiannual Accrual Date"), the Accreted Value will
equal the amount set forth below for such Semiannual Accrual Date:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRUAL DATE ACCRETED VALUE
----------------------- --------------
<S> <C>
August 1, 1998.............................................. 526.85
February 1, 1999............................................ 561.75
August 1, 1999.............................................. 598.97
February 1, 2000............................................ 638.65
August 1, 2000.............................................. 680.96
February 1, 2001............................................ 726.08
August 1, 2001.............................................. 774.18
February 1, 2002............................................ 825.47
August 1, 2002.............................................. 880.16
February 1, 2003............................................ 938.47
August 1, 2003.............................................. 1,000.00
</TABLE>
(ii) if the specified date occurs between two Semiannual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semiannual Accrual Date immediately preceding such specified date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semiannual Accrual Date less the Accreted Value for
the immediately preceding Semiannual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semiannual Accrual Date to the specified date, using a 360-day
year of 12 30-day months.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition from such Person and not incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, CCI; (ii) any spouse, immediate family member or other relative
who has the same principal residence as any Person described in clause (i)
above; (iii) any trust in which any such Persons described in clauses (i) and
(ii) above has a beneficial interest; and (iv) any corporation or other
organization of which any such Persons described above collectively owns 5% or
more of the equity of such entity. For purposes of this definition, "control"
(including, with correlative meaning, the terms "controlling," "controlled by"
and "under common control with") when used with respect to any specified Person
includes the direct or indirect beneficial ownership of more than 5% of the
voting securities of such Person or the power to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii) the excess of (A)
the present value of the required interest and principal payments due on such
Note to the first optional redemption date (assuming all outstanding Notes were
called for redemption on such date) or to the final maturity date of the Notes
at the option of CCI, computed using a discount rate equal to the Treasury Rate
plus 50 basis points, over (B) the then outstanding principal amount of such
Note.
"Asset Acquisition" means (i) an Investment by CCI or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated or merged with or into CCI or any
Restricted Subsidiary, or (ii) any acquisition by CCI or any Restricted
Subsidiary of the assets of any Person which constitute substantially all of an
operating unit, a division or line of business of such Person or which is
otherwise outside of the ordinary course of business.
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"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 CCI or any 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 CCI or any Restricted Subsidiary, (iii) any assets of CCI or
any Restricted Subsidiary which constitute substantially all of an operating
unit, a division or a line of business of CCI or any Restricted Subsidiary or
(iv) any other property or asset of CCI 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 "Repurchase at the Option of Holders -- Change of Control" above and
"Certain Covenants -- Merger or Sales of Assets" above, and the creation of any
Lien not prohibited under "Certain Covenants -- Limitations on Liens" above,
(ii) the sale of property or equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of CCI
or any Restricted Subsidiary, as the case may be, (iii) any transaction
consummated in compliance with "Certain Covenants -- Limitation on Restricted
Payments" above, and (iv) sales, transfers or other disposition of assets with a
fair market value not in excess of $1 million in any transaction or series of
transactions.
"Attributable Debt" means in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles consistently applied.
"Cash Equivalents" means (i) United States dollars; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition; (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank that is
a member of the Federal Reserve System having capital and surplus in excess of
$500.0 million; (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above; (v) commercial paper having a rating of at
least P-1 from Moody's or a rating of at least A-1 from S&P; and (vi) money
market mutual or similar funds having assets in excess of $100.0 million, at
least 95% of the assets of which are comprised of assets specified in clauses
(i) through (v) above.
"Consolidated Income Tax Expense" means, with respect to CCI for any
period, the provision for federal, state, local and foreign income taxes payable
by CCI and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Interest Expense" means, with respect to CCI and the
Restricted Subsidiaries for any period, without duplication, the sum of (i) the
interest expense of CCI and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation and after taking into account the
effect of elections made under any Hedging Agreements, however denominated, with
respect to such Indebtedness; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by CCI
and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied. For purposes of this definition, interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by CCI to
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be the rate of interest implicit in such Capitalized Lease Obligation in
accordance with generally accepted accounting principles consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(loss) of CCI and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied, adjusted, to the extent included in calculating such net
income (loss), by excluding, without duplication, (i) all extraordinary, unusual
or nonrecurring items of income or expense and of 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
(loss) derived from or in respect of investments in Persons other than any
Restricted Subsidiary, except to the extent actually received in cash by CCI or
any Restricted Subsidiary; (iii) the portion of such net income (loss) allocable
to minority interests in unconsolidated Persons for such period, except to the
extent actually received in cash by CCI or any Restricted Subsidiary; (iv) net
income (loss) of any other Person combined with CCI or any Restricted Subsidiary
on a "pooling of interests" basis attributable to any period prior to the date
of combination; (v) net income (loss) of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that net income (loss) is not at the date of
determination permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule of
governmental regulation applicable to that Restricted Subsidiary or the holders
of its Equity Interests; (vi) the cumulative effect of a change in accounting
principles after the date of the CCI Indenture; and (vii) net income (loss)
attributable to discontinued operations determined on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
"Consolidated Total Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all outstanding Indebtedness of CCI
and the Restricted Subsidiaries outstanding as of such date of determination
(including the liquidation value of all Disqualified Equity Interest), less the
obligations of CCI or any Restricted Subsidiary under any Hedging Agreement as
of such date of determination that would appear as a liability on the balance
sheet of such Person, in each case determined on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
"Continuing Members" means, as of the date of determination, any Person who
(i) was a member of the Board of Directors of CCI on the date of the Indenture,
(ii) was nominated for election or elected to the Board of Directors of CCI with
the affirmative vote of a majority of the Continuing Members who were members of
the Board of Directors of CCI at the time of such nomination or election of
(iii) is a representative of, or was approved by, a Permitted Holder.
"Cumulative Credit" means the sum of (i) the aggregate Net Cash Proceeds
received by CCI from the issue or sale (other than to a Subsidiary) of Equity
Interests (other than Disqualified Equity Interest) of CCI on or after the
Issuance Date, plus (ii) the principal amount (or, if less, accreted amount
determined in accordance with generally accepted accounting principles) of any
Indebtedness of CCI which has been converted into or exchanged for Equity
Interests of CCI on or after the Issuance Date, plus (iii) cumulative Operating
Cash Flow on or after the Issuance Date, to the end of the fiscal quarter
immediately preceding the date of the proposed Restricted Payment, or, if
cumulative Operating Cash Flow for such period is negative, minus the amount by
which cumulative Operating Cash Flow is less than zero, plus (iv) to the extent
not already included in Operating Cash Flow, if any Investment constituting a
Restricted Payment that was made after the date of the CCI Indenture is sold or
otherwise liquidated or repaid the initial dividend amount of such Restricted
Payment (less the cost of disposition, if any) on the date of such sale,
liquidation or repayment, as determined in good faith by the Board of Directors.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid or accrued of CCI and the Restricted Subsidiaries on or
after the Issuance Date, to the end of the fiscal quarter immediately preceding
the proposed Restricted Payment.
"Debt to Operating Cash Flow Ratio" means the ratio of (i) the Consolidated
Total Indebtedness as of the date of calculation (the "Determination Date") to
(ii) four times the Operating Cash Flow for the latest
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three months for which financial information is available immediately preceding
such Determination Date (the "Measurement Period"). For purposes of calculating
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 Operating Cash Flow) will be deemed to have been a
Restricted Subsidiary at all times during the 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 Operating Cash
Flow) will be deemed not to have been a Restricted Subsidiary at any time during
such Measurement Period; and (III) if CCI 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 generally accepted accounting principles consistently applied,
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.
"Disqualified Equity Interest" means, with respect to any Person, 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 is redeemable
at the option of the holder thereof, in whole or in part, or is exchangeable
into Indebtedness or Disqualified Equity Interest, on or prior to the earlier of
the maturity date of the Notes or the date on which no Notes remain outstanding.
"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, and
membership interests in such Person, including any Preferred Stock.
"Equity Offering" means an underwritten public offering by CCI for cash
(with gross proceeds to CCI of not less than $25 million) of its common stock,
pursuant to the Securities Act registration statement (not including Forms S-4
or S-8).
"Hedging Agreement" means any interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement or other similar agreement
providing for the transfer or mitigation of interest rate risks either generally
or under specific contingencies.
"Hedging Obligation" means the obligations of such Person pursuant to any
Hedging Agreement.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capitalized Lease Obligations of such Person and all
Attributable Debt in respect of Sale/ Leaseback Transactions entered into
by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
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securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Equity
Interest or, with respect to any Subsidiary of such Person, the liquidation
preference with respect to, any Preferred Stock (but excluding, in each
case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Investment" in any Person means, directly or indirectly, any advance, loan
or other extension of credit (including by means of a guarantee) or 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) such Person,
the acquisition, by purchase or otherwise, of any stock, bonds, notes,
debentures, partnership, membership or joint venture interests or other
securities or other evidence of beneficial interest of any Person, and shall
include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. If CCI or any Restricted Subsidiary sells or otherwise disposes of
any Voting Equity Interest of any direct or indirect Restricted Subsidiary such
that, after giving effect to such sale or disposition, CCI no longer owns,
directly or indirectly, greater than 50% of the outstanding Voting Equity
Interests of such Restricted Subsidiary, CCI shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Voting Equity Interests of such former Restricted Subsidiary not
sold or disposed of.
"Investment Banking Fee" means pursuant to an agreement between J. Merritt
Belisle and Steven E. Seach, on the one hand, and CCI, on the other hand, a fee
to be paid by CCI to such individuals (i) upon the consummation of the Financing
Plan in the aggregate amount of $550,000 and (ii) thereafter from time to time
in connection with the consummation of acquisitions or financings by CCI in an
amount equal to 1.0% of the purchase price paid for such acquisitions.
"Lien" means any mortgage, pledge, lien, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof or any agreement to give a security interest).
"Moody's" means Moody's Investors Service, Inc., or any successor rating
agency.
"Net Available Cash" from an Asset Sale means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other non cash form)
therefrom, in each case net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Sale, (ii) all payments
made on any indebtedness which is secured by any assets subject to such Asset
Sale, in accordance with the terms of any Lien upon or
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other security arrangement of any kind with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to such Asset Sale,
or by applicable law, be repaid out of the proceeds from such Asset Sale, (iii)
all distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries or joint ventures as a result of such Asset
Sale and (iv) the deduction of appropriate amounts to be provided by the seller
as a reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Sale and retained by CCI or any Restricted
Subsidiary after such Asset Sale.
"Net Cash Proceeds" means, with respect to any issuance or sale of Equity
Interests, the proceeds in the form of cash or Cash Equivalents received by CCI
or any Restricted Subsidiary of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse Indebtedness" means Indebtedness of a Person (i) as to which
neither CCI nor any of the Restricted Subsidiaries (other than such Person or
any Subsidiaries of such Person) (a) provides any guarantee or credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor or otherwise); and (ii) the incurrence of which will not
result in any recourse against any of the assets of either of CCI or the
Restricted Subsidiaries (other than to such Person or to any Subsidiaries of
such Person and other than to the Equity Interests in such Restricted Subsidiary
or an Unrestricted Subsidiary).
"Operating Cash Flow" means, with respect to CCI and the Restricted
Subsidiaries on a consolidated basis, for any period, an amount equal to the
lesser of (a) the amount of cash dividends received by CCI from the Company and
(b) Consolidated Net Income for such period increased (without duplication) by
the sum of (i) Consolidated Income Tax Expense accrued for such period to the
extent deducted in determining Consolidated Net Income for such period; (ii)
Consolidated Interest Expense 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 CCI 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 generally
accepted accounting principles consistently applied, and decreased by non-cash
items to the extent they increased Consolidated Net Income (including the
partial or entire reversal of reserves taken in prior periods) for such period,
provided, that with respect to the definition of Debt to Operating Cash Flow
only, Operating Cash Flow shall always have the meaning ascribed in Section (b)
above. For purposes of this definition, the following items shall, to the extent
expensed in calculating Consolidated Net Income, be added to Consolidated Net
Income: (A) any amounts paid to employees of CCI in respect of investment
banking or transaction fees in connection with acquisitions or financings of, or
advisory services to, CCI, in an amount not to exceed 1.5 percent of the fair
market value of such acquisition or the amount of such financing, and (B)
cancellation of debt to any employee of CCI in an aggregate principal amount not
to exceed $200,000.
"Other Pari Passu Debt" means Indebtedness of CCI that does not constitute
Subordinated Obligations and is not senior in right of payment to the Notes.
"Other Permitted Liens" means (i) 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 that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and for which an appropriate
reserve or provision shall have been made in accordance with generally accepted
accounting principles consistently applied; (ii) 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 conducted and for which an appropriate reserve or provision shall
have been made in accordance with generally accepted accounting principles
consistently applied; (iii) easements, rights of way, and other restrictions on
use of property or minor
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imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the property subject thereto or
interfere with the ordinary conduct of the business of CCI or its Subsidiaries;
(iv) Liens related to Capitalized Lease Obligations, mortgage financings or
purchase money obligations (including refinancings thereof), in each case
incurred for the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property, plant or equipment used in the
business of CCI or any Restricted Subsidiary or a Related Business, provided
that any such Lien encumbers only the asset or assets so financed, purchased,
constructed or improved; (v) Liens resulting from the pledge by CCI of Equity
Interests in any Subsidiary in connection with the Senior Credit Agreement; (vi)
liens resulting from the pledge by CCI of Equity Interests in an Unrestricted
Subsidiary in any circumstance where recourse to CCI is limited to the value of
the Equity Interests so pledged; (vii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (viii) Liens to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds, deposits to secure the performance of bids, trade contracts,
government contracts, leases or licenses or other obligations of a like nature
incurred in the ordinary course of business (including without limitation,
landlord Liens on leased properties); (ix) leases or subleases granted to third
Persons not interfering with the ordinary course of business of CCI; (x)
deposits made in the ordinary course of business to secure liability to
insurance carriers; (xi) Liens securing reimbursement obligations with respect
to letters of credit which encumber documents and other property relating to
such letters of credit and the products and proceeds thereof; (xii) Liens on the
assets of CCI to secure hedging agreements with respect to Indebtedness
permitted by the CCI Indenture to be incurred; (xiii) attachment or judgment
Liens not giving rise to a Default or an Event of Default; and (xiv) any
interest or title of a lessor under any capital lease or operating lease.
"Permitted Holders" means Austin Ventures, L.P., BT Capital Partners, Inc.,
NationsBank Capital Investors, J. Merritt Belisle and Steven E. Seach.
"Permitted Investments" means (i) Cash Equivalents; (ii) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (iii) the
extension of credit to vendors, suppliers and customers in the ordinary course
of business; (iv) Investments existing as of the date of the CCI Indenture, and
any amendment, modification, extension or renewal thereof to the extent such
amendment, modification, extension or renewal does not require CCI or any
Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (v) Hedging Agreements;
(vi) any Investment for which the sole consideration provided is Equity
Interests of CCI; (vii) any Investment consisting of a guarantee permitted under
clause (e) of the second paragraph of "Certain Covenants -- Limitation on
Indebtedness" above; (viii) Investments in CCI, in any Wholly Owned Restricted
Subsidiary or any Person that, as a result of or in connection with such
Investment, becomes a Wholly Owned Restricted Subsidiary or is merged with or
into or consolidated with CCI or a Wholly Owned Restricted Subsidiary; provided,
however, that such Person's primary business is a Related Business; (ix) loans
and advances to officers, directors and employees of CCI and the Restricted
Subsidiaries for business-related travel expenses, moving expenses and other
similar expenses in each case incurred in the ordinary course of business not to
exceed $1 million outstanding at any time; (x) any acquisition of assets solely
in exchange for the issuance of Equity Interests of CCI; and (xi) other
Investments made after the date of the Indenture, in addition to any Permitted
Investments described in clauses (i) through (x)above, in an aggregate amount at
any one time outstanding not to exceed $1 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Stock" means, in any Person, 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.
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"Reinvestment Date" means the date which is 365 days after the receipt of
any Net Available Cash from an Asset Sale.
"Related Business" means a cable television, media and communications,
telecommunications or data transmission business, and businesses ancillary,
complementary or reasonably related thereto.
