<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CLASSIC COMMUNICATIONS, INC.
(Exact name of Registrant as Specified in Its Charter)
---------------------
<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, TX 78701
(512) 476-9095
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
J. MERRITT BELISLE
CHIEF EXECUTIVE OFFICER
515 CONGRESS AVENUE, SUITE 2626
AUSTIN, TX 78701
(512) 476-9095
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------------
Copies to:
<TABLE>
<S> <C>
PETER C. KRUPP KIRK A. DAVENPORT
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) LATHAM & WATKINS
333 WEST WACKER DRIVE 885 THIRD AVENUE
CHICAGO, IL 60606 NEW YORK, NEW YORK 10022
(312) 407-0700 (212) 906-1284
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Class A Common Stock, par value $0.01 per share............. $201,250,000 $55,948
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
This preliminary prospectus is not complete and may be changed. These securities
may not be sold until the registration statement filed with the Securities and
Exchange Commission is effective. This preliminary prospectus is not an offer to
sell nor does it seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.
Subject to Completion. Dated October 19, 1999.
Shares
[CLASSIC COMMUNICATIONS LOGO]
Class A Common Stock
---------------------
This is an initial public offering of shares of Class A common stock of
Classic Communications, Inc. This prospectus relates to an offering of
shares in the United States. In addition, shares are being
offered outside the United States in an international offering. Classic is
offering of the shares to be sold in the offering.
Prior to this offering, there has been no public market for the Class A
common stock. It is currently estimated that the initial public offering price
per share will be between $ and $ . We intend to apply to have
the Class A common stock included for quotation on the Nasdaq National Market
under the symbol "CLSC".
See "Risk Factors" beginning on page 14 to read about certain factors you
should consider before buying shares of the Class A common stock.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Classic.................... $ $
</TABLE>
To the extent that the U.S. underwriters sell more than shares of
Class A common stock, the U.S. underwriters have the option to purchase up to an
additional shares from at the initial
public offering price less the underwriting discount. The international
underwriters may similarly purchase up to an additional shares. Classic
will not receive any of the proceeds from the sale of the shares by
.
---------------------
The underwriters expect to deliver the shares in New York, New York on
, 1999.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
---------------------
Prospectus dated , 1999.
<PAGE> 3
[Map of the United States marked to indicate
location of cable systems.]
<PAGE> 4
SUMMARY
The following summary is intended to highlight certain information
contained elsewhere in this prospectus. This summary is not intended to be a
complete statement of all material facts of the offering and is qualified in its
entirety by the more detailed information and historical and pro forma financial
information, including the notes relating to that information, appearing
elsewhere in this prospectus. Except as otherwise required by the context, the
information presented in this prospectus concerning Classic and its business
gives effect to (1) the completed acquisition of Buford Group, Inc. by our
subsidiary, Classic Cable, Inc. and the related financing; (2) other
acquisitions completed by either Classic or Buford prior to the date of this
prospectus; (3) the pending acquisition of substantially all of the assets of
Star Cable Associates by a subsidiary of Classic Cable and the related
financing; (4) the partial redemption of Classic Cable's 2008 Subordinated Notes
and the related financing; (5) the reclassification of our common stock into
Class A common stock, Class B common stock and nonvoting common stock; (6) the
conversion of all outstanding shares of our voting common stock into Class B
common stock on a one-for-one basis; and (7) the offering contemplated in this
prospectus. Reference should be made to the "Selected Historical Consolidated
Financial Data -- Classic Communications, Inc." and "Selected Historical
Consolidated Financial Data -- Buford Group, Inc." and "Unaudited Pro Forma
Consolidated Financial Information" for the definition of certain financial
terms appearing throughout this prospectus. As used in this prospectus, the
terms "Classic," "we," "us" and "our" refer to Classic Communications, Inc. and
the term "Classic Cable" refers to our subsidiary "Classic Cable, Inc."
OUR BUSINESS
We are a growth oriented cable operator focused on non-metropolitan markets
in the United States. We have experienced growth in subscribers, revenues and
cash flows, primarily through the successful execution and integration of over
20 acquisitions of cable systems primarily clustered in nine contiguous states.
Pro forma for the pending acquisition of Star Cable Associates and assuming
completion of other recently publicly announced transactions by other companies
in the cable television industry, we believe we are the 14th largest cable
operator in the United States. Our systems pass approximately 707,000 homes and
serve approximately 416,000 basic subscribers.
Through the acquisition of clustered non-metropolitan cable systems, and by
upgrading these cable systems, we are building a regional platform for the
delivery of digital cable and high-speed Internet access to the homes and
businesses of our customers. We believe that our strategy combines the
attractive characteristics of the non-metropolitan cable market segment with the
growth opportunity of broadband services and the Internet. The combination of
attractive market characteristics and the successful execution of our
acquisition strategy has enabled us to achieve high growth rates and attractive
EBITDA margins.
OUR STRATEGY
Our business strategy is to:
- FOCUS ON ATTRACTIVE NON-METROPOLITAN MARKETS: We plan to continue to
focus on growing communities in or around county seats, which generally
tend to have more robust household growth, higher income per household
and a stronger business foundation than do other non-metropolitan
markets.
- EXPAND AND IMPROVE CLUSTERS THROUGH SELECTIVE ACQUISITIONS: We plan to
continue to leverage our experience in acquiring and integrating cable
systems by continuing our acquisition growth strategy when attractive
cable systems are available for acquisition at reasonable valuations.
1
<PAGE> 5
- FOCUS ON COMMUNITY RELATIONS AND CUSTOMER SATISFACTION: We plan to
maintain and enhance our relationships with the local communities in
which we operate and utilize our state-of-the-art call centers to
complement our existing service to our customers.
- INCREASE THE REVENUE-GENERATING BANDWIDTH OF OUR CABLE PLANT: We plan to
continue to upgrade our cable plant aggressively and systematically,
utilizing the most cost-effective and appropriate technology.
- IMPLEMENT OUR BROADBAND SERVICES: We plan to continue to offer enhanced
video services and to selectively expand our high-speed Internet access
offerings, a move which we believe will improve our competitiveness and
increase our revenues and cash flows.
RAPIDLY CONSOLIDATING INDUSTRY
Consolidation in the cable industry over the past three years has been
driven by the benefits derived from scale, including operating efficiencies,
increased advertising sales and the ability to deploy new broadband applications
efficiently. This consolidation has accelerated recently with the emergence of
the Internet as a mass medium for disseminating information, entertainment and
commerce. We believe that cable companies are the leaders in the race to become
the high-speed data service providers of choice to the consumer. Recent
investments and acquisitions by AT&T, Microsoft, and Charter Communications have
validated cable's position as a preferred broadband solution.
While this consolidation has taken place primarily among large-scale
metropolitan operators, attention has expanded recently to non-metropolitan
markets. Smaller independent operators understand the value created through
consolidation and are beginning to make themselves available to be merged or
acquired. Additionally, metropolitan focused consolidators are beginning to sell
their non-metropolitan area systems. We believe that these circumstances create
an opportunity for us to continue and accelerate our focused strategy to
consolidate attractive non-metropolitan cable assets.
PROVEN MANAGEMENT TEAM
J. Merritt Belisle, our Chief Executive Officer, and Steven E. Seach, our
President and Chief Financial Officer, founded Classic in 1992 and have
assembled a management team with significant 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.
As a result of the Buford acquisition, our management team has been further
enhanced by the addition of several key members of Buford's management team,
including Ron Martin, who became our Executive Vice President of Operations, and
Kay Monigold, who became our Executive Vice President of Administration. Mr.
Martin and Ms. Monigold have been in the cable industry for over 25 years and 18
years respectively.
Upon completion of this offering, members of our management team will
collectively own or have the right to acquire approximately % of our Class
A common stock and % of our Class B common stock. Up to an additional
% of our Class A common stock and % of our Class B common stock have
been set aside for issuance to management pursuant to options granted to them.
2
<PAGE> 6
THE BUFORD ACQUISITION
On July 28, 1999, our subsidiary Classic Cable acquired Buford Group, Inc.,
which operates cable television systems in Arkansas, Louisiana, Missouri and
Texas, for approximately $300 million in cash. The Buford cable systems served
approximately 172,000 basic subscribers and, we believe, represented an
excellent geographic and strategic fit with our other cable systems. In
addition, we believe that the Buford acquisition provided other benefits,
including an opportunity to reduce programming costs, consolidate headends and
enhance customer service. The Buford acquisition was financed through a $350.0
million credit facility and the issuance of $150.0 million of Classic Cable's
senior subordinated notes due 2009. See "Description of Certain Indebtedness."
In addition, we contributed approximately $95.7 million in cash to Classic Cable
pursuant to the Brera Classic equity investment. See "--The Brera Classic Equity
Investment."
THE BRERA CLASSIC EQUITY INVESTMENT
In connection with the Buford acquisition, we received $100.0 million from
Brera Classic, L.L.C., $95.7 million of which we contributed in cash to Classic
Cable, $3.3 million of which was paid to Brera Classic pursuant to management
and advisory fee agreements, and $750,000 of which was paid to Brera Classic to
reimburse Brera Classic for certain of its fees and expenses incurred in
connection with the Brera Classic equity investment. This equity investment was
financed through the sale of our common stock to Brera Classic. Brera Classic is
an indirect subsidiary of Brera Capital Partners Limited Partnership. Brera
Capital Partners is a $650 million private equity investment fund based in New
York that invests in a very limited number of companies in a few selected
industries, including telecommunications and media. Upon completion of this
offering, Brera Classic will own approximately % of the outstanding capital
stock of Classic, representing a % voting interest, subject to dilution in
connection with the issuance of options to certain members of our management
team. Certain investors hold an approximately 19.9% non-voting equity interest
in Brera Classic, including a 9.0% non-voting equity interest held by affiliates
of Goldman Sachs, one of our underwriters. See "Certain Relationships and
Related Transactions" and "Principal and Selling Stockholders."
THE STAR ACQUISITION
On October 14, 1999, a subsidiary of Classic Cable entered into an
agreement to purchase substantially all the assets of Star Cable Associates,
which operates cable television systems in Texas, Louisiana and Ohio, for an
aggregate purchase price of approximately $110 million in cash and 555,555
shares of Class A common stock. The Star cable systems serve approximately
57,000 subscribers and represent a continuation of our clustering strategy. In
addition, we believe that the Star cable acquisition provides further benefits
in the form of headend consolidation opportunities. We expect the Star
acquisition to be consummated in the first quarter of 2000 and to be financed
with part of the proceeds from this offering and additional borrowings under our
bank credit facilities. This offering is not conditioned upon the closing of the
Star acquisition and the Star acquisition is not conditioned upon the closing of
this offering.
3
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Total Class A common stock offered:
U.S. offering.............................................
International offering....................................
-----------
Total(1)..........................................
===========
Shares of common stock to be outstanding after the offering:
Class A common stock......................................
Class B common stock(2)...................................
-----------
Total(1)..........................................
===========
</TABLE>
(1) If the underwriters exercise their over-allotment option in full, the total
number of shares of Class A common stock offered and the total number of
shares of Class A common stock outstanding after the offering will be
and , respectively.
(2) Shares of Class B common stock are convertible into shares of Class A common
stock at any time on a one-for-one basis. If, immediately following the
offering, Brera Classic converted its Class B common stock into Class A
common stock, it would own approximately % of our Class A common stock
or % if the underwriters exercise their over-allotment option in full.
See "Description of Capital Stock."
Use of Proceeds............ We will use the proceeds from this offering to
repay a portion of our indebtedness and finance
part of the Star acquisition. See "Use of
Proceeds."
Voting Rights.............. Each share of Class A common stock entitles the
holder to one vote. Each share of Class B common
stock entitles the holder to ten votes. Each share
of Class B common stock will automatically convert
into a share of Class A common stock upon transfer
to anyone other than a "Permitted Transferee." See
"Description of Capital Stock."
Control by Brera........... Brera Classic will own % of the outstanding
shares of Classic's Class B common stock following
the offering or % if the underwriters exercise
their overallotment option in full. Through its
ownership of our Class B common stock, Brera
Classic will control approximately % of the
total voting power of all of our capital stock
after the offering or % of the total voting
power if the underwriters exercise their
over-allotment option in full. In addition, as the
owner of approximately % of the Class B common
stock, Brera Classic will be able to elect a
majority of the members of our board of directors
and will have the power to amend provisions in our
certificate of incorporation relating to activities
in which we may engage. See "Risk Factors -- Brera
Classic has the ability to control matters on which
Classic's stockholders may vote," "Certain
Relationships and Related Transactions -- 1999
Stockholders' Agreement" and "Description of
Capital Stock."
Proposed Nasdaq National
Market Symbol............ "CLSC."
4
<PAGE> 8
RISK FACTORS
You should consider carefully the information set forth under the caption
"Risk Factors" beginning on page 14 and all the other information set forth in
this prospectus before deciding whether to invest in our Class A common stock.
------------------------
Our principal executive offices are located at 515 Congress Avenue, Suite
2626, Austin, Texas 78701. Our telephone number is (512) 476-9095, and our
Internet Web site is www.classic-cable.com. The information on our Web site is
not a part of this prospectus.
5
<PAGE> 9
SUMMARY PRO FORMA FINANCIAL AND OPERATING DATA
The following table presents summary pro forma financial and operating data
about us. The unaudited pro forma data give effect to (1) the completed
acquisition of Buford Group, Inc. by our subsidiary, Classic Cable, Inc. and the
related financing, (2) other acquisitions completed by either Classic or Buford
prior to the date of this prospectus, (3) the pending acquisition of
substantially all of the assets of Star by a subsidiary of Classic Cable and the
related financing, (4) the partial redemption of Classic Cable's 2008
Subordinated Notes and the related financing, (5) the reclassification of our
common stock into Class A common stock, Class B common stock and nonvoting
common stock, (6) the conversion of all outstanding shares of our voting common
stock into Class B common stock on a one-for-one basis and (7) the offering
contemplated in this prospectus as if all of these transactions had been
consummated on January 1, 1998 in the case of the income statement and other
financial data and on June 30, 1999 with respect to the balance sheet data. The
pro forma data have been derived from the Unaudited Pro Forma Consolidated
Financial Information of Classic, which is included elsewhere in this
prospectus. The unaudited pro forma data do not purport to be indicative of the
results that would have been obtained had such transactions been completed as of
the assumed dates and for the periods presented nor are they necessarily
indicative of results that may be obtained in the future. You should read this
information together with "Selected Historical Consolidated Financial
Data -- Classic Communications, Inc.," "Selected Historical Consolidated
Financial Data -- Buford Group, Inc.," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Classic's, Buford's and Star's
consolidated financial statements and the notes relating to those statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE
AND SUBSCRIBER DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................... $ 168,344 $ 90,118
Costs and expenses.......................................... 107,233 51,673
Depreciation and amortization............................... 82,234 42,978
--------- ---------
Operating loss.............................................. (21,123) (4,533)
Interest expense............................................ (43,201) (21,660)
Other income (expense)...................................... (730) (47)
--------- ---------
Loss before income tax benefit.............................. (65,054) (26,240)
Income tax benefit.......................................... 2,156 210
--------- ---------
Net loss.................................................... $ (62,898) $ (26,030)
========= =========
BALANCE SHEET DATA:
Total cash and cash equivalents............................. -- $ 7,368
Total assets................................................ -- 697,448
Total debt.................................................. -- 478,707
Total liabilities........................................... -- 507,570
Total stockholders' equity.................................. -- 189,878
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE
AND SUBSCRIBER DATA)
<S> <C> <C>
OTHER FINANCIAL DATA:
Cash flows from operating activities........................ $ 38,402 $ 20,835
Cash flows from investing activities........................ (509,603) (17,518)
Cash flows from financing activities........................ 481,837 653
Adjusted EBITDA(1).......................................... 70,107(2) 38,333(2)
Adjusted EBITDA margin(3)................................... 41.6% 42.5%
Ratio of net debt to annualized Adjusted EBITDA(4).......... -- 6.1
Basic and diluted loss per share............................
Capital expenditures........................................ $ 37,840 $ 17,017
Deficiency of earnings to fixed charges(5).................. (65,054) (26,240)
OPERATING DATA:
Homes passed(6)............................................. 693,753 706,724
Basic subscribers(7)........................................ 409,606 415,765
Basic penetration(8)........................................ 59.0% 58.8%
Digital subscribers......................................... 1,454 3,276
Premium subscribers(9)...................................... 219,391 210,660
Premium penetration(10)..................................... 53.6% 50.7%
Average monthly basic revenue per basic subscriber(11)...... $ 27.82 $ 30.50
Average monthly total revenue per basic subscriber(12)...... $ 33.21 $ 36.17
</TABLE>
- ---------------
(1) Adjusted EBITDA is defined as operating income (loss) plus depreciation and
amortization plus non-cash operating charges. Non-cash operating charges
consist of Classic's compensation on restricted stock of $1,108,000 and
$663,000 as well as Buford's compensation relating to stock appreciation
rights of $7,888,000 and a credit of $(775,000) for the periods ended
December 31, 1998 and June 30, 1999, respectively. Adjusted EBITDA is
presented because management believes it is a widely accepted financial
indicator of a company's ability to incur and service debt. We believe that
Adjusted 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. Adjusted EBITDA measures
presented may not be comparable to similarly titled measures presented by
other companies.
(2) Adjusted EBITDA for 1998 was reduced by $775,000 of fees paid to certain
members of the executive management team in connection with completed
acquisition and financing transactions. Without these fees, Adjusted EBITDA
would have been $70,882,000. Adjusted EBITDA for the period ended June 30,
1999 was reduced by $425,000 of costs associated with Star's Deferred
Equity Bonus Plan payable upon the sale of cable systems. Without these
fees, Adjusted EBITDA would have been $38,758,000.
(3) Adjusted EBITDA margin represents Adjusted 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. We believe that Adjusted
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.
Adjusted EBITDA measures presented may not be comparable to similarly
titled measures presented by other companies.
(4) Net debt represents total debt less total cash and cash equivalents.
Annualized Adjusted EBITDA represents Adjusted EBITDA for the last
completed two fiscal quarters multiplied by two.
(5) Deficiency of earnings consists of loss before income tax benefit and
extraordinary loss. Fixed charges consist of interest expense and the
interest portion of rental expense.
(6) Homes passed refers to estimates by us of the approximate number of
dwelling units in a particular community that can be connected to our cable
television distribution system without any further extension of principal
transmission lines.
(7) 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 basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(8) Penetration is calculated as the number of basic subscribers as a
percentage of homes passed.
7
<PAGE> 11
(9) For the Classic and Star systems, premium subscribers are the number of
subscribers who pay a monthly fee for premium channels. Multiplexing of
premium channels is counted as one subscriber. For the Buford systems,
multiplexing of premium channels is counted as one subscriber for each
premium channel received.
(10) Premium penetration is calculated as the number of premium subscribers as a
percentage of basic subscribers.
(11) Average monthly basic revenue per basic subscriber equals revenues from
basic subscriptions of cable systems during the respective period divided
by the months in the period and divided by the weighted average number of
our basic subscribers for the respective period.
(12) 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 our basic subscribers
for such respective period.
8
<PAGE> 12
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA --
CLASSIC COMMUNICATIONS, INC.
The following table presents summary historical financial and operating
data about Classic. You should read this information together with "Selected
Historical Consolidated Financial Data -- Classic Communications, Inc.,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Classic's consolidated financial statements and the notes
relating to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................... $ 59,821 $ 60,995 $ 69,802 $ 32,214 $ 39,286
Costs and expenses.......................... 33,553 36,555 42,070 19,038 22,760
Depreciation and amortization............... 27,510 27,832 30,531 14,169 18,096
-------- -------- -------- -------- --------
Operating loss.............................. (1,242) (3,392) (2,799) (993) (1,570)
Interest expense............................ (20,633) (21,299) (24,442) (10,497) (14,992)
Gain on sale of cable systems............... 4,901 3,644 -- -- --
Write-off of abandoned telephone
operations................................ (2,994) (500) (220) -- --
Other income (expense)...................... -- 71 192 64 15
-------- -------- -------- -------- --------
Loss before income tax benefit and
extraordinary loss........................ (19,968) (21,476) (27,269) (11,426) (16,547)
Income tax benefit.......................... 6,802 7,347 1,930 1,041 --
Extraordinary loss.......................... -- -- (5,524) -- --
-------- -------- -------- -------- --------
Net loss.................................... $(13,166) $(14,129) $(30,863) $(10,385) $(16,547)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total cash and cash equivalents............. $ 653 $ 616 $ 2,779 $ 638
Total assets................................ 245,922 220,162 254,604 -- 243,576
Total debt.................................. 197,504 191,990 282,842 -- 288,292
Total liabilities........................... 219,232 206,643 301,392 -- 306,248
Total redeemable preferred stock............ 22,726 26,705 -- -- --
Total stockholders' equity.................. 3,965 (13,186) (46,788) -- (62,672)
OTHER FINANCIAL DATA:
Cash flows from operating activities........ $ 7,933 $ 7,892 $ 14,262 4,666 5,727
Cash flows from investing activities........ 3,387 (1,341) (57,245) (4,219) (8,521)
Cash flows from financing activities........ (12,155) (6,588) 45,146 756 653
Adjusted EBITDA(1).......................... 27,326 25,498(2) 28,840(3) $ 13,652 $ 17,189
Adjusted EBITDA margin(4)................... 45.7% 41.8% 41.3% 42.4% 43.8%
Ratio of net debt to annualized Adjusted
EBITDA(5)................................. -- -- -- -- 8.4x
Basic and diluted loss per common share
before extraordinary item................. $ (7.30) $ (7.53) $ (11.43) $ (5.09) $ (5.85)
Basic and diluted loss per common share..... $ (7.30) $ (7.53) $ (13.55) $ (5.09) $ (5.85)
Capital expenditures........................ $ 8,212 $ 10,135 $ 13,759 $ 4,201 $ 8,008
Deficiency of earnings to fixed
charges(6)................................ (19,968) (21,476) (27,269) $(11,426) $(16,547)
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA (END OF PERIOD, EXCEPT
AVERAGE):
Homes passed(7)............................. 259,181 254,649 296,995 254,449 293,478
Basic subscribers(8)(9)..................... 171,657 165,737 188,871 163,243 185,170
Basic penetration(9)(10).................... 66.2% 65.1% 63.6% 64.2% 63.1%
Digital subscribers......................... -- -- 200 -- 1,480
Premium subscribers(11)..................... 62,458 63,819 71,702 63,389 67,501
Premium penetration(12)..................... 36.4% 38.5% 38.0% 38.8% 36.5%
Average monthly basic revenue per basic
subscriber(13)............................ $ 22.77 $ 25.22 $ 27.87 $ 27.42 $ 29.35
Average monthly total revenue per basic
subscriber(14)............................ $ 27.68 $ 30.14 $ 33.24 $ 32.55 $ 34.85
</TABLE>
- ---------------
(1) Adjusted EBITDA is defined as operating loss plus depreciation and
amortization plus non-cash operating charges. Non-cash operating charges
for the years ended December 31, 1996, 1997 and 1998 and the six month
periods ended June 30, 1998 and 1999 related to compensation on restricted
stock and were $1,058,000, $1,058,000, $1,108,000, $476,000 and $663,000,
respectively. Adjusted EBITDA is presented because we believe it is a
widely accepted financial indicator of a company's ability to incur and
service debt. We believe that Adjusted 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(2) Adjusted EBITDA for 1997 was reduced by legal, consultant and other
one-time non-recurring fees totaling $1,411,000 incurred in connection with
the settlement of certain claims that arose in conjunction with divorce
proceedings of one of our officers as well as $400,000 in fees paid to
certain members of our management team in connection with completed
acquisition and divestiture transactions. Without these fees, Adjusted
EBITDA would have been $27,309,000.
(3) Adjusted EBITDA for 1998 was reduced by $775,000 of one-time non-recurring
fees paid to certain members of our executive management team in connection
with completed acquisition and financing transactions. Without these fees,
Adjusted EBITDA would have been $29,615,000.
(4) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of
revenues. This measurement is used by us, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. We believe that Adjusted 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(5) Net debt represents total debt less total cash and cash equivalents.
Annualized Adjusted EBITDA represents Adjusted EBITDA for the last
completed two fiscal quarters multiplied by two.
(6) Deficiency of earnings consists of loss before income tax benefit and
extraordinary loss. Fixed charges consist of interest expense and the
interest portion of rental expense.
(7) Homes passed refers to estimates by us of the approximate number of
dwelling units in a particular community that can be connected to our cable
television distribution system without any further extension of principal
transmission lines.
(8) 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 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.
10
<PAGE> 14
(9) End of period subscribers reflect asset sales that were consummated during
the third quarter of 1996 and the second quarter of 1997.
(10) Penetration is calculated as the number of basic subscribers as a
percentage of homes passed.
(11) Premium subscribers are the number of subscribers who pay a monthly fee for
premium channels. Multiplexing of premium channels is counted as one
subscriber.
(12) Premium penetration is calculated as the number of premium subscribers as a
percentage of basic subscribers.
(13) Average monthly basic revenue per basic subscriber equals revenues from
basic subscriptions of cable systems during the respective period divided
by the months in the period and divided by the weighted average number of
our basic subscribers for the respective period.
(14) 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 our basic subscribers
for the respective period.
11
<PAGE> 15
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA -- BUFORD GROUP, INC.
The following table presents summary historical financial and operating
data about Buford. You should read this information together with "Selected
Historical Consolidated Financial Data -- Buford Group, Inc.," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Buford's consolidated financial statements and the notes relating to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................................... $ 49,561 $ 58,136 $ 70,475 $ 32,943 $ 38,398
Costs and expenses............................ 32,932 40,858 51,168 24,547 22,433
Depreciation and amortization................. 17,175 17,753 21,399 10,137 12,105
-------- -------- -------- -------- --------
Operating income (loss)....................... (546) (475) (2,092) (1,741) 3,860
Interest expense.............................. (5,345) (5,787) (7,919) (3,681) (4,095)
Gain on sale of cable systems................. 5,418 -- -- -- --
Other income (expense)........................ 344 859 (221) 73 (78)
-------- -------- -------- -------- --------
Loss before income taxes and cumulative effect
of change in accounting principle........... (129) (5,403) (10,232) (5,349) (313)
Income tax benefit (expense).................. (94) 315 226 (25) 210
Cumulative effect of change in accounting
principle, net of taxes..................... -- -- -- -- (207)
-------- -------- -------- -------- --------
Net loss...................................... $ (223) $ (5,088) $(10,006) $ (5,374) $ (310)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets.................................. $117,676 $143,932 $175,953 -- $166,602
Total debt.................................... 60,053 85,000 118,000 -- 112,000
Total liabilities............................. 69,182 97,008 131,147 -- 122,881
Total stockholders' equity.................... 48,493 46,924 44,806 -- 43,721
OTHER FINANCIAL DATA:
Cash flows from operating activities.......... $ 13,628 $ 16,872 $ 20,334 $ 8,470 $ 8,527
Cash flows from investing activities.......... (20,289) (39,683) (53,151) (40,969) (7,540)
Cash flows from financing activities.......... (10,927) 24,947 32,830 30,000 (6,000)
Adjusted EBITDA(1)............................ 18,087 20,797 27,195 11,946 15,190
Adjusted EBITDA margin(2)..................... 36.5% 35.8% 38.6% 36.3% 39.6%
Capital expenditures.......................... $ 15,593 $ 22,042 $ 20,469 $ 10,980 $ 7,540
Deficiency of earnings to cover fixed
charges(3).................................. (129) (5,403) (10,232) (5,349) (313)
OPERATING DATA (END OF PERIOD, EXCEPT
AVERAGE):
Homes passed(4)............................... 234,994 270,430 315,629 307,974 315,629
Basic subscribers(5).......................... 131,148 143,829 172,557 172,923 173,799
Basic penetration(6).......................... 55.8% 53.2% 54.7% 56.2% 55.1%
Digital subscribers........................... -- 65 1,254 604 1,580
Premium subscribers(7)........................ 92,247 99,644 122,404 122,668 122,268
Premium penetration(8)........................ 70.3% 69.3% 70.9% 70.9% 70.4%
Average monthly basic revenue per basic
subscriber(9)............................... $ 24.80 $ 26.31 $ 28.17 $ 28.27 $ 30.94
Average monthly total revenue per basic
subscriber(10).............................. $ 32.05 $ 33.68 $ 35.64 $ 33.52 $ 37.84
</TABLE>
12
<PAGE> 16
- ---------------
(1) Adjusted EBITDA is defined as operating income (loss) plus depreciation and
amortization plus non-cash operating charges. Non-cash operating charges
for the years ended December 31, 1996, 1997 and 1998 and the six month
periods ended June 30, 1998 and 1999 related to employee stock compensation
were $1,458,000, $3,519,000, $7,888,000, $3,550,000 and a credit of
($775,000), respectively. Adjusted EBITDA is presented because we believe
it is a widely accepted financial indicator of a company's ability to incur
and service debt. We believe that Adjusted 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 cash provided by operations 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(2) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of
revenues. This measurement is used by us, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. We believe that Adjusted 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(3) Deficiency of earnings consists of loss before income tax benefit (expense)
and cumulative effect of change in accounting principle. Fixed charges
consist of interest expense and the interest portion of rental expense.