"Restricted Subsidiary" means any Subsidiary of CCI other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"Semiannual Accrual Date" has the meaning ascribed under the definition of
Accreted Value.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including interest, whether or not allowable, accruing after the filing of a
petition initiating any proceeding under any state, federal or foreign
bankruptcy law) on any Indebtedness of CCI (other than as otherwise provided in
this definition), whether outstanding on the date of the Indenture or thereafter
created, incurred or assumed, and whether at any time owing, actually or
contingent, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Notwithstanding the foregoing, "Senior Indebtedness" shall
not include (i) Indebtedness evidenced by the Notes, (ii) Indebtedness that is
subordinate or junior in right of payment to any Indebtedness of CCI, (iii)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 United States Code, is without recourse to CCI, (iv)
Indebtedness which is represented by Redeemable Capital Stock, (v) any liability
for foreign, federal, state, local or other taxes owed or owing by CCI to the
extent such liability constitutes Indebtedness, (vi) Indebtedness of CCI to a
Subsidiary or any other Affiliate of CCI or any of such Affiliate's
Subsidiaries, (vii) to the extent it might constitute Indebtedness, amounts
owing for goods, materials or services purchased in the ordinary course of
business or consisting of trade accounts payable owed or owing by CCI, and
amounts owed by CCI for compensation to employees or services rendered to CCI,
(viii) that portion of any Indebtedness which at the time of issuance is issued
in violation of the Indenture and (ix) Indebtedness evidenced by any guarantee
of any Subordinated Indebtedness or Pari Passu Indebtedness.
"S&P" means Standard & Poor's Ratings Group, a division of the McGraw Hill
Company, Inc., or any successor rating agency.
"Strategic Equity Investment" means an investment in CCI by a company which
is primarily engaged in the media and communications industry or the
telecommunications industry and which has a market capitalization (if a public
company) on the date of such investment in CCI of more than $1 billion or, if
not a public company, had total revenues of more than $5 billion during its
previous fiscal year.
"Subordinated Obligations" means, with respect to CCI, any Indebtedness of
CCI which is expressly subordinated in right of payment to the Notes.
"Subsidiary" means a Person the majority of whose voting stock, membership
interests or other Voting Equity Interests is or are owned by CCI or a
Subsidiary. Voting stock in a corporation includes Equity Interests having
voting power under ordinary circumstances to elect directors.
"Subsidiary Operating Cash Flow" means, with respect to any Subsidiary for
any period, the "Operating Cash Flow" of such Subsidiary and its Subsidiaries
for such period determined by utilizing all of the elements of the definition of
"Operating Cash Flow" in the CCI Indenture, including the defined terms used in
such definition, consistently applied only to such Subsidiary and its
Subsidiaries on a consolidated basis for such period.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for redemption of the Notes following a Change of Control (or, if such
Statistical Release is no longer published,
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any publicly available source of similar market data)) most nearly equal to the
then remaining Weighted Average Life to Maturity of the Notes; provided,
however, that if the Weighted Average Life to Maturity of the Notes is not equal
to the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one twelfth of a year) from the weekly
average yields of United States Treasury securities from which such yields are
given, except that if the Weighted Average Life to Maturity of the Notes is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary of CCI (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "Certain Covenants -- Limitation on Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of CCI delivered to the Trustee, subject to the provisions of
"Certain Covenants -- Limitation on Unrestricted Subsidiaries."
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither CCI nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of CCI or any
such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), except guaranteed debt
of CCI or any Restricted Subsidiary to any Affiliate, in which case (unless the
incurrence of such guaranteed debt resulted in a Restricted Payment at the time
of incurrence) CCI shall be deemed to have made a Restricted Payment equal to
the principal amount of any such Indebtedness to the extent guaranteed at the
time such Affiliate is designated an Unrestricted Subsidiary and (ii) which,
upon the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Indebtedness of CCI or any Subsidiary to declare, a
default on such Indebtedness of CCI or any Subsidiary or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity; provided that
notwithstanding the foregoing any Unrestricted Subsidiary may guarantee the
Notes.
"Voting Equity Interests" means Equity Interests in any Person with voting
power under ordinary circumstances entitling the holders thereof to elect the
board of directors, board of managers or other governing body of such 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 a Restricted Subsidiary of which
all of the outstanding Equity Interests (other than Equity Interests
constituting directors' qualifying shares to the extent mandated by applicable
law) are owned by CCI or by one or more Wholly Owned Restricted Subsidiaries or
by CCI and one or more Wholly Owned Restricted Subsidiaries. Notwithstanding the
foregoing, so long as Universal Cable Holdings, Inc. holds at least 75% of the
issued and outstanding shares of stock of Universal Cable Communications, Inc.,
Universal Cable of Beaver, Oklahoma, Inc. and Universal Cable Midwest, Inc.,
each of such entities shall be deemed to be a Wholly Owned Subsidiary.
NO LIABILITY OF MANAGERS, OFFICERS, EMPLOYEES, OR SHAREHOLDERS
No manager, director, officer, employee, member, shareholder, partner or
incorporator of CCI or any Subsidiary, as such, will have any liability for any
obligations of CCI under the Notes or the CCI Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and the SEC is of the view that such a waiver is against public policy.
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DEFEASANCE AND COVENANT DEFEASANCE
The CCI Indenture provides that CCI may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to replace temporary or mutilated, destroyed, lost or stolen
Notes, to maintain an office or agency in respect of the Notes and to hold
moneys for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to the Notes under certain covenants (and related
Events of Default) contained in the CCI Indenture, including but not limited to
those described above under "Certain Covenants' ("covenant defeasance"), upon
the deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money, in
an amount sufficient to pay the principal of, premium, if any, and interest, if
any, on the Notes, on the scheduled due dates therefor. Such a trust may only be
established if, among other things, (x) no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to Events
of Default resulting from certain events of bankruptcy, insolvency or
reorganization, would occur at any time in the period ending on the 91st day
after the date of deposit) and (y) CCI has delivered to the Trustee an opinion
of counsel (as specified in the CCI Indenture) to the effect that (i) defeasance
or covenant defeasance, as the case may be, will not require registration of
CCI, the Trustee or the trust fund under the Investment Company Act of 1940, as
amended, or the Investment Advisors Act of 1940, as amended, and (ii) the
holders of the Notes will recognize income, gain or loss for Federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred. Such
opinion, in the case of defeasance under clause (a) above, must refer to and be
based upon a private ruling concerning the Notes of the Internal Revenue Service
or a ruling of general effect published by the Internal Revenue Service.
MODIFICATION OF CCI INDENTURE
From time to time, CCI and the Trustee may, without consent of holders of
the Notes, enter into one or more supplemental indentures for certain specified
purposes, including providing for a successor or successors to CCI, adding
guarantees, releasing guarantors when permitted by the CCI Indenture, providing
for security for the Notes, adding to the covenants of CCI, surrendering any
right or power conferred upon CCI, providing for uncertificated Notes in
addition to or in place of certificated Notes, making any change that does not
adversely affect the rights of any Note holder, complying with any requirement
of the Trust CCI Indenture Act or curing certain ambiguities, defects or
inconsistencies. The CCI Indenture contains provisions permitting CCI and the
Trustee, with the consent of holders of at least a majority in aggregate
principal amount of the Notes at the time outstanding, to modify the CCI
Indenture or any supplemental indenture or the rights of the holders of the
Notes, except that no such modifications shall, without the consent of each
holder affected thereby (i) change or extend the fixed maturity of the Notes,
reduce the rate or extend the time of payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon or change the currency in
which the Notes are payable; (ii) reduce the premium payable upon any redemption
of Notes in accordance with the optional redemption provisions of the Notes or
change the time before which no such redemption may be made; (iii) waive a
default in the payment of principal or interest on the Notes (except that
holders of a majority in aggregate principal amount of the Notes at the time
outstanding may (a) rescind an acceleration of the Notes that resulted from a
non-payment default and (b) waive the payment default that resulted from such
acceleration) or alter the rights of Note holders to waive defaults; or (iv)
reduce the aforesaid percentage of Notes, the consent of the holders of which is
required for any such modification. Any existing Event of Default, other than a
default in the payment of principal or interest on the Notes, or compliance with
any provision of the Notes or the CCI Indenture, other than any provision
related to the payment of principal or interest on the Notes, may be waived with
the consent of holders of at least a majority in aggregate principal amount of
the Notes at the time outstanding.
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COMPLIANCE CERTIFICATE
The CCI Indenture provides that CCI will deliver to the Trustee within 120
days after the end of each fiscal year of CCI an Officers' Certificate stating
whether or not the signers know of any Event of Default that has occurred. If
they do, the certificate will describe the Event of Default and its status.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes will be represented by one or more permanent global New Notes
in definitive, fully registered form without interest coupons (each a "Global
Note") and will be deposited with the Trustee as custodian for, and registered
in the name of a nominee of, DTC.
Each Global Note will be subject to certain restrictions on transfer set
forth therein as described under "Notices to Investors."
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.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture and the New Notes. No beneficial owner of an
interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in additional to those provided for
under the CCI Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither CCI, 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 a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
CCI expects that DTC or its nominee, upon receipt of any payment of
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 of such Global Note as shown on the records of
DTC or its nominee. CCI also expects that payments by participants to owners of
beneficial interests in such Global Note held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
CCI expects that DTC 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 account the DTC
interests in a Global Note are credited and only in respect of such portion of
the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which may
be legended as set forth under the heading "Notices to Investors."
CCI understands that 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
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"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to other 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 is expected to follow the foregoing procedures in order to
facilitate transfers of interest in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither CCI nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by CCI within 90
days, CCI will issue Certificated Notes, which may bear the legend referred to
under "Notices to Investors," in exchange for the Global Notes. Holders of an
interest in a Global Note may receive Certificated Notes, which may bear the
legend referred to under "Notices to Investors," in accordance with the DTC's
rules and procedures in addition to those provided for under the Indenture.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of U.S. federal income tax considerations
relevant to Holders of the Notes. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations, administrative pronouncements and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive effect) or
different interpretations, which may affect the tax consequences described
herein. This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to a particular investor and it is not
intended to be wholly applicable to all categories of investors, some of which,
such as dealers in securities, financial institutions, insurance companies,
tax-exempt organizations, or investors who have hedged the risk of owning Notes,
may be subject to special rules. In addition, this discussion is limited to
persons that will hold the Notes as "capital assets" within the meaning of
section 1221 of the Code.
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,
" "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. 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.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
Winstead Sechrest & Minick P.C., counsel to CCI ("Counsel"), has advised
CCI that in its opinion, the exchange of the Old Notes for New Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, in the opinion of Counsel, the New
Notes received by a holder will be treated as a continuation of the Old Notes in
the hands of such holder and consequently, in the opinion of Counsel, there will
be no federal income tax consequences to holders exchanging Old Notes for New
Notes pursuant to the Exchange Offer. Counsel's opinion does not consider the
effect of any applicable foreign, state, local or other tax laws or estate or
gift tax considerations.
CCI recommends that each holder of Old Notes consult such holder's own tax
adviser as to the particular tax consequences of exchanging such holder's Old
Notes for New Notes, including the applicability and effect of any state local
or foreign tax laws.
UNITED STATES HOLDERS
General
The following discussion constitutes Counsel's opinion regarding material,
but not all, 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"). Prospective Holders of the Notes are urged to consult with
their tax advisors concerning their individual tax circumstances and any
prospective investment in the Notes. As used herein, 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
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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.
Original Issue Discount
Because the Notes were issued at a discount from their "stated redemption
price at maturity," the Notes were issued with original issue discount, and each
Holder will be required to include in its gross income original issue discount
("OID") income as described below.
Original issue discount on each Note will equal the excess of the stated
redemption price at maturity of the Discount Note over its issue price. A Holder
of a Note must include OID in income as ordinary interest income as it accrues
on the basis of a constant yield to maturity. Generally, OID must be included in
income in advance of the receipt of cash representing such income.
In general, the "issue price" of a Note is determined by allocating the
"issue price" between the Notes and the CCI Common Stock issued in conjunction
with the Notes at the CCI private offering based on their relative fair market
value. For this purpose, the "issue price" is the initial offering price to the
public (excluding underwriters, brokers, etc.) at which a substantial amount of
the Old Notes and the shares of CCI Common Stock issued in conjunction therewith
(the "Shares") were first sold. CCI will allocate a portion of the issue price
to the Notes and the Shares. CCI's allocation reflects its best judgment as to
the relative values of each of those instruments at the time of issuance, but
will not be binding on the Internal Revenue Service (the "Service"). CCI's
allocation will be binding on each Holder of an Old Note and Shares that does
not explicitly disclose that its allocation of the issue price of the Old Note
and Shares is different than CCI's allocation. Such disclosure must be made on a
statement attached to such Holder's timely filed federal income tax return for
its taxable year that includes the acquisition date of the Old Note and Shares.
The stated redemption price at maturity of a Note will equal the sum of all
payments other than any "qualified stated interest" payments. Qualified stated
interest is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Because interest on the Notes will not be paid prior to
February 1, 2004, none of the payments on the Notes will constitute qualified
stated interest. Accordingly, all payments on the Notes will be treated as part
of their stated redemption price at maturity and the Notes will have significant
original issue discount.
A United States Holder will be 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, the Issuer will 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 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 will be required to
include in gross
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income increasingly greater amounts of OID in each successive accrual period.
Payments of stated interest on a Note will not be separately included in income,
but rather will be treated first as payments of previously accrued OID and then
as payments of principal and, consequently, will reduce a United States Holder's
basis in a Note as described below under "United States Federal Income Tax
Consequences -- United States Holders -- Sale, Exchange or Redemption of the
Discount Notes."
If CCI fails to register the Notes or the Exchange Offer is not consummated
within the required period of time (and in certain other circumstances), CCI may
be required to pay certain amounts to Holders as liquidated damages. See
"Exchange Offer -- Purpose and Effect." The payment of the liquidated damages
(calculated as an increase in interest rate) should not result in a deemed
taxable exchange of the Notes. Although the characterization of these amounts is
uncertain, such liquidated damages probably constitute contingent interest,
which is generally not includible in income before fixed or paid.
Election to Treat All Interest as Original Issue Discount
A Holder, subject to certain limitations, may elect to treat all "interest"
on any Note as original issue discount and calculate the amount includible in
gross income under the method described above. For this purpose, "interest"
includes stated and unstated interest, OID, acquisition discount, market
discount and de minimis market discount, as adjusted by any acquisition premium
or amortizable bond premium. Such election, if made with respect to a market
discount obligation, will constitute an election to include market discount in
income currently on all market discount obligations acquired by such Holder on
or after the first taxable year to which the election applies. See "United
States Federal Income Tax Consequences -- United States Holders -- Market
Discount." The election is to be made for the taxable year in which the Holder
acquired the Note and may not be revoked without the consent of the Service.
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 CCI 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
Service.
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 provides that
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the revised issue price of a Note 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 Note. 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 the Note as ordinary
income to the extent of the accrued market discount that has not previously been
included in income. Unless a Holder elects to accrue under a constant-interest
method, accrued market discount is the total market discount multiplied by a
fraction, the numerator of which is the number of days the Holder has held the
obligation and the denominator of which is the number of days from the date the
Holder acquired the obligation until its maturity. A Holder may be required to
defer a portion of its interest deductions for the taxable year attributable to
any indebtedness incurred or continued to purchase or carry a Note purchased
with market discount. Any such deferred interest expense would not exceed the
market discount that accrues during such taxable year and is, in general,
allowed as a deduction not later than the year in which such market discount is
includible in income. If the Holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by the
Holder in that taxable year or thereafter, the interest deferral rule described
above will not apply.
Sale, Exchange or Retirement of Discount 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 United States Holder's adjusted tax basis in the Note.
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 any (i) amounts included in income as OID,
and (ii) any market discount previously included in income by such United States
Holder, and decreased by (a) any principal and stated interest payments received
by the United States Holder, and (b) any amortized premium previously deducted
from income by the United States 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 (i) 28% for property held for 18 months or less but more than one year, and
(ii) 20% for property held more than 18 months. Recent legislative proposals
would reduce the holding period for the property to qualify for the maximum 20%
rate to 12 months or more. There can be no assurance that such proposals will be
enacted into law in their present form, if at all. 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.