(4) Homes passed refers to estimates by us of the approximate number of
dwelling units in a particular community that can be connected to our cable
television distribution system without any further extension of principal
transmission lines.
(5) 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 basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(6) Penetration is calculated as the number of basic subscribers as a
percentage of homes passed.
(7) Each premium channel received is counted as a separate premium subscriber.
(8) Premium penetration is calculated as the number of premium subscribers as a
percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals revenues from
basic subscriptions of cable systems during the respective period divided
by the months in the period and divided by the weighted average number of
Buford's basic subscribers for the respective period.
(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 Buford's basic
subscribers for the respective period.
13
<PAGE> 17
RISK FACTORS
Before you invest in our Class A common stock, you should be aware that
there are various risks, including those described below. You should carefully
consider these risk factors, together with all of the other information included
in this prospectus.
WE ARE A HOLDING COMPANY AND ARE DEPENDENT ON THE OPERATIONS AND FUNDS OF OUR
SUBSIDIARIES.
We are a holding company and are dependent on the cash flow generated by
our direct and indirect operating subsidiaries. We must rely on dividends or
other intercompany transfers from our operating subsidiaries to generate the
funds necessary to meet debt service and other obligations. The ability of our
subsidiaries to pay dividends or make other payments will be subject to
applicable state laws and contractual restrictions. The debt instruments of
Classic Cable severely restrict, among other things, the payment of dividends
and the making of loans by Classic Cable or its subsidiaries to us.
WE HAVE SIGNIFICANT DEBT WHICH MAY LIMIT FUNDS AVAILABLE TO OPERATE AND COMPETE
EFFECTIVELY.
We, along with our subsidiary Classic Cable, have a significant amount of
debt outstanding. As of June 30, 1999, pro forma for the Buford acquisition and
the Star acquisition, we would have owed approximately $478.7 million under our
various debt agreements. The maximum amount of senior debt that we would have
been able to borrow on that date was $75.0 million, subject to limitations
contained in Classic Cable's credit facility. Under the credit facility, Classic
Cable will be required to make minimum principal payments totaling approximately
$2.9 million beginning in 2001, increasing to $19.8 million by 2007, with all
unpaid amounts due by 2008. You should be aware that this significant amount of
debt could have important consequences, including the following:
- We may be unable to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purposes;
- A significant portion of Classic Cable's cash flow from operations must
be dedicated to the repayment of indebtedness, which will reduce the
amount of cash it has available for other purposes;
- We may be disadvantaged as compared to our competitors as a result of the
significant amount of debt we now owe; and
- Our ability to adjust to changing market conditions and our ability to
withstand competition may be hampered by the amount of debt we now owe.
It may also make us more vulnerable in a market downturn.
Our earnings on a pro forma basis were not sufficient to cover our fixed
charges by $65.1 million for the year ended December 31, 1998 and by $26.2
million for the six months ended June 30, 1999. However, you should know that
these amounts reflect non-cash charges totaling approximately $91.2 million for
the year ended December 31, 1998 and $42.9 million for depreciation,
amortization and compensation for the six months ended June 30, 1999.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES WILL BE ABLE TO
INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.
We and our subsidiaries will be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. Classic Cable's credit facility permits
additional borrowing of up to $75.0 million. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify. See "Description of Certain Indebtedness."
14
<PAGE> 18
WE MAY NOT HAVE ENOUGH CASH TO SERVICE OUR INDEBTEDNESS AND TO FUND OUR CAPITAL
EXPENDITURES AND ACQUISITIONS.
We intend to upgrade a significant portion of our cable systems over the
coming years and make other capital investments. Over the next four years, we
plan to spend approximately $200 million to maintain, expand and upgrade the
systems we own and the systems we have agreed to acquire from Star. We have
never managed a capital expenditure program of this size and the cost of our
plans could increase if we fail to effectively execute our plan. Our ability to
make payments on and to refinance our indebtedness and to fund planned capital
expenditures and acquisitions will depend on Classic Cable's ability to generate
cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
We cannot assure you that Classic Cable's business will generate sufficient
cash flow from operations and that currently anticipated cost savings and
operating improvements will be realized on schedule in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness, on or before maturity.
We cannot assure you that we will be able to refinance any of our indebtedness,
including Classic Cable's credit facility, on commercially reasonable terms or
at all.
THE STAR ACQUISITION MAY NOT BE CONSUMMATED AND IF NOT CONSUMMATED, OUR
MANAGEMENT WILL HAVE BROAD DISCRETION WITH RESPECT TO THE USE OF THE PROCEEDS
ALLOCATED TO THE STAR ACQUISITION.
The consummation of the Star acquisition is subject to a number of
conditions, including governmental approval and the transfer of franchise
licenses to a subsidiary of Classic Cable by Star. If these conditions are not
materially met, the Star acquisition may not be consummated. The consummation of
the Star acquisition may fail to conform to the assumptions we used in preparing
the Unaudited Pro Forma Consolidated Financial Information. Therefore, in
analyzing the Unaudited Pro Forma Consolidated Financial Information and other
information, you should consider that the Star acquisition may not be
consummated on the terms described in this prospectus or at all. We cannot
assure you that the Star acquisition will be consummated on the terms described
in this prospectus, or at all. This offering is not contingent or in any way
dependent on the consummation of the Star acquisition. If the Star acquisition
is not consummated, a significant portion of the net proceeds from the offering
will not be designated for a specific use. In these circumstances, our
management will have broad discretion with respect to the use of the proceeds of
the offering and you will not have the opportunity, as part of your investment
decision, to assess how the proceeds are being used.
WE MAY NOT BE ABLE TO CONTINUE OUR ACQUISITION STRATEGY.
A significant element of our growth strategy is to expand by acquiring
cable television systems 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. We cannot assure you that we will be able to identify and
acquire additional cable systems or that we will be able to finance significant
acquisitions in the future. See "Business -- Our Strategy."
IF THE OPERATIONS OF THE COMPANIES CLASSIC CABLE ACQUIRES ARE NOT SUCCESSFULLY
INTEGRATED WITH ITS OPERATIONS, OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.
The benefits we anticipate in the combination of Classic Cable, Buford and
Star may not be realized if combining Classic Cable's business, Buford's
business and Star's business cannot be accomplished in an efficient and
effective manner. This combination will require, among other things, the
integration of management philosophies and personnel, arrangements with third
party vendors, standardization of training programs, realization of operating
efficiencies and effective
15
<PAGE> 19
coordination of sales and marketing and financial reporting efforts.
Acquisitions in general pose a number of special risks for us, including adverse
short-term effects on our reported operating results, diversion of management's
attention, and unanticipated problems or legal liabilities. Future acquisitions
and the integration of other companies' operations into ours may not be
successful or accomplished efficiently. If we fail to integrate Buford's and
Star's operations successfully, Classic Cable's operations and our financial
results could be affected, both materially and adversely.
IF WE CANNOT ADEQUATELY MANAGE OUR INCREASED SIZE RESULTING FROM CLASSIC CABLE'S
ACQUISITION OF BUFORD AND STAR, ITS FUTURE OPERATIONS MAY BE ADVERSELY AFFECTED.
Classic Cable's operations approximately doubled with the purchase of
Buford. The Star acquisition will result in the addition of 37 systems to
Classic Cable's operations. Our future operations depend largely upon its
ability to manage this sizeable and growing business successfully. In addition,
Classic Cable's management team now manages a larger number of cable operations
than it has previously operated. If we fail to manage the size and the growth of
Classic Cable's business or our expansion plans, a material adverse effect could
result.
WE EXPECT TO CONTINUE TO INCUR NET LOSSES.
We had a pro forma consolidated net loss of $62.9 million for the year
ended December 31, 1998 and a pro forma net loss of $26.0 million for the six
months ended June 30, 1999. We expect to continue to incur net losses for the
foreseeable future. These losses reflect significant depreciation and
amortization charges and interest expense on debt we incurred. We cannot assure
you that we will become profitable in the foreseeable future, if ever. You
should also be aware that there are restrictions and limitations on our ability
to utilize our net operating losses for federal income tax purposes in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Classic Communications."
OUR DEBT AGREEMENTS MAY SIGNIFICANTLY LIMIT OR PROHIBIT US FROM ENGAGING IN
CERTAIN TRANSACTIONS.
Our indentures and Classic Cable's credit facility impose significant
operating and financial restrictions on us and our subsidiaries.
The loan documents Classic Cable signed to borrow money to acquire Buford
impose significant restrictive covenants on Classic Cable and require Classic
Cable to maintain specified financial ratios and satisfy certain financial
tests. Classic Cable's ability to meet these financial ratios and tests may be
affected by events beyond its control and, as a result, we cannot assure you
that Classic Cable will be able to meet such tests. In addition, the
restrictions contained in Classic Cable's credit facility could limit its
ability to obtain future financing, make needed capital expenditures, withstand
a future downturn in its business or in the economy or otherwise conduct
necessary corporate activities. Classic Cable's failure to comply with the
restrictions in its indentures and its credit facility could lead to a default
under the terms of those documents. In the event of such a default, the lenders
could declare all amounts borrowed and all amounts due under other instruments
that contain certain provisions for cross-acceleration or cross-default due and
payable. In addition, the lenders could terminate their commitments to lend to
Classic Cable in the future. If that occurs, we cannot assure you that we would
be able to meet debt service and other obligations or that we would be able to
find additional alternative financing. Even if we could obtain additional
alternative financing, we cannot assure you that it would be on terms that are
favorable or acceptable to us.
You should also be aware that the existing indebtedness under Classic
Cable's credit facility is secured by substantially all of Classic Cable's and
its subsidiaries' assets. Should a default or
16
<PAGE> 20
acceleration of this indebtedness occur, the holders of this indebtedness could
sell the assets to satisfy all or a part of what is owed. For additional
information, please refer to the sections in this prospectus entitled
"Description of Certain Indebtedness."
BRERA CLASSIC HAS THE ABILITY TO CONTROL MATTERS ON WHICH CLASSIC'S STOCKHOLDERS
MAY VOTE.
We have two classes of common stock -- Class A common stock which carries
one vote per share and Class B common stock which carries ten votes per share.
Upon completion of this offering, holders of Class B common stock will control
approximately % of the voting power of our outstanding common stock.
Following the offering, Brera Classic will own approximately % of our
Classic's Class B common stock. As a result, Brera Classic will control us and
have the ability to elect the majority of our directors. The board, in turn, may
appoint new senior management and decide which matters will be submitted to our
stockholders for approval. These actions include adopting amendments to our
certificate of incorporation and approving mergers or sales of substantially all
of our assets. The interests of Brera Classic and its respective affiliates may
conflict with the interests of the holders of Class A common stock. In addition,
% of the holders of our Class B common stock upon the completion of this
offering will be subject to a stockholders agreement. The stockholders party to
the agreement have agreed to vote their shares of Class B common stock in favor
of the election to our board of (1) four nominees chosen by Brerra Classic, (2)
our chief executive officer and (3) two nominees chosen by the other parties to
the stockholder agreement. These voting arrangements will terminate when these
stockholders hold less than 30% of all of our common stock. See "Certain
Relationships and Related Transactions -- 1999 Stockholders' Agreement."
CLASSIC'S ORGANIZATIONAL DOCUMENTS MAY INHIBIT OR PREVENT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE.
Brera Classic will have the ability to delay or prevent a change of control
or changes in our management that stockholders consider favorable or beneficial.
Provisions in our organizational documents may also have the effect of delaying
or preventing these changes, including provisions authorizing issuance of "blank
check" preferred stock, restricting the calling of special meetings of
stockholders and requiring advanced notice of proposals for stockholder
meetings. If a change of control or change in management is delayed or
prevented, the market price of our Class A common stock could suffer or holders
may not receive a premium over the then-current market price of the Class A
common stock.
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL. THE LOSS OF ANY ONE
OF THESE COULD ADVERSELY AFFECT OUR BUSINESS.
Our continued success is highly dependent upon the personal efforts and
abilities of our senior management, including J. Merritt Belisle, our Chief
Executive Officer, and Steven E. Seach, our President and Chief Financial
Officer. Although we have employment contracts with these officers, we cannot
assure you that their services will continue to be available to us and the loss
of either one of them could impact us in a negative way.
WE CANNOT ASSURE YOU THAT OUR FRANCHISES WILL BE RENEWED OR THAT A FRANCHISE
AUTHORITY WILL NOT GRANT A FRANCHISE IN OUR MARKETS TO A COMPETITOR.
Our business is dependent upon the retention and renewal of our 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. Historically, franchises have been renewed for cable
operators that have provided satisfactory services and have complied with the
terms of their franchises. We may not be able to retain or renew such
franchises, or renew these franchises on terms as favorable to us as our
existing franchises. Furthermore, it is possible that
17
<PAGE> 21
a franchise authority might grant a franchise to another cable company or other
telecommunications provider seeking to provide cable services. The non-renewal
or termination of franchises relating to a significant portion of our
subscribers could have a material adverse effect on our results of operations.
See "Business -- Franchises."
OUR BUSINESS IS SUBJECT TO COMPREHENSIVE LEGISLATION AND GOVERNMENT REGULATION.
The cable television industry is subject to extensive regulation at the
federal and local levels, and in some cases, at the state level. The 1984 Cable
Act, the 1992 Cable Act and the 1996 Telecom 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 and 1996 Telecom
Act has been allocated between the FCC and state or local regulatory
authorities. We cannot predict the effect that ongoing or future developments
may have on the cable communications industry or on our operations and we cannot
assure you that our revenues and results of operations will not be adversely
affected in the future by regulation of cable system rates.
A federal district court in Oregon recently held that, as a condition of
approving AT&T's acquisition of TCI's cable franchises, the City of Portland had
the authority to require AT&T to provide competing Internet and other on-line
services providers with open access to AT&T's cable platforms. This case has
been appealed. Open access requirements have also been adopted in Broward
County, Florida and Fairfax, Virginia and are being considered by a number of
other franchising authorities. Similar conditions could be imposed upon us,
either pursuant to a local franchising authority's approval of a merger or other
transaction between us and another company or through future regulatory or
legislative developments at the federal, state or local level. On the other
hand, future regulatory or legislative developments at the federal or state
level could limit the authority of local franchising authorities to impose such
conditions. Restrictions along these lines, if upheld or enacted, could prohibit
us from entering into exclusive access agreements with affiliated, and possibly
unaffiliated, providers of Internet delivered content.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies. Although no state in which we currently
operate has enacted state level regulation, we cannot assure you that the states
in which we do operate will not enact such regulation, or that we will not
acquire any other cable systems in a state that does regulate our business. See
"Legislation and Regulation -- State and Local Regulation." Government
regulations at any level may affect our ability to obtain a sufficient return on
our investments. Furthermore, the regulations are changing rapidly to allow
significantly increased competition among various service providers. As a
result, we cannot predict the eventual effect of these regulations. See
"Legislation and Regulation." We closed the Buford acquisition and the Brera
Classic equity investment using temporary licenses from the FCC in certain
limited instances. While we do not anticipate problems in obtaining final
approval, our ability to operate some of our systems could be significantly
impaired if we cannot obtain final approval.
THE CABLE TELEVISION INDUSTRY IS EXTREMELY COMPETITIVE AND WE CANNOT PREDICT
WHETHER WE WILL BE SUCCESSFUL IN REMAINING COMPETITIVE.
We compete with 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 systems, known as DBS, and multichannel multipoint distribution
service systems, known as wireless cable, which use low-power microwave
frequencies to transmit video programming over the air to customers. Within the
home video programming market, we compete with other cable franchise holders and
with DBS 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
18
<PAGE> 22
systems is currently available to the owners of home satellite dish earth
stations through conventional-, medium- and high-powered satellites. Several
companies offer DBS service. 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 to amend the Copyright Act to authorize carriage
of local broadcast signals by DBS providers has passed both chambers of Congress
and is currently pending before a conference committee.
In addition, recent FCC and judicial decisions and federal legislation have
enabled local telephone companies to provide a wide variety of video and data
services competitive with services provided by cable systems and to provide
cable services directly to customers. We 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 us. Various local exchange carriers 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
cable 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. As a result,
we cannot predict the effect that ongoing or future developments might have on
the cable industry. See "Business -- Competition" and "Legislation and
Regulation."
WE COULD BE ADVERSELY AFFECTED IF OUR OR OUR VENDORS' COMPUTER SYSTEMS ARE NOT
YEAR 2000 COMPLIANT.
Year 2000 issues exist when dates are recorded in computers using two
digits, rather than four, and are then used for arithmetic operations,
comparisons or sorting. A two-digit recording may recognize a date using "00" as
1900 rather than 2000, which could cause our computer systems to perform
inaccurate computations. We may not be able to identify all systems with year
2000 problems. Moreover, the costs to correct these problems may be substantial.
Also we may not be able to correct the problems we identify. You should be aware
that year 2000 issues relate not only to our systems, but also to those used by
our suppliers. We anticipate that system replacements and modifications will
resolve any year 2000 issues that may exist with our suppliers or their
suppliers. However, we cannot assure you that such replacements or modifications
will be completed successfully or on time and, as a result, any failure to
complete such modifications on time could materially affect our financial and
operating results in a negative way. For additional information regarding the
year 2000 issue and the potential impact on our business, refer to the section
in this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance."
THE MARKET PRICE OF OUR CLASS A COMMON STOCK MAY BE EXTREMELY VOLATILE.
The initial public offering price that we determine, with the assistance of
the underwriters, may have no relation to the price at which the Class A common
stock trades after completion of the offering. Among the factors considered in
determining the initial public offering price of the shares, in addition to
prevailing market conditions, will be our historical performance, estimates of
our business potential and our earnings prospects, an assessment of our
management and the consideration of the above factors in relation to market
valuation of companies in related businesses. The market price of the Class A
common stock may be extremely volatile for many reasons, including:
- actual or anticipated variations in our revenues and operating results;
- a public market for the Class A common stock may not develop;
- announcements of the development of improved or competitive technologies;
19
<PAGE> 23
- the use of new products or promotions by us or our competitors;
- the operating and stock performance of our companies;
- the offer and sale by us in the future of additional shares of Class A
common stock or other securities;
- changes in financial forecasts by securities analysts;
- new conditions or trends in the cable industry; and
- changes in interest rates.
In addition, the stock markets from time to time experience extreme price
and volume fluctuations that may be unrelated and disproportionate to the
operating performance of companies. These broad fluctuations may adversely
affect the trading price of our Class A common stock, regardless of our actual
results.
THE MARKET PRICE FOR OUR CLASS A COMMON STOCK COULD BE ADVERSELY AFFECTED BY THE
LARGE NUMBER OF ADDITIONAL SHARES ELIGIBLE FOR ISSUANCE IN THE FUTURE.
Immediately following the offering, shares of Class A common stock
will be issued and outstanding. An additional shares of Class A common
stock will be issuable under the circumstances described in the section "Shares
Eligible for Future Sale." Substantially all of the shares of Class A common
stock issuable upon conversion of shares of our Class B common stock and
nonvoting common stock will have "demand" and/or "piggyback" registration rights
attached to them. "Demand" rights enable the holders to demand that their shares
be registered and may require us to file a registration statement under the
Securities Act of 1933 at our expense. "Piggyback" rights provide for notice to
the relevant holders if we propose to register any of our securities under the
Securities Act, and such holders may include their shares in the registration
statement. Shares of Class A common stock not held by our affiliates will be
freely saleable at the end of the relevant restricted period pursuant to Rule
144.
The sale of a substantial number of shares of Class A common stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Class A common stock. In addition, any such sale or perception
that such sale could occur could make it more difficult for us to sell equity
securities or equity-related securities in the future at a time and price that
we deem appropriate. See "Shares Eligible For Future Sale."
We, all of our officers and directors, and approximately % of our
stockholders, holding an aggregate of shares of Class A common stock, or
securities exercisable for or convertible into Class A common stock, have agreed
not to offer, sell, contract to sell, pledge, grant any option to purchase, make
any short sale or otherwise dispose of any shares of our Class A common stock,
or any options or warrants to purchase any shares of our Class A common stock,
or any securities convertible into, exchangeable for or that represent the right
to receive shares of our Class A common stock, for a period of 180 days after
the date of this prospectus.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION RESULTING IN YOUR STOCK
BEING WORTH LESS ON A NET TANGIBLE BOOK VALUE BASIS THAN THE AMOUNT YOU
INVESTED.
Purchasers of the Class A common stock offered hereby will experience an
immediate dilution in net tangible book value of $ per share of Class A
common stock purchased. Accordingly, in the event we are liquidated, investors
may not receive the full amount of their investment. See "Dilution."
20
<PAGE> 24
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical fact, included in this
prospectus are forward-looking statements. These statements include, but are not
limited to:
- statements regarding our plans for future acquisitions;
- statements regarding integration of our cable systems and future acquired
systems;
- statements regarding our planned capital expenditures and system
upgrades;
- statements regarding the offering of video and internet access on our
systems; and
- statements regarding our preparations for the year 2000 date change.
Forward-looking statements generally can also be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "plan," "seek," or "believe." We believe that the
expectations reflected in such forward-looking statements are accurate. However,
we cannot assure you that such expectations will occur. Our actual future
performance could differ materially from such statements. Factors that could
cause such or contribute to such differences include, but are not limited to:
- the uncertainties and/or potential delays associated with respect to
integrating Buford and Star and future acquisitions;
- our ability to acquire additional cable systems on terms favorable to us;
- the passage of legislation or court decisions adversely affecting the
cable industry;
- our ability to repay or refinance our outstanding indebtedness;
- the timing, actual cost and allocation of our capital expenditures and
system upgrades;
- our potential need for additional capital;
- competition in the cable industry;
- the advent of new technology; and
- seasonality.
You should not unduly rely on these forward-looking statements, which speak
only as of the date of this prospectus. Except as required by law, we are not
obligated to publicly release any revisions to these forward-looking statements
to reflect events or circumstances occurring after the date of this prospectus
or to reflect the occurrence of unanticipated events. Important factors that
could cause our actual results to differ materially from our expectations are
discussed under "Risk Factors" and elsewhere in this prospectus. All subsequent
written and oral forward-looking statements attributable to Classic, or persons
acting on its behalf, are expressly qualified in their entirety by the
statements in those sections.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of Class A common stock in
the offering will be approximately $ million, after deducting underwriting
discounts and commissions and estimated offering expenses. This assumes an
initial public offering price of $ per share, which is the midpoint of the
range appearing on the cover page of this prospectus. We will not receive any
proceeds from the sale of shares of Class A common stock by selling stockholders
if the underwriters exercise their over-allotment option.
We intend to use the net proceeds from the offering as follows:
- approximately $85.5 million to finance part of the Star acquisition;
21
<PAGE> 25
- approximately $66.3 million to redeem the outstanding principal amount of
our 13 1/4% senior discount notes due 2009; and
- approximately $8.8 million in premiums necessary to redeem the
outstanding principal amount of our senior discount notes;
There is approximately $66.3 million in aggregate principal amount of
13 1/4% senior discount notes outstanding, with interest payable every six
months on February 1 and August 1, commencing on February 1, 2004. The senior
discount notes mature on August 1, 2009, but are redeemable prior to August 1,
2001 with the cash proceeds of one or more equity offerings if we pay a
redemption price equal to 113.25% of the accreted value of the notes, together
with accrued and unpaid interest. See "Description of Certain
Indebtedness -- Classic 2009 Senior Discount Notes."
On October 14, 1999 a subsidiary of Classic Cable entered into an agreement
to purchase substantially all the assets of Star Cable Associates for
approximately $110 million in cash and 555,555 shares of Class A common stock.
The portion of the Star acquisition not financed with the proceeds from this
offering will be financed by available borrowings under our credit facility. In
the event that the Star acquisition is terminated, our management will have
broad discretion in the application of the proceeds to be used for the Star
acquisition. See "Risk Factors -- The Star acquisition may not be consummated,
and, if not consummated, our management will have broad discretion with respect
to the use of the proceeds allocated to the Star acquisition." Pending use, the
net proceeds will be invested in short-term investment-grade instruments,
certificates of deposit or direct or guaranteed obligations of the U.S.
government.
DIVIDEND POLICY
We do not expect to pay any cash dividends on our Class A common stock in
the foreseeable future. Covenants in the indentures and credit agreements
governing the indebtedness of subsidiaries restrict their ability to make
distributions to us and, accordingly, limit our ability to declare or pay cash
dividends. We intend to cause our subsidiaries to retain future earnings, if
any, to finance the expansion of our business.
22
<PAGE> 26
CAPITALIZATION
The following table sets forth as of June 30, 1999 on a consolidated basis:
- the actual capitalization of Classic;
- the pro forma capitalization of Classic to reflect:
(1) the issuance and sale by Classic of the shares of Class A common
stock offered in this prospectus for net proceeds of $ , after
deducting underwriting discounts and estimated offering expenses totaling
$ at an initial public offering price per share of $ , which
is the midpoint of the range appearing on the cover page of this
prospectus;
(2) the partial redemption of Classic Cable's 2008 subordinated notes
and related financing that occurred in September 1999;
(3) the completed Buford acquisition and related financing;
(4) the reclassification of our common stock into Class A common stock,
Class B common stock and nonvoting common stock; and
(5) the conversion of all our outstanding shares of voting common stock
into Class B common stock on a one-for-one basis.
- the pro forma as adjusted capitalization of Classic to reflect the
pending acquisition of substantially all the assets of Star Cable
Associates by a subsidiary of Classic Cable and the related
financing.
23
<PAGE> 27
This table should be read in conjunction with the "Unaudited Pro Forma
Financial Statements" and the accompanying notes included elsewhere in this
prospectus. See also "Use of Proceeds."
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
<S> <C> <C> <C>
Assets
Cash and cash equivalents.......................... $ 638 $ 7,368 $ 7,368
======== ========= =========
Long-term debt:
13 1/4% senior discount notes...................... $114,000 $ -- $ --
Discount on 13 1/4% senior discount notes.......... (47,724) -- --
9 7/8% Senior subordinated notes................... 125,000 39,005 39,005
Discount on 9 7/8% senior subordinated notes....... (534) (167) (167)
9 3/8% Senior subordinated notes................... -- 150,000 150,000
The 1998 credit facility........................... 97,050 -- --
The 1999 credit facility........................... -- 179,546 289,369
Other.............................................. 500 500 500
-------- --------- ---------
Total long-term debt....................... 288,292 368,884 478,707
Stockholders' equity (deficit)
Class A common stock; $.01 par value; million
shares authorized(1)............................ -- 58 65
Class B common stock; $.01 par value; million
shares authorized(2)............................ -- 82 82
Common stock, voting; $.01 par value; million
shares authorized(3)............................ 17 -- --
Common stock, nonvoting; $.01 par value;
million shares authorized(4).................... 15 15 15
Additional paid-in capital......................... 30,464 285,344 304,737
Unearned compensation.............................. (1,257) -- --
Accumulated deficit................................ (91,911) (115,021) (115,021)
-------- --------- ---------
Total stockholders' equity (deficit)....... (62,672) 170,478 189,878
-------- --------- ---------
Total capitalization....................... $225,620 $ 539,362 $ 668,585
======== ========= =========
</TABLE>
- ---------------
(1) no shares issued and outstanding on a historical basis; shares issued
and outstanding on a pro forma basis; shares issued and outstanding on
a pro forma as adjusted basis.
(2) no shares issued and outstanding on a historical basis; shares issued
and outstanding on a pro forma basis; shares issued and outstanding on
a pro forma as adjusted basis.
(3) 1.7 million shares issued and outstanding on a historical basis; shares
issued and outstanding on a pro forma basis; shares issued and
outstanding on a pro forma as adjusted basis.
(4) 1.5 million shares issued and outstanding on a historical basis; shares
issued and outstanding on a pro forma basis; shares issued and
outstanding on a pro forma as adjusted basis.
24
<PAGE> 28
DILUTION
The difference between the public offering price per share of our Class A
common stock and the pro forma net tangible book value per share of our Class A
common stock, Class B common stock and nonvoting common stock after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share is determined by dividing our net tangible book value
(total tangible assets less total liabilities) by the number of outstanding
shares of Class A common stock, Class B common stock and nonvoting common stock.
In calculating the dilution, we have made the same assumptions described on the
following page with respect to our unaudited pro forma financial statements.
As of June 30, 1999, our net tangible book value was a deficit of $ ,
as reflected in the Pro Forma Balance Sheet as of June 30, 1999, or $ per
share of Class A common stock, Class B common stock and nonvoting common stock
prior to the issuance of shares pursuant to this offering. After giving effect
to the sale of shares of our Class A common stock at an initial public
offering price of $ per share, less the estimated expenses of this offering,
our pro forma net negative tangible book value as of June 30, 1999 would have
been $ , or $ per share of Class A common stock, Class B common
stock and nonvoting common stock, representing an immediate decrease in our net
tangible book value of $ per share to current stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
the foregoing information as of June 30, 1999 with respect to dilution to new
investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at June 30,
1999...................................................
Decrease in pro forma net tangible book value per share
attributable to new investors purchasing shares in the
offering...............................................
-----
Pro forma net tangible book value per share after the
offering..................................................
------
Pro forma dilution per share to new investors(a)............ $
======
</TABLE>
- ---------------
(a) Assuming the exercise of the underwriters' over-allotment option, pro forma
dilution per share to new investors would be $ .
The following table sets forth, with respect to our current stockholders
and new investors, a comparison of the number of shares of common stock acquired
from us, the percentage ownership of such shares, the total consideration paid,
the percentage of total consideration paid and the average price per share in
thousands except average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New Investors...............
----------- --- ---------- --- ------
Total............. % $ % $
=========== === ========== === ======
</TABLE>
The above tables and related discussion assumes no exercise of any stock
options or warrants outstanding. At June 30, 1999, there were warrants
outstanding to purchase 335,853 shares of common stock. To the extent that all
of these warrants are exercised, pro forma dilution per share to the new
investors would be $ . There were no options outstanding to purchase shares
of common stock at June 30, 1999.
25
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information is
based on the audited and unaudited financial statements of Classic, Buford, and
Star included elsewhere in this prospectus, and unaudited financial information
of certain systems acquired by Classic Cable in July 1998 and certain systems
acquired by Buford in April 1998. The unaudited pro forma adjustments are based
upon available information and certain assumptions that we believe are
reasonable. The Unaudited Pro Forma Consolidated Financial Information and
accompanying notes should be read in conjunction with the historical financial
statements of Classic, Buford, and Star and the respective notes to those
statements, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus.
The Unaudited Pro Forma Consolidated Balance Sheet has been prepared to
give effect to (1) the completed acquisition of Buford Group, Inc. by our
subsidiary, Classic Cable, Inc. and the related financing, (2) the pending
acquisition of substantially all of the assets of Star Cable Associates by a
subsidiary of Classic Cable and the related financing, (3) the partial
redemption of Classic Cable's 2008 Subordinated Notes and the related financing,
(4) the reclassification of our stock into Class A common stock, Class B common
stock and nonvoting common stock, (5) the conversion of all outstanding shares
of voting common stock into Class B common stock on a one-for-one basis and (6)
the offering contemplated in this prospectus as if all such transactions had
occurred on June 30, 1999. The Unaudited Pro Forma Consolidated Statements of
Operations have been prepared to give effect to these transactions as well as
the other acquisitions completed by either Classic or Buford prior to the date
of this prospectus as if they had occurred on January 1, 1998. All acquisitions
are accounted for under the purchase method of accounting. The Unaudited Pro
Forma Consolidated Financial Information reflects our allocation of our assumed
purchase price for the Buford acquisition and the Star acquisition based upon
our current estimates of the fair values of the assets to be acquired and
liabilities assumed. The final purchase price and the allocation of that price
may vary as additional information is obtained and, accordingly, the ultimate
allocation may differ from those used in the Unaudited Pro Forma Consolidated
Financial Information.
The Unaudited Pro Forma Consolidated Financial Information does not purport
to be indicative of the results that would have been obtained had the
transactions been completed as of the assumed date and for the periods presented
or that may be obtained in the future. The Unaudited Pro Forma Consolidated
Financial Information is included in this prospectus for informational purposes,
and while we believe that it may be helpful in understanding our combined
operations for the periods indicated, you should not unduly rely on the
information.
The column labeled "Subtotal" in the Unaudited Pro Forma Consolidated
Financial Information assumes that the proceeds from this offering were not used
to purchase Star, but rather applied towards debt. The column labeled "Pro
Forma" assumes that a portion of the proceeds was used to finance the Star
acquisition. Nonetheless, if the Star acquisition is not consummated, a
significant portion of the net proceeds from this offering will not be
designated for a specific use. In these circumstances, our management will have
broad discretion with respect to the use of the proceeds of this offering.
26
<PAGE> 30
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC
COMMUNICATIONS BUFORD ADJUSTMENTS SUBTOTAL
-------------- ------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 638 $ 2,890 $ 3,840(x) $ 7,368
Accounts receivable, net...................... 5,136 2,846 -- 7,982
Prepaid expenses.............................. 1,341 484 -- 1,825
Property, plant and equipment................. 135,177 208,268 (85,059)(d,l) 258,386
Accumulated depreciation...................... (47,486) (96,913) 96,913(e) (47,486)
-------- -------- -------- ---------
87,691 111,355 11,854 210,900
Deferred financing costs, net................. 9,028 142 8,832(f,v,z) 18,002
Other assets.................................. -- 2,444 -- 2,444
Intangible assets:
Subscriber relationships..................... 95,367 -- 82,042(m) 177,409
Franchise rights............................. 71,500 54,417 31,877(g,n) 157,794
Noncompete agreements........................ 8,425 7,434 (441)(h,o) 15,418
Goodwill..................................... 40,865 3,203 (1,741)(i,p) 42,327
-------- -------- -------- ---------
216,157 65,054 111,737 392,948
Less accumulated amortization................. (76,415) (18,613) 18,613(j) (76,415)
-------- -------- -------- ---------
139,742 46,441 130,350 316,533
-------- -------- -------- ---------
Total assets........................... $243,576 $166,602 $154,876 $ 565,054
======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Liabilities:
Accounts payable............................. $ 489 $ 491 $ -- $ 980
Subscriber deposits and unearned income...... 5,203 2,341 -- 7,544
Accrued expenses............................. 5,465 7,073 (3,145)(dd) 9,393
Accrued interest............................. 5,731 -- -- 5,731
Long-term debt............................... 288,292 112,000 38,000(k,q)
77,950(t,u)
90,367(y,aa)
(152,271)(bb,gg)
(85,454)(ii) 368,884
Deferred taxes, net.......................... 1,068 976 -- 2,044
-------- -------- -------- ---------
Total liabilities...................... 306,248 122,881 (34,553) 394,576
Stockholders' (deficit) equity:
Class A common stock......................... -- -- 58(ee) 58
Class B common stock......................... -- -- 82(kk) 82
Common stock, voting......................... 17 1 (18)(a,r,kk) --
Common stock, nonvoting...................... 15 -- -- 15
Additional paid-in capital................... 30,464 14,058 81,625(b,s)
160,454(ff,jj)
(1,257)(ll) 285,344
Unearned compensation........................ (1,257) -- 1,257(ll) --
Retained earnings (accumulated deficit)...... (91,911) 29,662 (34,862)(c,w)
(8,268)(y,z)
(9,642)(cc,hh) (115,021)
-------- -------- -------- ---------
Total stockholders' (deficit) equity... (62,672) 43,721 189,429 170,478
-------- -------- -------- ---------
Total liabilities and stockholders'
equity................................ $243,576 $166,602 $154,876 $ 565,054
======== ======== ======== =========
<CAPTION>
STAR ADJUSTMENTS PRO FORMA
---- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 3,692 $(3,692)(9) $ 7,368
Accounts receivable, net...................... 832 -- 8,814
Prepaid expenses.............................. 62 -- 1,887
Property, plant and equipment................. 53,574 (183)(2,13) 311,777
Accumulated depreciation...................... -- -- (47,486)
-------- ------- ---------
53,574 (183) 264,291
Deferred financing costs, net................. 474 1,026(3,21) 19,502
Other assets.................................. -- -- 2,444
Intangible assets:
Subscriber relationships..................... 538 35,014(4,14) 212,961
Franchise rights............................. 16,128 21,266(5,15) 195,188
Noncompete agreements........................ 1,416 1,614(6,16) 18,448
Goodwill..................................... 9,714 (9,081)(7,17) 42,960
-------- ------- ---------
27,796 48,813 469,557
Less accumulated amortization................. (8,160) 8,160(8) (76,415)
-------- ------- ---------
19,636 56,973 393,142
-------- ------- ---------
Total assets........................... $ 78,270 $54,124 $ 697,448
======== ======= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Liabilities:
Accounts payable............................. $ 1,215 $ -- $ 2,195
Subscriber deposits and unearned income...... 1,279 -- 8,823
Accrued expenses............................. 751 (74)(10) 10,070
Accrued interest............................. 503 (503)(11) 5,731
Long-term debt...............................
88,572 21,251(12,20) 478,707
Deferred taxes, net.......................... -- -- 2,044
-------- ------- ---------
Total liabilities...................... 92,320 20,674 507,570
Stockholders' (deficit) equity:
Class A common stock......................... -- 7(18) 65
Class B common stock......................... -- -- 82
Common stock, voting......................... -- -- --
Common stock, nonvoting...................... -- -- 15
Additional paid-in capital...................
-- 19,393(19,22) 304,737
Unearned compensation........................ -- -- --
Retained earnings (accumulated deficit)......
(14,050) 14,050(1) (115,021)
-------- ------- ---------
Total stockholders' (deficit) equity... (14,050) 33,450 189,878
-------- ------- ---------
Total liabilities and stockholders'
equity................................ $ 78,270 $54,124 $ 697,448
======== ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
27
<PAGE> 31
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(DOLLARS IN THOUSANDS)
Set forth below are the notes to the Unaudited Pro Forma Consolidated
Balance Sheet. The letters and numbers set forth across from the line items
below correspond to the letters and numbers set forth on the Unaudited Pro Forma
Consolidated Balance Sheet. The following pro forma adjustments to the unaudited
consolidated balance sheet assume: (1) the completed acquisition of Buford
Group, Inc. by our subsidiary, Classic Cable, Inc. and the related financing;
(2) the pending acquisition of substantially all of the assets of Star Cable
Associates by a subsidiary of Classic Cable and the related financing; (3) the
partial redemption of Classic Cable's 2008 Subordinated Notes and the related
financing; (4) the reclassification of our stock into Class A common stock,
Class B common stock and nonvoting common stock; (5) the conversion of all
outstanding shares of our voting common stock into Class B common stock on a
one-to-one basis; and (6) the offering contemplated in this prospectus as if all
such transactions had occurred on June 30, 1999.
The Buford acquisition and the Star acquisition will be accounted for using
the purchase method. The cost of the acquisitions will be allocated based on the
fair values of the assets acquired and liabilities assumed, based upon
valuations that are not yet complete. Our estimate of the final purchase prices
takes into account expected purchase price adjustments set forth in the
acquisition agreements. Accordingly, the allocations of the purchase price may
change upon completion of the acquisitions.
The estimated final purchase price of Buford and Star and the preliminary
allocations are as follows:
<TABLE>
<CAPTION>
BUFORD STAR
--------- --------
<S> <C> <C>
Purchase price.............................................. $ 297,783 $127,723
========= ========
Eliminate equity:
Common stock.............................................. $ 1(a) $ --
Additional paid-in capital................................ 14,058(b) --
Retained earnings (accumulated deficit)................... 29,662(c) (14,050)(1)
--------- --------
Total equity............................ 43,721 (14,050)
Eliminate historical property, plant and equipment:
Costs..................................................... (208,268)(d) (53,574)(2)
Accumulated deprecation................................... 96,913(e) --
Eliminate historical intangible assets:
Deferred financing costs.................................. (142)(f) (474)(3)
Subscriber relationships.................................. -- (538)(4)
Franchise rights.......................................... (54,417)(g) (16,128)(5)
Noncompete agreements..................................... (7,434)(h) (1,416)(6)
Goodwill and other intangible assets...................... (3,203)(i) (9,714)(7)
Accumulated amortization.................................. 18,613(j) 8,160(8)
Eliminate cash not purchased................................ -- (3,692)(9)
Eliminate accrued expenses not assumed...................... -- 74(10)
Eliminate accrued interest not assumed...................... -- 503(11)
Eliminate long-term debt not assumed........................ 112,000(k) 88,572(12)
Adjustments to record assets at fair value:
Property, plant and equipment............................. 123,209(l) 53,391(13)
Subscriber relationships.................................. 82,042(m) 35,552(14)
Franchise rights.......................................... 86,294(n) 37,394(15)
Noncompete agreements..................................... 6,993(o) 3,030(16)
Goodwill.................................................. 1,462(p) 633(17)
--------- --------
Total............................................. $ 297,783 $127,723
========= ========
</TABLE>
28
<PAGE> 32
Sources and uses of funds for the Buford acquisition are as follows:
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
The offering of new subordinated notes by Classic Cable..... $150,000 (q)
The Brera Classic equity investment (net of fees of and
expense reimbursements to Brera Classic):
Common stock, voting...................................... 65 (r)
Additional paid-in capital................................ 95,683 (s)
Classic Cable credit facility............................... 175,000 (t)
--------
Total sources of funds................................. $420,748
========
USES OF FUNDS:
Retirement of existing credit facility...................... $ 97,050 (u)
Buford acquisition.......................................... 297,783
Fees and expenses:
Deferred financing costs.................................. 16,875 (v)
Other transaction costs................................... 5,200 (w)
Working capital........................................... 3,840 (x)
--------
Total uses of funds.................................... $420,748
========
Concurrent with the Buford acquisition, the 2008 Subordinated
Notes redemption offer and this offering, we would have written off
unamortized deferred financing costs of $7,901 and unamortized (z)
discount of $367. The charges for the write off will be reflected as (y)
an extraordinary charge in the income statement for the period during
which the transactions occurred. No such charge is included in the pro
forma income statement information presented in this prospectus
</TABLE>
The sources and uses of funds for the partial redemption of the 2008
Subordinated Notes are as follows:
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
Senior credit facility...................................... $90,000 (aa)
=======
USES OF FUNDS:
Retirement of the principal amount of the 2008 Subordinated
Notes..................................................... $85,995 (bb)
Payment of premium on the 2008 Subordinated Notes........... 860 (cc)
Payment of accrued interest on the 2008 Subordinated
Notes..................................................... 3,145 (dd)
-------
$90,000
=======
</TABLE>
29
<PAGE> 33
The sources and uses of funds for the offering contemplated in this
prospectus are as follows:
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
Common stock................................................ $ 58 (ee)
Additional paid-in capital.................................. 174,942 (ff)
--------
$175,000
========
USES OF FUNDS:
Retirement of the principal amount of the Classic 2009
Senior Discount Notes..................................... $ 66,276 (gg)
Payment of premium on the Classic 2009 Senior Discount
Notes..................................................... 8,782 (hh)
Pay down the credit facility................................ 85,454 (ii)
Estimated fees and expenses................................. 14,488 (jj)
--------
$175,000
========
The conversion of the voting common stock results in a
reclassification of $82 from voting common stock to Class B common
stock. (kk)
The Brera Classic equity investment resulted in a change of control.
As a result, recognition of the remaining unearned compensation of
$1,257 was accelerated. (ll)
</TABLE>
Sources and uses of funds for the Star acquisition are assumed to be as
follows:
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
Star Investment:
Common stock.............................................. $ 7 (18)
Additional paid-in capital................................ 19,993 (19)
Borrowings on the credit facility........................... 109,823 (20)
--------
$129,823
========
USES OF FUNDS:
Purchase Star............................................... $127,723
Deferred financing costs.................................... 1,500 (21)
Costs of offering........................................... 600 (22)
--------
$129,823
========
</TABLE>
30
<PAGE> 34
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BUFORD
CLASSIC CABLE 1998
COMMUNICATIONS ONE BUFORD ACQUISITION ADJUSTMENTS SUBTOTAL STAR
-------------- ----- ------ ----------- ----------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 69,802 $6,564 $ 70,475 $3,056 $ -- $149,897 $18,447
Operating expenses:
Programming.................... 17,840 1,831 18,339 708 -- 38,718 5,435
Plant and operating............ 8,437 815 6,937 397 -- 16,586 2,588
General and administrative..... 11,295 1,037 16,183 557 -- 29,072 1,691
Marketing and advertising...... 850 97 345 -- -- 1,292 230
Corporate overhead............. 3,648 -- 9,364 99 (1,490)(a) 11,621 644
Depreciation and amortization.. 30,531 529 21,399 750 13,981(b) 67,190 5,393
-------- ------ -------- ------ -------- -------- -------
Total operating
expenses.................. 72,601 4,309 72,567 2,511 12,491 164,479 15,981
-------- ------ -------- ------ -------- -------- -------
Operating income (loss)........... (2,799) 2,255 (2,092) 545 (12,491) (14,582) 2,466
Interest expense.................. (24,442) -- (7,919) (34) (1,897)(c) (34,292) (5,652)
Other income (expense)............ (28) (648) (221) 1 -- (896) 166
-------- ------ -------- ------ -------- -------- -------
Income (loss) before income
taxes............................ (27,269) 1,607 (10,232) 512 (14,388) (49,770) (3,020)
Income tax benefit................ 1,930 -- 226 -- --(d) 2,156 --
-------- ------ -------- ------ -------- -------- -------
Net Income (loss)................. $(25,339) $1,607 $(10,006) $ 512 $(14,388) $(47,614) $(3,020)
======== ====== ======== ====== ======== ======== =======
Basic and diluted loss per
share............................ $ (11.43)
Shares used in computing loss per
share............................ 2,603
<CAPTION>
PRO
ADJUSTMENTS FORMA
----------- -----
<S> <C> <C>
Revenues.......................... $ -- $168,344
Operating expenses:
Programming.................... -- 44,153
Plant and operating............ -- 19,174
General and administrative..... -- 30,763
Marketing and advertising...... -- 1,522
Corporate overhead............. (644)(a) 11,621
Depreciation and amortization.. 9,651(b) 82,234
-------- --------
Total operating
expenses.................. 9,007 189,467
-------- --------
Operating income (loss)........... (9,007) (21,123)
Interest expense.................. (3,257)(c) (43,201)
Other income (expense)............ -- (730)
-------- --------
Income (loss) before income
taxes............................ (12,264) (65,054)
Income tax benefit................ --(d) 2,156
-------- --------
Net Income (loss)................. $ 12,264) $(62,898)
======== ========
Basic and diluted loss per
share............................
Shares used in computing loss per
share............................
</TABLE>
See the Notes to the Unaudited Pro Forma Consolidated Statement of Operations.
31
<PAGE> 35
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CLASSIC
COMMUNICATIONS BUFORD ADJUSTMENTS SUBTOTAL STAR ADJUSTMENTS PRO FORMA
-------------- ------ ----------- -------- ---- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ 39,286 $38,398 -- $ 77,684 $12,434 -- $ 90,118
Operating expenses:
Programming....................... 10,427 10,430 -- 20,857 3,742 -- 24,599
Plant and operating............... 4,401 3,377 -- 7,778 2,010 -- 9,788
General and administrative........ 5,755 8,461 -- 14,216 1,083 -- 15,299
Marketing and advertising......... 452 237 -- 689 152 -- 841
Corporate overhead................ 1,725 (72) $ (507)(a) 1,146 433 $ (433)(a) 1,146
Depreciation and amortization..... 18,096 12,105 5,255(b) 35,456 3,722 3,800(b) 42,978
-------- ------- ------- -------- ------- ------- --------
Total operating expenses...... 40,856 34,538 4,748 80,142 11,142 3,367 94,651
-------- ------- ------- -------- ------- ------- --------
Income (loss) from operations......... (1,570) 3,860 (4,748) (2,458) 1,292 (3,367) (4,533)
Interest expense...................... (14,992) (4,095) 1,883(c) (17,204) (3,406) (1,050)(c) (21,660)
Other income (expense)................ 15 (78) -- (63) 16 -- (47)
-------- ------- ------- -------- ------- ------- --------
Loss before income taxes.............. (16,547) (313) (2,865) (19,725) (2,098) (4,417) (26,240)
Income tax benefit.................... -- 210 --(d) 210 -- --(d) 210
-------- ------- ------- -------- ------- ------- --------
Net loss.............................. $(16,547) $ (103) $(2,865) $(19,515) $(2,098) $(4,417) $(26,030)
======== ======= ======= ======== ======= ======= ========
Basic and diluted loss per share...... $ (5.85)
Shares used in computing loss per
share............................... 2,830
</TABLE>
See the Notes to Unaudited Pro Forma Consolidated Statements of Operations.
32
<PAGE> 36
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The accompanying Unaudited Pro Forma Consolidated Statements of Operations
for the year ended December 31, 1998 and the six months ended June 30, 1999
reflect the pro forma adjustments described below as if (1) the completed
acquisition of Buford Group, Inc. by our subsidiary, Classic Cable, Inc. and the
related financing, (2) other acquisitions completed by either Classic or Buford
prior to the date of this prospectus, (3) the pending acquisition of
substantially all of the assets of Star Cable Associates by a subsidiary of
Classic Cable and the related financing, (4) the partial redemption of Classic
Cable's 2008 Subordinated Notes and the related financing and (5) the offering
contemplated in this prospectus as if all such transactions had occurred on
January 1, 1998. The Unaudited Pro Forma Consolidated Statements of Operations
combine the historical results of operations of Classic with those of Buford,
Star and the completed acquisitions. These statements reflect the following
adjustments for the period indicated:
(a) Classic Cable has formulated a restructuring plan whereby certain
identified employees of Buford's corporate management were terminated. The
functions of these employees were duplicative with those of Classic Cable
and there is no expectation that the revenues generated by the Buford
systems will be adversely affected by the restructuring plan. The costs
associated with these employees were $1,490 and $507 for the year ended
December 31, 1998 and the six months ended June 30, 1999, respectively.
Star pays a management fee to its general partner based upon a certain
percentage of revenues. This arrangement will terminate upon the closing of
the Star acquisition. There is no expectation that the revenues generated
by the Star systems will be adversely affected by the termination of this
agreement. The costs associated with this agreement were $644 and $433 for
the year ended December 31, 1998 and the six months ended June 30, 1999,
respectively.
(b) Represents pro forma adjustments to depreciation and amortization
in connection with the Buford acquisition and the Star acquisition and
their completed acquisitions. 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>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1998 JUNE 30, 1999
------------ -------------
<S> <C> <C>
CABLE ONE AND BUFORD
- --------------------------
Depreciation and amortization expense on the purchased basis
of property, plant and equipment and intangible assets
acquired.................................................. $ 36,659 $ 17,360
Elimination of historical depreciation and amortization
expense................................................... (22,678) (12,105)
-------- --------
Total adjustment to depreciation and
amortization.................................... $ 13,981 $ 5,255
======== ========
STAR
- ----
Depreciation and amortization expense on the purchased basis
of property, plant and equipment and intangible assets
acquired.................................................. 15,044 7,522
Elimination of historical depreciation and amortization
expense................................................... (5,393) (3,722)
-------- --------
Total adjustment to depreciation and
amortization.................................... 9,651 3,800
======== ========
</TABLE>
33
<PAGE> 37
The property, plant, and equipment and intangible assets acquired in
connection with the Buford acquisition and the Star acquisition are estimated
below:
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIOD
BUFORD STAR (YEARS)
-------- -------- -------------
<S> <C> <C> <C>
Land........................................... $ 888 385 --
Buildings...................................... 3,909 1,694 30
Leasehold improvements......................... 818 355 7
Vehicles....................................... 3,776 1,636 5
Cable television distribution systems.......... 43,930 19,036 12
UHF system..................................... 9,280 4,021 7
Mobile radio equipment......................... 364 158 7
Headend electronics............................ 26,406 11,442 7
Headend tower and antennae..................... 11,077 4,800 7
Microwave equipment............................ 4,657 2,018 7
Shop and test equipment........................ 5,517 2,391 7
Drops.......................................... 9,622 4,170 7
Furniture and fixtures......................... 1,608 697 7
Office equipment............................... 986 427 7
Computer hardware and equipment................ 322 139 4
Computer software.............................. 49 22 3
Subscriber relationships....................... 82,042 35,552 12
Franchise rights............................... 86,294 37,394 8
Noncompete agreements.......................... 6,993 3,030 3
Goodwill....................................... 1,462 633 20
-------- --------
$300,000 $130,000
======== ========
</TABLE>
(c) Represents:
- interest expense on the credit facility using a current interest
rate of 7.75%, 8.00% and 8.00% for the Term A, Term B and Term C
loans, respectively, per annum,
- interest expense on the 2009 Subordinated Notes using a rate of
9.375% per annum,
- amortization expense of deferred financing fees related to the
2009 Subordinated Notes and the credit facility,
- elimination of historical interest expense related to Buford's
and Star's debt not assumed, and
- elimination of historical interest expense from the old credit
facility, the redeemed portion of the 2008 Subordinated Notes and
the 2009 Senior Discount Notes as well as the elimination of the
related amortization of deferred financing costs, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Buford
Interest expense on the credit facility............. $ 14,236* $ 7,118
Interest expense on the 2009 Subordinated Notes..... 14,063 7,032
Amortization expense of deferred financing fees..... 1,869 934
</TABLE>
34
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Elimination of historical interest expense on the
old credit facility, 2009 Senior Discount Notes,
redeemed portion of the 2008 Subordinated Notes,
subordinated debt and acquisition debt not assumed
as well as related amortization of deferred
financing costs................................... (28,271) (16,967)
-------- --------
Total increase to interest expense........ $ 1,897 $ 1,883
======== ========
</TABLE>
- ---------------
* The total effect of a 1/8% variance in the interest rate would be $224 and
$112, respectively.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
Star
Interest expense on the credit facility............. $ 8,708* $ 4,355*
Amortization expense of deferred financing fees..... 201 101
Elimination of historical interest expense on the
acquisition debt not assumed as well as the
related amortization of deferred financing
costs............................................. (5,652) (3,406)
-------- --------
Total increase to interest expense........ $ 3,257 $ 1,050
======== ========
</TABLE>
- ---------------
* The total effect of a 1/8% variance in the interest rate would be $362 and
$181, respectively.