The AHYDO Rule
The Notes will constitute "applicable high yield Discount obligations"
("AHYDOs") because the yield to maturity of such Notes is equal to or greater
than the sum of the relevant applicable federal rate (the "AFR") for July, plus
five percentage points, and the Notes bear "significant" OID. The Notes bear
significant OID for this purpose because, as of the close of any accrual period
ending more than five years after issuance, the total amount of income
includable by a Holder with respect to a Note will exceed the sum of (i) the
total amount of stated interest paid under the Note before the close of such
accrual period, and (ii) the product of the issue price of the debt Note and its
yield to maturity.
Under Sections 163(e) and 163(i) of the Code, a C corporation that is an
issuer of discount notes that are subject to the AHYDO rules is not entitled to
deduct OID that accrues with respect to such discount notes until amounts
attributable to such OID are paid in cash. In addition, to the extent that the
yield to maturity of the Notes exceeds 11.8% (the sum of the relevant AFR plus
six percentage points) (the "Excess Yield"), the "disqualified portion" of the
OID accruing on the Notes will be permanently disallowed, and the disqualified
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portion will be characterized as a nondeductible dividend with respect to the
issuer and also will be treated as a dividend distribution (to the extent of
available current and accumulated earnings and profits) solely for purposes of
the dividends received deductions of Sections 243, 246 and 246A of the Code with
respect to Holders that are U.S. corporations. The disqualified portion of OID
for any accrual period will equal the product of (i) a percentage determined by
dividing the Excess Yield by the yield to maturity, and (ii) the OID for the
accrual period. Subject to otherwise applicable limitations, such a corporate
Holder will be entitled to a dividend received deduction with respect to the
disqualified portion of the accrued OID if the issuer has sufficient current or
accumulated "earnings and profits." To the extent that the issuer's earnings and
profits are insufficient, any portion of the OID that otherwise would have been
recharacterized as a dividend for purposes of the dividends received deduction
will continue to be treated as ordinary OID income in accordance with the rules
described above in "Original Issue Discount." Treatment of the Notes as AHYDOs
will not disqualify interest or OID with respect to Notes from the portfolio
interest exception described below under "United States Federal Income Tax
Consequences -- Foreign Holders -- Interest;" provided that all applicable
requirements for the exception are otherwise satisfied.
FOREIGN HOLDERS
The following discussion constitutes Counsel's opinion regarding material,
but not all, United States federal income 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 will be subject to United States federal income tax with respect to
the Discount 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 (i) 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 the
Issuer with two duly executed copies of Internal Revenue Service Form 4224 (or
any successor form), or (ii) 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, (B) the Non-United States Holder is not a controlled foreign
corporation that is related, directly or indirectly, to the Issuer through stock
ownership, (C) the Non-United States Holder is not a bank receiving interest
(including OID) pursuant to a loan agreement entered into in the ordinary course
of its trade or business, and (D) either (1) the Non-United States Holder
certifies to the Issuer or its 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 the Issuer or
its 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 the Issuer or its 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. While the discussion under this heading and
under "Backup Withholding Tax and Information Reporting," below, sets forth the
material provisions of the 1997 Final Regulations affecting prospective
Non-United
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States Holders, prospective Holders of the Notes are urged to consult their tax
advisors concerning their individual tax circumstances and any prospective
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: (i) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization), or
(ii) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (i) and (ii), have entered into withholding agreements with the Service.
In addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised 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 Service). 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 Service Form W-8
(which, in certain circumstances, requires information in addition 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 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 persons in essentially the same manner as if the Notes were held by a
United States person, 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).
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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 persons, 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 (i) 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 (ii) 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 pursuant to
provisions of United States federal income tax law applicable to certain United
States expatriates (including certain former long-term residents of the United
States).
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.
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 (i)
fails to furnish such person's Taxpayer Identification Number ("TIN") (which,
for an individual, is his or her Social Security Number) to the payor in the
manner required, (ii) furnishes an incorrect TIN and the payor is so notified by
the Service, (iii) is notified by the Service that such person has failed
properly to report payments of interest and dividends, or (iv) in certain
circumstances, fails to certify, under penalties of perjury, that such person
has not been notified by the Service 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 the Issuer or its paying agent the certification described in clause (ii)(D)
of "United States Federal Income Tax Consequences -- Foreign
Holders -- Interest" or has otherwise established an exemption.
Under current United States federal income tax law, (i) 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 (ii) payments on the sale or other disposition
of a Note to or
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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, a controlled foreign corporation for United
States tax purposes or a foreign person 50% or 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 person 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 a United States
person. 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 person or
otherwise establishes an exemption.
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 the Issuer or its 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 person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. CCI has agreed that, for a period of 120 days after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions in the
New Notes may be required to deliver a Prospectus.
CCI will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New 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 to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of he
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 120 days after the Expiration Date, CCI will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. CCI has agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Notes) other than
commissions or concessions of any broker-dealers and will indemnify holders of
the Old Notes (including any broker-dealers) against certain liabilities,
including certain liabilities under the Securities Act.
The Initial Purchasers and certain of their affiliates have provided and
continue to provide investment banking, commercial banking and advisory services
in the ordinary course of business to the Company and certain of its affiliates.
LEGAL MATTERS
The validity of the New Notes will be passed upon for CCI by Winstead
Sechrest & Minick P.C., Austin, Texas.
EXPERTS
The consolidated financial statements of Classic Communications, Inc. at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
96
<PAGE> 102
CLASSIC COMMUNICATIONS, INC.
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CLASSIC COMMUNICATIONS, INC.
Audited Financial Statements
Report of Independent Auditors......................... 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 Stockholders' Equity
(Deficit) 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
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Classic Communications, Inc.
We have audited the accompanying consolidated balance sheets of Classic
Communications, Inc. and its subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the Index at
Item 21(b). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 consolidated financial position of Classic
Communications, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Austin, Texas
March 30, 1999
F-2
<PAGE> 104
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 2,779 $ 616
Accounts receivable, net.................................... 5,474 4,519
Prepaid expenses............................................ 424 607
Property, plant and equipment............................... 127,169 96,850
Less accumulated depreciation............................... (39,977) (28,211)
-------- --------
87,192 68,639
Deferred financing costs, net............................... 8,919 4,494
Intangible assets:
Subscriber relationships.................................. 95,180 82,364
Franchise rights.......................................... 71,464 59,149
Noncompete agreements..................................... 8,425 12,104
Goodwill.................................................. 40,435 39,695
Other..................................................... 140 228
-------- --------
215,644 193,540
Less accumulated amortization............................. (65,828) (52,253)
-------- --------
149,816 141,287
-------- --------
Total assets........................................ $254,604 $220,162
-------- --------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 647 $ 772
Subscriber deposits and unearned income................... 4,846 3,507
Other accrued expenses.................................... 6,106 5,922
Accrued interest.......................................... 5,883 1,534
Long-term debt............................................ 282,842 187,967
Subordinated debt......................................... -- 4,023
Deferred taxes, net....................................... 1,068 2,918
-------- --------
Total liabilities................................... 301,392 206,643
15% PIK Redeemable Senior Preferred Stock: $.01 par value;
redemption price -- $1,000 per share plus accrued and
unpaid dividends (1998 -- none; 1997 -- $1,880,159);
1998 -- 20,000 shares authorized, none issued and
outstanding; 1997 -- 20,000 shares authorized, 5,000
issued and outstanding at net issue price plus accrued PIK
stock dividends of 1,880 shares........................... -- 5,978
15% PIK Redeemable Junior Preferred Stock: $.01 par value;
redemption price -- $1,000 per share plus accrued and
unpaid dividends (1998 -- none; 1997 -- $5,585,969);
1998 -- 35,000 shares authorized, none issued and
outstanding; 1997 -- 35,000 shares authorized, 14,815
issued and outstanding at net issue price plus accrued PIK
stock dividends of 5,586 shares........................... -- 19,435
8% PIK Cumulative Redeemable Preferred Stock, Series A of
Television Enterprises, Inc. (a subsidiary): no par value;
redemption price -- $100 per share plus accrued and unpaid
dividends (1998 -- none; 1997 -- $25,548); 1998 -- 12,670
shares authorized, none issued and outstanding;
1997 -- 12,670 shares authorized, issued and outstanding
at net issue price........................................ -- 1,292
Stockholders' deficit:
Common Stock, Voting, convertible to Nonvoting Common
Stock: $.01 par value; 1998 -- 5,442,000 shares
authorized, 1,720,608 issued and outstanding;
1997 -- 3,142,922 authorized, 621,532 issued and
outstanding............................................. 17 6
Common Stock, Nonvoting, convertible to Voting Common
Stock: $.01 par value; 1998 -- 4,503,000 shares
authorized, 1,528,261 issued and outstanding;
1997 -- 2,600,108 authorized, 2,185,532 issued and
outstanding............................................. 15 22
Additional paid-in capital................................ 28,544 31,287
Accumulated deficit....................................... (75,364) (44,501)
-------- --------
Total stockholders' deficit......................... (46,788) (13,186)
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' deficit............................... $254,604 $220,162
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 105
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $ 69,802 $ 60,995 $ 59,821
Operating expenses:
Programming............................................... 17,840 14,916 15,106
Plant and operating....................................... 8,437 7,622 7,308
General and administrative................................ 11,295 9,257 8,688
Marketing and advertising................................. 850 438 238
Corporate overhead........................................ 3,648 4,322 2,213
Depreciation and amortization............................. 30,531 27,832 27,510
-------- -------- --------
Total operating expenses.......................... 72,601 64,387 61,063
-------- -------- --------
Loss from operations........................................ (2,799) (3,392) (1,242)
Interest expense............................................ (24,442) (21,299) (20,633)
Gain on sale of cable system................................ -- 3,644 4,901
Write-off of abandoned telephone operations and accrual of
related costs............................................. (220) (500) (2,994)
Other income................................................ 192 71 --
-------- -------- --------
Loss before income taxes and extraordinary item
(27,269) (21,476) (19,968)
Income tax benefit.......................................... 1,930 7,347 6,802
-------- -------- --------
Loss before extraordinary item.............................. (25,339) (14,129) (13,166)
Extraordinary loss on extinguishment of debt................ (5,524) -- --
-------- -------- --------
Net loss.......................................... $(30,863) $(14,129) $(13,166)
======== ======== ========
Loss applicable to common stockholders...................... $(35,274) $(18,209) $(16,734)
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 106
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
VOTING NONVOTING COMMON STOCK
COMMON STOCK COMMON STOCK CLASS A TOTAL
------------------ ------------------ ---------------- ADDITIONAL STOCKHOLDERS'
SHARES SHARES SHARES PAID-IN ACCUMULATED EQUITY
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ------ --------- ------ ------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... 646,901 $ 6 1,642,537 $17 10,075 $ -- $36,909 $(17,206) $ 19,726
Conversion of common
stock.................. (542,995) (5) 542,995 5 -- -- -- -- --
Restricted stock
awards................. 258,813 3 -- -- -- -- (3) -- --
Stock exchange........... 258,813 2 -- -- (10,075) -- (2) -- --
Compensation on
restricted stock....... 1,058 1,058
Expenses related to
equity transactions.... -- -- -- -- -- -- (85) -- (85)
Accretion of discount on
preferred stock........ -- -- -- -- -- -- (237) -- (237)
Dividends on preferred
stock.................. -- -- -- -- -- -- (3,331) -- (3,331)
Net loss................. -- -- -- -- -- -- -- (13,166) (13,166)
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1996..................... 621,532 6 2,185,532 22 -- -- 34,309 (30,372) 3,965
Compensation on
restricted stock....... 1,058 1,058
Accretion of discount on
preferred stock........ -- -- -- -- -- -- (237) -- (237)
Dividends on preferred
stock.................. -- -- -- -- -- -- (3,843) -- (3,843)
Net loss................. -- -- -- -- -- -- -- (14,129) (14,129)
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1997..................... 621,532 6 2,185,532 22 -- -- 31,287 (44,501) (13,186)
Issuance of common
stock.................. 355,258 4 -- -- -- -- 1,336 -- 1,340
Conversion of common
stock.................. 657,271 6 (657,271) (6) -- -- -- -- --
Compensation on
restricted stock....... -- -- -- -- -- -- 1,108 -- 1,108
Exchange of restricted
common stock........... 188,085 2 -- -- -- -- (2) -- --
Repurchase of treasury
stock.................. (101,538) (1) -- -- -- -- (773) -- (774)
Accretion of discount on
preferred stock........ -- -- -- -- -- -- (1,869) -- (1,869)
Dividends on preferred
stock.................. -- -- -- -- -- -- (2,542) -- (2,542)
Net loss................. -- -- -- -- -- -- -- (30,863) (30,863)
Other.................... -- -- -- (1) -- -- (1) -- (2)
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1998..................... 1,720,608 $17 1,528,261 $15 -- $ -- $28,544 $(75,364) $(46,788)
========= === ========= === ======= ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 107
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (30,863) $(14,129) $(13,166)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Provision for bad debts................................... 971 1,248 1,491
Depreciation.............................................. 12,041 10,285 9,491
Amortization of intangibles............................... 18,352 17,547 18,019
Amortization of deferred financing costs.................. 1,181 1,373 1,491
Discount accretion on bank debt........................... 3,589 457 490
PIK interest on Senior Subordinated Promissory Notes...... 435 517 446
Gain on sales of cable systems............................ -- (3,644) (4,901)
Non-cash compensation..................................... 1,108 1,058 1,058
Deferred tax benefit...................................... (1,850) (7,593) (6,804)
Extraordinary loss........................................ 5,524 -- --
Changes in working capital, net of acquisition amounts:
Change in accounts receivable.......................... (1,841) (321) (3,952)
Change in prepaids and other assets.................... 166 126 754
Change in other accruals and payables.................. 1,100 413 2,685
Change in accrued interest............................. 4,349 555 831
--------- -------- --------
Net cash provided by operating activities................... 14,262 7,892 7,933
INVESTING ACTIVITIES
Acquisition of cable television systems..................... (43,486) -- (367)
Purchases of property, plant and equipment.................. (13,759) (10,135) (8,212)
Payments for other intangibles.............................. -- (323) (467)
Net proceeds from sale of cable systems..................... -- 6,189 12,433
Net proceeds from litigation settlement..................... -- 2,928 --
--------- -------- --------
Net cash provided by (used in) investing activities......... (57,245) (1,341) 3,387
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 281,208 759 2,208
Repayments of long-term debt................................ (190,308) (7,246) (13,345)
Repayments of subordinated indebtedness..................... (4,458) -- --
Repayment of promissory notes............................... (650) -- --
Financing Costs............................................. (9,455) -- (232)
Redemption of preferred stock............................... (31,023) -- --
Cash dividends paid on preferred stock...................... (93) (101) (101)
Sales of common stock....................................... 50 -- (85)
Repurchase of common stock.................................. (125) -- --
Purchase of subsidiary stock................................ -- -- (600)
--------- -------- --------
Net cash provided by (used in) financing activities......... 45,146 (6,588) (12,155)
--------- -------- --------
Increase (decrease) in cash and cash equivalents............ 2,163 (37) (835)
Cash and cash equivalents at beginning of year.............. 616 653 1,488
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 2,779 $ 616 $ 653
========= ======== ========
Cash taxes paid............................................. $ 166 $ 1 $ 5
Cash interest paid.......................................... $ 15,247 $ 18,397 $ 17,367
Noncash investing and financing activities:
PIK dividends on Preferred Stock.......................... $ 2,475 $ 3,742 $ 3,229
Accretion of discount on Preferred Stock.................. $ 1,869 $ 237 $ 237
</TABLE>
See accompanying notes.
F-6
<PAGE> 108
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION
Classic Communications, Inc. and its subsidiaries (collectively, the
"Company") acquire, develop and operate cable television systems throughout the
United States.
2. ACQUISITIONS AND DISPOSITIONS OF CABLE TELEVISION SYSTEMS
Acquisitions
In December 1998, the Company acquired certain assets of TCA Cable Partners
in exchange for another cable television system in Texas. Additional
consideration of $2.4 million was paid to TCA Cable Partners in connection with
the transaction.