(d) Represents the:
- tax effect of pro forma adjustments,
- recognition of tax expense for the acquired systems which were
historically not allocated tax expense by their former parent,
and
- the effect of recording a valuation allowance on excess deferred
tax assets arising from pro forma adjustments.
We record a tax benefit only to the extent existing deferred tax
liabilities reverse within the appropriate period to offset deferred tax assets.
These reversing liabilities will be fully recognized in 1998, and a valuation
allowance remains on 100% of the remaining deferred tax assets. As a result, the
ratable tax benefit to be realized is limited, resulting in an effective rate of
less than 5%.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1998 JUNE 30, 1999
------------ -------------
<S> <C> <C>
Total pro forma adjustments................................. (26,652) (7,282)
Tax rate.................................................... 34% 34%
------- -------
9,062 2,476
Total Cable One, Buford 1998 acquisition and Star pre tax
income.................................................... (901) (2,098)
Tax rate.................................................... 34% 34%
------- -------
306 713
Effect of valuation allowance............................... (9,368) (3,189)
------- -------
Total adjustment to income tax benefit...................... -- --
======= =======
</TABLE>
35
<PAGE> 39
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA --
CLASSIC COMMUNICATIONS, INC.
The following table presents selected historical financial data about
Classic. You should read this information together with "Summary Historical
Financial and Operating Data -- Classic Communications, Inc.," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
Classic's consolidated financial statements and the notes relating to those
statements included elsewhere in this prospectus.
Classic's selected historical financial data as of and for each of the five
years in the period ended December 31, 1998 have been derived from Classic's
consolidated financial statements, which have been audited and reported upon by
Ernst & Young LLP for the years ended December 31, 1994, 1995 and 1996 and
PricewaterhouseCoopers LLP for the years ended December 31, 1997 and 1998. The
historical data for the six months ended June 30, 1998 and 1999 have been
derived from Classic's unaudited financial statements. The unaudited financial
statements contain all adjustments, consisting of normal recurring accruals,
which Classic considers necessary for a fair presentation of its financial
position and results of operations for these periods.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................... $16,019 $ 36,677 $ 59,821 $ 60,995 $ 69,802 $ 32,214 $ 39,286
Costs and expenses......................... 8,372 18,911 33,553 36,555 42,070 19,038 22,760
Depreciation and amortization.............. 6,383 16,427 27,510 27,832 30,531 14,169 18,096
------- -------- -------- -------- -------- -------- --------
Operating income (loss).................... 1,264 1,339 (1,242) (3,392) (2,799) (993) (1,570)
Interest expense........................... (4,975) (14,199) (20,633) (21,299) (24,442) (10,497) (14,992)
Gain on sale of cable systems.............. 115 -- 4,901 3,644 -- -- --
Write-off of abandoned telephone
operations............................... -- -- (2,994) (500) (220) -- --
Other income (expense)..................... -- -- -- 71 192 64 15
------- -------- -------- -------- -------- -------- --------
Loss before income tax benefit, minority
interest and extraordinary loss.......... (3,596) (12,860) (19,968) (21,476) (27,269) (11,426) (16,547)
Income tax benefit......................... 1,121 4,533 6,802 7,347 1,930 1,041 --
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) $(10,385) $(16,547)
======= ======== ======== ======== ======== ======== ========
Basic and diluted loss applicable to common
stockholders before extraordinary item... $ (3.13) $ (5.87) $ (7.30) $ (7.53) $ (11.43) $ (5.09) $ (5.85)
Basic and diluted loss applicable to common
stockholders............................. $ (3.13) $ (8.21) $ (7.30) $ (7.53) $ (13.55) $ (5.09) $ (5.85)
BALANCE SHEET DATA (END OF PERIOD):
Total assets............................... $96,136 $271,516 $245,922 $220,162 $254,604 -- $243,576
Total debt................................. 58,161 207,706 197,504 191,990 282,842 -- 288,292
Total liabilities.......................... 78,251 232,531 219,232 206,643 301,392 -- 306,248
Total redeemable preferred stock........... 12,332 19,260 22,726 26,705 -- -- --
Total stockholders' equity................. 5,553 19,725 3,965 (13,186) (46,788) -- (62,672)
</TABLE>
36
<PAGE> 40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- BUFORD GROUP, INC.
The following table presents selected historical financial data about
Buford. You should read this information together with "Summary Historical
Financial and Operating Data -- Buford Group, Inc.," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and Buford's
consolidated financial statements and the notes relating to those statements
included elsewhere in this prospectus.
The selected data presented below under the headings "Income Statement
Data" and "Balance Sheet Data," for and as of the end of each of the years in
the five-year period ended December 31, 1998 are derived from Buford's
consolidated financial statements, which financial statements have been audited
by KPMG LLP, independent certified public accountants. The consolidated
financial statements as of December 31, 1998 and 1997, and for each of the years
in the three-year period ended December 31, 1998, and the auditors' report
thereon, are included elsewhere in this prospectus. The historical data for the
six months ended June 30, 1998 and 1999 have been derived from Buford's
unaudited financial statements. The unaudited financial statements contain all
adjustments, consisting of normal recurring accruals, which Buford considers
necessary for a fair presentation of Buford's financial position and results of
operations for these periods.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................. $ 37,032 $ 49,558 $ 49,561 $ 58,136 $ 70,475 $ 32,943 $ 38,398
Costs and expenses........................ 26,755 32,965 32,932 40,858 51,168 24,547 22,433
Depreciation and amortization............. 13,670 17,379 17,175 17,753 21,399 10,137 12,105
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)................... (3,393) (786) (546) (475) (2,092) (1,741) 3,860
Interest expense.......................... (2,823) (6,332) (5,345) (5,787) (7,919) (3,681) (4,095)
Gain on sale of cable systems............. -- 8,506 5,418 -- -- -- --
Other income (expense).................... 191 1,443 344 859 (221) 73 (78)
-------- -------- -------- -------- -------- -------- --------
Loss before income tax benefit (expense)
and cumulative effect of change in
accounting principle.................... (6,025) 2,831 (129) (5,403) (10,232) (5,349) (313)
Income tax benefit (expense).............. 3,027 7,235 (94) 315 226 (25) 210
Cumulative effect of change in accounting
principle............................... -- -- -- -- -- -- (207)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ (2,998) $ 10,066 $ (223) $ (5,088) $(10,006) $ (5,374) $ (310)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Total assets.............................. $127,702 $127,379 $117,676 $143,932 $175,953 -- $166,602
Total debt................................ 72,110 70,643 60,053 85,000 118,000 -- 112,000
Total liabilities......................... 91,773 80,122 69,182 97,008 131,147 -- 122,881
Total stockholders' equity................ 35,969 47,257 48,493 46,924 44,806 -- 43,721
</TABLE>
37
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding our pro
forma financial condition as of June 30, 1999 and for the six months ended June
30, 1999 and the year ended December 31, 1998. It also includes historical
information regarding our financial condition and results of operations for each
of the years ended December 31, 1996, 1997 and 1998 and the six months ended
June 30, 1998 and 1999. This discussion should be read in conjunction with
"Selected Historical Consolidated Financial Data -- Classic Communications,
Inc.," "Selected Historical Consolidated Financial Data -- Buford Group, Inc.,"
"Unaudited Pro Forma Consolidated Financial Information" and Classic's, Buford's
and Star's consolidated financial statements and the notes relating to those
statements appearing elsewhere in this prospectus. During their existence, both
Classic Cable and Buford have completed multiple acquisitions and divestitures
of cable systems. As a result, we believe that period-to-period comparisons of
their financial results to date are not necessarily meaningful and should not be
relied upon as an indication of future performance.
OVERVIEW
As a result of the Buford acquisition and the pending Star acquisition and
assuming completion of other recently publicly announced transactions by other
companies in the cable television industry, we believe we will be the 14th
largest cable television operator in the United States. We own, operate and
develop cable television systems in selected non-metropolitan markets clustered
primarily in nine contiguous states primarily located in the central United
States. Since 1992, we have completed and integrated over 20 acquisitions. As of
June 30, 1999, our collective systems passed approximately 707,000 homes and
served approximately 416,000 basic subscribers, which includes approximately
98,000 homes and 57,000 subscribers for Star.
REVENUES. Revenues are primarily attributable to monthly subscription fees
charged to subscribers for our 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 June 30, 1999, our collective systems served approximately 416,000 basic
subscribers and approximately 211,000 premium units, representing a basic
penetration rate of approximately 59% and a premium penetration rate of
approximately 51%. For Classic and Star premium subscribers are the number of
subscribers who pay a monthly fee for premium channels. Multiplexing premium
channels is counted as one subscriber. For Buford, each premium channel received
is counted as a separate premium subscriber. Premium penetration is calculated
as the
38
<PAGE> 42
number of premium subscribers as a percentage of homes passed. The table below
sets forth for the periods indicated the percentage of our total revenues
attributable to the various sources:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------------
<S> <C> <C>
Basic.................................... 83.8% 84.3%
Premium.................................. 11.4 11.0
Other.................................... 4.8 4.7
----- -----
Total revenues................. 100.0% 100.0%
===== =====
</TABLE>
OPERATING EXPENSES. Our operating expenses consist of (A) programming fees,
(B) plant and operating costs, (C) general and administrative expenses and (D)
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 us. We benefit from our membership
in an industry cooperative with over 10 million basic subscribers that 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. Corporate overhead consists primarily of expenses
incurred by our executive management, 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 interest costs
related to our financing activities, have contributed to our net losses. We
believe that such net losses are common for the cable television industry.
RESULTS OF OPERATIONS -- CLASSIC COMMUNICATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999
------------------------ ------------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $32,214 100.0% $39,286 100.0%
Operating expenses:
Programming........................ 8,218 25.5 10,427 26.5
Plant and operating................ 3,865 12.0 4,401 11.2
General and administrative......... 5,357 16.6 5,755 14.6
Marketing and advertising.......... 339 1.1 452 1.2
Corporate overhead...................... 1,259 3.9 1,725 4.4
Depreciation and amortization........... 14,169 44.0 18,096 46.1
------- ----- ------- -----
Loss from operations.......... $ (993) (3.1)% $(1,570) (4.0)%
======= ===== ======= =====
</TABLE>
REVENUES. Revenues increased $7.1 million, or 22%, for the six months ended
June 30, 1999, as compared to the corresponding prior year period. Basic
revenues increased by $6.0 million due to increased subscribers of approximately
23,000 and basic rate increases. The increase in
39
<PAGE> 43
subscribers was due to the acquisition of systems from Cable One in July 1998.
In addition, there was a rate increase of approximately 7% affecting
approximately two-thirds of our customers in February 1999 which resulted in an
increase in basic revenues per subscriber of 7% from $27.42 to $29.35 period to
period. Classic Cable has historically increased rates in February in order to
offset increases in operating costs such as programming which occur primarily in
January of each year.
OPERATING EXPENSES. Operating expenses increased $3.3 million, or 18%, for
the six months ended June 30, 1999, as compared to the corresponding prior year
period. Programming expense increased $2.2 million due to the continued
escalation in rates charged by programming vendors as well as an increase in the
subscriber base over the same period in 1998. Depreciation and amortization
expense for the six months ended June 30, 1999 was $18.1 million, an increase of
$3.9 million over the same period in 1998. The increase represents the effect of
acquisitions and capital expenditures.
OTHER INCOME AND EXPENSES. Interest expense increased $4.5 million, or 43%,
for the six months ended June 30, 1999, as compared to the corresponding prior
year period. This increase is primarily the result of the debt issued in
conjunction with the July 1998 financing.
INCOME TAX BENEFIT. The income tax benefit decreased $1.0 million for the
six months ended June 30, 1999, as compared to the corresponding prior year
period. No tax benefit was recognized in 1999. The effective tax rates for the
six months ended June 30, 1999 and June 30, 1998 differ from the statutory rates
primarily due to an increase in the valuation allowance on deferred tax assets.
NET LOSS. As a result of the above described fluctuations in Classic's
results of operations, the net loss of $16.5 million for the six months ended
June 30, 1999 increased by $6.2 million, as compared to the net loss of $10.4
million for the corresponding prior year period.
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
------- ----- ------- -----
Loss from operations.......... $(3,392) (5.6)% $(2,799) (4.0)%
======= ===== ======= =====
</TABLE>
REVENUES. Revenues for the year ended December 31, 1998 were $69.8 million,
an improvement of $8.8 million over revenues for the year ended December 31,
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%. 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. 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
40
<PAGE> 44
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
equivalent basic unit conversion calculations following the basic rate
increases, the increased availability and affordability of competitive video
services, non-pay disconnects, and other terminations of service. The remaining
revenues increased 13.7%, from $10.2 million for the year ended December 31,
1997 to $11.6 million for the year ended December 31, 1998, due in large part to
continued promotion of pay-per-view events.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1998
were $38.4 million, an increase of $6.2 million, or 19.2%, over operating
expenses for the year ended December 31, 1997. An 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 programming costs for the year ended December 31, 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 our subscriber database. General and administrative
expenses increased from $9.3 million for the year ended December 31, 1997 to
$11.3 million 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 marketing
expenses for the year ended December 31, 1997. The majority of this increase
relates to increased spending associated with our marketing initiatives. As a
percentage of revenues, operating expenses increased slightly from 52.8% for the
year ended December 31, 1997 to 55.0% for the year ended December 31, 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 the year ended December 31, 1997.
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 depreciation and amortization expense for the year ended December 31, 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 for
year ended December 31, 1997 to $1.9 million for 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% for the year ended
December 31, 1997 to 7.1% for the year ended December 31, 1998. This decrease is
primarily due to an increase in the valuation allowance against deferred tax
assets.
41
<PAGE> 45
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
------- ----- ------- -----
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 equivalent
basic unit 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, Classic Cable 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. The remaining 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 $197,000 or 181%, increase in
pay-per-view event revenue.
OPERATING EXPENSES. Operating expenses increased $893,000, 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 $569,000, or
6.5%, over 1996. 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
42
<PAGE> 46
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 our aforementioned new marketing initiatives.
As a percentage of revenues, operating expenses increased slightly, from 52.4%
for the year ended December 31, 1996 to 52.9% for the year ended December 31,
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 with one of Classic's officers. Classic agreed to,
among other things, provide monetary consideration for the release of certain
claims. Legal, consultant and other charges 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
of 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 the year ended December 31, 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 from $6.8
million in 1996 to $7.3 million in 1997, 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 one of our
subsidiaries 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 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 item 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.
RESULTS OF OPERATIONS -- BUFORD
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues for the six months ended June 30, 1999 were $38.4
million, an improvement of $5.5 million, or 17%, over revenues of $32.9 million
for the corresponding prior year period. Revenues for the six months ended June
30, 1999 included the revenues for the systems acquired in late April 1998.
Average monthly basic revenue per basic subscriber increased 7% from $28.27 in
the first six months of 1998 to $30.94 in the first six months of 1999.
43
<PAGE> 47
OPERATING EXPENSES. Operating expenses increased $2.3 million from $20.2
million for the six months ended June 30, 1998 to $22.5 million for the six
months ended June 30, 1999. Programming costs for the six months ended June 30,
1999 increased $1.7 million, or 19%, over the corresponding prior year period to
$10.4 million. The increase was due primarily to the acquisition of subscribers
in late April 1998 and an increase in the number and quality of programming
services offered by Buford. Plant and operating expenses totaled $3.4 million
for the six months ended June 30, 1999 and June 30, 1998. Plant and operating
expenses as a percent of revenues decreased from 10% for the six months ended
June 30, 1998 to 9% for the six months ended June 30, 1999 reflecting the
continued benefits derived from Buford's cluster strategy. General and
administrative expenses for the six months ended June 30, 1999 were $8.5
million, up $0.6 million, or 7%, over the corresponding prior year period. The
increase was due primarily to cable systems and subscribers acquired in 1998. As
a percentage of revenues, general and administrative expenses decreased from 24%
for the six months ended June 30, 1998 to 22% for the six months ended June 30,
1999. Marketing and advertising expenses for the six months ended June 30, 1999
and 1998 were relatively flat at $0.2 million.
CORPORATE OVERHEAD. Corporate overhead for the six months ended June 30,
1999 was $(0.1) million, a decrease over the six months ended June 30, 1998 of
approximately $4.4 million due primarily to compensation expense related to
employee stock appreciation rights in 1998. The management group's appreciation
rights were tied to the appreciation in the market value of Buford's common
stock. Buford recorded a credit of approximately $0.7 million during the six
months ended June 30, 1999 to corporate overhead based on the actual payments
made upon consummation of the sale. Buford recorded compensation expense of $3.6
million in the six months ended June 30, 1998 related to these appreciation
rights. Excluding the compensation expense relating to these appreciation
rights, corporate overhead decreased by approximately $0.2 million for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the six months ended June 30, 1999 was $12.1 million, an increase of $2 million
or 19% over the corresponding prior year period. The increase is due primarily
to the inclusion of the tangible and intangible assets acquired during 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues in 1998 were $70.5 million, an improvement of $12.4
million, or 21.3%, over revenues in 1997. The improvement was due primarily to
basic rate increases during the first half of 1998 as well as revenue generated
from the systems acquired in late April 1998. Buford has historically increased
rates in the majority of its systems during the first half of the year in order
to offset increases in its operating costs such as programming which occur in
January of each year. Average monthly basic revenue per basic subscriber
increased 7.1%, from $26.31 for the year ended December 31, 1997 to $28.17 for
the year ended December 31, 1998.
OPERATING EXPENSES. Operating expenses in 1998 were $41.8 million, an
increase of $5.8 million, or 16.1%, over operating expenses for the year ended
December 31, 1997. The continued escalation in rates charged by programming
vendors as well as increases in copyright fees and premium units were largely
responsible for the $4.0 million increase in programming costs over 1997. Plant
and operating expenses increased from $6.6 million for the year ended December
31, 1997 to $6.9 million for the year ended December 31, 1998, reflecting
increases in technical wages and benefits and amounts paid to outside
contractors. General and administrative expenses increased from $14.9 million
for the year ended December 31, 1997 to $16.2 million for the year ended
December 31, 1998 due to increases in administrative wages and benefits and
utility expense. Marketing and advertising expenses for the year ended December
31, 1998 were $0.3 million, an increase of 50.0% over marketing and advertising
44
<PAGE> 48
expenses for the year ended December 31, 1997. The majority of this increase
relates to increased spending associated with Buford's marketing initiatives.
CORPORATE OVERHEAD. Corporate overhead increased $4.5 million, or 91.8%,
from $4.9 million for the year ended December 31, 1997 to $9.4 million for the
year ended December 31, 1998 due primarily to an increase in compensation
expense related to employee stock appreciation rights from $3.5 million for the
year ended December 31, 1997 to $7.9 million for the year ended December 31,
1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the year ended December 31, 1998 was $21.4 million, an increase of $3.6 million
over depreciation and amortization expense for the year ended December 31, 1997.
The increase is largely reflective of the inclusion of fixed assets acquired and
those placed into service during 1997 and 1998.
INCOME TAX BENEFIT. Income tax benefit of $0.2 million was recorded for
the year ended December 31, 1998 versus $0.3 million for the year ended December
31, 1997. 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
REVENUES. Revenues for the year ended December 31, 1997 were $58.1
million, an improvement of $8.5 million, or 17.1%, over revenues of $49.6
million for the year ended December 31, 1996. This increase was primarily due to
basic rate increases implemented during the first half of the year, and
acquisitions of cable systems in Arkansas and Texas. Average monthly basic
revenue per basic subscriber increased 6.1% from $24.80 for the year ended
December 31, 1996 to $26.31 for the year ended December 31, 1997.
OPERATING EXPENSES. Operating expenses increased $6.0 million, or 20.0%,
from $30.0 million for the year ended December 31, 1996 to $36.0 million for the
year ended December 31, 1997. Programming costs for the year ended December 31,
1997 were 14.3 million, an increase of $2.7 million, or 23.3%, over the year
ended December 31, 1996. This increase was due to the acquisition of several
cable systems, increased subscriber rates and the expanded channel lineups in
many of Buford's markets. Plant and operating expenses increased $0.9 million,
or 15.8%, to $6.6 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 the year ended
December 31, 1997 were $14.9 million, an increase of $2.3 million, or 18.3%,
over general and administrative expenses for the year ended December 31, 1996.
The increase was due primarily to an increase in bad debt expense and telephone
expense which were related to the consolidation of regional offices into the
Buford Call Center facility in Tyler, Texas. Marketing and advertising expenses
for the year ended December 31, 1997 and December 31, 1996 were flat at $0.2
million.
CORPORATE OVERHEAD. Corporate overhead for the year ended December 31,
1997 was $4.9 million, an increase of $2.0 million over the year ended December
31, 1996. The increase was largely reflective of an increase in compensation
expense related to employee stock appreciation rights from $1.5 million for the
year ended December 31, 1996 to $3.5 million for the year ended December 31,
1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the year ended December 31, 1997, was $17.8 million, an increase of $0.6 million
over depreciation and amortization expense for the year ended December 31, 1996.
The increase is due primarily to the inclusion of fixed assets placed into
service during the year.
INCOME TAX BENEFIT. The benefit for income taxes was $0.3 million for the
year ended December 31, 1997 versus tax expense of $0.1 million for the year
ended December 31, 1996, primarily due to the increase in the pre-tax loss from
operations in 1997.
45
<PAGE> 49
LIQUIDITY AND CAPITAL RESOURCES
CLASSIC -- HISTORICAL
Since Classic's inception, Classic has been supported through debt
financings and equity raised through sales of equity to institutional equity
investors. At June 30, 1999, capital stock of Classic was owned by institutional
investors, including Austin Ventures, L.P., BA Capital Company, L.P., The Texas
Growth Fund, BT Capital Partners, Inc., and certain members of its bank group.
These institutional investors have contributed approximately $34.1 million of
total equity financing to Classic. At June 30, 1999, Classic had aggregate
consolidated indebtedness of approximately $288.3 million. This debt and equity
financing was utilized primarily in the acquisition of cable television systems.
Our net cash provided by operations was $14.3 million in 1998 compared to
$7.9 million in 1997 and $7.9 million in 1996. Our 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. Our 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. Our Adjusted EBITDA increased to $28.8 million in 1998 from
$25.5 million in 1997 and $27.3 million in 1996. Adjusted EBITDA as a percentage
of revenue changed to 41.3% in 1998 from 41.8% in 1997, and 45.7% in 1996.
Included in Adjusted EBITDA for the year ended December 31, 1997 were charges of
$1.4 million for divorce litigation costs and $0.4 million for special bonuses
paid to executive officers. Included in Adjusted EBITDA for the year ended
December 31, 1998 were special bonuses paid to executive officers of $0.8
million.
For the three years ended December 31, 1998, our 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.
BUFORD -- HISTORICAL
For the three years ended December 31, 1998, Buford's capital expenditures,
other than those related to acquisitions, were approximately $58.1 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 services to new subscribers and the
addition of a new state of the art call center.
Since its inception, Buford was supported by commercial banking
institutions and insurance company funding. At June 30, 1999, Buford had
aggregate consolidated indebtedness of $112.0 million, all of which was repaid
on the date of the acquisition. Borrowings bore interest at the banks' floating
rates, LIBOR, or a combination thereof as selected by Buford, plus a margin
dependent on Buford's leverage ratio. The weighted average effective interest
rate at June 30, 1999 was 6.2%.
Buford's net cash provided by operations was $20.3 million in 1998 compared
to $16.9 million in 1997 and $13.6 million in 1996. Buford's net cash provided
by (used in) investing activities was ($53.2 million), ($39.7 million) and $20.3
million in 1998, 1997 and 1996, respectively. Buford's net cash provided by
(used in) financing amounted to $32.8 million, $24.9 million and ($10.9 million)
in 1998, 1997 and 1996, respectively. Buford's Adjusted EBITDA increased to
$27.2 million in 1998 from $20.8 million in 1997 and $18.1 million in 1996.
Adjusted EBITDA as a percentage of revenue changed to 38.6% in 1998 from 35.8%
in 1997 and 36.5% in 1996.
46
<PAGE> 50
PRO FORMA FOR THE BUFORD ACQUISITION, THE STAR ACQUISITION AND OTHER COMPLETED
ACQUISITIONS
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, we have pursued, and continue to pursue,
a business strategy that includes selective acquisitions. We have funded our
working capital requirements, capital expenditures and acquisitions through a
combination of internally generated funds, long- and short-term borrowings, and
equity contributions. We intend to continue to finance these expenditures from
similar sources.
In July 1998, we issued $114.0 million of 13.25% Senior Discount Notes due
2009 and our 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 2009 senior discount
notes, proceeds from these issues were $60 million and $124.4 million,
respectively. Concurrent with the offering, Classic Cable entered into the $125
million 1998 Credit Agreement. Proceeds from the 1998 Credit Agreement totaled
$96 million. These proceeds were used to retire the existing debt facility and
purchase certain cable systems of Cable One.
In July 1999, Classic Cable issued $150.0 million of 9.375% Senior
Subordinated Notes due 2009. Concurrently with the offering, Classic Cable
entered into the 1999 Credit Agreement. The proceeds from these transactions and
a sale of our stock were approximately $425.0 million and were used to (a) fund
the acquisition of Buford Group, Inc., (b) repay the 1998 Credit Agreement and
(c) pay fees and expenses of these transactions. The 1999 Credit Agreement
consists of (a) a $75.0 million revolving credit facility which matures in 2007,
(b) a $75.0 million Term A loan facility which matures in 2007, (c) a $100.0
million Term B loan facility which matures in 2008, and (d) a $100.0 million
Term C loan facility which matures in 2008. Mandatory payments commence in 2001.
Interest is based upon either a LIBOR rate plus an applicable margin or, at our
option, a base rate plus an applicable margin. The Term C loan facility was
utilized in September 1999 to fund the partial redemption of $86.0 million of
the 2008 subordinated notes. For more information regarding our utilization of
the facilities under the 1999 credit agreement, see "Description of Certain
Indebtedness -- Credit Facility."
We anticipate utilizing the proceeds of this offering to repay the 2009
senior discount notes and to finance the Star acquisition. We anticipate that
the repayment of the 2009 senior discount notes will result in a loss on
extinguishment of debt of approximately $11.5 million.
The 1999 Credit Agreement of Classic Cable is collateralized by essentially
all the assets of Classic Cable. We have no operations of our own. Consequently,
we will rely on dividends and cash flow of Classic Cable to meet our debt
service obligations. The terms of the 1999 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 us and may not
be available for dividends and/or our debt service.
We have debt service requirements increasing from approximately $40 million
a year to $54 million over the next eight years. During this time, we anticipate
capital expenditures averaging approximately $50 million a year. Debt covenants
dictate that Classic Cable 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 Classic Cable's operations and pay the
anticipated debt service and capital expenditure requirements are anticipated to
be primarily generated from its operating activities and from additional
financing activities. On June 30, 1999, we had $75.0 million available under
Classic Cable's line of credit subject to some limitations.
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We have formulated a capital expenditures plan to spend over the next four
fiscal years approximately:
- $126.0 million to establish a technical standard of 550-750 MHz bandwidth
capacity, or 78 analog channels, in cable television systems serving
approximately 72% of our basic subscribers and for the consolidation of
headends;
- $52.0 million for ongoing maintenance and replacement, for installations
and extensions to improve the cable plant related to customer growth; and
- $22.0 million for the purchase of additional addressable converters and
headend equipment to support the deployment of digital services. See
"Business."
Our ability to make payments on and to refinance our indebtedness and to
fund planned capital expenditures will depend on our ability to generate cash in
the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
Based on Classic Cable's current level of operations and anticipated cost
savings and operative improvements, we believe Classic Cable's cash flow from
operations, available cash and available borrowings under its credit facility,
will be adequate to meet our future liquidity needs for at least the next few
years.