In July 1998, the Company acquired certain assets of Cable One, Inc. (the
"Cable One Acquisition") serving communities in four states for approximately
$41.7 million in cash and the assumption of $0.2 million in net operating
liabilities. The purchase was financed from proceeds of the Company's private
debt offering.
The above acquisitions were accounted for using the purchase method and,
accordingly, the operating results of the systems acquired have been included in
the Company's consolidated financial statements since the date of acquisition.
Dispositions
During 1998, the Company sold or disposed of some smaller systems that did
not fit into the Company's long-term strategic plans.
In April and May 1997, the Company sold certain cable television systems in
Kansas and Oklahoma for $5.7 million, net of selling expenses. The net pretax
gain from the sales was approximately $3.6 million.
In September 1996, the Company sold certain cable television systems in
Arkansas for cash consideration of $12.4 million, net of selling expenses. The
net pretax gain from the sale was approximately $5.2 million.
PRO FORMA INFORMATION
The following summarized unaudited pro forma financial information assumes
the Cable One acquisition had occurred on January 1, 1998 and 1997,
respectively. The following pro forma information is not necessarily indicative
of the results that would have occurred had the transaction been completed at
the beginning of the period indicated, nor is it indicative of future operating
results (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $ 76,418 $ 72,177
Net loss before extraordinary item.......................... $(23,916) $(10,072)
Net loss.................................................... $(29,440) $(10,072)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F-7
<PAGE> 109
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Service income includes subscriber service revenues and charges for
installations and connections and is recognized in the period in which the
services are provided to the customers. Subscriber services paid for in advance
are recorded as income when earned.
Initial installation revenue is recognized as revenue when the service is
performed, to the extent of direct selling costs, with any balance deferred and
taken into income over the estimated average period that subscribers are
expected to remain connected to the system.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives of the
assets:
<TABLE>
<S> <C>
Buildings............................................... 30 years
Cable television distribution systems................... 7-12 years
Office furniture and equipment.......................... 3-7 years
Vehicles................................................ 5 years
</TABLE>
Leasehold improvements are amortized over the shorter of their estimated
life or the period of the related leases.
Initial subscriber connection costs are capitalized as part of cable
television distribution systems. Costs related to disconnects and reconnects of
customers are expensed as incurred.
Deferred Financing Costs
Deferred financing costs are being amortized to interest expense using the
interest method over the terms of the related debt.
Intangible Assets
The useful lives of the specific intangible assets are as follows:
<TABLE>
<S> <C>
Subscriber relationships................................ 5-15 years
Franchise rights........................................ 7-10 years
Noncompete agreements................................... 5 years
Goodwill................................................ 5-40 years
</TABLE>
Intangible assets are being amortized using the straight-line method over
their estimated useful lives.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amounts of property, plant
and equipment, identifiable intangible assets and goodwill both purchased in the
normal course of business and acquired through acquisition to determine whether
current events or circumstances, as defined in Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, warrant adjustments to such carrying
amounts by considering, among other things, the future cash inflows expected to
result from the use of the asset and its eventual disposition less the future
cash outflows expected to be necessary to obtain those inflows. An impairment
loss would be measured by comparing the fair value of the asset with its
carrying amount. Any write-down is treated as a permanent reduction in the
carrying amount of the assets.
F-8
<PAGE> 110
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company adopted the provisions of the Financial Accounting Standards
Board Statement No. 109, Accounting for Income Taxes, upon inception.
Accordingly, the liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the tax rates that are expected to be in
effect when the differences are expected to reverse, based upon current laws and
regulations.
Cash and Cash Equivalents
For financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, cash equivalents and accounts
receivable. Excess cash is invested in high quality short-term liquid money
instruments issued by highly-rated financial institutions. Concentrations of
credit risk with respect to the Company's receivables are limited due to the
large number of customers, individually small balances, short payment terms and
required deposits.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities, approximate fair value because of their short
maturities. All bank debt agreements carry variable interest rates and their
carrying value is considered to approximate fair value. The estimated fair value
of the Company's bonds is based on quoted market prices. The carrying amount of
the Company's bonds was $186.5 million and the fair value was $198.4 million at
December 31, 1998.
The Company utilizes interest rate cap and interest rate swap agreements to
manage interest rate exposures. The principal objective of such agreements is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize financial instruments for trading or other speculative
purposes. The counterparties to these contractual arrangements are major
financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties, and no material loss would be expected from
their nonperformance.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
F-9
<PAGE> 111
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Accounts receivable, trade.................................. $5,211 $4,570
Accounts receivable, other.................................. 588 211
Less allowance for doubtful accounts........................ (325) (262)
------ ------
Accounts receivables, net of allowance...................... $5,474 $4,519
====== ======
</TABLE>
The activity in the Company's allowance for doubtful accounts for the
periods ending December 31, 1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
FOR THE PERIOD ENDED OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- -------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998.......................... $262 $ 971 $ (908) $325
December 31, 1997.......................... $513 $1,248 $(1,499) $262
December 31, 1996.......................... $249 $1,491 $(1,227) $513
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 1,152 $ 1,021
Buildings and improvements.................................. 3,262 2,107
Vehicles.................................................... 6,061 4,088
Cable television distribution systems....................... 106,373 83,499
Office furniture, tools and equipment....................... 3,858 2,499
Construction in progress.................................... 6,463 3,636
-------- --------
127,169 96,850
Less accumulated depreciation............................... (39,977) (28,211)
======== ========
$ 87,192 $ 68,639
======== ========
</TABLE>
F-10
<PAGE> 112
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Balances of amounts outstanding under the Company's various debt agreements
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
13.25% Senior Discount Notes................................ $114,000 $ --
Unamortized discount...................................... (51,963) --
9.875% Senior Subordinated Notes............................ 125,000 --
Unamortized discount...................................... (563) --
1998 Credit Agreement
Term loans................................................ 75,000 --
Revolving loans........................................... 20,800 --
1995 Senior Credit Agreement
Term A loan............................................... -- 18,324
Term B loan............................................... -- 58,184
Line of credit notes...................................... -- 112,717
Unamortized discount...................................... (1,892)
Other....................................................... 568 634
-------- --------
$282,842 $187,967
======== ========
</TABLE>
In July 1998, the Company issued $114.0 million of 13.25% Senior Discount
Notes due 2009 and its wholly owned subsidiary, Classic Cable, issued $125.0
million of 9.875% Senior Subordinated Notes due 2008. Net of the applicable
discounts and the fair value of the common stock sold along with the Senior
Discount Notes, proceeds from these issues were $60.0 million and $124.4
million, respectively. Interest payments on the Senior Discount Notes do not
commence until 2004. Interest payments on the Senior Subordinated Notes begin in
1999. Concurrent with the offering, Classic Cable entered into the 1998 Credit
Agreement. The 1998 Credit Agreement consists of a $50.0 million Reducing
Revolving Credit Facility which matures in 2006 and a $75.0 million Term Loan
Facility which matures in 2007. Mandatory payments commence in 2000. The Company
may be subject to mandatory prepayments based upon operating results, sales of
assets, equity or debt offerings or other events. Interest is based upon either
a LIBOR rate plus an applicable margin or, at the option of the Company, a base
rate plus an applicable margin. Proceeds from the 1998 Credit Agreement totaled
$95.8 million.
In connection with the early extinguishment of the Senior Credit Agreement,
an extraordinary loss of $5.5 million was recorded related to the write-off of
unamortized deferred financing costs and discount.
The Senior Discount Notes were sold in units that consisted of a $1,000
note and three shares of common stock of the Company. Shares issued in
connection with the offering totaled 342,000. Proceeds of $3.77 per share were
allocated to the sale of the shares. A discount of $1.3 million was recorded in
connection with common stock issued. This per share amount represents the fair
value of the stock as of the date of the offering.
The 1998 Credit Agreement is collateralized by a security interest in
essentially all the assets of Classic Cable. The Company has no operations of
its own. Consequently, it will rely on dividends and cash flow of Classic Cable
to meet its debt service obligations. The terms of the Credit Agreement restrict
certain activities of Classic Cable, including the incurrence of additional
indebtedness and the payment of certain dividends. Accordingly, substantially
all the assets and operations of Classic Cable are restricted as to transfer to
the Company and may not be available for dividends and/or debt service of the
Company.
F-11
<PAGE> 113
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the 1998 Credit Agreement, the Company is required to
pay a quarterly commitment fee that can range from 0.375% to 0.500% per annum on
the unused portion of the revolving loan commitment.
The 1995 Senior Credit Agreement consisted of a $20,000,000 Term A Loan, a
$65,000,000 Term B Loan and Line of Credit Notes not to exceed $130,000,000.
Interest was based upon either a LIBOR rate plus an applicable margin or, at the
option of the Company, a base rate plus an applicable margin. The 1995 Senior
Credit Agreement was amended in 1997. A fee of approximately $1 million was paid
to the bank equal to 0.5% of the outstanding Term Loans and Line of Credit
Notes. This amount is included as a component of interest expense in 1997.
The Company utilizes interest rate cap and interest rate swap agreements to
limit the impact of increases in interest rates on its floating rate debt. The
agreements require premium payments to counterparties based upon a notional
principal amount. No such agreements were outstanding at December 31, 1998 or
1997. Interest rate cap agreements entitle the Company to receive from the
counterparties the amounts, if any, by which the selected market interest rates
exceed the strike rates stated in the agreements. Interest rate swap agreements
are used by the Company to change the interest rate of their debt from variable
rate to fixed rate. The swap is a contractual agreement between the Company and
another party to exchange payments periodically over the life of the agreement
based upon the interest rates of the underlying debt over the period of the
agreement. The differential to be paid or received is accrued and recognized as
an adjustment of interest expense related to the debt (the accrual accounting
method). The premium paid for both types of agreements is amortized to interest
expense over the life of the agreement.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999..................................................... $ 118
2000..................................................... 1,200
2001..................................................... 750
2002..................................................... 750
2003..................................................... 750
Thereafter............................................... 331,800
--------
$335,368
========
</TABLE>
7. SUBORDINATED DEBT
Subordinated debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1998 1997
---- ------
<S> <C> <C>
7.5% Junior Subordinated Promissory Notes(A)................ $-- $ 295
15% Senior Subordinated Promissory Note(B).................. -- 3,728
--- ------
$-- $4,023
=== ======
</TABLE>
- ---------------
(A) The Junior Subordinated Promissory Notes (the "Interest Notes") bore
interest at 7.5% per annum. The Interest Notes had no required principal
payments other than upon maturity on July 7, 2002. The interest on the
Interest Notes was deferred until maturity. The Interest Notes and accrued
interest were paid in full in July 1998.
(B) The Senior Subordinated Promissory Note (the "Senior Note") bore interest
at 15% per annum, payable quarterly in arrears unless paid in kind ("PIK")
through the issuance of new Senior Notes (the "PIK Notes") incorporating
the same terms as the Senior Note. All principal and deferred interest
under the Senior and PIK Notes was due on December 31, 2007. The Senior
Note, the PIK Notes and accrued interest were paid in full in July 1998.
F-12
<PAGE> 114
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CAPITAL STOCK
Shares Reserved
At December 31, 1998, 152,148 shares of Voting Common Stock and 183,435
shares of Nonvoting Common Stock were reserved for the exercise of the Common
Stock Purchase Warrants.
Common Stock
In 1996, the Company issued 258,813 shares of restricted Voting Common
Stock to complete an exchange for 10,075 shares of Class A Common Stock that was
initiated in October 1995. The restrictions include a three and one half year
vesting provision and the entitlement to $9.93 less per share in distributions
than the amount otherwise payable for distribution to the holders of the
Company's Common Stock. The amount by which the fair value of the restricted
Voting Common Stock exceeded the fair value of the Class A Common Stock is
recorded as compensation expense ratably over the vesting period. The fair value
was determined by an independent valuation.
The Company has the 1996 and 1998 Restricted Stock Award Plans ("the
Plans") whereby employees may be granted shares of the Company's Voting Common
Stock. The stock awards will generally vest over a three to four year period. In
addition, upon any distribution event, the restricted stock stockholders will be
entitled to either $29.78 less per share, $19.06 less per share or $3.77 less
per share in distributions than the amount otherwise payable for distribution to
the holders of the Company's Common Stock. The Company has authorized 743,231
shares under the Plans, all of which have been awarded. The fair value of the
awards is recorded as compensation expense ratably over the vesting period. The
fair value was determined by an independent valuation.
The following table summarizes the activity of the Company's restricted
stock:
<TABLE>
<CAPTION>
DISTRIBUTION THRESHOLDS
--------------------------------------
$29.78 $19.06 $9.93 $3.77 TOTAL
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... -- -- -- -- --
Class A Common Stock Exchange.... -- -- 258,813 -- 258,813
1996 Restricted Stock Award
Plan.......................... 129,407 129,406 -- -- 258,813
------- ------- -------- ------- --------
Balance at December 31, 1996....... 129,407 129,406 258,813 -- 517,626
No activity in 1997.............. -- -- -- -- --
------- ------- -------- ------- --------
Balance at December 31, 1997....... 129,407 129,406 258,813 -- 517,626
Repurchase of stock.............. -- -- (76,350) -- (76,350)
1998 Restricted Stock Award Plan:
Shares exchanged.............. (93,171) (93,171) (109,991) -- (296,333)
Shares awarded................ -- -- -- 484,418 484,418
Other......................... (2) (1) -- -- (3)
------- ------- -------- ------- --------
Balance at December 31, 1998....... 36,234 36,234 72,472 484,418 629,358
======= ======= ======== ======= ========
Shares vested at December 31,
1998............................. 27,176 27,176 54,354 67,280 175,986
======= ======= ======== ======= ========
</TABLE>
Upon certain events, the Company has repurchase rights for unvested shares.
The Company also has the right of first refusal for any proposed disposition of
shares issued under the Plans. The restrictions on the shares are transferable.
F-13
<PAGE> 115
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock
In July 1998, the Company redeemed the outstanding shares of TVE Preferred
Stock at a redemption price per share of $100 plus accrued and unpaid dividends.
In July 1998, the Company redeemed the outstanding shares of Senior and
Junior Preferred Stock at a redemption price per share of $1,000 plus accrued
and unpaid dividends.
Stock Purchase Warrants
At December 31, 1998 and 1997, there were warrants outstanding to acquire
335,853 common shares at $.001 per share which expire beginning 2004 through
2006. No warrants have been exercised as of December 31, 1998. Under the terms
of the warrant agreements, the exercise price and exercise rate shall be subject
to adjustment in the event of a change in the number of shares outstanding or
valuation of the Company's Common Stock.
Voting Rights
At December 31, 1998, all general voting power was vested in the holders of
Voting Common Stock. The holders of Preferred Stock have no voting rights with
regard to matters submitted to a vote of the stockholders. However, the
affirmative consent or vote of at least 80% of the outstanding shares of
Preferred Stock, voting as a class, shall be required with respect to any action
affecting the power, preferences and rights of the holders of shares of
Preferred Stock.
Holders of Nonvoting Common Stock are entitled at any time and from time to
time to convert any and all of the shares held into the same number of shares of
Voting Common Stock provided that such conversion would be in accordance with
all laws, regulations, rules or other requirements of any governmental authority
applicable to such conversion.
Dividends
The holders of Junior and Senior Preferred Stock are entitled to a
cumulative dividend equal to $150.00 per share per annum, due and payable at the
end of each calendar quarter. Dividends are payable solely in the form of
additional shares of such class of Preferred Stock.
The holders of TVE Preferred Stock are entitled to a cumulative cash
dividend equal to $8.00 per share per annum, due and payable on June 30 of each
year.
Dividends on Common Stock shall be paid at such times as may be declared by
the Board of Directors. Through December 31, 1998, no such dividends had been
declared.
F-14
<PAGE> 116
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Significant components of income tax benefit from continuing operations are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ (80) $ 246 $ --
State................................................. -- -- 2
------- ------- -------
Total Current................................. (80) 246 2
Deferred:
Federal............................................... (1,536) (6,304) (5,649)
State................................................. (314) (1,289) (1,155)
------- ------- -------
Total Deferred................................ (1,850) (7,593) (6,804)
------- ------- -------
Income tax benefit............................ $(1,930) $(7,347) $(6,802)
======= ======= =======
</TABLE>
The Company's provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory federal income tax
rate of 34% to income before income taxes and extraordinary items as a result of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rate................................ (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit....................... (3.9) (3.8) (3.9)
Increase in valuation allowance........................... 27.8 -- --
Nondeductible items....................................... 3.0 3.6 3.8
----- ----- -----
(7.1)% (34.2)% (34.1)%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Book over tax basis of depreciable assets................. $ 698 $ 2,091
Book over tax basis of assets that are amortizable for
tax.................................................... 3,144 5,414
-------- -------
Total deferred tax liabilities.................... 3,842 7,505
Deferred tax assets:
Net operating loss carryforwards:
Acquired............................................... 4,880 4,880
Other.................................................. 13,411 6,807
Other....................................................... 1,847 561
-------- -------
Total deferred tax assets......................... 20,138 12,248
Less valuation allowance.................................... (17,364) (7,661)
-------- -------
Net deferred tax assets........................... 2,774 4,587
-------- -------
Net deferred tax liabilities...................... $ 1,068 $ 2,918
======== =======
</TABLE>
F-15
<PAGE> 117
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Company had net operating loss carryforwards of
$47,771,000 for federal income tax purposes, which begin to expire in 2002 if
not utilized. Utilization of some of the loss carryforwards are subject to
various limitations under the Internal Revenue Code, which could result in
expiration of the loss carryforward before utilization.
Approximately $7.6 million of the total valuation allowance as of December
31, 1998 was previously recorded for certain acquisition net operating loss
carryforwards and other acquisition deferred tax assets due to restrictions on
their utilization under the tax law and other uncertainties regarding their
realization. When, and if, realized, the tax benefit associated with these
deferred tax assets will be applied to reduce goodwill and other noncurrent
intangibles related to the acquisitions.
During 1997, a subsidiary of the Company filed an amended income tax return
for a period prior to its acquisition. This resulted in an additional net
operating loss carryforward of $1,525,000 available to the Company. The Company
has recorded a deferred tax asset of $584,000 for this item and a corresponding
reduction to goodwill related to the subsidiary's acquisition.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution pension plan, a 401(k) plan.
Participation in this plan is available to substantially all employees.
Employees may contribute up to 15% of their pay. The Company will match employee
contributions for an amount up to 3% of each employee's base salary. Costs of
the plan, including the Company's matching contributions, were $149,000,
$114,000 and $89,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
11. ABANDONMENT OF TELEPHONE OPERATIONS
At December 31, 1995 the Company was negotiating an agreement to purchase
four telephone exchanges in Kansas. For various reasons, the Company did not
complete the acquisitions and hence, did not enter the telephone business. Net
assets of the telephone business, when abandoned in 1996, consisted primarily of
property, plant and equipment. In connection therewith, the Company recorded a
$2,994,000 charge in 1996 related to the termination of the purchase agreement
and operations associated with the proposed acquisition. Items included in the
charge were the write-off of certain costs capitalized in connection with the
proposed acquisition, legal and consulting fees and estimated severance for
personnel reductions. The Company revised their estimate of costs associated
with the abandonment and took an additional charge of $500,000 in 1997.
In November 1998, the Company settled certain litigation related to these
transactions. Terms of the settlement included the sale of certain cable
television systems in Kansas, the granting of a five year right of first refusal
for the sale of certain other cable television systems in Kansas, and a five
year non-competition agreement. In addition, the Company received cash
consideration of $348,000 in 1999 in connection with the settlement. The
settlement resulted in a loss of approximately $220,000.
12. SETTLEMENT OF CLAIMS
In February 1998, the Company settled claims that arose in conjunction with
divorce proceedings of an officer of the Company. The Company purchased certain
stock of the Company in which the officer's wife held a community property
interest and provided monetary consideration for the release of the claims. The
Company acquired and canceled 101,538 shares of the Company's Common Stock
(76,350 of which were restricted stock). The related expenses, including legal,
consultant and other fees of approximately $1,411,000 are included in corporate
overhead expenses in 1997.
In March 1997, the Company settled certain litigation in which the Company
was seeking damages related to a previous year's acquisition. The Company
received approximately $3.5 million in the settlement. The net proceeds of $3
million were recorded as a reduction of goodwill.
F-16
<PAGE> 118
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
Lease Arrangements
The Company, as an integral part of its cable operations, has entered into
short-term lease contracts for microwave service, pole use and office space. At
December 31, 1998, approximate annual minimum aggregate rentals under such
leases were $1,206,000 in 1999, $1,004,000 in 2000, $954,000 in 2001, $891,000
in 2002, $873,000 in 2003 and $287,000 thereafter. Rent expense was $1,285,000,
$1,160,000 and $1,071,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Litigation
The Company is involved in various legal proceedings that have arisen in
the normal course of business. While the ultimate results of these matters
cannot be predicted with certainty, management does not expect them to have a
material adverse effect on the consolidated financial position and results of
operations of the Company.
F-17
<PAGE> 119
CLASSIC COMMUNICATIONS, INC.
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<S> <C>
CLASSIC COMMUNICATIONS, INC.
Unaudited Pro Forma Consolidated Financial Information
Unaudited Pro Forma Consolidated Financial
Information........................................... P-2
Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1998....... P-3
Notes to Unaudited Pro Forma Consolidated Statement of
Operations............................................ P-4
</TABLE>
P-1
<PAGE> 120
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information of CCI
is based on the audited financial statements of CCI, included elsewhere herein,
and unaudited financial information of Cable One. The unaudited pro forma
adjustments are based upon available information and certain assumptions that
CCI believes are reasonable. The Unaudited Pro Forma Consolidated Financial
Information and accompanying notes should be read in conjunction with the
historical financial statements of CCI and the respective notes thereto, and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" appearing elsewhere in the Offering Memorandum.
The Unaudited Pro Forma Consolidated Statement of Operations has been
prepared to give effect to the Financing Plan as if it had occurred on January
1, 1998. The Unaudited Pro Forma Consolidated Statement of Operations for the
twelve months ended December 31, 1998 combines the historical consolidated
statement of operations of CCI for the twelve months ended December 31, 1998,
and the historical consolidated statement of operations of Cable One for the
seven months prior to its acquisition on July 29, 1998. The Cable One
Acquisition is accounted for under the purchase method of accounting. The
aggregate purchase price for the Cable One Acquisition has been allocated to the
tangible and identifiable intangible assets of the acquired systems based upon
an independent appraisal of their fair value.
The Unaudited Pro Forma Consolidated Financial Information does not purport
to be indicative of the results that would have been obtained had such
transactions been completed as of the assumed date and for the period presented
or that may be obtained in the future. Such Unaudited Pro Forma Consolidated
Financial Information is included herein for informational purposes, and while
management believes that it may be helpful in understanding the combined
operations of CCI for the period indicated, undue reliance should not be placed
thereon.
P-2
<PAGE> 121
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC
COMMUNICATIONS CABLE ONE ADJUSTMENTS PRO FORMA
-------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues....................................... $ 69,802 $6,616 $ -- $ 76,418
Operating expenses:
Programming.................................. 17,840 1,762 -- 19,602
Plant and operating.......................... 8,437 829 -- 9,266
General and administrative................... 11,295 1,109 -- 12,404
Marketing and advertising.................... 850 141 -- 991
Corporate overhead........................... 3,648 -- -- 3,648
Depreciation and amortization................ 30,531 759 1,940(a) 33,230
-------- ------ -------- --------
Earnings (loss) from operations................ (2,799) 2,016 (1,940) (2,723)
Interest expense............................... (24,442) -- (11,892)(b) (36,334)
Other (expense) income......................... (28) (593) -- (621)
-------- ------ -------- --------
Earnings (loss) before income taxes............ (27,269) 1,423 (13,832) (39,678)
Income tax benefit............................. 1,930 -- --(c) 1,930
-------- ------ -------- --------
Net income (loss).............................. $(25,339) $1,423 $(13,832) $(37,748)
======== ====== ======== ========
</TABLE>
See the notes to the unaudited pro forma consolidated statement of operations.
P-3
<PAGE> 122
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
The accompanying Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1998 reflect the pro forma adjustments described
below as if the Financing Plan occurred on January 1, 1998. The Unaudited Pro
Forma Consolidated Statement of Operations combines the historical results of
operations of CCI with those of Cable One. This statement reflects the following
adjustments:
(a) Represents pro forma adjustments to depreciation and amortization
in connection with the Cable One Acquisition. The depreciation and
amortization expense of property, plant and equipment and intangible assets
acquired, net of elimination of depreciation and amortization expense on
historical assets, is as follows:
<TABLE>
<S> <C>
Depreciation and amortization expense on the purchased basis
of property, plant and equipment and intangible assets
acquired.................................................. $2,699
Elimination of historical depreciation and amortization
expense................................................... (759)
------
Total adjustment to depreciation and
amortization.................................... $1,940
======
</TABLE>
The property, plant, and equipment and intangible assets acquired in
connection with the Cable One acquisition are noted below:
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIOD (YEARS)
--------------
<S> <C> <C>
Land................................................. $ 127
Buildings............................................ 559 30
Leasehold improvements............................... 117 7
Vehicles............................................. 540 5
Cable television distribution systems................ 6,282 12
UHF System........................................... 1,327 7
Mobile radio equipment............................... 52 7
Headend electronics.................................. 3,776 7
Headend tower and antennae........................... 1,584 7
Microwave equipment.................................. 666 7
Shop and test equipment.............................. 789 7
Drops................................................ 1,376 7
Furniture and fixtures............................... 230 7
Office equipment..................................... 141 7
Computer hardware and equipment...................... 46 4
Computer software.................................... 7 3
Subscriber relationships............................. 11,732 12
Franchise rights..................................... 12,340 8
Goodwill............................................. 209 40
-------
$41,900
=======
</TABLE>
(b) Represents (i) interest expense on the Senior Credit Agreement
using a current interest rate of 7.42% and 7.75% for the revolver and the
term loans, respectively per annum, (ii) interest expense on the Notes
using a rate of 9.875% per annum, (iii) discount amortization on the Notes
and the Senior Discount Notes, (iv) amortization expense of deferred
financing fees related to the new debt under the Financing Plan and (v)
elimination of historical interest expense due to repayment of the previous
Senior
P-4
<PAGE> 123
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Credit Agreement and subordinated debt with proceeds from the Financing
Plan and elimination of the related amortization of deferred financing
costs, as follows:
<TABLE>
<S> <C>
Interest expense on the Senior Credit Agreement............. $ 7,355*
Interest expense on the Notes............................... 12,344
Discount amortization on the Notes and the Senior Discount
Notes..................................................... 15,164
Amortization of deferred financing fees related to the
Financing Plan............................................ 832
Elimination of historical interest expense on the previous
Senior Credit Agreement and subordinated debt and related
amortization of deferred financing costs.................. (23,803)
--------
Total increase to interest expense................ $ 11,892
========
</TABLE>
* The total effect of a 1/8% variance in the interest rate would be $120.
(c) Represents (i) the tax effect of pro forma adjustments, (ii)
recognition of tax expense for the Cable One systems which were
historically not allocated tax expense by their former parent, and (iii)
the effect of recording a valuation allowance on excess deferred tax assets
arising from pro forma adjustments (the Company records a tax benefit only
to the extent existing deferred tax liabilities reverse within the
appropriate period to offset deferred tax assets. These reversing
liabilities were fully recognized in 1998, and a valuation allowance
remains on 100% of remaining deferred tax assets. As a result, the ratable
tax benefit to be realized in the year ended December 31, 1998 is limited,
resulting in an effective rate of 5%) as follows:
<TABLE>
<S> <C> <C>
Total pro forma adjustments................................. $(13,832)
Tax rate.................................................... 34%
--------
$ 4,703
Total Cable One Acquisition pre tax income.................. 1,423
Tax rate.................................................... 34%
--------
(484)
Effect of valuation allowance............................... (4,219)
-------
Total adjustment to income tax benefit...................... $ --
=======
</TABLE>
P-5
<PAGE> 124
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE NOTES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 9
Use of Proceeds....................... 15
Capitalization........................ 16
Selected Historical and Pro Forma
Consolidated Financial and Operating
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Legislation and Regulation............ 38
Management............................ 48
Certain Relationships and Related
Transactions........................ 52
Principal Stockholders................ 53
Credit Arrangements of the Company.... 54
The Exchange Offer.................... 55
Description of the New Notes.......... 62
United States Federal Income Tax
Considerations...................... 88
Plan of Distribution.................. 96
Legal Matters......................... 96
Experts............................... 96
Index to Historical Financial
Statements.......................... F-1
Index to Pro Forma Consolidated
Financial Information............... P-1
</TABLE>
UNTIL , 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
OFFER TO EXCHANGE
ALL OUTSTANDING
13 1/4% SENIOR DISCOUNT NOTES
DUE 2009
FOR
13 1/4% SENIOR DISCOUNT NOTES
DUE 2009
[CLASSIC CABLE LOGO]
CLASSIC COMMUNICATIONS, INC.
------------------------
PROSPECTUS
------------------------
, 1999
================================================================================
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Registrant,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Section 102(b)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the Registrant, eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit. Article Eighth of the Registrant's Certificate of
Incorporation has eliminated the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Article 10 of the Registrant's Certificate of Incorporation provides as
follows: The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(whether or not by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer, employee, or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), liability, loss,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
permitted by either (i) any applicable law in effect on the date of
incorporation of the Corporation, or (ii) any law which becomes effective during
the existence of the Corporation and which is applicable to it.
Article 8 of the Registrant's By-Laws provides as follows: To the extent
permitted by law, the Corporation shall indemnify any person against any and all
judgments, fines, amounts paid in settling or otherwise disposing of actions or
threatened actions, and expenses in connection therewith, incurred by reason of
the fact that he, his testator or intestate is or was a director or officer of
the Corporation or of any other corporation of any type or kind, domestic or
foreign, which he served in any capacity at the request of the Corporation. To
the extent permitted by law, expenses so incurred by any such person in
defending a civil or criminal action or proceeding shall at his request be paid
by the Corporation in advance of the final disposition of such action or
proceeding.
The foregoing statements are subject to the detailed provisions of Section
102(b)(7) of the DGCL, Article 10 of the Certificate of Incorporation of the
Registrant and Article 8 of the By-Laws of the Registrant, as applicable.
The foregoing discussion is qualified in its entirety by reference to the
DGCL and the Registrant's Certificate of Incorporation and By-Laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of
Classic Communications, Inc., dated as of October 30,
1995.
3.1(b) -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Classic Communications,
Inc. dated July 21, 1998.
3.2 -- Bylaws of Classic Communications, Inc., as amended.
</TABLE>
II-1
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
4.1 -- Indenture dated as of July 29, 1998, for Units consisting
of $114,000,000 in Aggregate Principal Amount at
Maturity, 13 1/4% Senior Discount Notes due 2009, by and
among Classic Communications, Inc., as Issuer, and Bank
One, N.A., as Trustee.
4.2 -- Form of Global Securities.
4.3A -- Registration Rights Agreement dated as of July 29, 1998,
by and between Classic Communications, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
4.3B -- Shareholder and Registration Rights Agreement, dated as
of July 29, 1998, by and among Classic Communications,
Inc. and Certain Stockholders and Merrill, Lynch, Pierce,
Fenner & Smith Incorporated.
4.3C -- Amended and Restated Registration Rights Agreement dated
as of October 31, 1995, modified by Amendment No. 1
(dated as of October 31, 1995) and Amendment No. 2 (dated
as of December 27, 1995).
4.3D -- Amended and Restated Shareholders Agreement dated as of
October 31, 1995, modified by Amendment No. 1 (dated as
of October 31, 1995), Amendment No. 2 (dated as of
December 27, 1995) and Amendment No. 3 (dated as of
December 19, 1997).
5.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding the enforceability and
issuance of the securities, including consent.
5.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding the enforceability and issuance of the
securities, including consent.