We cannot assure you, however, that Classic Cable's business will generate
sufficient cash flow from operations, that currently anticipated cost savings
and operative improvements will be realized on schedule or that future
borrowings will be available to us under Classic Cable's credit facility in an
amount sufficient to enable us to pay our indebtedness or to fund our other
liquidity needs. We may need to refinance all or a portion of our indebtedness
on or before maturity. We cannot assure you that we will be able to refinance
any of our indebtedness, including Classic Cable's credit facility and its
outstanding notes, on commercially reasonable terms or at all. See "Risk
Factors."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which, as
amended, is required to be adopted in years beginning after June 15, 2000.
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.
INFLATION
Certain of our 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, these
changes historically have not had a material adverse effect on our 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 shut down or provide
incorrect data.
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These problems are expected to increase in frequency and severity as the
year 2000 approaches. This issue impacts our owned or licensed computer systems
and equipment used in connection with internal operations, including:
- information processing and financial reporting systems;
- customer billing systems;
- customer service systems;
- telecommunication transmission and reception systems; and
- facility systems
We also rely directly or indirectly, in the regular course of business, on
the proper operation and compatibility of third party systems. The year 2000
problem could cause these systems to fail or become incompatible with our
systems.
The failure or loss of compatibility among systems could cause material
disruptions, including the inability to process transactions, generate invoices,
or to respond to requests for service. We could also face similar disruptions if
the year 2000 problem causes general widespread problems or an economic crisis.
We cannot now estimate the extent of these potential disruptions on our results
of operations, liquidity or financial condition.
Through the redeployment of internal resources and the selective engagement
of outside consultants, we are addressing the year 2000 problem with respect to
our internal operations in three stages:
- conducting an inventory and evaluation of our systems, components, and
other significant infrastructure to identify those elements that we
reasonably believe could be expected to be affected by the year 2000
problem. This stage has been completed.
- remediating or replacing equipment that, based upon such inventory and
evaluation, we believe may fail to operate properly in the year 2000.
This stage has been completed.
- testing of the remediation and replacement conducted in stage two. This
stage is substantially complete, with further testing to be conducted up
to and through December 31, 1999.
Much of our assessment efforts have involved, and depend upon, inquiries to
third party service providers, suppliers and vendors of various parts or
components of our systems. We have obtained certifications from third party
service providers, suppliers and vendors as to the readiness of mission critical
elements. Certain of these parties have certified the readiness of their
products but will not certify their operability within our fully integrated
systems. We cannot assure you that these technologies of third parties, on which
we rely, will be year 2000 ready or timely converted into year 2000 compliant
systems compatible with our systems. We have, however, evaluated the potential
impact of third party and/or integration failure on our systems in connection
with the development of our contingency plans.
Our year 2000 plan calls for appropriate contingency planning for our
at-risk business functions. As part of our normal operations, contingency plans
are in place to minimize disruption of service to customers and other critical
business functions, including guidelines for informing the appropriate personnel
in order to accelerate restoration of service.
We have negotiated certain contractual rights relating to the year 2000
problem in the Star asset purchase agreement. We have included acquired cable
television systems in our year 2000 compliance efforts. We are monitoring the
remediation process for the systems we are acquiring to ensure completion of
remediation in a timely manner. We have found that these companies are following
a three stage process similar to that outlined above and are on a similar time
line for
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completion. We are not currently aware of any likely material system failures
relating to the year 2000 affecting the acquired systems.
We believe our efforts have significantly reduced our level of uncertainty
about the year 2000 problem and, in particular, about the year 2000 compliance
and readiness of our material vendors. However, 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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BUSINESS
COMPANY OVERVIEW
We are a growth oriented cable operator focused on non-metropolitan markets
in the United States. We have experienced growth in subscribers, revenues and
cash flows, primarily through the successful execution and integration of over
20 acquisitions of cable systems primarily clustered in nine contiguous states.
Pro forma for the pending acquisition of Star Cable Associates and assuming
completion of other recently publicly announced transactions by other companies
in the cable television industry, we believe we are the 14th largest cable
operator in the United States. Our systems pass approximately 707,000 homes and
serve approximately 416,000 basic subscribers, which includes approximately
98,000 homes and 57,000 subscribers for Star.
We believe that there are significant operating, competitive and economic
advantages in acquiring and owning systems in non-metropolitan markets. In
pursuing our business strategy, we have focused our acquisition efforts on cable
television systems in growing non-metropolitan markets and have sought to build
geographic clusters of these systems. Because of poor reception of broadcast
television signals, customers often require cable television service in these
markets to receive a full complement of off-air broadcast stations, such as ABC,
NBC, CBS, and FOX. These off-air broadcast stations represent approximately 31%
of overall television viewing. In addition, there are typically fewer
competitive entertainment alternatives in these markets. As the leading
multi-channel video provider in our markets, we have capitalized on these market
characteristics by generating predictable revenue streams and EBITDA.
Approximately 71% of our cable subscribers reside in a county seat or are
located within a 30-mile radius of a county seat. These markets typically have
(A) larger populations, (B) more favorable demographics, (C) higher growth
characteristics, and (D) stronger economic activity than do other
non-metropolitan markets. We have created clusters of cable television systems
around these markets and believe that clustering cable systems provides
significant operating and cost advantages. We own and manage 576 cable systems
primarily clustered in nine contiguous states, including 37 systems for Star
located in Louisiana, Ohio and Texas. Approximately 72% of our customers are
located on approximately 27% of our headends. This level of clustering allows us
to deploy our technical staff, vehicle fleet, and shared resources more
efficiently, resulting in lower operating and capital costs and improved
customer response time. Clustering also allows us to:
- manage the workforce and allocate personnel more effectively;
- address the specific customer service and programming needs of our
customers;
- introduce digital cable services and other new services in a cost
effective manner;
- increase the number of households reached with existing marketing
budgets;
- increase the benefits of local and regional community relations efforts;
and
- manage political relationships at the local and state level.
We believe that providing superior customer service and developing strong
community relations are key elements to our long-term success and enable us to
maintain our subscribers, support our rates, and foster good working
relationships with local administrators. We seek to achieve a high level of
customer satisfaction by employing a well-trained staff of customer service
representatives and experienced field technicians. We operate two call centers
located in Tyler, Texas, and Plainville, Kansas, which offer 24-hour, 7-day per
week coverage to all of our customers on a toll-free basis. We believe that the
combination of these call centers provides us with redundancy safeguards and a
platform for further growth.
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J. Merritt Belisle, our Chief Executive Officer, and Steven E. Seach, our
President and Chief Financial Officer, founded Classic 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.
As a result of the Buford acquisition, our management team has been further
enhanced by the addition of several key members of Buford's management team,
including Ron Martin, who became our Executive Vice President of Operations and
Kay Monigold, who became our Executive Vice President of Administration. Mr.
Martin and Ms. Monigold have been in the cable industry for over 25 years and 18
years, respectively.
Upon completion of this offering, members of our management team will
collectively own or have the right to acquire approximately % of our Class A
common stock and % of our Class B common stock. Up to an additional % of our
Class A common stock and % of our Class B common stock have been set aside for
issuance to management pursuant to options granted to them.
Since our inception, we have been supported through debt financings and
equity raised through sales to institutional equity investors. Our capital stock
is owned by institutional investors, including Brera Classic, BT Capital
Partners, Inc., Austin Ventures, L.P., BA Capital Company, L.P., The Texas
Growth Fund, and certain members of our existing bank group. These institutional
investors have contributed approximately $134.1 million of total equity
financing to us. At June 30, 1999, on a pro forma basis, we had long-term debt
of approximately $478.7 million. This debt and equity financing was utilized
primarily in the acquisition of cable television systems.
OUR STRATEGY
FOCUS ON ATTRACTIVE NON-METROPOLITAN MARKETS
We have followed a systematic approach to acquiring, consolidating,
operating and developing cable television systems based on the primary goal of
increasing our operating cash flow while maintaining the quality of our
services. Our business strategy is to focus on serving growing non-metropolitan
communities in the United States. For example, approximately 71% of our cable
subscribers reside in a county seat or within a 30-mile radius of 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 and Claritus, Inc.,
total households in the top 110 systems owned by us are projected to grow by
approximately 6.2%, versus the national average of 5.7%, from 1997 to 2002.
Those 110 systems currently serve approximately 62.8% of our total subscribers.
We believe that our cable systems generally are subject to less competition than
systems serving large urban cities, especially for services such as high speed
Internet access. It is our goal to continue to focus on growing non-metropolitan
areas.
EXPAND AND IMPROVE CLUSTERS THROUGH SELECTIVE ACQUISITIONS
To date, we have sought to acquire cable television systems in communities
that are in close geographic proximity to other cable television systems owned
or managed by us in order to maximize the economies of scale and operating
efficiencies associated with "clusters" of systems. We plan to continue our
clustering strategy by pursuing opportunities to purchase cable television
systems in our 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, we expect to pursue opportunities
to exchange certain of our cable
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systems for other cable television properties to promote our clustering strategy
further. Factors likely to be considered by us 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 our operations.
In order to offer Internet access on a full-scale residential and
commercial basis in the communities we serve, we are actively seeking to acquire
incumbent Internet service providers in and around our markets. We believe that
acquiring the expertise from an incumbent Internet service provider would allow
us to offer services in the most effective and timely manner enabling us to
capitalize on the immediate, viable Internet opportunities in our markets. We
are 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 COMMUNITY RELATIONS AND CUSTOMER SATISFACTION
We believe that providing superior customer service and enhancing the
quality of life in the communities we serve are the key elements to our ultimate
long-term success. Our high level of service enables us to maintain subscribers
and support our rates. It is our goal to achieve a high level of customer
satisfaction by employing a well-trained staff of customer service
representatives and experienced field technicians.
Our Tyler, Texas call center offers 24-hour, 7-day per week coverage to
customers on a toll-free basis. The call center utilizes four T-1 lines and can
handle up to 80 incoming calls at any given time. We believe that, as currently
configured, the call center can accommodate 250,000 subscribers. The call center
complex, including hardware and software, was designed to be rapidly and
cost-effectively increased in scale to manage up to approximately 2.0 million
subscribers.
Our Tyler, Texas call center administers all phases of on-site service at a
customer's home, including dispatching the order, confirming that service has
been completed and updating the billing system and the customer's records to
reflect completion of the service. We utilize a satellite-based system to track
and dispatch our service vehicles throughout the service territory. The Qualcomm
OmniTRACS system provides real-time, constant two-way communications between the
call center and service vehicles. The system utilizes a base unit at the call
center that sends and receives messages via satellite from receiver/transmitters
installed atop each service vehicle.
Our Plainville, Kansas call center also offers 24-hour, 7-day per week
coverage 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
telephone switch we own. 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.
We believe customer service is further enhanced by our 44 offices and
Star's seven offices and their ability to coordinate technical service and
installation appointments more effectively and to respond quickly to customer
inquiries. We also believe that local offices increase the effectiveness of our
customer retention efforts, community relations endeavors, and marketing
campaigns. Our 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,
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technical support, and other pertinent customer service issues. In addition, we
employ bilingual customer service representatives to serve our Spanish-speaking
subscriber base.
We are dedicated to fostering strong community relations in the communities
we serve. The cornerstone of our community relations strategy is our Classic
Scholarship Fund, which has provided meaningful financial assistance to hundreds
of graduating high school seniors within our service areas over the past three
years. We install and provide free cable television service and Internet access
to public schools, government buildings, and public libraries in our franchise
areas. We believe that our relations with the communities we serve are good.
We maintain a site on the World Wide Web (http://www.classic-cable.com) to
help communicate and interact with our online customers. Our website was
designed to help our customers make intelligent television viewing choices and
to acquaint our customers with us and our corporate mission.
INCREASE THE REVENUE-GENERATING BANDWIDTH OF OUR CABLE PLANT
Through our capital improvement program, we plan to upgrade our cable plant
aggressively and systematically utilizing cost-effective and appropriate
technology for the market served. These upgrades include:
- Traditional rebuild to a 550-750 MHz bandwidth capacity in selected
systems;
- The deployment of digital compression services such as Headend in The
Sky(R), known as HITS, a digital compression service developed by
National Digital Television Center, Inc., a subsidiary of
Tele-Communications, Inc., and TVN Entertainment Digital Service, known
as TVN;
- The deployment of fiber optic cable; and
- The consolidation of headends.
We believe that these technical upgrades create additional revenue
opportunities, enhance operating efficiencies, increase customer satisfaction,
improve franchise relationships and solidify our position as the dominant
provider of multi-channel video services in our markets. We seek to benefit from
the capital improvement program by generating additional revenue from:
- Expanded tiers of basic programming;
- Multiplexed premium services;
- Pay-per-view movies and events;
- Digital music;
- On-screen navigators;
- Home shopping services;
- High-speed data services;
- Internet access; and
- Advertising.
IMPLEMENT OUR BROADBAND SERVICES
DIGITAL SERVICES. Depending on the size of the system, we intend to offer
digital video services through either a digital headend or through a
direct-to-home solution. In larger systems,
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we provide enhanced digital video in our upgraded and certain other systems
using either HITS or TVN. HITS enables us to deliver video services such as:
- pay-per-view programming;
- on-screen programming navigators;
- multiplexed premium channels such as HBO-Family and HBO-Signature;
- digital music; and
- multiple tiers of niche satellite basic programming.
TVN also offers a similar digital compression service which provides a
robust line up of pay-per-view programming, digital quality music channels, and
the on-screen programming navigator. This digital delivery method provides for a
more flexible, customized product and improved channel lineups and may
potentially allow for more flexibility in pricing and packaging.
For systems with fewer than 2,000 subscribers, or other systems whose
headends are uneconomical to upgrade, we intend to use a digital satellite
alternative to provide a more robust cable product offering. Whether through the
resale of digital programming from a DBS provider or HITS-2-Home, we can offer
customers over 140 additional channels. For example, HITS has recently developed
a seamlessly delivered digital satellite programming overlay product direct to
the home. This product, HITS-2-Home, is expected to offer customers a
programming selection comparable to that currently offered by HITS to the
headend.
We believe that these enhanced digital video services will allow us to
provide digital services comparable to DBS at a lower cost. We have introduced
the HITS or TVN digital product in 10 systems which in the aggregate pass
approximately 83,000 homes, representing approximately 53,000 cable subscribers.
As of June 30, 1999, we had approximately 3,300 digital customers. We plan to
continue the roll out of digital cable services throughout the company over the
next several months.
INTERNET SERVICES. We believe 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. We believe that these markets have limited appeal to the larger
telecommunications companies and that our technical platform will provide these
services at higher speeds and lower cost, giving us a competitive advantage over
other telecommunication providers in the markets in which we operate. For
example, a 10 megabit cable modem can provide Internet access at download speeds
350 times faster than typical 28.8 kilobit dial-up telephone modem connections.
We have introduced Internet access via one-way cable modem in selected systems
and will seek to complement this service with the telephone modem connection
through acquisitions of local Internet service providers.
As part of our strategy to deliver Classic-branded advanced data services
in communities we serve, we have entered into a non-exclusive agreement with
High Speed Access Corporation, known as HSA. HSA provides a comprehensive
turnkey solution for high speed Internet access via cable modems to residential
and commercial end users. HSA will provide speed to market, call center/help
desk support, national and local marketing assistance, engineering and network
design, cable modems and supporting headend equipment. The Com21 modem that HSA
currently uses is system flexible, capable of being deployed in a one-way, or
telco return, or two-way scenario. In return for these services, we will receive
a 50% split of gross customer revenue. We plan to pursue strategic relationships
with other high speed internet companies in the near future. Presently, we have
nine active sites passing approximately 46,000 homes.
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STAR ACQUISITION
On October 14, 1999, a subsidiary of Classic Cable entered into an
agreement to purchase substantially all of the assets of Star Cable Associates,
which operates cable television systems in Texas, Louisiana and Ohio, for an
aggregate purchase price of approximately $110 million in cash and 555,555
shares of Class A common stock. The asset purchase agreement contains customary
representations, warranties, covenants, indemnities and closing conditions,
including closing conditions related to governmental approvals and the transfer
of franchise licenses to Classic Cable by Star. The asset purchase agreement is
terminable by any party to the agreement not in breach of the agreement on March
31, 2000 if the Star acquisition has not been consummated prior to such date.
The asset purchase agreement is terminable on July 31, 2000 by any party to the
agreement if the Star acquisition had not been consummated prior to such date.
Star serves approximately 57,000 customers. For the six months ended June 30,
1999, Star had revenues of approximately $12.4 million. For the year ended
December 31, 1998, Star had revenues of approximately $18.4 million.
SYSTEM LOCATION
We operate cable television systems in non-metropolitan markets primarily
clustered in nine contiguous states in the central United States. The following
table illustrates our relative rank in each of the states we operate based on
total number of subscribers giving effect to recently announced transactions:
<TABLE>
<CAPTION>
TOP
EQUIVALENT TEN
HOMES BASIC BASIC STATE
STATE PASSED UNITS PENETRATION RANKINGS
- ----- ------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Texas(1)............................. 317,971 166,091 52% 5
Arkansas............................. 96,728 57,632 60 4
Oklahoma............................. 81,270 49,873 61 3
Louisiana(2)......................... 63,900 42,896 67 4
Missouri............................. 67,288 38,841 58 4
Kansas............................... 50,965 34,977 69 3
Ohio(3).............................. 17,452 11,987 69 --
Colorado............................. 5,157 5,312 103(4) 5
Nebraska............................. 3,389 2,166 64 --
New Mexico........................... 2,604 1,655 64 --
------- ------- -----
Subtotal........................ 706,724 411,430 58%
=====
CCT............................. 4,335
------- ------- -----
Total...................... 706,724 415,765 59%
======= ======= =====
</TABLE>
- ---------------
(1) Includes 22 systems to be acquired from Star.
(2) Includes six systems to be acquired from Star. Exclusive of Star, we would
be ranked eighth in this State.
(3) Includes nine systems to be acquired from Star.
(4) Our system in Colorado includes a number of multi-dwelling units, allowing
for basic penetration over 100%.
As part of the Buford acquisition, we acquired Correctional Cable
Television, Inc., known as CCT. CCT is the largest provider of programming
services to the prison market, serving 90 correctional facilities in 18 states,
reaching more than 70,000 inmates. CCT provides programming services through
company-owned and installed modified headends under three to
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five year contracts. CCT's EBITDA has grown at a compounded annual rate of
approximately 40% during the last three years. CCT's continued growth will be
driven by increased penetration of the prison market, which consists of
approximately 2,000 federal, state and juvenile facilities.
MARKETING, PROGRAMMING AND RATES
Our marketing programs and campaigns are based upon a variety of cable
services creatively packaged and tailored to appeal to our different markets and
segments within each market. We routinely survey our customer base to ensure
that we are meeting the demands of our customers and staying abreast of our
competition in order to counter competitors' promotional campaigns effectively.
We use 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.
We have various contracts to obtain basic, satellite and premium
programming for our cable 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, we are a member of a programming
consortium consisting of small to medium sized multiple cable systems operators
and individual cable systems serving, in the aggregate, over ten 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.
We do not have long-term programming contracts for the supply of a substantial
amount of our programming. In cases where we do have such contracts, they are
generally for fixed periods of time ranging from one to five years and are
subject to negotiated renewal. While we believe that our relations with our
programming suppliers are generally good, the loss of contracts with certain of
our programming suppliers would have a material adverse effect on our results of
operations. 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. For the year ended
December 31, 1998 and the six months ended June 30, 1999, programming costs as a
percentage of revenues were 26% and 27%, respectively. We cannot assure you that
our programming costs will not increase substantially in the near future or that
other materially adverse terms will not be added to our programming contracts.
Our cable systems offer our 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 us
varies among the cable systems depending upon each system's channel capacity and
viewer interests. Primarily for competitive reasons, we generally attempt to
offer a single level of basic service containing all broadcast and
satellite-delivered programming. In a few systems, however, we do offer multiple
tiers of cable television programming. We also offer premium programming
services, both on a per-channel basis and in many systems as part of premium
service packages designed to enhance our 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 June
30, 1999, our monthly full basic service rates for residential customers ranged
from $18.00 to $35.45 and per-channel premium service rates, not including
special promotions, ranged from $5.95 to $12.00 per service. At June 30, 1999,
the weighted average price for our monthly full basic service was approximately
$29.61.
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A one-time installation fee, which we may wholly or partially waive during
a promotional period, is usually charged to new customers. We charge monthly
fees for converters and remote control tuning devices. In addition, we also
charge 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, we derive modest revenues from the sale of
local spot advertising time on locally originated and satellite-delivered
programming. We also derive 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.
We also derive revenue from the sale of programming featuring movies and
special events to customers on a pay-per-view basis. We believe that we will be
able to further increase our pay-per-view penetration rates and revenue as we
continue to deploy addressable technology in upgraded systems and in systems
where we launch a digital compression service.
While we plan to offer advanced telecommunications services in certain of
our cable systems, we anticipate that monthly customer fees derived from
multi-channel video services will continue to constitute the large majority of
our total revenues for the foreseeable future.
TECHNICAL OVERVIEW
We endeavor to maintain high technical performance standards in all of our
cable systems. To accomplish this, we have embarked on our capital improvement
plan to upgrade our cable systems selectively. This program, which involves the
use of fiber optic technology, will (A) expand channel capacities, (B) enhance
signal quality, (C) improve technical reliability, (D) augment address ability,
and (E) provide a platform to develop high-speed data services and Internet
access. We believe that such technical upgrades create additional revenue
opportunities, enhance operating efficiencies, increase customer satisfaction,
improve franchising relations and solidify our position as the dominant provider
of video services in the markets in which we operate. Before committing the
capital to upgrade or rebuild a system, we carefully assess:
- the existing technical reliability and picture quality of the system;
- basic subscribers' demand for more channels;
- requirements in connection with franchise renewals;
- programming alternatives offered by our competitors;
- customers' demand for other cable television and broadband
telecommunications services; and
- the return on investment of any such capital outlay.
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Currently, our subscribers, on average, are served by systems with an
analog capacity of 51 channels with 41 channels in use. The table below
summarizes our existing technical profile, as of June 30, 1999:
<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(1)...... 18 249 131 68 110 576
Miles of plant............ 169 5,147 5,341 3,497 5,647 19,802
Homes passed.............. 7,001 162,558 193,533 108,586 235,046 706,724
Basic subscribers......... 3,383 82,010 117,401 59,426 149,210 411,430(2)
% of total basic
subscribers............. 0.8% 19.9% 28.5% 14.4% 35.3% 100.0%
Basic subscribers per
plant mile.............. 20.0 15.9 22.0 17.0 26.4 20.8
Premium subscribers....... 1,000 37,741 48,973 39,870 83,076 210,660
Premium penetration....... 29.6% 46.0% 41.7% 67.1% 55.7% 51.2%
</TABLE>
-------------------------
(1) Includes 9 systems for Star serving 30 to 39 channels, 7 systems
serving 40 to 49 channels, 6 systems serving 50 to 59 channels and
15 systems serving over 60 channels. Star does not have any system
that serves less than 30 channels.
(2) Does not include approximately 4,300 equivalent basic units
related to CCT.
Our capital improvement plan contemplates the investment of approximately
$200.0 million over the next four fiscal years as follows:
- $126.0 million to establish a technical standard of 550-750 MHz bandwidth
capacity in cable television systems serving approximately 72% of our
basic subscribers and for the consolidation of headends;
- $52.0 million for ongoing maintenance and replacement, for installations
and extensions to the cable plant related to customer growth; and
- $22.0 million for the purchase of additional addressable converters and
headend equipment to support the deployment of digital services.
The table below summarizes our expected technical profile upon completion
of the capital 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(1)(2)... -- 212 117 42 205 576
Miles of plant............ -- 3,379 1,783 1,101 13,538 19,802
Homes passed.............. -- 100,818 65,700 31,665 508,541 706,724
Basic subscribers......... -- 48,025 32,496 13,514 317,395 411,430(3)
% of total basic
subscribers............. NA 11.7% 7.9% 3.3% 77.1% 100.0%
Basic subscribers per
plant mile.............. NA 14.2 18.2 12.3 23.4 20.8
Premium subscribers....... -- 21,605 12,455 9,189 167,411 210,660
Premium penetration....... NA 45.0% 38.3% 68.0% 52.7% 51.2%
</TABLE>
-------------------------
(1) Includes 5 systems for Star serving 30 to 39 channels, 6 systems
serving 40 to 49 channels, 4 systems serving 50 to 59 channels and
22 systems serving over 60 channels. Star does not have any system
that serves less than 30 channels.
(2) The analysis above does not reflect the impact of anticipated
headend consolidations achieved through the selective deployment
of fiber optic technology.
(3) Does not include approximately 4,300 equivalent basic units
related to CCT.
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With the exception of 11 systems, we do not currently use addressable
technology. We utilize 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 cable 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.
Our 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 our 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.
We expect to use fiber backbone architecture selectively to eliminate headend
facilities and to reduce amplifier cascades, thereby improving picture quality,
system reliability and headend and maintenance expenditures.
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 expand channel capacity significantly given that
up to 12 digital channels can be carried in the bandwidth of one analog channel
(6 MHz).
We own or lease 670 towers that are used to receive off-air broadcast
signals from the nearest urban transmit site or via intermittent microwave relay
stations, including 53 towers owned by Star. Our towers range from 15 feet to
600 feet in height and 146 of our towers, including eight Star towers, are at
least 200 feet in height. We lease tower space to cellular telephone, personal
communications services paging and other transmission companies for a fixed
monthly charge typically dictated by long-term contract.
FRANCHISES
Cable television systems are typically constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain conditions, such as:
- time limitations on commencement and completion of construction;
- conditions of service, including number of channels, types of programming
and the provision of free service to schools and certain other public
institutions; and
- 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 -- Federal Regulation -- Cable Rate Regulation."
At June 30, 1999, pro forma for the Buford acquisition and the Star
acquisition, we held 787 franchises, including 92 franchises for Star. 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 cable
systems range from 0% to 5% of the gross revenues generated by the cable
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. Our franchises can be
terminated by the franchising authority prior to the stated expiration date for
uncured breaches by us of material provisions.
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The following table sets forth the number of franchises by year of
franchise expiration and the approximate number and percentage of basic
subscribers at June 30, 1999:
<TABLE>
<CAPTION>
% OF NUMBER % OF
NUMBER OF TOTAL OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
- ---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 2000.................. 29 3.7% 26,395 6.4%
2000 to 2003................... 187 23.8 95,095 23.1
After 2003..................... 571 72.6 289,940 70.5
--- ----- ------- -----
Total................ 787 100.0% 411,430 100.0%
=== ===== ======= =====
</TABLE>
The Star franchises have an average remaining life of six years per system.
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." We believe that we
have good relationships with our franchising communities. To date, we have never
had a franchise revoked or terminated. Additionally, no request made by us 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 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 -- Federal Regulation -- Cable Rate Regulation."
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 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
1940's and early 1950's in response to the needs of residents in predominantly
rural and mountainous areas of the country where the quality of off-air
television reception was inadequate due to factors such as unfavorable
topography and remoteness from television broadcast towers. In the 1960's, 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 from
Chicago, various channels, such as Cable News Network, Music Television, the USA
Network, Turner Network Television, and Entertainment and Sports Programming
Network,
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programming originated locally by the cable television system, such as public,
government 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,
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. These 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 aspect of the industry as potential
opportunities to expand into Internet, broadband data, telephone, and other
telecommunications services, and those services continue to develop and become
more commercially viable.
COMPETITION
Cable television systems face competition from (A) alternative methods of
receiving and distributing television signals, such as off-air television
broadcast programming, direct broadcast satellite services, known as "DBS," and
wireless cable services, and (B) other sources of news, information and
entertainment, such as newspapers, movie theaters, live sporting events, on-line
computer services and home video products. Our 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 to us. 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. Including Star, we currently have competing franchises in
ten systems passing approximately 23,100 homes.