8.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding federal income tax matters,
including consent.
8.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding federal income tax matters, including
consent.
10.1 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.2 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.3 -- Credit Agreement among Classic Cable, Inc., As Borrower,
the Lenders Parties thereto, Union Bank of California,
N.A. and Goldman Sachs Credit Partners L.P. as
Co-Arrangers, Goldman Sachs Credit Partners L.P., as
Syndication Agent and Union Bank of California, N.A., as
Administrative and Documentation Agent, dated as of July
29, 1998.
10.4 -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.4(b) -- Assignment of Asset Purchase Agreement dated June 19,
1998.
10.4(c) -- Amendment No. 1 to Asset Purchase Agreement dated July
15, 1998.
10.5 -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6 -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6(a) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.6(b) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
*12.1 -- Statement of Earnings to Fixed Charges.
21.1 -- Subsidiaries of Classic Communications, Inc.
*23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibits 5.1 and 8.1 of this Registration Statement).
</TABLE>
II-2
<PAGE> 127
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
25.1 -- Statement of Eligibility on Form T-1 of Bank One, N.A.,
as Trustee, including consent.
*27.1 -- Financial Data Schedule.
*99.1 -- Form of Transmittal Letter with respect to the Exchange
Offer.
*99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
b. Financial Statement Schedules.
The following appear after the signature page of this Registration
Statement:
Report of Independent Public Accountants on Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE
SCHEDULE DESCRIPTION NO.
- -------- ----------- ----
<C> <S> <C>
S-1 Condensed Financial Information of Classic Communications,
Inc. stand alone. S-1
</TABLE>
All other schedules are omitted because the required information is
included in the Consolidated Financial Statements or the Notes thereto or is
otherwise inapplicable.
ITEM 22. UNDERTAKINGS
(a) 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:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) 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 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 pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) 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;
(2) That, for the purpose of determining any liability under the
Securities 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 the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one
II-3
<PAGE> 128
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 this request.
(c) 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.
(d) The undersigned Registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is 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 issuer
undertakes 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.
(e) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act is used in
connection with an offering of securities subject to Rule 415 (sec. 230.415 of
this chapter), 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 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time was it declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
II-4
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Austin,
State of Texas, on the 15th day of April, 1999.
CLASSIC COMMUNICATIONS, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including, without
limitation, post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 4 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and Chief April 15, 1999
- ----------------------------------------------------- Executive Officer and a
J. Merritt Belisle Director (Principal Executive
Officer)
/s/ STEVEN E. SEACH President and Chief Financial April 15, 1999
- ----------------------------------------------------- Officer and a Director
Steven E. Seach (Principal Financial Officer
and Principal Accounting
Officer)
* Director April 15, 1999
- -----------------------------------------------------
Jeffery C. Garvey
* Director April 15, 1999
- -----------------------------------------------------
James J. Kozlowski
* Director April 15, 1999
- -----------------------------------------------------
Robert H. Sheridan, III
* Director April 15, 1999
- -----------------------------------------------------
Robert Marakovits
*By: /s/ STEVEN E. SEACH
------------------------------------------------
Steven E. Seach
</TABLE>
Steven E. Seach, by signing his name
hereto, does sign this document on
behalf of the persons named above,
pursuant to a power of attorney duly
executed by such persons and
previously filed.
II-5
<PAGE> 130
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CLASSIC COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ -- $ --
Investment in and advances to affiliates.................... 13,142,000 16,339,000
Deferred financing costs, net............................... 2,465,000 --
------------ ------------
Total assets...................................... $ 15,607,000 $ 16,339,000
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Liabilities:
Accrued interest.......................................... $ -- $ 90,000
Subordinated debt......................................... -- 4,023,000
Long-term debt............................................ 62,038,000 --
Deferred taxes, net....................................... 51,000 --
Amounts due to parent..................................... 306,000 --
------------ ------------
Total liabilities................................. 62,395,000 4,113,000
15% PIK Redeemable Senior Preferred Stock................. -- 5,978,000
15% PIK Redeemable Junior Preferred Stock................. -- 19,434,000
Common stock, Voting...................................... 17,000 6,000
Common stock, Nonvoting................................... 15,000 22,000
Paid in capital........................................... 28,544,000 31,287,000
Accumulated deficit....................................... (75,364,000) (44,501,000)
------------ ------------
Total stockholders' deficit....................... (46,788,000) (13,186,000)
------------ ------------
Total liabilities, redeemable preferred stock and
stockholders' deficit........................... $ 15,607,000 $ 16,339,000
============ ============
</TABLE>
S-1
<PAGE> 131
CLASSIC COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense................................. $ (3,754,000) $ (539,000) $ (469,000)
Interest in loss of subsidiary................... (26,700,000) (13,787,000) (12,866,000)
------------ ------------ ------------
Loss before taxes................................ (30,454,000) (14,326,000) (13,335,000)
Income tax benefit (expense)..................... (409,000) 198,000 169,000
------------ ------------ ------------
Net loss......................................... $(30,863,000) $(14,128,000) $(13,166,000)
============ ============ ============
</TABLE>
S-2
<PAGE> 132
CLASSIC COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
----------- -------- ------------
<S> <C> <C> <C>
Cash from operations................................. $ 265,000 $ -- $ 85,000
Investing activities
Capital contribution to subsidiary................. (22,764,000) -- --
----------- -------- ------------
Net cash used in investing activities................ (22,764,000) -- --
Financing activities
Expenses related to equity financings ............. -- -- (85,000)
Proceeds from long-term debt....................... 59,981,000 -- --
Repayments of long-term debt....................... (16,000) -- --
Repayment of subordinated indebtedness............. (4,458,000) -- --
Repayment of promissory notes...................... (650,000) -- --
Redemption of preferred stock...................... (29,756,000) -- --
Financing costs.................................... (2,527,000) -- --
Sale of common stock............................... 50,000 -- --
Repurchase of common stock......................... (125,000) -- --
----------- -------- ------------
Net cash provided by (used in) financing
activities......................................... 22,499,000 -- (85,000)
Net change in cash................................... -- -- --
----------- -------- ------------
Cash and cash equivalents at beginning of year....... -- -- --
----------- -------- ------------
Cash and cash equivalents at end of year............. $ -- $ -- $ --
=========== ======== ============
All 1997 activity related to non cash items.
</TABLE>
S-3
<PAGE> 133
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
In the parent company-only financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in undistributed earnings (losses)
of subsidiaries since the date of acquisition, plus advances to, and less
payments from, subsidiaries. The parent company-only financial statements should
be read in conjunction with the Company's consolidated financial statements.
2. LONG-TERM DEBT
Balance of amounts outstanding under the Company's debt agreement is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
13.25% Senior Discount Notes................................ $114,000 $ --
Unamortized discount...................................... (51,962) --
-------- --------
$ 62,038 $ --
======== ========
</TABLE>
In July 1998, the Company issued $114.0 million of 13.25% Senior Discount
Notes due 2009. Net of the applicable discounts and the fair value of the common
stock sold along with the Senior Discount Notes, proceeds from this issue were
$60.0 million. Interest payments on the Senior Discount Notes do not commence
until 2004.
The Senior Discount Notes were sold in units that consisted of a $1,000
note and three shares of common stock of the Company. Shares issued in
connection with the offering totaled 342,000. Proceeds of $3.77 per share were
allocated to the sale of the shares. A discount of $1.3 million was recorded in
connection with common stock issued. This per share amount represents the fair
value of the stock as of the date of the offering.
3. SUBORDINATED DEBT
Subordinated debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1998 1997
------ ------
<S> <C> <C>
7.5% Junior Subordinated Promissory Notes(A)................ $ -- $ 295
15% Senior Subordinated Promissory Note (B)................. -- 3,727
------ ------
$ -- $4,023
====== ======
</TABLE>
- ---------------
(A) The Junior Subordinated Promissory Notes (the "Interest Notes") bore
interest at 7.5% per annum. The Interest Notes had no required principal
payments other than upon maturity on July 7, 2002. The interest on the
Interest Notes was deferred until maturity. The Interest Notes and
accrued interest were paid in full in July 1998.
(B) The Senior Subordinated Promissory Note (the "Senior Note") bore interest
at 15% per annum, payable quarterly in arrears unless paid in kind
("PIK") through the issuance of new Senior Notes (the "PIK Notes")
incorporating the same terms as the Senior Note. All principal and
deferred interest under the Senior and PIK Notes was due on December 31,
2007. The Senior Note, the PIK Notes and accrued interest was paid in
full in July 1998.
S-4
<PAGE> 134
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of
Classic Communications, Inc., dated as of October 30,
1995, as amended on July 21, 1998.
3.1(b) -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Classic Communications,
Inc. dated July 21, 1998.
3.2 -- Bylaws of Classic Communications, Inc., as amended.
4.1 -- Indenture dated as of July 29, 1998, for Units consisting
of $114,000,000 in Aggregate Principal Amount at
Maturity, 13 1/4% Senior Discount Notes due 2009, by and
among Classic Communications, Inc., as Issuer, and Bank
One, N.A., as Trustee.
4.2 -- Form of Global Securities.
4.3A -- Registration Rights Agreement dated as of July 29, 1998,
by and between Classic Communications, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
4.3B -- Shareholder and Registration Rights Agreement, dated as
of July 29, 1998, by and among Classic Communications,
Inc. and Certain Stockholders and Merrill, Lynch, Pierce,
Fenner & Smith Incorporated.
4.3C -- Amended and Restated Registration Rights Agreement dated
as of October 31, 1995, modified by Amendment No. 1
(dated as of October 31, 1995) and Amendment No. 2 (dated
as of December 27, 1995).
4.3D -- Amended and Restated Shareholders Agreement dated as of
October 31, 1995, modified by Amendment No. 1 (dated as
of October 31, 1995), Amendment No. 2 (dated as of
December 27, 1995) and Amendment No. 3 (dated as of
December 19, 1997).
5.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding the enforceability and
issuance of the securities, including consent.
5.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding the enforceability and issuance of the
securities, including consent.
8.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding federal income tax matters,
including consent.
8.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding federal income tax matters including
consent.
10.1 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.2 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.3 -- Credit Agreement among Classic Cable, Inc., As Borrower,
the Lenders Parties thereto, Union Bank of California,
N.A. and Goldman Sachs Credit Partners L.P. as
Co-Arrangers, Goldman Sachs Credit Partners L.P., as
Syndication Agent and Union Bank of California, N.A., as
Administrative and Documentation Agent, dated as of July
29, 1998.
10.4 -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.4(b) -- Assignment of Asset Purchase Agreement dated June 19,
1998.
10.4(c) -- Amendment No. 1 to Asset Purchase Agreement dated July
15, 1998.
10.5 -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6 -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6(a) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.6(b) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
*12.1 -- Statement of Earnings to Fixed Charges.
21.1 -- Subsidiaries of Classic Communications, Inc.
*23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibits 5.1 and 8.1 of this Registration Statement).
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
25.1 -- Statement of Eligibility on Form T-1 of Bank One, N.A.,
as Trustee, including consent.
*27.1 -- Financial Data Schedule.
*99.1 -- Form of Transmittal Letter with respect to the Exchange
Offer.
*99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, Pro Forma
------------------------------------------------- ---------
Historical
-------------------------------------------------
1994 1995 1996 1997 1998 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes, minority interest
and extraordinary item (3,596) (12,860) (19,968) (21,476) (27,269) (39,678)
Fixed Charges:
Interest Expense 4,975 14,199 20,633 21,299 24,442 36,334
Interest portion of rental
expense 113 264 428 464 514 514
Dividends on unconsolidated
subsidiary -- -- 101 101 67 --
------ ------- ------- ------- ------- -------
Earnings 1,492 1,603 1,194 388 (2,246) (2,830)
Fixed charges:
Interest expense 4,975 14,199 20,633 21,299 24,442 36,334
Interest portion of rental
expense 113 264 428 464 514 514
Dividends on unconsolidated
subsidiary -- -- 101 101 67 --
------ ------- ------- ------- ------- -------
Total Fixed Charges 5,088 14,463 21,162 21,864 25,023 36,848
Ratio of Earnings to Fixed Charges n/a n/a n/a n/a n/a n/a
Earnings inadequate to cover
fixed charges:
Fixed charges 5,088 14,463 21,162 21,864 25,023 36,848
Earnings 1,492 1,603 1,194 388 (2,246) (2,830)
------ ------- ------- ------- ------- -------
Amount earnings inadequate (3,596) (12,860) (19,968) (21,476) (27,269) (39,678)
====== ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
compliance with that Rule, and (ii) that the Grantee is acquiring such
shares of Restricted Stock for his own account and not on behalf of any
other person or for further distribution.
(c) Certificates representing Restricted Stock shall bear a
legend to the following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN TERMS, CONDITIONS AND RESTRICTIONS SET FORTH IN THE
1996 RESTRICTED STOCK AWARD PLAN OF THE COMPANY AND THE AWARD
AGREEMENT EXECUTED PURSUANT THERETO, COPIES OF WHICH ARE ON
FILE IN THE PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION.
SUCH SHARES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
FEDERAL SECURITIES ACT OF 1933 (THE "ACT") OR THE APPLICABLE
STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" WITHIN
THE MEANING OF RULE 144 PROMULGATED UNDER THE ACT. THE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLYING
WITH RULE 144, IN THE ABSENCE OF EFFECTIVE REGISTRATION UNDER
THE ACT OR OTHER COMPLIANCE UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS.
(d) Certificates representing Common Stock which has vested
but which was initially granted pursuant to the Plan shall bear a
legend to the following effect for as long as counsel to the Company
advises that such legend is necessary or advisable:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE FEDERAL SECURITIES ACT OF
1933 (THE "ACT") OR THE APPLICABLE STATE SECURITIES LAWS AND
ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLYING WITH RULE 144, IN THE ABSENCE OF
EFFECTIVE REGISTRATION UNDER THE ACT OR OTHER COMPLIANCE UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS.
(e) The restrictions imposed by this Paragraph 11 shall remain
in effect after the end of any vesting period and after the termination
of the Plan. No reference elsewhere in this Plan to lapse of
restrictions shall impair the continued validity of the restrictions
imposed by this Paragraph 11.
12. EMPLOYMENT OBLIGATIONS. The granting of an Award shall not impose
upon the Company any obligation to employ or continue to employ any Grantee, and
the right of the Company to terminate the employment of any officer or other
employee shall not be diminished or affected by reason of the fact that an Award
has been granted to him or her.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 616 2,779
<SECURITIES> 0 0
<RECEIVABLES> 5,281 5,799
<ALLOWANCES> 762 325
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,742 8,677
<PP&E> 96,850 127,169
<DEPRECIATION> 28,211 39,977
<TOTAL-ASSETS> 220,162 254,604
<CURRENT-LIABILITIES> 11,735 17,482
<BONDS> 0 0
0 0
26,705 0
<COMMON> 28 32
<OTHER-SE> (13,214) (46,820)
<TOTAL-LIABILITY-AND-EQUITY> 220,162 254,604
<SALES> 0 0
<TOTAL-REVENUES> 60,995 69,802
<CGS> 0 0
<TOTAL-COSTS> 64,387 72,601
<OTHER-EXPENSES> (3,215) 28
<LOSS-PROVISION> 1,248 971
<INTEREST-EXPENSE> 21,299 24,442
<INCOME-PRETAX> (21,476) (27,269)
<INCOME-TAX> (7,347) (1,930)
<INCOME-CONTINUING> (14,129) (25,339)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (5,524)
<CHANGES> 0 0
<NET-INCOME> (14,129) (30,863)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER 13 1/4% SENIOR DISCOUNTED NOTES DUE 2009
OF
CLASSIC COMMUNICATIONS, INC.
PURSUANT TO THE PROSPECTUS
DATED APRIL ___, 1999
BY
CLASSIC COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
THE OFFER TO EXCHANGE WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________, 1999, UNLESS EXTENDED TO A DATE NOT LATER THAN __________, 1999 (THE
"EXPIRATION DATE"). TENDERED NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
- --------------------------------------------------------------------------------
DELIVER TO THE EXCHANGE AGENT:
BANK ONE, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Carrier: By Hand Delivery:
235 West Schrock Road 235 West Schrock Road 235 West Schrock Road
Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184
Attention: Corporation Trust Attention: Corporation Trust Attention: Corporation Trust
Operations Operations Operations
</TABLE>
Facsimile Transmission Number: Confirm Receipt of Facsimile by Telephone:
(614) 248-9987 (800) 346-5153
<PAGE> 2
Delivery of this instrument to an address other than as set forth above
will not constitute a valid delivery. The accompanying instructions should be
read carefully before this Letter of Transmittal is completed.
The undersigned acknowledges that the undersigned has received and
reviewed the Prospectus dated April ____, 1999 (the "Prospectus") of Classic
Communications, Inc., a Delaware corporation (the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together constitute the
Company's offer to exchange (the "Exchange Offer") $1,000 principal amount of
13 1/4% Senior Discounted Notes due 2009 (the "Exchange Notes") for each $1,000
principal amount of its outstanding 13 1/4% Senior Discount Notes due 2009 (the
"Old Notes") as set forth in the Prospectus. The Old Notes that are not
exchanged will remain restricted securities and may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective registration statement under the
Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange"
in the Prospectus.
Upon the terms and subject to the conditions set forth in the
Prospectus and in this Letter of Transmittal, the Company will exchange $1,000
principal amount of the Exchange Notes, registered under the Securities Act
pursuant to a registration statement on Form S-4 filed by the Company, for each
$1,000 principal amount of its outstanding Old Notes properly delivered by a
Holder thereof to Bank One, N.A., as exchange agent (the "Exchange Agent"), and
not withdrawn on or prior to the Expiration Date. No Holder may withdraw a
tender following the Expiration Date. In order to be entitled to receive the
Exchange Notes, a tendering Holder must properly tender the Old Notes to the
Exchange Agent, and not withdraw such tender, on or prior to the Expiration
Date. If a Holder's Old Notes are not properly tendered by the Expiration Date
pursuant to the Exchange Offer, such Holder will not receive Exchange Notes.
By executing the Letter of Transmittal, the undersigned represents to
the Company that, among other things, (i) the Exchange Notes to be acquired by
the Holder of the Old Note in connection with the Exchange Offer are being
acquired by the Holder in the ordinary course of business of the Holder, (ii)
the Holder has no arrangement or understanding with any person to participate in
the distribution of Exchange Notes, (iii) the Holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in no-action letters, (iv) the
Holder understands that a secondary resale transaction described in clause (iii)
above and any resales of Exchange Notes obtained by such Holder in exchange for
Old Notes acquired by such Holder directly from the Company should be covered by
an effective registration statement containing the selling securityholder
information required by Item 507 of Regulation S-K of the Securities and
Exchange Commission (the "Commission"), and (v) the Holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company. If
the Holder is a broker-dealer that will receive Exchange Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, by executing this Letter
of Transmittal, the Holder acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes. However, by so acknowledging
and by delivering a prospectus, the Holder will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. See "The Exchange
Offer -- Procedures for Tendering."
The Exchange Offer may be extended, terminated, amended or consummated
as provided in the Prospectus. During any such extension of the Exchange Offer,
all Old Notes previously tendered and not withdrawn pursuant to such Exchange
Offer will remain subject to the Exchange Offer and may be accepted thereafter
for exchange by the Company.
No alternative, conditional or contingent tenders will be accepted. A
tendering Holder, by execution of this Letter of Transmittal, or facsimile
hereof, waives all rights to receive notice of acceptance of such Holder's Old
Notes for exchange. Capitalized terms used but not defined herein have the
meanings given to them in the Prospectus.
-2-
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
This Letter of Transmittal is to be completed by Holders of Old Notes
if certificates representing such Old Notes are to be forwarded herewith or if
delivery of such certificates are to be made by book-entry transfer to the
account maintained by the Exchange Agent at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering."
Holders whose certificates representing the Old Notes are not
immediately available or who cannot deliver certificates and all other required
documents to the Exchange Agent or complete the procedure for book-entry
transfer on or prior to the Expiration Date may nevertheless tender Old Notes
pursuant to the guaranteed delivery procedure set forth in the Prospectus under
the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 2 below. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent. In order to ensure
participation in the Exchange Offer, Old Notes must be properly tendered on or
before the Expiration Date.
List below the Old Notes that are to be tendered pursuant to this
Letter of Transmittal. If the space below is inadequate, list the information
requested below on a separate signed schedule and affix the original signed
schedule to this Letter of Transmittal.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) AGGREGATE PRINCIPAL
(PLEASE FILL IN, IF BLANK) AMOUNT REPRESENTED PRINCIPAL AMOUNT
CERTIFICATE BY CERTIFICATE(S) TENDERED(2)
NUMBER(S)(1)
-------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
Total Principal Amount Tendered
- ---------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by Holders who tender by book-entry.
(2) Unless otherwise indicated in this column, any tendering Holder will be
deemed to have tendered the entire principal amount represented by the
Old Notes indicated in the column labeled "Aggregate Principal Amount
Represented by Certificate(s)." See Instruction 5.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY
PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER NOTES BY
BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
-----------------------------------------
Account Number:
--------------------------------------------------------
-3-
<PAGE> 4
Transaction Code Number:
-----------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s):
--------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------
Name of Eligible Institution that guaranteed delivery:
-----------------
[ ] Check box if delivered by Book-Entry Transfer
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Only Holders are entitled to tender their Old Notes in the Exchange
Offer. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system and whose name appears on a security position listing
as the record owner of the Old Notes and who wishes to make book-entry delivery
of Old Notes as described above must complete and execute a participant's letter
(which will be distributed to participants by the Book-Entry Transfer Facility)
instructing the Book-Entry Transfer Facility's nominee to complete and sign the
power of attorney attached thereto. Persons who are beneficial owners of Old
Notes but are not Holders and who seek to tender Old Notes should (i) contact
the Holder of such Old Notes and instruct such Holder to tender on his behalf,
(ii) obtain and include with this Letter of Transmittal Old Notes properly
endorsed for transfer by the Holder, with signatures on the endorsement
guaranteed by a firm that is a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States of an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act which is a member of one of the recognized signature
guarantee programs identified in the Letter of Transmittal (each, an "Eligible
Institution") or (iii) effect a record transfer of such Old Notes from the
Holder to such beneficial owner and comply with the requirements applicable to
Holders for tendering Old Notes prior to 5:00 P.M., New York City time, on the
Expiration Date.
HOLDERS WHO WISH TO RECEIVE THE EXCHANGE NOTES MUST TENDER THEIR OLD
NOTES ON OR PRIOR TO THE EXPIRATION DATE.
See "The Exchange Offer -- Procedures for Tendering" in the Prospectus.
-4-
<PAGE> 5
To: Classic Communications, Inc. (the "Company")
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company, the Old Notes indicated above.
Subject to, and effective upon, acceptance for exchange of the Old Notes
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of the Company, all right, title and interest in and to all such
Old Notes tendered hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as agent
of the Company) with respect to such Old Notes, with full power of substitution
and resubstitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest) to (a) deliver certificates representing such
Old Notes, or transfer ownership of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility, together, in each such case,
with all accompanying evidences of transfer and authenticity to or upon the
order of the Company, (b) present such Old Notes for transfer on the relevant
register and (c) receive all benefits or otherwise exercise all rights of
beneficial ownership of such Old Notes (except that the Exchange Agent will have
no rights to or control, except as agent for the Company, for the Exchange Notes
delivered in connection with the Exchange Offer) 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 WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY
WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF
ALL SECURITY INTERESTS, LIENS, RESTRICTIONS, CLAIMS, CHARGES, ENCUMBRANCES,
CONDITIONAL SALES AGREEMENTS OR OTHER OBLIGATIONS RELATING TO THE SALE OR
TRANSFER THEREOF, AND NOT BE SUBJECT TO ANY ADVERSE CLAIM. THE UNDERSIGNED WILL,
UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE
EXCHANGE AGENT OR THE COMPANY TO BE NECESSARY OR DESIRABLE TO COMPLETE THE
ASSIGNMENT, TRANSFER AND PURCHASE OF THE OLD NOTES TENDERED HEREBY. THE
UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER. DELIVERY OF ENCLOSED OLD NOTES SHALL BE EFFECTED, AND RISK OF
LOSS AND TITLE TO SUCH OLD NOTES SHALL PASS, ONLY UPON PROPER DELIVERY THEREOF
TO THE EXCHANGE AGENT.
All authority conferred or agreed to be conferred pursuant to this
Letter of Transmittal and every obligation of the undersigned hereunder shall be
binding upon the successors, assigns, heirs, executors, administrators, trustees
in bankruptcy, and personal and legal representatives of the undersigned and
shall not be affected by, and shall survive, the death or incapacity of the
undersigned. Old Notes properly tendered may be withdrawn at any time prior to
the Expiration Date. Holders will receive the Exchange Notes only if their
tenders have been properly delivered on or prior to the Expiration Date and not
revoked on or prior to the Expiration Date.
Old Notes may not be withdrawn after the Expiration Date unless the
Exchange Offer with respect to such Old Notes is terminated without any Old
Notes being accepted for exchange thereunder. In the event of such a
termination, such Old Notes tendered by the undersigned will be returned to the
undersigned as promptly as practicable.
-5-
<PAGE> 6
The Exchange Offer is subject to a number of conditions, each of which
may be waived or modified by the Company, in whole or in part, at any time and
from time to time, as described in the Prospectus under the caption "The
Exchange Offer -- Conditions to the Exchange Offer." The undersigned recognizes
that as a result of such conditions the Company may not be required to accept
the Old Notes properly tendered hereby. In such event, the tendered Old Notes
not accepted for exchange will be returned to the undersigned without cost to
the undersigned as soon as practicable following the earlier to occur of the
Expiration Date or the date on which the Exchange Offer with respect to such
issue is terminated without any Old Notes being purchased thereunder, at the
address shown below the undersigned's signature(s) unless otherwise indicated
under "Special Issuance Instructions" below.
Unless otherwise indicated under "Special Issuance Instructions" below,
the Exchange Agent will issue the Exchange Notes for any Old Notes tendered
hereby that are accepted for exchange, and/or return any certificates
representing Old Notes not tendered or not accepted for exchange in the name(s)
of the Holder(s) appearing under "Description of Securities Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions," the
Exchange Notes, and/or any certificates representing Old Notes not tendered or
not accepted for exchange (and accompanying documents, as appropriate) to be
returned will be sent to the address(es) of the Holder(s) appearing under
"Description of Securities Tendered." In the event that both the Special
Issuance Instructions and the Special Delivery Instructions are completed, the
Exchange Notes will be issued, if applicable, and the certificates representing
any Old Notes not tendered or not accepted for exchange (and any accompanying
documents, as appropriate) will be returned in the name of, and delivered to,
the person or persons so indicated. Unless otherwise indicated under "Special
Issuance Instructions," in the case of a book-entry delivery of Old Notes, the
account maintained at the Book-Entry Transfer Facility indicated above will be
credited with any Old Notes not tendered or not accepted for exchange. The
undersigned recognizes that neither the Exchange Agent nor the Company, has any
obligation pursuant to the Special Issuance Instructions to transfer any Old
Notes from the name of the Holder thereof if the Company does not accept for
exchange any of the Old Notes so tendered.
-6-
<PAGE> 7
<TABLE>
<CAPTION>
- --------------------------------------------------- ---------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7) (SEE INSTRUCTIONS 1, 5, 6 AND 7)
<S> <C>
To be completed ONLY if the certificates To be completed ONLY if the Exchange
representing the Exchange Notes and/or Notes and/or certificates representing Old
certificates representing Old Notes not Notes not accepted for exchange are
to be accepted for exchange are to be to be sent to someone other than the
issued in the name of someone other than undersigned or to the undersigned at an
the undersigned, or if Old Notes delivered address other than that shown above.
by book-entry transfer not accepted for
exchange are to be returned by credit to Mail Certificate(s) to:
an account maintained at a Book-Entry
Transfer Facility other than the Name:
account indicated above. ----------------------------------------------
(Please Print)
Issue Certificate(s) to:
Address:
Name: -------------------------------------------
----------------------------------------------
(Please Print) ---------------------------------------------------
Address: ---------------------------------------------------
------------------------------------------- (Including Zip Code)
- --------------------------------------------------- ---------------------------------------------------
(Taxpayer Identification or Social Security Number)
- ---------------------------------------------------
(Including Zip Code)
- ---------------------------------------------------
(Taxpayer Identification or Social Security Number)
[ ] Credit unaccepted Old Notes
delivered by book-entry transfer to the
Book-Entry Transfer Facility account
set forth below:
- ---------------------------------------------------
(Account Number)
- --------------------------------------------------- ---------------------------------------------------
</TABLE>
-7-
<PAGE> 8
SIGNATURES
HOLDERS OF OLD NOTES
SIGN HERE
IMPORTANT: COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 IN
THIS LETTER OF TRANSMITTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Signature(s) of Holder(s) of Notes)
Date: , 1999
---------------------
(Must be signed by the Holder(s) exactly as name(s) appear(s) on
certificate(s) representing the Old Notes or on a security position listing or
by person(s) authorized to become Holder(s) by certificates and documents
transmitted herewith. If signature is by attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or other person
acting in a fiduciary or representative capacity, please provide the following
information and see Instruction 6.)
Capacity (Full Title):
----------------------------------------------------------
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number
--------------------------------------------------
Tax Identification or Social Security No.
---------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)
- --------------------------------------------------------------------------------
(Authorized Signature)
Name:
---------------------------------------------------------------------------
(Please Type or Print)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address -- Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Date:
--------------------------
-8-
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal
need not be guaranteed if the Old Notes tendered hereby are tendered (a) by the
registered Holder(s) (which term, for purposes of this document, shall include
any participant in the Book-Entry Transfer Facility's system and whose name
appears on a security position listing as the record owner of the Old Notes)
thereof, unless such Holder has completed either the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
preceding page, or (b) for the account of a firm that is a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (each, an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. Persons who are beneficial owners of Old Notes but are not Holders
and who seek to tender Old Notes should (i) contact the Holder of such Old Notes
and instruct such Holder to tender on his behalf, (ii) obtain and include with
this Letter of Transmittal, Old Notes properly endorsed for transfer by the
Holder, with signatures on the endorsement guaranteed by an Eligible Institution
or (iii) effect a record transfer of such Old Notes from the Holder to such
beneficial owner and comply with the requirements applicable to Holders for
tendering Old Notes on or prior to the Expiration Date. See Instruction 6.
2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be
completed by Holders either if certificates are to be forwarded herewith or if
delivery of Old Notes is to be made pursuant to the procedures for book-entry
transfer set forth in the Prospectus under the caption "The Exchange Offer --
Procedures for Tendering." For a Holder to properly tender Old Notes pursuant to
the Exchange Offer, a properly completed and duly executed Letter of Transmittal
(or a facsimile thereof), together with any signature guarantees and any other
documents required by these Instructions, must be received by the Exchange Agent
at one of the addresses set forth herein on or prior to the Expiration Date and
either (i) certificates representing such Old Notes must be received by the
Exchange Agent at such address or (ii) such Old Notes must be transferred
pursuant to the procedures for book-entry transfer described in the Prospectus
under the caption "The Exchange Offer -- Procedures for Tendering" and a
Book-Entry Confirmation must be received by the Exchange Agent, in each case, on
or prior to the Expiration Date. A Holder who desires to tender Old Notes and
who cannot comply with procedures set forth herein for tender on a timely basis
or whose Old Notes are not immediately available must comply with the guaranteed
delivery procedures described below.