In recent years, the FCC and 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 satellite dishes as small as 18
inches 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
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systems. DBS systems can also provide high speed Internet access. DBS service
can be received anywhere in the continental 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 two DBS providers. DBS providers are significant competition
to cable service providers, including us.
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, known as 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. Our strategy of providing pay-per-view and
perhaps satellite niche programming via digital services in certain of our cable
systems is designed to combat digital satellite service competition. "Bundling"
of our video service with advanced telecommunications services in certain of the
cable systems may also be an effective tool for competing with DSS. 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 and legal obstacles to providing
local broadcast signals, although both DBS providers are 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, or MMDS, which
use low power microwave signals to transmit video programming and high speed
data services, including Internet access, over the air to customers.
Additionally, the FCC licensed new frequencies in the 28 MHz band for a new
multichannel wireless video service similar to MMDS, known as Local Multipoint
Distribution Service, or 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 significantly increase the
channel capacity of these wireless distribution services. 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.
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 local exchange carriers, commonly referred to as 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 or MMDS transmission. Several telephone companies have begun seeking
cable television franchises from local governmental authorities and constructing
cable television systems. 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
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franchises. The entry of telephone companies as direct competitors is likely to
continue and could adversely affect the profitability and valuation of our cable
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. We believe, however, that the non-metropolitan
markets in which we provide or expect 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 a 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." We believe that significant growth opportunities exist for us by
establishing cooperative rather than competitive relationships with LECs within
our 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 Telecom Act, could also have an adverse effect on
our business. Well-capitalized businesses from outside the cable industry may
also 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 xDSL
services by LECs and other common carriers provide 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 has held spectrum auctions for licenses to provide
PCS.
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 our operations.
EMPLOYEES
At June 30, 1999, Classic employed approximately 758 full-time employees
and 56 part-time employees of which 88 and 5, respectively, were employed by
Star. None of our employees is represented by a labor union. We consider our
relations with our 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.
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Our 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 cable
systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. Our distribution systems consist primarily of coaxial cable
and related electronic equipment. As the upgrades are completed, the cable
systems will incorporate fiber optic cable. Subscriber equipment consists of
taps, house drops and converters. We own our distribution systems, various
office fixtures, test equipment and certain service vehicles. The physical
components of the cable systems require maintenance and periodic upgrading to
keep pace with technological advances.
Our cables generally are attached to utility poles under pole rental
agreements with local public utilities, although in some areas the distribution
cable is buried in underground ducts or trenches. The FCC regulates most pole
attachment rates under the federal Pole Attachment Act.
We own or lease parcels of real property for signal reception sites, such
as antenna towers and headends, microwave complexes and business offices,
including our principal executive offices. We believe that our properties, both
owned and leased, are in good condition and are suitable and adequate for our
business operations as presently conducted.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which we are or Classic
Cable is a party or to which any of our or their respective properties are
subject.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, us 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
and local laws. We believe that the regulation of our 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 our operations.
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 have been 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. Below, you will find
a brief summary of certain of these federal regulations as adopted to date.
CABLE RATE REGULATION
The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry. Under that regime, local franchise authorities had primary
responsibility for administering the basic service tier. The FCC directly
administered rate regulation of cable programming service tiers, which included
all video programming distributed over a system that is not part of the basic
service tier. Although the 1996 Telecom Act preserves local franchise authority
to regulate the basic service tier, it eliminated FCC authority to regulate
cable programming service tier rates as of March 31, 1999. Accordingly, the FCC
is no longer able to act on cable programming service tier rate increases that
occur after that date.
Federal law nonetheless continues to govern certain aspects of local rate
regulation. For example, federal law requires that the basic service tier be
offered to all cable subscribers. Recent FCC regulations adopted pursuant to the
1996 Telecom Act define "effective competition" and "small cable operator" for
purposes of exempting certain cable systems' basic tier from rate regulation.
Additional federal regulations require cable systems to permit customers to
purchase video programming on a per channel or per program basis without
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
is available until a cable system obtains the technical capability, but not
later than December 2002.
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Although the 1996 Telecom Act eliminated FCC rate regulation of the higher
tiers, local franchising authorities, known in the industry as LFAs, continue to
have authority over the regulation of the lowest level of cable -- the basic
service tier, commonly known as BST. For regulatory purposes, the BST contains
local broadcast stations and public, educational, and government, or PEG, access
channels and other services the system operator chooses to include in the same
package with these 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 we operate have elected
to certify to regulate rates, and we believe that the FCC's existing "small
systems order" will afford us additional flexibility to adjust our rates. The
small systems order, and related FCC rules, provides a more simplified and
liberal cost of service rate justification to eligible small system operators,
such as us. However there can be no assurance that our revenues and results of
operations will not be adversely affected in the future by regulation of cable
system rates.
FRANCHISE FEES
Federal law allows franchising authorities to 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 franchise fees from
revenues derived from telecommunications services, however, many LFA's seek
analogous fees under separate telecommunications service franchises. LFA
authority to collect these telecommunications franchise fees is the subject of
litigation.
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 made
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. We currently have competing franchises in ten systems passing
approximately 23,100 homes.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request within 120 days after receipt of all information required by
FCC regulations and by the franchising
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authority. Approval is deemed to be granted if the franchising authority fails
to act within such period.
CABLE ENTRY INTO TELECOMMUNICATIONS AND BROADBAND SERVICES
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 has clarified that a cable operator's favorable pole rates are
not endangered by the provision of non-cable services such as 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.
These regulations were upheld by the U.S. Supreme Court in January 1999, with
the exception of the unbundled network element requirement. The FCC has recently
redetermined which unbundled network elements LECs must make available to new
telecommunications providers at wholesale prices. 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 us or
our business cannot be determined at this time.
Cable entry into markets for broadband services such as Internet access may
be affected by the regulatory landscape now being fashioned by the FCC and state
and local regulators. In a report to Congress in January 1999, the FCC declined
to regulate cable system delivery of Internet services. More recently, on
October 13, 1999, the FCC's Cable Services Bureau issued a staff report to FCC
Chairman, William Kennard, on the status of the broadband market. The report
recommended the continuation of the FCC's policy of regulatory restraint for
cable delivered Internet services. In recent months, some local franchise
authorities have imposed conditions on their approval of transfers of control,
including those involving such major transactions as AT&T's acquisition of TCI's
cable franchises. For example, the City of Portland, Oregon required AT&T to
provide competing Internet and other on-line service providers with open access
to its newly acquired cable platforms. This decision was upheld on appeal before
a federal district court, although that decision is on appeal. LFAs in Broward
County, Florida and Fairfax, Virginia have imposed similar open access
requirements for approving the transfer of a cable franchise. In Broward, the
requirement was imposed on all cable operators serving the County, while in
Fairfax the requirement was imposed as a condition for approving the transfer of
a cable franchise. The Broward County requirement is on appeal. Numerous other
franchise authorities are considering imposing similar requirements, either
during transfer or renewal processes or by promulgating regulations pursuant to
their general franchise authority. In addition, a petition for declaratory
ruling has been filed with the FCC requesting a determination that cable service
providers must provide leased access channels to Internet service providers.
Similar conditions could be imposed upon us, either pursuant to a local
franchising authority's approval of a merger or other transaction between us and
another company, through
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the franchise renewal process, or through future developments at the federal,
state or local level. Likewise, future regulatory or legislative developments
could limit or preempt the authority of franchise authorities to impose mandated
access conditions.
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 "open video systems," subject to certain conditions, including, but not
limited to, setting aside a portion of their channel capacity, up to two-thirds,
for use by unaffiliated program distributors on a non-discriminatory basis. The
Fifth Circuit Court of Appeals recently reversed certain of the FCC's open video
system rules, including its preemption of local franchising. That decision may
be subject to further appeal. It is unclear what effect this ruling will have on
the entities pursuing open video system operation. 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. We currently
have telephone overbuilds in three systems passing approximately 3,300 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 or its
affiliate 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 under the 1984 Cable Act. However, in a January 1999
decision, the U.S. Court of Appeals for the Fifth Circuit held that the 1996
Telecom Act did not preempt state franchise laws that might be applicable to
these systems. 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 eliminated the
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statutory ban and directed 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 satellite master antenna television systems, or SMATV systems.
Permitted arrangements in effect as of October 5, 1992, were 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.
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,
pursuant to rules adopted October 8, 1999, no cable operator can have an
attributable interest in cable systems which serve more than 30% of all
nationwide subscribers to multichannel video programming distributors including
cable and DBS subscribers. These new horizontal ownership rules raise the
percentage of all cable subscribers that can be served by a single cable
operator to 36.7% of current cable subscribers. Attributable interests for these
purposes include voting stock interests of 5% or more, certain officerships and
directorships, and general partnership interests. The FCC raised the attribution
threshold for passive institutional investors from 10% to 20%, subject to a new
equity/debt rule that treats any investor that holds over 33% of the total
equity plus debt as an attributable interest holder. The FCC has stayed the
effectiveness of its 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. The FCC's October 8th decision
also defined what constitutes a "cognizable interest" triggering application of
various FCC rules relating to the provision of cable services such as
cross-ownership, programming access and channel occupancy. In addition, 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 remains pending before the FCC.
There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems. Section 310(b)(4) of the Communications
Act does, however, limit direct and indirect foreign ownership of interests in
FCC broadcast and common carrier radio licenses, although the FCC may conclude
that this indirect 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, known as
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
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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 update its technical standards
periodically 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
reaffirmed an order implementing regulations intended to promote the commercial
availability of navigation devices, including set-top converters. The rules
apply generally to all multichannel video programming distributors, or MVPDs,
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 all analog equipment and navigation devices that operate throughout the
continental United States and are commercially available from unaffiliated
sources, such as equipment used by DBS services. The order requires that the
security 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.
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. We
may operate systems that utilize poles owned by cooperatively and government
owned utilities. Louisiana is the only state in which we currently operate cable
systems that has certified to the FCC that it regulates the rates, terms and
conditions for pole attachments. In addition, Ohio, in which Star operates cable
systems, has made a similar certification to the FCC. In the absence of state
regulation, and except for cooperatively or government 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 offers
telecommunications services. This new formula will result in significantly
higher attachment rates for cable systems which choose to offer such services,
or permit their transmission on their cable systems, 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 and several parties have filed petitions for review at the FCC and
in federal appellate courts. A 1997 proceeding to consider whether certain
elements of the existing rate formula should be adjusted also remains pending
before the FCC. 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 us or our
business cannot be determined at this time.
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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, known as must carry, or negotiating for payments for granting
permission to the cable operator to carry the station, known as 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: (A) a 50-mile radius from the station's city of license; or (B) 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 limit a cable systems' programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on our 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 to 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,
up to 15% in some cases, 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. The FCC has initiated a proceeding to consider whether the leased
access requirement applies to cable modem internet access services offered by
cable operators. Although we do not believe such use is in accord with the
governing statute, a contrary ruling could lead to substantial leased access
activity by Internet Service Providers and disrupt our own plans for Internet
service.
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 satellite
distributed 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
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cable operators to all of the existing program access requirements. In an effort
to increase competition in the video marketplace, the FCC revised its program
access complaint procedures. Among other revisions, the order increased
sanctions for violation of the program access rules. The FCC has, in subsequent
decisions, declined to broaden the scope of the rules to include terrestrially
delivered programming.
INSIDE WIRING
In October 1997, the FCC 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, or MDUs. The
rules allow MDU owners 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, if ultimately adopted, 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
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, many of which have been the subject of petitions requesting
reconsideration and appeals 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;
- subscriber privacy;
- syndicated program exclusivity;
- network program non-duplication;
- closed captioning of video programming;
- registration of cable systems;
- maintenance of various records and public inspection files;
- aeronautical frequency usage;
- lockbox availability;
- origination cablecasting and sponsorship identification;
- antenna structure notification;
- tower marking and lighting;
- blackouts 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;
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- programming agreements;
- technical standards;
- consumer protection and customer service standards;
- emergency alert system requirements;
- consumer electronics equipment compatibility; and
- implementation of rules governing DBS systems.
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. We will continue to
develop strategies to attempt 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 our business. However, no assurances can be given that we 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 our business.
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 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 our ability
to obtain suitable programming and could substantially increase the cost of
programming that remained available for distribution to our customers. We 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.
Recently, the U.S. District Court of the Southern District of New York ruled
that, on an interim basis, cable operators must pay ASCAP the same fees paid to
BMI for locally originated
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programming, PEG, leased access and local advertising. Although we cannot
predict the ultimate outcome of these industry negotiations and litigation or
the amount of any license fees we may be required to pay for past and future use
of ASCAP-controlled music, we do not believe these license fees will be material
to our 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 fails to comply with material provisions. The terms
and conditions of franchises vary materially from jurisdiction to 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 that have provided satisfactory services
and have complied with the terms of their franchise. We have generally had good
experiences with our 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.
In July 1999, the U.S. District Court for the District of Oregon held that
the City of Portland, Oregon had the authority to require AT&T Corp. to provide
cable modem services to competitors on a non-discriminatory basis. AT&T has
sought expedited review of this decision in the 9th
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Circuit Court of Appeals. A number of other franchising authorities have
imposed, or are considering imposing, similar open access requirements.
OTHER MATTERS
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
requirements 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
Executive officers, key operations managers and outside directors of
Classic are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND
DIRECTORS OF CLASSIC COMMUNICATIONS AGE POSITION
- ----------------------------------- --- --------
<S> <C> <C>
Alberto Cribiore............................. 54 Director and Chairman of the Board
J. Merritt Belisle........................... 43 Director and Chief Executive Officer
Steven E. Seach.............................. 42 Director, President and Chief
Financial Officer
Ronald W. Martin............................. 47 Executive Vice President of Operations
Elizabeth Kay Monigold....................... 46 Executive Vice President of
Administration
Lisa A. Hook................................. 41 Director
David Webb................................... 46 Director
Martin D. Payson............................. 63 Director
</TABLE>
ALBERTO CRIBIORE, founder and Managing Principal of Brera Capital Partners
was appointed Chairman of the Board upon the closing of the Brera Classic equity
investment. Prior to forming Brera in 1997, Mr. Cribiore was Co-President and
Partner at Clayton, Dubilier & Rice, Inc. which he joined in 1985 as one of
three principal shareholders. He had previously been a Senior Vice President at
Warner Communications, where he was responsible for mergers, acquisitions and
divestitures. Mr. Cribiore is a cum laude graduate of Bocconi University in
Milan, Italy and holds degrees in Business Administration and Economics. He is
currently a Director of Riverwood International Corporation and Hansberger
Group, Inc. Mr. Cribiore also serves as the Chairman of the board of directors
of Global Decisions Group, LLC, the parent company of Cambridge Energy Research
Associates, and MCM Group, Inc. He is also currently Co-Chairman of the board of
directors of B-G Western, Inc., the parent of Western Industries, Inc., and a
member of the board of directors of Western Industries, Inc. Mr. Cribiore serves
as one of Brera Classic's designees to our Board. See "Certain Relationships and
Related Transactions -- 1999 Stockholders' Agreement."
J. MERRITT BELISLE, our Chief Executive Officer and director, founded
Classic in March 1992. 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, 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. Mr. Belisle serves as one
of our directors pursuant to his position as our Chief Executive Officer. See
"Certain Relationships and Related Transactions -- 1999 Stockholders'
Agreement."
STEVEN E. SEACH, our President and Chief Financial Officer and director,
assisted Mr. Belisle in the founding of Classic in March 1992. Mr. Seach became
a member of the board of Classic in 1998. Mr. Seach became our President in
October 1996 and, through August 1998, was substantially responsible for our
operations. From March 1992 to June 1994, Mr. Seach served as an advisor to
Classic and its board of directors for strategic, operational and financial
matters. Mr. Seach became our Chief Financial Officer in July 1994. Prior to his
association with us, Mr. Seach spent 12 years in the corporate 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. He is currently a director of The Keller Group and serves as
one of our directors pursuant to the 1999 Stockholders' Agreement. See "Certain
Relationships and Related Transactions -- 1999 Stockholders' Agreement."
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RONALD W. MARTIN, who became our Executive Vice President of Operations
upon the closing of the Buford acquisition, is responsible for all of our system
operating and marketing functions. Since 1993, he served as Buford's Executive
Vice President and Chief Operating Officer. A graduate of Dakota Wesleyan, he
joined Buford in 1973 as Business Manager for KXON-TV in Mitchell, South Dakota,
later serving in the same position at KFSM-TV in Fort Smith, Arkansas. He joined
Buford's corporate staff in 1976, serving as Internal Auditor and Personnel
Administrator. In 1981, Mr. Martin was named Vice President of Human Resources
and Administration for Buford. Mr. Martin is a board member and past Chairman of
the National Cable Television Cooperative and serves on the CTAM Digital
Committee.
ELIZABETH KAY MONIGOLD, who became our Executive Vice President of
Administration upon the closing of the Buford acquisition, is responsible for
all of our human resources, legal, information systems and risk management
functions, as well as operating responsibility for CCT. Since 1993, she served
as Buford's Executive Vice President and Chief Administrative Officer. Ms.
Monigold joined Buford in 1981 and served in numerous capacities including the
evaluation of new business opportunities such as data, telephony, digital and
other new technologies. Ms. Monigold earned a BBA in Business Management from
The University of Texas at Tyler.
LISA A. HOOK, a Principal of Brera Capital Partners, was appointed a
director upon the closing of the Brera Classic equity investment. Prior to
joining Brera Classic in 1998, Ms. Hook was a Managing Director of Alpine
Capital Group, a telecommunications and media venture capital firm. From 1989 to
1996, Ms. Hook served in a number of senior executive level positions at Time
Warner Inc., including Executive Vice President/Chief Operating Officer of Time
Warner Telecom, Inc. and Special Advisor to the Vice Chairman. From 1987 to
1989, Ms. Hook served as the Legal Advisor to the Chairman of the Federal
Communications Commission. From 1985 to 1987, Ms. Hook served as a senior
attorney at Viacom International, responsible for Viacom Cable. Prior to joining
Viacom, Ms. Hook was an attorney with the law firm of Hogan & Hartson. Ms. Hook
received her BA from Duke University and her JD from the Dickinson School of
Law. Ms. Hook serves as one of Brera Classic's designees to our board. She is
currently a director of Time Warner Telecom, Inc. and Roberts Radio LLC. See
"Certain Relationships and Related Transactions -- 1999 Stockholders'
Agreement."
DAVID WEBB, a Principal of Brera Capital Partners, was appointed Director
upon the closing of the Brera Classic equity investment. Prior to joining Brera
Classic in 1999, Mr. Webb was a Managing Director in the investment banking
division of Merrill Lynch, which he joined in 1981. Mr. Webb was the head of the
firm's Global Financial Sponsors Group, and a member of the investment banking
division's U.S. Operating Committee. Mr. Webb received a BA with honors from the
University of North Carolina, where he was a Morehead Scholar, and an MBA from
the Darden School of the University of Virginia. He is a director of Homes for
the Homeless Inc. and both B-G Western, Inc. and Western Industries, Inc. Mr.
Webb serves as one of Brera Classic's designees to our board. See "Certain
Relationships and Related Transactions -- 1999 Stockholders' Agreement."
MARTIN D. PAYSON, the Chairman of Latin Communications Group, Inc., a
privately-held Spanish language media company, was appointed Director upon the
closing of the Brera Classic equity investment. Previously, Mr. Payson was Vice
Chairman of Time Warner Inc. and a member of its board of directors. Before the
merger of Warner Communications Inc. and Time, Inc., Mr. Payson held the
position of Office of the President and General Counsel of Warner
Communications. Mr. Payson is a director of Delta Financial Corp. and Panavision
Inc., as well as several privately-held companies and philanthropic
organizations. Mr. Payson received his AB from Cornell University and his LLB
cum laude from New York University School of Law. Mr. Payson serves as one of
Brera Classic's designees to our board. See "Certain Relationships and Related
Transactions -- 1999 Stockholders' Agreement."
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ELECTION OF DIRECTORS AND APPOINTMENT OF EXECUTIVE OFFICERS
Our board of directors will be divided into three classes, and each
director will serve for a staggered three-year term. The board will consist of:
two Class I directors, Messrs. Seach and Webb; three Class II directors, Mr.
Belisle and Ms. Hook and one director to be appointed upon the completion of
this offering; and two Class III directors, Messrs. Cribiore and Payson. At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The terms of the Class I directors, Class II directors and Class III
directors will expire upon the election and qualification of successor directors
at the annual meeting of stockholders held during the calendar years 2000, 2001
and 2002, respectively.
Each officer serves at the discretion of the board of directors. There are
no family relationships among any of our directors and executive officers.
DIRECTOR TO BE APPOINTED UPON COMPLETION OF THIS OFFERING
We intend to name an additional outside director prior to the offering who
will be appointed upon the completion of this offering.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. The audit committee currently consists of Mr. Webb,
Mr. Payson and the outside director to be named upon the completion of this
offering. The compensation committee reviews and recommends to the board of
directors the salaries, benefits and stock option grants of all employees,
consultants, directors and other individuals compensated by us. The compensation
committee also administers our stock option and other employee benefits plans.
The compensation committee currently consists of Ms. Hook, Mr. Payson and the
outside director to be named upon the completion of this offering.
DIRECTOR COMPENSATION
Our directors are not currently compensated. Each non-employee director
elected to the board of directors for the first time after this offering may
receive upon such election an initial grant of options to purchase shares
of Class A common stock at fair market value on the date of grant. In addition,
each non-employee director will receive an annual grant of options to purchase
shares for each year during such director's term. All of the foregoing
options will have a 10 year term and will vest over a year period, with %
becoming vested on each anniversary of the date of grant. The foregoing award of
options will be granted automatically under our Omnibus Stock Incentive Plan. In
August 1999, Mr. Martin Payson, who is currently a member of our board of
directors, was granted options to purchase 7,000 shares of our Class A common
stock at an exercise price of $20 per share. These options, which have 10-year
terms, vest in 25% increments over each of the first four anniversaries of the
grants. Following this offering, each of our directors will receive
reimbursement for all travel and other expenses incurred in connection with
attending each meeting of the board of directors or committee meeting.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, all compensation decisions relating to our executive officers
have been made by our board of directors as a whole. J. Merritt Belisle, our
Chief Executive Officer, and Steven E. Seach, our President, as board members,
historically participated in deliberations of the board of
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directors with respect to compensation of all executive officers. Following the
closing of this offering, the compensation committee will make all compensation
decisions regarding our executive officers. No interlocking relationship exists
between the compensation committee and the board of directors or compensation
committee of any other company, and no such relationship existed in the past.
1999 STOCKHOLDERS' AGREEMENT
Effective July 28, 1999, Classic, Brera Classic, BT Capital Partners, Inc.,
Austin Ventures, L.P., BA Capital Company, L.P., as the successor in interest to
NationsBanc Capital Corp., J. Merritt Belisle, Steven E. Seach and certain other
stockholders of Classic entered into a stockholders' agreement. This agreement
provides, among other things, that, until such time as the parties to the
stockholders' agreement together own less than 30% of the outstanding common
stock of Classic, the parties have agreed to vote their common stock to cause
the board of directors to consist of seven members, being four members
designated by Brera Classic, the chief executive officer of Classic, initially
J. Merritt Belisle, and two other individuals to be designated by Austin
Ventures, L.P., Austin Ventures III-A, L.P., Austin Ventures III-B, L.P., BA
Capital Company, L.P., BT Capital Partners, Inc., and The Texas Growth Fund. One
of the two individuals to be named by such stockholders will be Steven E. Seach
for so long as he is employed by us. Such stockholders have not yet designated
an individual to serve as the seventh member of the board of directors.
OTHER CORPORATE PERSONNEL
BRYAN D. NOTEBOOM, our Vice President of Finance, has been with us since
our inception and coordinates our finance and mergers and acquisitions
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 a licensed Certified Public Accountant.
RON ENAS, our Vice President of Engineering, joined us in September 1999
and is responsible for all technical functions, including the oversight of our
capital expenditure program. Mr. Enas has 25 years of experience in the
industry, having previously held positions of increasing responsibility with
Time Warner, Inc., Post Newsweek Cable and Harron Communications Corp. Mr. Enas
is a graduate of Tyler Junior College.
MICHELE JENKINS, our Vice President of Marketing, joined us in October 1999
and is responsible for all aspects of marketing, sales and programming. Prior to
joining us, Ms. Jenkins served as Corporate Director of Programming and PPV for
Marcus Cable. Prior to Marcus Cable, Ms. Jenkins served as Corporate Director of
Marketing at Sammons Communications, Inc. Ms. Jenkins is a graduate of Texas
Tech University.
MARK ROWE, our Corporate Controller, joined us in 1998 and coordinates our
accounting function, including SEC reporting and budgeting. Prior to joining us,
Mr. Rowe worked as an audit manager at Ernst & Young LLP, serving a number of
telecommunication industry clients. Mr. Rowe earned a BBA in Accounting from The
University of Texas at Austin in 1990 and is a licensed Certified Public
Accountant.
ASHLEY M. KIMERY, our Corporate Treasurer, joined us in 1995 and currently
oversees our cash management and tax functions. Prior to joining us, Ms. Kimery
worked for seven years in both the audit and tax departments at Ernst & Young
LLP. Ms. Kimery earned a BBA in Accounting from Texas A&M University in 1987, an
MPA in Tax from The University of Texas at Austin in 1991 and is a licensed
Certified Public Accountant.
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JOHN ELLIS, our Management Information Systems Manager, has over 25 years
experience in information technology and is responsible for the development,
implementation and operation of all software and hardware network interfaces for
us. Mr. Ellis joined Buford in 1981 and was instrumental in the network design
of the Tyler, Texas call center. Mr. Ellis is currently serving on the CableLabs
Year 2000 Committee.
RONALD G. JANSONIUS, our Advanced Technology Manager, has been with us
since 1996 and is responsible for directing our 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.
KEY OPERATIONS PERSONNEL
ARL COPE, our Vice President and Regional Manager, joined Buford in 1987
and is responsible for the oversight of all operational, technical and local
marketing aspects of certain of our systems in Arkansas, southern Missouri, and
northern Louisiana. A 30 year veteran of the cable television industry, Mr. Cope
currently serves as Secretary/Treasurer of the Arkansas Cable Telecommunications
Association and has been a board member since 1989.
WILLIAM E. FLOWERS, JR., our Vice President and Regional Manager, has over
18 years of experience in the cable television industry and oversees all
operational, technical and local marketing aspects of our systems in the western
and panhandle regions of Texas and in New Mexico. Mr. Flowers joined us in
August 1998.
STEVE LOWE, our Vice President and Regional Manager, has over 25 years in
the cable television industry and oversees all operational, technical and local
marketing aspects of our systems in central and east Texas and central
Louisiana. Prior to joining Buford in 1988, Mr. Lowe constructed, owned and
operated cable systems in western Oklahoma. Mr. Lowe currently serves on the
board of directors of the Texas Cable Television Association.
RON SCHAEFFER, our General Manager of CCT, is responsible for the operation
of existing business and the development of new business within CCT. Mr.
Schaeffer joined Buford in 1992 and has been instrumental in the development of
the Satellite Education Network, which is designed to provide interactive
educational services to prisons. Mr. Schaeffer is a graduate of New York
University.
DAVID D. WALKER, our Vice President and Regional Manager, has over 28 years
of experience in the cable television industry and oversees all operational,
technical and local marketing aspects of certain of our systems in Missouri,
Oklahoma, and Arkansas. Mr. Walker serves on the board of directors of the
Arkansas Cable Telecommunications Association.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Other than the executive officers of Classic who are also directors, no
directors of Classic receive any compensation for serving as a director. The
following table summarizes the compensation for services rendered which Classic
paid to the Chief Executive Officer, President
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and other most highly compensated executive officers whose total annual
compensation exceeded $100,000 in our fiscal year ended December 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------------------- RESTRICTED
OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2)(3)
--------------------------- ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
J. Merritt Belisle..................... 1998 $200,000 $361,539(4) $6,607 $ 49,609
Chief Executive Officer
Steven E. Seach........................ 1998 $277,084 $258,302(5) $6,607 $659,471
President and Chief Financial Officer
Gilbert W. Nichols(6).................. 1998 $103,332 $ 44,101 $3,563 --
Vice President of Operations
</TABLE>
- ---------------
(1) Amounts reported as other annual compensation represent our contribution
under our 401(k) plan and/or vehicle fringe benefits.
(2) The executive officers of Classic received restricted stock 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 each of Messrs. Belisle and
Seach exchanged their existing shares of restricted stock for 242,209 new
shares of restricted stock under the 1998 Restricted Stock Plan 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 Classic'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 Classic'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 Classic's common stock. 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. These shares vested upon the consummation of the Brera Classic
equity investment. Messrs. Belisle and Seach are entitled to dividends in
respect of these shares in the same manner as the holders of common stock,
but only to the extent that such dividends exceed the distribution
thresholds applicable thereto. See "-- 1998 Restricted Stock Plan."
(4) Includes a transaction fee of $300,000 paid pursuant to a pre-existing
employment agreement in connection with the acquisition of certain
properties from Cable One in July 1998, and the related financings.
(5) Includes a transaction fee of $250,000 paid pursuant to a pre-existing
employment agreement in connection with the acquisition of certain
properties from Cable One in July 1998, and the related financings.
(6) Mr. Nichols resigned effective March 19, 1999.
1996 RESTRICTED STOCK PLAN
Certain members of management own restricted stock subject to the terms of
our 1996 Restricted Stock Plan. Pursuant to the 1996 Plan, we may, from time to
time, grant restricted stock to our officers and other key employees upon the
terms, conditions and provisions of the 1996 Plan. Concurrent with the adoption
of the 1996 Plan, we granted a total of 517,626 shares of common stock as of
such date, of which only 144,940 shares are currently outstanding. These shares
vested upon the consummation of the Brera Classic equity investment. One-half of
such shares of common stock is subject to a distribution threshold equal to
$9.93 per share, i.e., the first $9.93 of distributions with respect to such
shares is to be withheld and one-fourth of the
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shares is subject to a distribution threshold of $19.06 per share and one-fourth
to a distribution threshold of $29.78 per share.
1998 RESTRICTED STOCK 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 common stock pursuant to
the 1998 Plan. These shares vested upon the consummation of the Brera Classic
equity investment. All of such shares of common stock are subject to a
distribution threshold equal to $3.77 per share, i.e., the first $3.77 of
distributions with respect to such shares is to be withheld and distributed
instead to other holders of our Class B common stock.
1999 OMNIBUS STOCK INCENTIVE PLAN
The following description of our 1999 Omnibus Stock Incentive Plan is a
summary and is qualified in its entirety by reference to the text of the 1999
Omnibus Stock Incentive Plan, which will be filed as an exhibit to the
registration statement of which this prospectus is a part.
Classic's 1999 Omnibus Stock Incentive Plan was adopted by our board of
directors and approved by our stockholders in October 1999 for the benefit of
our officers, directors, key employees, advisors and consultants. The following
discussion assumes that the plan will become effective upon the completion of
this offering in accordance with its terms. An aggregate of 2,000,000 shares of
Class A common stock is reserved for issuance under the plan. The plan provides
for the issuance of stock-based incentive awards, including stock options, stock
appreciation rights, limited stock appreciation rights, restricted stock,
deferred stock and performance shares. An award may consist of one or any
combination of benefits. Under this plan, awards covering no more than 20% of
the shares reserved for issuance under the plan may be granted to any
participant in any one year.
The plan will initially be administered by our board of directors, although
it may be administered by either our board of directors or any committee of our
board of directors. The board or a committee of the board, acting as the plan
administrator, may interpret this plan and may prescribe, amend and rescind
rules and make all other determinations necessary or desirable for the
administration of this plan. This plan permits the plan administrator to select
the officers, directors, key employees, advisors and consultants, including
directors who are also employees, who will receive awards and generally to
determine the terms and conditions of those awards. Notwithstanding the
foregoing, the grant of any award intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code, and any
administrative determinations made in connection therewith, must be carried out
by a committee of the board or a board committee, consisting of at least two
"outside directors," as defined under Section 162(m), in a manner consistent
with the rules governing performance-based compensation under Section 162(m).
We may issue two types of stock options under this plan: incentive stock
options or ISO's, which are intended to qualify under the Code, and
non-qualified stock options, or NSO's. The option price of each ISO granted
under this plan must be at least equal to the fair market value of a share of
Class A common stock on the date the ISO is granted.
Stock appreciation rights, or SARs, and limited stock appreciation rights
may be granted under this plan either alone or in conjunction with all or part
of any stock option granted under this plan. An SAR granted under this plan
entitles its holder to receive, at the time of exercise, an amount per share
equal to the excess of the fair market value, at the date of exercise, of a
share of Class A common stock over a specified price fixed by the plan
administrator. A limited stock appreciation right granted under this plan
entitles its holder to receive, at the time of exercise, an amount per share
equal to the excess of the change in control price of a share of Class A
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common stock over a specified price fixed by the plan administrator. A limited
stock appreciation right may be exercised only within the 30-day period
following a change in control.
Restricted stock, deferred stock and performance shares may be granted
under this plan. The plan administrator will determine the purchase price,
performance period and performance goals, if any, for any grant of restricted
stock, deferred stock and performance shares. Participants with restricted stock
and performance shares generally have all of the rights of a stockholder. For
deferred stock, during the deferral period and subject to the terms and
conditions that the plan administrator imposes, the deferred stock units may be
credited with dividend equivalent rights. If the performance goals and other
restrictions are not attained, the participant will forfeit his or her shares of
restricted stock, deferred stock and/or performance shares.
In the event of a merger, consolidation, reorganization, recapitalization,
stock dividend or other change in corporate structure affecting the number of
issued shares of Class B voting common stock, the plan administrator may make an
equitable substitution or proportionate adjustment in the number and type of
shares authorized by this plan, the number and type of shares covered by, or
with respect to which payments are measured under, outstanding awards and the
exercise prices. In addition, the plan administrator, in its discretion, may
terminate all awards with payment of cash or in-kind consideration.
The terms of this plan provide that the plan administrator may amend,
suspend or terminate this plan at any time, provided that some amendments
require approval of our stockholders. Furthermore, no action may be taken that
adversely affects any rights under outstanding awards without the holder's
consent.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND 1999
NON-QUALIFIED STOCK OPTION GRANTS
At the closing of the Brera Classic equity investment, J. Merritt Belisle
and Steven E. Seach each entered into an employment agreement with us, on
substantially similar terms with their former employment agreements. In
connection with the consummation of the Brera Classic equity investment, Mr.
Belisle was paid $780,000 and Mr. Seach was paid $700,000 under their former
employment agreements. Each of the new employment agreements provides for their
continued employment with us for a continuing two year period at all times.
Messrs. Belisle and Seach are each to be paid an annual salary of $350,000 per
year. Each new employment agreement provides that upon termination by us without
cause, the employee will be entitled to the pre-payment of all remaining
compensation and benefits under the agreement, i.e., two years' of base
compensation and benefits. Each employment agreement also prohibits the employee
from competing with us during his term of employment and for a period of two
years thereafter.
The employment agreements of Messrs. Belisle and Seach in effect prior to
the consummation of the Brera Classic equity investment provided for a
transaction fee of 1% to be paid on the value of all mergers, acquisitions, or
dispositions of assets or subsidiaries by us that were consummated during their
term of employment. Messrs. Belisle and Seach each received a transaction fee of
$1.5 million related to the consummation of the Buford acquisition. The new
employment agreements do not contain a provision for transaction fees to be paid
to Messrs. Belisle and Seach.
Under their new employment agreements, Messrs. Belisle and Seach were each
granted a stock option with a 10-year exercise period to purchase 279,874 shares
of common stock at an exercise price of $14.57 per share, which will vest over a
three-year period which began July 28, 1999, or alternatively, immediately upon
the closing of an event which involves a sale of all of the common stock of the
Company for cash or a sale of all or substantially all of the assets of Classic,
entitling Messrs. Belisle and Seach to purchase such number of shares of Class B
common stock.
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In addition, Messrs. Belisle and Seach will each also receive a second
stock option with a 10-year exercise period to purchase 279,874 shares of Class
B common stock, to vest over a three-year period commencing on the date of the
closing of this offering. The exercise price of the second option is the initial
offering price to the public per share of Class A common stock in this offering.
We have entered into employment agreements with Ronald W. Martin and
Elizabeth Kay Monigold. These employment agreements relate to their employment
by us as the Executive Vice President of Operations and the Executive Vice
President of Administration, respectively, and each are for a one-year period.
Ronald W. Martin is to be paid an annual salary of $175,000 and Elizabeth Kay
Martin is to be paid an annual salary of $120,000. Each employment agreement
provides that upon termination by us without cause, the employee will be
entitled to the prepayment of all remaining compensation and benefits under the
agreement, i.e., one year of base compensation and benefits. Each employment
agreement also prohibits the employee from competing with us during the term of
employment and for a period of two years thereafter.
In addition, we granted stock options to purchase approximately 1,000,000
shares of our Class A common stock at an exercise price of $20 per share. The
options were granted in August 1999 to Ronald W. Martin, Elizabeth Kay Monigold,
and several of our other officers and key employees. These options, which have
10-year terms, vest in 25% increments over each of the first four anniversaries
of the grants.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO AFFILIATES
During 1998, Classic 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 BA Capital Company, L.P. and BT Capital Partners,
Inc., each a stockholder. 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 acquired by us. We repaid such indebtedness and redeemed the
preferred stock from the holders thereof out of the proceeds received from a
previous issuance of senior subordinated notes.
In 1997, we advanced approximately $200,000 to Mr. Belisle, which has been
forgiven.
1999 STOCKHOLDERS' AGREEMENT
Effective July 28, 1999, Classic, Brera Classic, BT Capital Partners, Inc.,
Union Bancal Venture Corporation, Austin Ventures, L.P., Austin Ventures III-A,
L.P., Austin Ventures III-B, L.P., Texas Growth Fund, BA Capital Company, L.P.,
as the successor in interest to NationsBanc Capital Corp., J. Merritt Belisle,
Steven E. Seach and certain other stockholders of Classic entered into the 1999
stockholders' agreement which subjects the equity securities these stockholders
hold in Classic to a right of first offer to us and other stockholders party to
the stockholders' agreement. Star will become a party to this agreement upon
completion of the Star acquisition. The agreement also provides that the other
stockholders party to the agreement are entitled to participate in any proposed
sale under the right of first offer on a pro-rata basis. Upon a sale of Classic
to an independent third party and upon request of the board of directors, the
stockholders agree to take all action reasonably necessary to complete the sale,
including selling their securities. The agreement contains preemptive purchase
rights in favor of the stockholders party to the stockholders' agreement in the
event we issue or sell additional equity securities in Classic, other than in an
initial public offering. All of these provisions terminate upon the closing of
an initial public offering of Classic's Securities.
Further, until such time as the parties to the stockholders' agreement
together own less than 30% of the outstanding common stock of Classic, the
parties have agreed to vote their common stock to cause the board of directors
to consist of seven members, being four members designated by Brera Classic, the
chief executive officer of Classic, initially J. Merritt Belisle, and two other
individuals to be designated by Austin Ventures, L.P., Austin Ventures III-A,
L.P., Austin Ventures III-B, L.P., BA Capital Company, L.P., Union Bancal
Venture Corporation, BT Capital Partners, Inc., and The Texas Growth Fund. One
of the two individuals to be named by such stockholders will be Steven E. Seach
for so long as we employ him.
MANAGEMENT AND ADVISORY FEE AGREEMENT
As part of the Brera Classic equity investment, Classic and Brera Classic
entered into an agreement pursuant to which Brera Classic was paid a transaction
fee of $3 million upon closing of the Brera Classic equity investment in
consideration for arranging the equity investment. The agreement further
provides that we will pay Brera Classic an annual fee of $250,000 in
consideration for transactional assistance and advice provided to us until we
are sold or complete an initial public offering, the first payment of which was
made at the closing of the Buford acquisition.
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BRERA CLASSIC INVESTMENT AGREEMENT
Classic and Brera Classic entered into an Investment Agreement whereby
Classic agreed to issue and sell 6,490,734 shares of Classic voting common stock
for an aggregate purchase price of $100 million. Pursuant to the Investment
Agreement, Classic agreed to pay all fees and expenses of Brera Classic's legal
counsel, financial advisors, accountants and third party consultants in an
amount up to $750,000. In addition to the $750,000 paid to Brera Classic at the
closing of the Buford acquisition for its fees and expenses of counsel,
accountants, advisors and consultants, Classic reimbursed Brera for $252,000 of
closing costs incurred by Brera on Classic's behalf.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock by (1) each named executive officer and each
director, (2) each stockholder known by us to beneficially own 5.0% or more of
our common stock and (3) all directors and officers as a group. No shares of
Class A common stock will be outstanding prior to the completion of this
offering. In the event that the underwriters exercise the overallotment option
granted by the selling stockholders named herein, shares of Class A common stock
will be sold in the offering by such stockholders by converting shares of Class
B common stock concurrently with the consummation of the sale. See "Description
of Capital Stock" for more information regarding conversion rights of the Class
B common stock. We do not expect any of the stockholders, directors or officers
listed below to own Class A common stock immediately following this offering.
The information in the table assumes the underwriters' option to purchase
additional shares is not exercised and does not reflect any shares purchased in
this offering by any of the principal stockholders, directors or named executive
officers listed below.
<TABLE>
<CAPTION>
PERCENT OF VOTE
CLASS B COMMON STOCK(2) NONVOTING AS A SINGLE
----------------------------------------- COMMON CLASS(4)
BEFORE OFFERING AFTER OFFERING STOCK(3) -------------------
------------------- ------------------- ------------------- BEFORE AFTER
BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT OFFERING OFFERING
------------------- --------- ------- --------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brera Classic(5)........................
BT Capital Partners, Inc.(6)............
Austin Ventures, L.P.(7)................
BA Capital Company, L.P. (8)............
J. Merritt Belisle(9)...................
Steven E. Seach(10).....................
Ronald W. Martin........................
Elizabeth Kay Monigold..................
Lisa A. Hook(11)........................
Alberto Cribiore(12)....................
David Webb(13)..........................
All directors and executive officers as
a group (9 persons)...................
</TABLE>
- ---------------
(1) The address for Brera Classic, Lisa Hook, Alberto Cribiore, and David Webb
is 712 Fifth Avenue, 34th Floor, New York, New York 10019. The address for
Austin Ventures, L.P. is 1300 Norwood Tower, 114 West 7th Street, Austin,
Texas 78701. The address for BT Capital Partners, Inc. is 130 Liberty
Street, 25th Floor, New York, New York 10006. The address for BA Capital
Company, L.P. 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. Unless otherwise indicated below,
the persons and entities named in the table above have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws, where applicable.
(2) Shares of Class B common stock may be acquired at any time for $.01 per
share pursuant to the outstanding warrant issued to BA Capital Company,
L.P. Shares of Class B common stock subject to these warrants and any
options are deemed outstanding for the purposes of the number of shares
owned by such person and of computing the percentage ownership of the
person holding such warrants or options but are not deemed outstanding for
computing the percentage ownership of any other person.
(3) All shares of nonvoting common stock are convertible into shares of Class B
common stock without cost and without advance notice by the holders
thereof. As a result, we believe that such shares should be taken into
account in considering voting interests in us. Shares of nonvoting common
stock may be acquired at any time for $.01 per share pursuant to
outstanding warrants issued to a number of stockholders. Shares of
nonvoting common stock subject to these warrants are deemed outstanding for
the purposes of the
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number of shares owned by such person and of computing the percentage
ownership of the person holding such warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(4) Each share of Class A common stock entitles its holder to one vote and each
share of Class B common stock entitles its holder to ten votes. Holders of
both classes of voting common stock will vote together as a single class on
all matters to be presented for a vote of stockholders, unless otherwise
required by law. Excludes nonvoting common stock.
(5) In the event that the underwriter's option to purchase additional shares is
fully exercised, Brera Classic will own shares of Class B common
stock, representing % of such class and % of the total voting
power of all of our capital stock outstanding after completion of the
offering. Brera Classic has sold nonvoting equity interests in Brera
Classic equal to 19.85% of its investment in us to certain institutions and
individuals, including affiliates of Goldman, Sachs & Co., who purchased
9.0% of such investment, and The Chase Manhattan Bank.
(6) In the event that the underwriter's option to purchase additional shares is
fully exercised, BT Capital Partners will own shares of Class B common
stock, representing % of such class and % of the total voting
power of our capital stock outstanding after completion of the offering. BT
Capital Partners' nonvoting common stock ownership includes warrants to
purchase 30,225 shares of nonvoting common stock.
(7) In the event that the underwriter's option to purchase additional shares is
fully exercised, Austin Ventures, L.P. will own shares of Class B
common stock, representing % of such class and % of the total
voting power of our capital stock outstanding after completion of the
offering. Austin Ventures, L.P. owns 323,832 shares of Class B common
stock, Austin Ventures III-A, L.P. owns 223,422 shares of Class B common
stock and Austin Ventures III-B, L.P. owns 188,733 shares of Class B common
stock. AV Partners, L.P. is the general partner of each of these
partnerships.
(8) In the event that the underwriter's option to purchase additional shares is
fully exercised, BA Capital Company, L.P. will own shares of Class B
common stock, representing % of such class and % of the total
voting power of our capital stock outstanding after completion of the
offering. BA Capital Company, L.P. is the successor in interest to
NationsBanc Capital Corp. Class B common stock ownership Includes warrants
to purchase 152,418 shares of Class B common stock.
(9) In the event that the underwriter's option to purchase additional shares is
fully exercised, J. Merritt Belisle will own shares of Class B common
stock, representing % of such class and % of the total voting
power of our capital stock outstanding after completion of the offering.
Mr. Belisle's totals include shares of Class B common stock
purchasable within 60 days of , 1999 pursuant to the exercise of
options.
(10) In the event that the underwriter's option to purchase additional shares is
fully exercised, Steven E. Seach will own shares of Class B common
stock, representing % of such class and % of the total voting
power of our capital stock outstanding after completion of the offering.
Mr. Seach's totals include an option to purchase shares of Class B
common stock purchasable within 60 days of , 1999 pursuant to the
exercise of options.
(11) Lisa Hook is a director of Classic and a manager of Brera Classic. Ms. Hook
is not the registered holder of any shares and disclaims the beneficial
ownership of the shares listed above except to the extent of her indirect
interest in the assets of the nominal shareholder, if any.
(12) Alberto Cribiore is a director of Classic and a manager of Brera Classic.
Mr. Cribiore 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.
(13) David Webb is a director of Classic and a manager of Brera Classic. Mr.
Webb 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.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
We have no operations of our own. Consequently, we will rely on dividends
from Classic Cable, and hence the cash flow of Classic Cable, in order to meet
our debt service obligations. In order to finance a portion of the Buford
acquisition purchase price, Classic Cable entered into a credit facility,
agented by Goldman Sachs Credit Partners L.P., Union Bank of California, N.A.
and The Chase Manhattan Bank pursuant to which Classic Cable may borrow up to
$350.0 million. The credit facility consists of the following:
<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM ALTERNATE
LIBOR BASE RATE
CREDIT FACILITY AMOUNT TENOR SPREAD(1) SPREAD(1)
- --------------- ------ ----- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revolving Credit
Facility................ $ 75.0 8.0 years 250 bps 150 bps
Term Loan A Facility...... 75.0 8.0 years 250 bps 150 bps
Term Loan B Facility...... 100.0 8.5 years 275 bps 175 bps
Term Loan C Facility...... 100.0 8.5 years 275 bps 175 bps
-------
Total
Facility...... $ 350.0
=======
</TABLE>
- ---------------
(1) Pricing subject to a leverage-based pricing grid.
The $75.0 million eight year revolving credit facility is available to
Classic Cable for working capital, capital expenditures, refinancing debt and
general corporate purposes, including acquisitions. Up to $25.0 million may be
used to redeem Classic Cable's 2008 notes put by the noteholders as a result of
the change of control. The $75.0 million eight year term loan A facility and the
$100.0 million eight and one-half year term loan B facility were drawn at the
closing of the Buford acquisition to fund Classic Cable's purchase of Buford and
to refinance debt and pay certain other costs associated with the Buford
acquisition. The $100.0 million eight and one-half year term loan C facility may
be used for working capital, capital expenditures, general corporate purposes,
including acquisitions, and to redeem Classic Cable's 2008 notes put by the
noteholders as a result of a change of control. On September 8, 1999, the
Company borrowed $90.0 million under the term loan C facility to redeem Classic
Cable's 2008 notes put by the noteholders as a result of the change of control.
On each date set forth below, Classic Cable's ability to borrow under its
revolving credit facility will automatically be reduced to the corresponding
amount set forth below:
<TABLE>
<CAPTION>
REDUCED REVOLVING CREDIT
DATE OF REDUCTION FACILITY AMOUNT
- ----------------- ------------------------
<S> <C>
December 31, 2001 $73,125,000
March 31, 2002 71,718,750
June 30, 2002 70,312,500
September 30, 2002 69,906,250
December 31, 2002 67,500,000
March 31, 2003 65,625,000
June 30, 2003 63,750,000
September 30, 2003 61,875,000
December 31, 2003 60,000,000
March 31, 2004 57,187,500
June 30, 2004 54,375,000
September 30, 2004 51,562,500
December 31, 2004 48,750,000
</TABLE>
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<PAGE> 94
<TABLE>
<CAPTION>
REDUCED REVOLVING CREDIT
DATE OF REDUCTION FACILITY AMOUNT
- ----------------- ------------------------
<S> <C>
March 31, 2005 45,000,000
June 30, 2005 41,250,000
September 30, 2005 37,500,000
December 31, 2005 33,750,000
March 31, 2006 29,062,500
June 30, 2006 24,375,000
September 30, 2006 19,687,500
December 31, 2006 15,000,000
March 31, 2007 7,500,000
July 31, 2007 0
</TABLE>
The term loan A facility is payable in quarterly installments on the last
day of each March, June, September and December, commencing on December 31, 2001
and continuing through and including March 31, 2007, with a final installment of
all outstanding principal and interest payable on July 30, 2007 in the amounts
set forth below:
<TABLE>
<CAPTION>
TERM A REDUCTION DATE PRINCIPAL PAYMENT
- --------------------- -----------------
<S> <C>
December 31, 2001 $ 1,875,000
March 31, June 30, September 30 and December 31, 2002 1,406,250
March 31, June 30, September 30 and December 31, 2003 1,875,000
March 31, June 30, September 30 and December 31, 2004 2,812,500
March 31, June 30, September 30 and December 31, 2005 3,750,000
March 31, June 30, September 30 and December 31, 2006 4,687,500
March 31 and July 31, 2007 7,500,000
</TABLE>
The term loan B facility is payable in quarterly installments on the last
day of each March, June, September and December, commencing on December 31, 2001
and continuing through and including December 31, 2007, with a final installment
of all outstanding principal and interest payable on January 31, 2008 in the
amounts set forth below:
<TABLE>
<CAPTION>
TERM B REDUCTION DATE PRINCIPAL PAYMENT
- --------------------- -----------------
<S> <C>
December 31, 2001 $ 250,000
March 31, June 30, September 30 and December 31, 2002 250,000
March 31, June 30, September 30 and December 31, 2003 250,000
March 31, June 30, September 30 and December 31, 2004 250,000
March 31, June 30, September 30 and December 31, 2005 250,000
March 31, June 30, September 30 and December 31, 2006 250,000
March 31, June 30, September 30 and December 31, 2007 250,000
January 31, 2008 93,750,000
</TABLE>
The term loan C facility is payable in quarterly installments on the last
day of each March, June, September and December, commencing on December 31, 2001
and continuing through and including December 31, 2007, with a final installment
of all outstanding principal and interest
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<PAGE> 95
payable on January 31, 2008 in the percentages of the maximum aggregate amount
of incremental term loans C outstanding as set forth below:
<TABLE>
<CAPTION>
TERM C REDUCTION DATE REDUCTION PERCENTAGE
- --------------------- --------------------
<S> <C>
December 31, 2001 0.25%
March 31, June 30, September 30 and December 31, 2002 0.25%
March 31, June 30, September 30 and December 31, 2003 0.25%
March 31, June 30, September 30 and December 31, 2004 0.25%
March 31, June 30, September 30 and December 31, 2005 0.25%
March 31, June 30, September 30 and December 31, 2006 0.25%
March 31, June 30, September 30 and December 31, 2007 0.25%
January 31, 2008 93.75%
</TABLE>
The credit facility provides for prepayment of the loans under the
following circumstances:
- Beginning in 2002, a prepayment must be made each year in an amount equal
to 75% of excess cash flow for the previous fiscal year;
- Upon receipt of net proceeds from asset sales exceeding $2,000,000, in
the aggregate, a prepayment must be made in the amount of such excess,
unless Classic Cable intends to reinvest the proceeds through a permitted
acquisition within six months. If so, the proceeds will be held in a cash
collateral account for the six month period or until reinvested. If these
proceeds are not reinvested within six months, they will be used to
prepay the loans. If the amount being held in the cash collateral account
ever exceeds $10,000,000, the excess will be used to prepay the loans;
- Upon receipt of net proceeds from any sale-leaseback of tower assets made
during any period in which the maximum total debt ratio is greater than
6.75:1.00, the proceeds must be used to prepay the loans;
- Upon receipt of net proceeds from any sale-leaseback of tower assets made
during any period in which the maximum total debt ratio is less than or
equal to 6.75:1.00, a prepayment must be made in an amount equal to 50%
of the proceeds;
- Upon receipt of net proceeds from any equity offering, the proceeds must
be used to prepay the loans to the extent they are not used to prepay
subordinated notes or to finance permitted acquisitions;
- Upon receipt of net proceeds from any debt offering, the proceeds must be
used to prepay the loans;
- Upon receipt of net proceeds in excess of $500,000 from purchase price
adjustments in connection with an acquisition, a prepayment must be made
in the amount of the excess; and
- Upon receipt of proceeds exceeding $250,000, in the aggregate, from
insurance, condemnation award or other compensation in respect of any
casualty affecting any of Class Cable's property, a prepayment must be
made in the amount of the excess to the extent the proceeds are not used
for the repair or replacement of the property.
Each prepayment described above will be applied to the outstanding amounts of
the term loans and the revolving loans on a pro rata basis.
The credit facility is secured by a perfected first priority security
interest in substantially all of Classic Cable's personal property, including,
without limitation, the capital stock of Classic Cable's direct and indirect
subsidiaries. The credit facility is unconditionally guaranteed by each
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<PAGE> 96
of Classic Cable's direct and indirect domestic subsidiaries. In addition, the
credit facility will be subject to several customary negative covenants as well
as financial covenants, including
- a maximum total debt ratio,
- a maximum senior debt ratio,
- a minimum interest coverage ratio,
- a pro forma debt service coverage ratio, and
- a maximum capital expenditures amount.
In addition, the revolving credit facility provides for the payment of an
unused commitment fee based on the average daily amount of the unused revolving
credit commitment. This fee is payable quarterly in arrears on the last day of
each March, June, September and December, commencing on September 30, 1999. The
amount of the unused commitment fee is based on the maximum total debt ratio. If
this ratio is less than 5.50:1, the fee is equal to 0.375% per annum. If the
ratio is more than 5.50:1, the fee is equal to 0.500% per annum.