Holders whose certificates representing Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent or complete the procedures for book-entry
transfer prior to the Expiration Date may tender their Old Notes by properly
completing and duly executing the Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer --
-9-
<PAGE> 10
Guaranteed Delivery Procedures." Pursuant to such procedures, (a) the tender
must be made by or through an Eligible Institution; (b) a Notice of Guaranteed
Delivery, substantially in the form provided herewith, properly completed and
duly executed, must be received by the Exchange Agent as provided below on or
prior to the Expiration Date; and (c) the certificates representing all tendered
Old Notes, or a Book-Entry Confirmation with respect to all tendered Old Notes,
together with this Letter of Transmittal, properly completed and duly executed,
and any required signature guarantees and all other documents required by the
Letter of Transmittal, must be received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
THE METHOD OF DELIVERY OF CERTIFICATES REPRESENTING OLD NOTES, THIS
LETTER OF TRANSMITTAL, REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING HOLDER AND DELIVERY WILL BE DEEMED MADE
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
All tendering Holders, by execution of this Letter of Transmittal waive
any right to any notice of the acceptance of their Old Notes for exchange.
3. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS. Tenders of Old
Notes may be withdrawn at any time until the Expiration Date. Tendered Old Notes
may not be withdrawn on or after the Expiration Date, unless the Exchange Offer
is terminated without any Old Notes being accepted for exchange thereunder. In
the event of such termination, such Old Notes will be returned to the tendering
Holder as promptly as practicable.
Any Holder of Old Notes who has tendered Old Notes or who succeeds to
the record ownership of Old Notes in respect of which such tenders have
previously been given may withdraw such Old Notes on or prior to the Expiration
Date by delivery of a written notice of withdrawal subject to the limitations
described herein. To be effective, a written or facsimile transmission notice of
withdrawal of a tender must (i) be received by the Exchange Agent, at one of the
addresses specified on the back cover of this Letter of Transmittal on or before
the Expiration Date, (ii) specify the name of the Holder of the Old Notes to be
withdrawn, (iii) contain the description of the Old Notes to be withdrawn, the
certificate numbers shown on the particular certificates representing such Old
Notes and the aggregate principal amount represented by such Old Notes and (iv)
be signed by the Holder of such Old Notes in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee register the transfer of relevant Old Notes into the name of the person
withdrawing such Old Notes. The signature(s) on the notice of withdrawal of any
tendered Old Notes must be guaranteed by an Eligible Institution unless the
relevant Old Notes have been tendered for the account of an Eligible
Institution. If the Old Notes to be withdrawn have been delivered or otherwise
identified to the Exchange Agent, a signed notice of withdrawal is effective
immediately upon receipt by the Exchange Agent of written or facsimile
transmission of the notice of withdrawal even if physical release is not yet
effected. A withdrawal of Notes can only be accomplished in accordance with the
foregoing procedures. No Holder may withdraw Old Notes following the Expiration
Date.
-10-
<PAGE> 11
All questions as to the validity, form and eligibility (including the
time of receipt) of notices of withdrawal will be determined by the Company,
whose determination will be final and binding on all parties. A purported notice
of withdrawal that is not received by the Exchange Agent in a timely fashion
will not be effective to withdraw tendered Old Notes. Any Old Notes that have
been tendered but that are not accepted for exchange will be returned to the
Holder thereof without cost to such Holder as soon as practicable following the
Expiration Date.
A withdrawal of a tender of Old Notes may not be rescinded and any Old
Notes properly withdrawn will not be deemed to be validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto.
However, withdrawn Old Notes may be retendered by repeating one of the
procedures described in Instruction 2 above at any time on or prior to the
Expiration Date.
4. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER
BY BOOK-ENTRY TRANSFER). If less than the entire principal amount of any Old
Notes evidenced by a submitted certificate is tendered, the tendering holder
should fill in the applicable principal amount of the Old Notes that are to be
tendered in the box entitled "Description of Old Notes Tendered." The entire
principal amount represented by the certificates for all Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered or
not accepted for payment, new certificate(s) representing the remainder of the
principal amount of the Old Notes that were evidenced by the old certificate(s)
will be sent to the Holder, unless otherwise provided in the boxes entitled
"Special Payment Instructions" or "Special Delivery Instructions" above, as soon
as practicable after the expiration of the Exchange Offer.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; ENDORSEMENTS. If this
Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered
hereby, the signature(s) must correspond exactly with the name(s) as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal. If any
tendered Old Notes are registered in different names on several certificates, it
will be necessary to complete, sign and submit as many separate Letters of
Transmittal as there are names in which certificates are held.
If this Letter of Transmittal or any certificates 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 proper evidence satisfactory to the
Company of their authority so to act must be submitted, unless waived by the
Company.
If this Letter of Transmittal is signed by the Holder(s) of the Old
Notes listed and transmitted hereby, no endorsements of certificates are
required unless payment is to be made to, or certificates for Old Notes not
tendered or not accepted for purchase are to be issued to, a person other than
the
-11-
<PAGE> 12
Holder(s). Signatures on such certificates must be guaranteed by an Eligible
Institution (unless signed by an Eligible Institution).
If this Letter of Transmittal is signed by a person other than the
Holder(s) of the Old Notes listed, the certificates representing such Notes must
be properly endorsed for transfer by the Holder, together with a properly
completed irrevocable proxy that authorizes such person to consent on behalf of
such Holder, with signatures on the endorsement guaranteed by an Eligible
Institution.
6. TRANSFER TAXES. The Company will pay or cause to be paid any
transfer taxes with respect to the transfer and sale of Old Notes to it or its
order pursuant to the Exchange Offer. If, however, the Exchange Notes are to be
registered in the name of any person other than the Holder(s), or if tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any transfer taxes (whether
imposed on the Holder(s) or such other person) payable on account of the
transfer to such person will be deducted from the interest paid on the Exchange
offer unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to
be issued in the name of, and/or certificates representing Old Notes not
accepted for exchange are to be returned to, a person other than the person(s)
signing this Letter of Transmittal or if Exchange Notes are to be sent and/or
such certificates are to be returned to a person other than the person(s)
signing this Letter of Transmittal or to an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed. Holders
delivering Old Notes by book-entry transfer may request that Old Notes not
accepted for payment be credited to such account maintained at a Book-Entry
Transfer Facility as such Holder(s) may designate hereon. If no such
instructions are given, such Old Notes not accepted for payment will be returned
by crediting the account at the Book-Entry Transfer Facility designated above.
8. WAIVER OF CONDITIONS. To the extent permitted by applicable law, the
Company reserves the right to waive any and all conditions to the Exchange Offer
and accept for exchange any Old Notes tendered.
9. TAX IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income tax
law generally requires that a Holder whose tendered Old Notes are accepted for
exchange, or such Holder's assignee (in either case, the "Payee"), provide the
Company (the "Payor"), with the Holder's correct Taxpayer Identification Number
("TIN"), which, in the case of a Payee who is an individual, is his or her
social security number. If the Payor is not provided with the correct TIN or an
adequate basis for an exemption, such Payee may be subject to a $50 penalty
imposed by the Internal Revenue Service and backup withholding in an amount
equal to 31% of the interest paid on the Exchange Offer. If withholding results
in an overpayment of taxes, a refund may be obtained.
-12-
<PAGE> 13
To prevent backup withholding, each Payee must provide his correct TIN
by completing the "Substitute Form W-9" set forth herein, certifying that the
TIN provided is correct (or that such Payee is awaiting a TIN) and that (i) the
Payee is exempt from backup withholding, (ii) the Payee has not been notified by
the Internal Revenue Service that he is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the Internal
Revenue Service has notified the Payee that he is no longer subject to backup
withholding.
If the Payee does not have a TIN, such Payee should consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 (the "W-9 Guidelines") for instructions on applying for a
TIN, write "Applied For" in the space for the TIN in Part I of the Substitute
Form W-9, and sign and date the Substitute Form W-9 and the Certificate of
Awaiting Taxpayer Identification Number set forth herein. Note: Writing "Applied
For" on the form means that the Payee has already applied for a TIN or that such
Payee intends to apply for one in the near future.
If the Old Notes are held in more than one name or are not in the name
of the actual owner, consult the W-9 Guidelines for information on which TIN to
report.
Exempt Payees (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt Payee
should write "Exempt" in Part 2 of Substitute Form W-9. See the W-9 Guidelines
for additional instructions. In order for a nonresident alien or foreign entity
to qualify as exempt, such person must submit a completed Form W-8, "Certificate
of Foreign Status."
10. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES. Any Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the addresses indicated above for further instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance may be directed to the Dealer Manager at its address set forth below
or from the tendering Holder's broker, dealer, commercial bank or trust company.
Additional copies of the Prospectus, this Letter of Transmittal, the Notice of
Guaranteed Delivery, and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 may be obtained from the Exchange
Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL, TOGETHER WITH CERTIFICATES FOR,
OR CONFIRMATION OF BOOK-ENTRY TRANSFER WITH RESPECT TO, ANY TENDERED OLD NOTES,
WITH ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE EXPIRATION DATE.
-13-
<PAGE> 14
TO BE COMPLETED BY ALL PAYEES
(SEE INSTRUCTION 9)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: BANK ONE, N.A.
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Name:
---------------------------------------------------------------------------
FORM W-9 Address:
------------------------------------------------------------------------
(Number and Street)
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE --------------------------------------------------------------------------------
(City) (State) (Zip Code)
PAYOR'S REQUEST FOR --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION
NUMBER (TIN) AND PART 1 -- PLEASE PROVIDE YOUR
CERTIFICATION TIN IN THE BOX AT RIGHT AND TIN
CERTIFY BY SIGNING AND -------------------------------
DATING BELOW (Social Security Number or
Employer Identification Number)
--------------------------------------------------------------------------------
Part 2 -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
PLEASE WRITE "EXEMPT" HERE
(SEE INSTRUCTIONS)
--------------------------------------------------------------
--------------------------------------------------------------------------------
PART 3 --CERTIFICATION UNDER PENALTIES OF PERJURY. I CERTIFY THAT (1) The
number shown on this form is my correct TIN (or I am waiting for a number to
be issued to me), and (2) I am not subject to backup withholding because: (a)
I am exempt from backup withholding, or (b) I have not been notified by the
Internal Revenue Service (the "IRS") that I am subject to backup withholding as
a result of a failure to report all interest or dividends or (c) the IRS has
notified me that I am no longer subject to backup withholding.
SIGNATURE DATE
---------------------------------------------- ---------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
You must Cross out Part 2 above if you have been notified by the IRS
that you are currently subject to backup withholding because of underreporting
interest or dividends on your tax return.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
IN PART 1 OF THE 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 that I have mailed or delivered an
application to receive a taxpayer identification number of the appropriate
Internal Revenue Service Center or Social Security Administration Office (or I
intend to mail or deliver an application in the near future). I understand that
if I do not provide a taxpayer identification number to the Payor, the Payor is
required to withhold 31 percent of all cash payments made to me until I provide
a number.
SIGNATURE DATE
----------------------------------------------------------- --------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM 2-9 FOR ADDITIONAL DETAILS.
-14-
<PAGE> 15
THE EXCHANGE AGENT IS:
BANK ONE, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Carrier: By Hand Delivery:
235 West Schrock Road 235 West Schrock Road 235 West Schrock Road
Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184
Attention: Corporation Trust Attention: Corporation Trust Attention: Corporation Trust
Operations Operations Operations
</TABLE>
Facsimile Transmission Number: Confirm Receipt of Facsimile by Telephone:
(614) 248-9987 (800) 346-5153
-15-
<PAGE> 1
Notice of Guaranteed Delivery
for
CLASSIC COMMUNICATIONS, INC.
Offer to Exchange
Any and all of its 13 1/4% Senior Discount Notes due 2009
by
CLASSIC COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________,
1999, UNLESS EXTENDED TO A DATE NOT LATER THAN __________, 1999 (THE "EXPIRATION
DATE"). TENDERED NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION
DATE.
- --------------------------------------------------------------------------------
AS SET FORTH IN THE PROSPECTUS DATED APRIL _____, 1999 (THE "EXCHANGE
MEMORANDUM") UNDER THE CAPTIONS "THE EXCHANGE OFFER -- PROCEDURES FOR TENDERING
NOTES" AND "THE EXCHANGE OFFER -- GUARANTEED DELIVERY PROCEDURES" AND THE
ACCOMPANYING LETTER OF TRANSMITTAL DATED APRIL _____, 1999 (THE "LETTER OF
TRANSMITTAL"), THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED
TO ACCEPT THE EXCHANGE OFFER IF CERTIFICATES REPRESENTING THE 13 1/4% SENIOR
DISCOUNT NOTES DUE 2009 (THE "NOTES") OF CLASSIC COMMUNICATIONS, INC., A
DELAWARE CORPORATION (THE "COMPANY"), ARE NOT IMMEDIATELY AVAILABLE OR IF THE
PROCEDURE FOR BOOK-ENTRY TRANSFER CANNOT BE COMPLETED ON A TIMELY BASIS OR TIME
WILL NOT PERMIT A HOLDER'S CERTIFICATES OR OTHER REQUIRED DOCUMENTS TO REACH THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. SUCH FORM MAY BE DELIVERED BY
HAND OR TRANSMITTED BY TELEGRAM, TELEX, FACSIMILE TRANSMISSION OR MAIL TO THE
EXCHANGE AGENT AND MUST INCLUDE A GUARANTEE BY AN ELIGIBLE INSTITUTION UNLESS
SUCH FORM IS SUBMITTED ON BEHALF OF AN ELIGIBLE INSTITUTION. CAPITALIZED TERMS
USED AND NOT DEFINED HEREIN HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM IN THE
EXCHANGE MEMORANDUM.
DELIVER TO THE EXCHANGE AGENT:
BANK ONE, N.A.
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Overnight Carrier: By Hand Delivery:
235 West Schrock Road 235 West Schrock Road 235 West Schrock Road
Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184
Attention: Corporation Trust Attention: Corporation Trust Attention: Corporation Trust
Operations Operations Operations
</TABLE>
Facsimile Transmission Number: Confirm Receipt of Facsimile by Telephone:
(614) 248-9987 (800) 346-5153
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies & Gentlemen:
Upon the terms and subject to the conditions set forth in the Exchange
Memorandum and accompanying Letter of Transmittal, receipt of which is hereby
acknowledged, the undersigned hereby tenders to Classic Communications, Inc., a
Delaware corporation (the "Company"), $_______________ principal amount (at
maturity) of Old Notes, pursuant to the Guaranteed Delivery Procedures set forth
in the Exchange Memorandum and accompanying Letter of Transmittal.
CERTIFICATE NUMBERS OF OLD NOTES
(IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If Old Notes will be tendered by book-entry transfer: (check one)
Name of Tendering Institution:
- --------------------------- [ ] The Depository Trust Company
[ ] The Midwest Securities Trust Company
Account No. at [ ] The Philadelphia Depository Trust Company
---------------
The undersigned authorizes the Exchange Agent to deliver this Notice of
Guaranteed Delivery to the Company and Bank One, N.A. with respect to the Old
Notes tendered pursuant to the Exchange Offer.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
- --------------------------------------------------------------------------------
SIGN HERE
- --------------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or
Authorized Signatory
- --------------------------------------------------------------------------------
Name(s) of Registered Holder(s)
(Please Type or Print)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
Zip Code
- --------------------------------------------------------------------------------
Area Code and Telephone Number
Dated: , 1999
--------------------------------------------------------------------
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
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 in the United States, hereby
(a) represents that the above-named person(s) has a net long position in the Old
Notes tendered hereby within the meaning of Rule 14e-4 under the Securities
Exchange Act of 1934, as amended (b) represents that such tender of Old Notes
complies with Rule 14e-4 and (c) guarantees delivery to the Exchange Agent of
certificates representing the Old Notes tendered hereby, in proper form for
transfer, or confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at a Book-Entry Transfer Facility (as defined in the
Exchange Memorandum), in each case together with a properly completed and duly
executed Letter of Transmittal with any required signature guarantees and any
other documents required by the Letter of Transmittal, within three New York
Stock Exchange trading days after the date hereof.
- ------------------------------------- -------------------------------------
Name of Firm Title
- ------------------------------------- -------------------------------------
Authorized Signature Name (Please Type or Print)
- -------------------------------------
Address
- ------------------------------------- -------------------------------------
Area Code and Telephone Number Dated , 1999
-------------------------
NOTE: DO NOT SEND CERTIFICATES REPRESENTING OLD NOTES WITH THIS FORM.
CERTIFICATES FOR OLD NOTES MUST BE SENT WITH YOUR LETTER OF TRANSMITTAL.