CLASSIC CABLE'S 2009 SUBORDINATED NOTES
A portion of the Buford acquisition price was financed by Classic Cable's
issuance of $150.0 million in principal amount of 9 3/8% senior subordinated
notes due 2009. These notes, which were issued pursuant to an exemption from
registration under the Securities Act, were exchanged for an identical principal
amount of 2009 senior subordinated notes registered under the Securities Act.
The subordinated notes have the following basic terms:
Maturity...................... August 1, 2009.
Interest...................... Annual rate -- 9 3/8%.
Payment frequency -- every six months on
February 1 and August 1.
First payment -- February 1, 2000.
Guarantors.................... The 2009 subordinated notes are guaranteed by
each of Classic Cable's current and future
domestic restricted subsidiaries. Each
guarantor is a wholly owned subsidiary of
Classic Cable. If Classic Cable cannot make
payments on the notes when they are due, the
guarantors must make them instead.
Ranking....................... The 2009 subordinated notes and the subsidiary
guarantees are senior subordinated debts and
rank equally with Classic Cable's 2008 notes.
The 2009 subordinated notes rank behind all of
Classic Cable and the subsidiary guarantors'
current and future indebtedness, except:
- trade payables; and
- indebtedness, such as the 2008 notes, that
expressly provides that it is not senior to
the subordinated notes and the related
subsidiary guarantees.
Optional Redemption........... On or after August 1, 2004, Classic Cable may
redeem some or all of the subordinated notes at
any time at the redemption prices then in
effect: 12-month period beginning August 1,
2004 -- 104.688%; 2005 -- 103.125%;
2006 -- 101.562%; and 2007 and
thereafter -- 100.000%.
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<PAGE> 97
Before August 1, 2002, Classic Cable may redeem
up to 35% of the notes ever issued under the
indenture with the proceeds of one or more
public equity offerings by, or strategic equity
investments in, Classic Cable or Classic at the
redemption price of 109.375%.
Mandatory Offer to
Repurchase.................... If Classic Cable sells assets under some
circumstances, or experiences specific kinds of
changes of control, Classic Cable must offer to
repurchase the 2009 subordinated notes at the
redemption prices of 100% and 101%,
respectively.
Basic Covenants of
Indenture..................... Classic Cable issued the 2009 subordinated
notes under an indenture with Chase Bank of
Texas, National Association. The indenture,
among other things, restricts Classic Cable's
ability and the ability of its subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions;
- sell certain assets or merge with or into
other companies; and
- engage in certain transactions with
affiliates.
CLASSIC CABLE'S 2008 SUBORDINATED NOTES
In connection with the Cable One acquisition and our recapitalization,
Classic Cable issued $125.0 million in principal amount of 9 7/8% senior
subordinated notes due 2008, of which $39.0 million is currently outstanding.
These notes, which were issued pursuant to an exemption from registration under
the Securities Act, were exchanged for an identical principal amount of 2008
senior subordinated notes registered under the Securities Act. The 2008
subordinated notes have the following basic terms:
Maturity................... August 1, 2008.
Interest................... Annual rate -- 9 7/8%.
Payment frequency -- every six months on February 1
and August 1.
First payment -- February 1, 1999.
Guarantors................. All of Classic Cable's wholly-owned subsidiaries.
Optional Redemption........ Classic Cable may not redeem the notes prior to
August 1, 2003. After August 1, 2003, Classic Cable
may redeem any amount of the notes at any time at
the respective redemption prices, together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to
August 1, 2001, Classic Cable may redeem up to 35%
of the original aggregate principal amount of the
notes with the cash proceeds of one or more equity
offerings or a strategic equity investment. Should
Classic Cable do so, it would be required to pay a
redemption price equal to 109.875% of the principal
amount of the notes to be redeemed, together with
accrued and unpaid interest, if any, to the date of
redemption. Classic Cable would still be required
to keep at least 65% of the original aggregate
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<PAGE> 98
principal amount of the notes outstanding after
such a redemption.
Change of Control.......... Upon the occurrence of a change of control, the
holders of the notes have the right to require
Classic Cable to repurchase the notes at a price
equal to 101% of the original aggregate principal
amount, together with accrued and unpaid interest,
if any, to the date of repurchase. In addition,
upon the occurrence of a change of control, Classic
Cable will have the option to redeem the notes
prior to August 1, 2003, at the respective
redemption price.
On July 28, 1999, a change of control of Classic
occurred. Accordingly, Classic Cable offered to
repurchase all outstanding notes at a price equal
to 101% of the original aggregate principal amount
together with accrued and unpaid interest to the
date of repurchase. As a result of this offer,
which closed on September 9, 1999, we purchased
$86.0 million in principal amount of the notes.
Ranking.................... The notes are unsecured and are subordinated to all
existing and future senior indebtedness of Classic
Cable. The notes rank without preference with all
existing and future senior subordinated
indebtedness of Classic Cable.
Guarantees................. The guarantees are general unsecured obligations of
the subsidiary guarantors and are subordinated in
right of payment to all existing and future
guarantor senior indebtedness. The guarantees are
joint and several.
Restrictive Covenants...... The indenture under which the notes were issued
limits:
- the incurrence of additional indebtedness by
Classic Cable and its subsidiaries;
- the making of restricted payments;
- the payment of dividends on, and redemption of,
Classic Cable's capital stock and Classic Cable's
subsidiaries' capital stock and the redemption of
Classic Cable's and Classic Cable's subsidiaries'
subordinated obligations;
- sales of assets;
- transactions with affiliates; and
- liens.
In addition, the indenture limits Classic Cable's
ability to engage in consolidations, mergers and
transfers of substantially all of its assets and
also contains certain restrictions on distributions
from its subsidiaries. All of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions.
CLASSIC 2009 SENIOR DISCOUNT NOTES
In connection with the Cable One acquisition and our recapitalization, we
issued $114,000,000 in principal amount of 13 1/4% senior discount notes due
2009. These notes, which were issued pursuant to an exemption from registration
under the Securities Act, were
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<PAGE> 99
exchanged for an identical principal amount of 2009 senior discount notes
registered under the Securities Act. The 2009 senior discount notes have the
following basic terms:
Maturity................... August 1, 2009.
Interest................... Annual rate -- 13 1/4%.
Payment frequency -- every six months on February 1
and August 1.
First payment -- February 1, 2004.
Optional Redemption........ With exceptions, we may not redeem the notes prior
to August 1, 2003. After August 1, 2003, we may
redeem any amount of the notes at any time at the
respective redemption prices, together with accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to
August 1, 2001, we may redeem all of the original
aggregate principal amount of the notes with the
cash proceeds of one or more equity offerings or a
strategic equity investment. Should we do so, we
would be required to pay a redemption price equal
to 113.25% of the accreted value of the notes to be
redeemed, together with accrued and unpaid
interest, if any, to the date of redemption.
Change of Control.......... Upon the occurrence of a change of control, the
holders of the notes have the right to require us
to repurchase the notes at a price equal to 101% of
the accreted value of the notes, together with
accrued and unpaid interest, if any, to the date of
repurchase.
On July 28, 1999, a change of control of Classic
occurred. Accordingly, Classic offered to
repurchase all outstanding notes at a price equal
to 101% of the original aggregate principal amount
together with accrued and unpaid interest, if any,
to the date of repurchase. This offer expired on
September 1, 1999. No notes were redeemed.
Ranking.................... The notes will be unsecured and will rank without
preference with all existing and future unsecured
indebtedness of Classic, and senior to all future
subordinated indebtedness of Classic. The notes
will also be subordinate to all existing and future
liabilities of Classic's subsidiaries.
Restrictive Covenants...... The indenture under which the notes were issued
limits:
- the incurrence of additional indebtedness by us
and our subsidiaries;
- the payment of dividends on, and redemption of,
our capital stock and our subsidiaries' capital
stock and the redemption of our and our
subsidiaries' subordinated obligations;
- investments;
- sales of assets and subsidiary stock;
- transactions with affiliates;
- sale and leaseback transactions; and
- liens.
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<PAGE> 100
In addition, the indenture limits our ability to
engage in consolidations, mergers and transfers of
substantially all of our assets and also contains
certain restrictions on distributions from our
subsidiaries. All of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions.
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<PAGE> 101
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock will consist of: (1) 120,000,000 shares of
Class A common stock, $.01 par value per share, (2) 15,000,000 shares of Class B
common stock, $.01 par value per share, (3) 5,000,000 shares of nonvoting common
stock, $.01 par value per share, and (4) 10,000,000 shares of preferred stock,
$.01 par value per share, issuable in series. Set forth below is a summary
description of all the material terms of our capital stock. Such description is
qualified in its entirety by reference to our certificate of incorporation and
by-laws, a copy of each of which is filed as an exhibit to the registration
statement of which this prospectus is a part.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
There are shares of Class A common stock being offered through this
prospectus,
if the underwriters' option to purchase additional shares is exercised, and
shares are reserved for issuance upon possible conversion of Class B
common stock and nonvoting common stock into Class A common stock (assuming
exercise of outstanding warrants). Upon completion of this offering there will
be shares of Class B common stock outstanding.
VOTING. The holders of Class A common stock and Class B common stock will
generally vote as a single class on all matters upon which stockholders have a
right to vote, subject to the requirements of the applicable laws and the rights
of any series of preferred stock or common stock to a separate class vote. Each
stockholder is entitled to one vote for each share of Class A common stock held
and each stockholder is entitled to ten votes for each share of Class B common
stock held. Holders of the majority of the Class A common stock and the Class B
common stock, voting as a single class, will have the right to increase or
decrease the amount of our authorized capital stock without a separate class
vote of the class of capital stock to be increased or decreased. In no event,
however, may such stockholders vote to decrease a class of capital stock below
the number of shares outstanding of such class. Holders of nonvoting common
stock will have no right to vote on any matter, except as may be required by
law. If required by law, the holders of nonvoting common stock will each have
one vote for each share of nonvoting common stock held.
DIVIDENDS AND OTHER DISTRIBUTIONS. The holders of Class A common stock,
Class B common stock and nonvoting common stock will be entitled to equal
dividends on a per share basis when declared by the board of directors, except
that all dividends payable in common stock will be paid in the form of Class A
common stock to holders of Class A common stock, in the form of Class B common
stock to holders of Class B common stock and in the form of nonvoting common
stock or Class A common stock to holders of nonvoting common stock. No shares of
any class of common stock may be split, divided or combined unless the
outstanding shares of the other classes are also proportionally split, divided
or combined.
If Classic is liquidated or wound up, subject to the rights of the holders
of Preferred Stock, our remaining assets will be distributed pro rata, on an
equal per share basis, to holders of all three classes of common stock.
MERGER. In the event of a merger, the holders of Class A common, Class B
common stock and nonvoting common stock will be entitled to receive the same per
share consideration, if any, except that if such consideration includes voting
securities (or the right to acquire voting securities or securities exchangeable
for or convertible into voting securities), we may (but are not required to)
provide for the holders of Class B common stock to receive consideration
entitling them to ten times the number of votes per share as the consideration
being received by holders of the Class A common stock and provide for the
holders of nonvoting common stock to receive shares of the voting securities to
be received by the holders of Class B common stock.
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<PAGE> 102
CONVERSION OF CLASS B COMMON STOCK TO CLASS A COMMON STOCK. Shares of Class
B common stock will be converted into shares of Class A common stock on a
one-for-one basis (1) at the option of the holder at any time, (2) upon transfer
to a person or entity which is not a Permitted Transferee, as defined in our
certificate of incorporation, (3) on the date that Brera Classic or its
Permitted Transferees elect to convert all of the Class B common stock they hold
into Class A common stock, (4) on the first date that the number of shares of
Class B common stock outstanding is less than 5% of the then outstanding shares
of common stock (without regard to voting rights).
Permitted Transferees include:
(1) any "Initial Holder", as defined in the certificate of
incorporation;
(2) the spouse of an Initial Holder referred to in the foregoing
clause (1), any Descendant or Ancestor of such an Initial Holder, each as
defined in the certificate of incorporation, and the spouse of any
Descendant of such an Initial Holder;
(3) a Permitted Trust, as defined in the certificate of incorporation;
(4) a Permitted Charitable Foundation, as defined in the certificate
of incorporation; or
(5) an Affiliate of an Initial Holder, as defined in the certificate
of incorporation.
The term "Initial Holder" includes:
(1) each person or entity in whose name one or more shares of Class B
common stock are registered upon the completion of this offering, or the
effective time;
(2) each holder of nonvoting common stock at the effective time in
whose name one or more shares of Class B common stock become registered in
the event of a conversion of nonvoting common stock to Class B common stock
pursuant to the certificate of incorporation with such time being referred
to as the nonvoting conversion time;
(3) each joint owner of a share of Class B common stock at the
effective time or at the nonvoting conversion time;
(4) each minor who is the beneficiary at the effective time or at the
nonvoting conversion time of a Uniform Gifts to Minors Act account under
which the custodian, in such capacity, is an Initial Holder;
(5) the settlor of any trust which is an Initial Holder or any
beneficiary at the effective time or at the nonvoting conversion time of
any irrevocable trust which is an Initial Holder; and
(6) each record holder of options or warrants to purchase Class B
common stock or nonvoting common stock at the effective time in whose name
one or more shares of Class B common stock or nonvoting common stock, as
applicable, become registered upon exercise of such warrants or options.
A person or entity will cease to be an Initial Holder once that person or
entity no longer holds of record or beneficially any Class B common stock or
warrants and options as described above. For purposes of the definition of
"Initial Holder", if any shares of Class B common stock are registered in the
name of a nominee at the effective time or at the nonvoting conversion time,
such shares shall be deemed to be registered in the name of the person or entity
for whom such nominee is acting.
CONVERSION OF NONVOTING COMMON STOCK TO VOTING COMMON STOCK. Except when
inconsistent with any law or regulation relating to our ownership or control
with respect to the holder, shares of nonvoting common stock of a holder will be
convertible into shares of Class B common stock
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on a one-for-one basis at the option of such holder at any time. However, shares
of nonvoting common stock will not be convertible into shares of Class B common
stock on or after the earliest of (1) transfer to a person or entity which is
not a Permitted Transferee, (2) the date that Brera Classic or its Permitted
Transferee, elects to convert all of the Class B common stock held by it and its
Permitted Transferees into Class A common stock, (3) the first date on which the
number of shares of Class B common stock outstanding is less than 5% of the then
outstanding shares of common stock (calculated without regard to the difference
in voting rights between the classes of common stock). Except when inconsistent
with any law or regulation relating to our ownership or control with respect to
the holder, nonvoting common stock will be convertible into Class A common stock
on a one-for-one basis at the option of the holder at any time.
PREEMPTIVE RIGHTS. The holders of our shares of capital stock will not have
any preemptive rights to any outstanding or newly issued shares of capital
stock.
WARRANTS
As of September 30, 1999, we had warrants outstanding to purchase 152,418
shares of Class B common stock and 183,435 shares of nonvoting common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Chase Bank of
Texas, N.A.
PREFERRED STOCK
Pursuant to our certificate of incorporation, we may issue up to 10,000,000
shares of preferred stock in one or more series. Our board of directors has the
authority, without any vote or action by our stockholders, to create one or more
series of preferred stock up to the limit of our authorized but unissued shares
of preferred stock and to fix the designations, preferences, rights,
qualifications, limitations and restrictions thereof, including the voting
rights, dividend rights, dividend rate, conversion rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series. Upon the
completion of this offering, there will be no shares of preferred stock
outstanding. The issuance of preferred stock could have the effect of decreasing
the market price of the common stock, impeding or delaying a possible takeover
and adversely affecting the voting and other rights of the holders of common
stock. We currently have no plans to issue any shares of preferred stock. See
"-- Certain Anti-Takeover Matters -- Authorized but Unissued Shares."
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law authorizes a
corporation's board of directors to grant indemnity to directors and officers in
terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act.
Our certificate of incorporation and by-laws provide for indemnification of
our directors and officers to the fullest extent authorized or permitted by law.
As a result, we have eliminated the personal liability of directors for monetary
damages resulting from breaches of fiduciary duties. We have indemnification
agreements with each individual director, and we have insurance that provides
indemnification for our directors, officers and certain other employees for
certain liabilities. We believe that these indemnification provisions,
individual agreements and insurance are necessary to attract and retain
qualified directors and officers.
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The limitation of liability and indemnification provisions in our
certificate of incorporation and by-laws may not be enforceable against us if
someone challenges these provisions. Nonetheless, these provisions may
discourage stockholders from bringing a lawsuit against directors for breach of
their fiduciary duties. These provisions may also have the effect of reducing
the likelihood of derivative litigation against directors and officers, even
though such action, if successful, might otherwise benefit us and our
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the cost of settlement and damage awards against directors
and officers pursuant to these indemnification provisions.
No litigation or proceeding is now pending that involves any of our
directors, officers or employees for which indemnification is or has been
sought. We are also unaware of any threatened litigation that could result in
claims for indemnification.
CERTAIN ANTI-TAKEOVER MATTERS
CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Our certificate of incorporation and by-laws include a number of provisions
that may have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with our board of
directors rather than pursue non-negotiated takeover attempts. These provisions
include high vote Class B common stock, a classified board, an advance notice
requirement for director nominations and actions to be taken at annual meetings
of stockholders, and the availability of authorized but unissued blank check
preferred stock.
CLASS B VOTING COMMON STOCK
We have three classes of common stock -- Class A common stock, which
carries one vote per share, Class B common stock, which carries ten votes per
share, and nonvoting common stock, which carries no votes per share. Upon
completion of this offering, holders of Class B common stock will control
approximately % of the voting power of our outstanding common stock. See
"Risk Factors -- Brera Classic has the ability to control matters on which
Classic's stockholders may vote."
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation establishes a classified board of
directors. The board will be divided into three classes of approximately equal
size, with directors for terms expiring in 2000 (Class I), 2001 (Class II) and
2002 (Class III). Afterwards, subject to the right of holders of any series of
preferred stock to elect directors, stockholders will elect one class
constituting approximately one-third of the board for a three-year term at each
annual meeting of stockholders. See "Management -- Election of Directors and
Appointment of Executive Officers." As a result, at least two annual meetings of
stockholders may be required for the stockholders to change a majority of the
board. The classification of directors will make it more difficult to change the
composition of the board of directors and will instead promote a continuity of
existing management.
SELECTED AMENDED CERTIFICATE OF INCORPORATION AND AMENDED BY-LAW PROVISIONS
Our by-laws provide that directors may be removed from office only for
cause and only by the affirmative vote of the holders of at least two-thirds of
our total outstanding Class A common stock and Class B common stock. Subject to
the terms of any series of preferred stock, vacancies on our board of directors,
including those resulting from an increase in the number of directors, may be
filled only by the remaining directors, not by stockholders.
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Any action required or permitted to be taken by our stockholders may be
effected only at an annual or special meeting of stockholders and will not be
permitted to be taken by written consent in lieu of a meeting. Our certificate
of incorporation and by-laws provide that special meetings of stockholders may
be called by the chairman of our board of directors or a majority of our board.
Stockholders will not be permitted to call a special meeting or to require that
the board of directors call a special meeting of stockholders.
There are provisions contained in our certificate of incorporation,
including those relating to the size and classification of the board of
directors, the removal of directors, the prohibition on action by written
consent and the calling of special meetings, which may only be amended by the
affirmative vote of the holders of at least two-thirds of our total outstanding
common stock. In addition, our certificate of incorporation provides that our
amended by-laws may only be amended by the affirmative vote of the holders of at
least two-thirds of our outstanding voting stock or by a majority vote of the
members of the board of directors in office.
Our by-laws require advance notice procedures be followed with regard to
stockholder proposals relating to the nomination of candidates for election as
directors or new business to be presented at meetings of stockholders. These
procedures provide that notice of these stockholder proposals must be timely
given in writing to our corporate Secretary prior to the meeting at which the
action is to be taken. Generally, to be timely, notice must be received at our
principal executive offices not less than 90 days nor more than 120 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders. In the event the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, and with respect to the
annual meeting of stockholders for the year 2000, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the tenth day following the earlier of the day on which notice of the day of the
annual meeting was mailed or public disclosure of the date of the annual meeting
was made. The advance notice requirement does not give our board of directors
any power to approve or disapprove stockholder director nominations or proposals
but may have the effect of precluding the consideration of certain business at a
meeting if the proper notice procedures are not followed.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law prohibits certain
"business combination" transactions between a Delaware corporation and any
"interested stockholder" owning 15% or more of the corporation's outstanding
voting stock for a period of three years after the date on which such
stockholder became an interested stockholder, unless (1) the board of directors
approves, prior to such date, either the proposed business combination or the
proposed acquisition of stock which resulted in the stockholder becoming an
interested stockholder, (2) upon consummation of the transaction in which the
stockholder becomes an interested stockholder, the interested stockholder
acquires at least 85% of those shares of the voting stock of the corporation
which are not held by the directors, officers or certain employee stock plans or
(3) on or subsequent to the consummation date, the business combination with the
interested stockholder is approved by the board of directors and also approved
at a stockholders' meeting by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of the corporation's voting stock other
than shares held by the interested stockholder. Under Delaware law, a "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. We may use these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans.
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Our certificate of incorporation provides for 10,000,000 authorized shares
of preferred stock, none of which has been issued. The existence of authorized
but unissued preferred stock may enable the board of directors to render more
difficult or discourage an attempt to obtain control over us by means of a
merger, tender offer, proxy contest or otherwise. For example, if in the due
exercise of its fiduciary obligations, the board of directors were to determine
that a takeover proposal is not in our best interests, the board of directors
could cause shares of preferred stock to be issued without stockholder approval
in one or more private offerings or other transactions that might dilute the
voting or other rights of the proposed acquirer or insurgent stockholder or
stockholder group. In this regard, our certificate of incorporation grants our
board of directors broad power to establish the rights and preferences of
authorized and unissued preferred stock. The issuance of shares of preferred
stock pursuant to our board of directors' authority described above could
decrease the amount of earnings and assets available for distribution to holders
of common stock and adversely affect the rights, of stockholders including
voting rights in the event a particular series of preferred stock is given a
disproportionately large number of votes per share, and may have the effect of
delaying, deferring or preventing a change in control that may be favored by
certain stockholders. The board of directors does not currently intend to seek
stockholder approval prior to any issuance of preferred stock, unless required
by law.
REGISTRATION RIGHTS
Prior to the completion of this offering, we will amend our registration
rights agreement with the holders of our Class B common stock and nonvoting
common stock to provide that these holders will have the right to cause us to
register the shares of Class A common stock issued to them upon conversion of
their shares of Class B common stock and nonvoting common stock.
This registration rights agreement will provide that each eligible holder
will be entitled to "piggyback" registration rights obligating us, subject to
specified limitations, to register their shares of Class A common stock on
registration statements filed by us. If, in an underwritten offering where
eligible holders have "piggyback" registration rights, the underwriters
determine that the total amount of securities that we and the eligible holders
propose to include exceeds the number which can be sold in the offering so as to
have a significant adverse effect on the price, timing or distribution of the
securities offered or the market for our common stock, some eligible holders
will be given priority "piggyback" registration rights in the initial public
offering and in the first secondary offering of our Class A common stock.
Pursuant to these rights, after 100% of the securities we propose to offer are
accounted for, BT Capital Partners, Inc., Union Bancal Venture Corporation,
Austin Ventures, L.P. and certain affiliates, Texas Growth Fund and BA Capital
Company, L.P., as a group, will have the right to sell two-thirds of the
remaining total amount of securities to be sold, and Brera Classic and Messrs.
Belisle and Seach, as a group, will have the right to sell one-third of the
remaining total amount of securities to be sold. These holders may also exercise
their demand rights obligating us, subject to specified limitations, to register
their shares of Class A common stock, provided that the amount of shares subject
to each demand has a market value equal to or more than $10,000,000. If, in an
underwritten demand registration, the underwriters determine that the total
amount of securities that the eligible holders propose to include exceeds the
number which can be sold in the offering so as to have a significant adverse
effect on the price, timing or distribution of the securities offered or the
market for our Class A common stock, some eligible holders will be given
priority registration rights in the initial public offering of our Class A
common stock, if a demand registration, and in the first subsequent demand
registration. Pursuant to these rights, after 100% of the securities we propose
to offer are accounted for, BT Capital Partners, Inc., Union Bancal Venture
Corporation, Austin Ventures, L.P. and certain affiliates, Texas Growth Fund and
BA Capital Company, L.P., as a group, will have the right to sell two-thirds of
the remaining total amount of securities to be sold, and Brera Classic and
Messrs. Belisle and Seach, as a group, will have the right to sell one-third of
the remaining total amount of securities to be sold. We are obligated to pay the
costs associated with all such registrations.
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Immediately following the offering, all shares of Class A common stock
issuable upon conversion of outstanding Class B common stock and nonvoting
common stock will be subject to the registration rights described above.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Class A common
stock. We cannot predict the effect, if any, that sales or shares or the
availability of shares for sale will have on the market price of our Class A
common stock prevailing from time to time. Sales of substantial amounts of our
common stock in the public market could adversely affect prevailing market
prices of our Class A common stock. Furthermore, since no shares will be
available for sale shortly after this offering because of contractual and legal
restrictions on resale described below, sales of substantial amounts of common
stock in the public market after these restrictions lapse could adversely affect
the prevailing market price and our ability to raise equity capital in the
future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, consisting of shares of Class
A common stock, shares of Class B common stock and shares of
nonvoting common stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, all of the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are purchased
by "affiliates" as that term is defined in Rule 144 under the Securities Act.
Any shares of Class A common stock outstanding as a result of the conversion of
shares of Class B common stock held by affiliates of ours, representing %
of the outstanding common stock upon completion of the offering, will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 promulgated
under the Securities Act, which rules are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. Some of the restricted securities could be available for resale immediately
upon the expiration of the 180-day lock-up period.
LOCK-UP AGREEMENTS
All of our officers and approximately % of our stockholders have
signed lock-up agreements and are parties to a registration rights agreement
whereby they agreed not to offer, sell, contract to sell, pledge, grant any
option to purchase, make any short sale or otherwise dispose of any shares of
our Class A common stock, or any options or warrants to purchase any shares of
our Class A common stock, or any securities convertible into, exchangeable for
or that represent the right to receive shares of our Class A common stock, for a
period of 180 days after the effective date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Goldman, Sachs
& Co.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of Class A common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of the Class A common stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
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Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. The sale of such shares, or the perception that
sales will be made, could adversely effect the price of our Class A common stock
after this offering because a greater supply of shares would be perceived to be
available for sale in the public market.
STOCK OPTIONS
Our board of directors has approved the Omnibus Stock Incentive Plan to
distribute stock options and other purchase rights to certain of our employees.
We believe the plan will enable us to attract and retain highly qualified
personnel who will contribute to our success and the success of our
stockholders. In addition, we granted stock options in August 1999 to purchase
approximately 1,000,000 shares of our Class A common stock at an exercise price
of $20 per share to several officers and key employees.
Immediately following the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act covering
shares of Class A common stock reserved for issuance under the plan and the
August stock option grants. The registration statement will become effective
automatically upon filing, at which time options to purchase shares of
Class A common stock will be issued and outstanding, of which no shares will be
vested. Accordingly, shares registered under the registration statement will,
subject to vesting provisions and Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the
180-day lock-up agreements expire. Exercise of options under the plan and the
August stock option grants may dilute the percentage of ownership held by the
existing stockholders. See "Description of Capital Stock -- Registration
Rights."
Upon completion of this offering, options to purchase shares of
Class B common stock will be issued and outstanding, of which shares will
have vested. An aggregate of of the shares of Class B common stock
issuable upon exercise of these options will be subject to the registration
rights agreement described under the caption "Description of Capital
Stock -- Registration Rights."
WARRANTS
As of September 30, 1999, we had warrants outstanding to purchase 152,418
shares of Class B common stock and 183,435 shares of nonvoting common stock.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of our Class B common stock
and nonvoting common stock are entitled to require that we register the shares
of Class A common stock into which their shares of Class B common stock are
convertible. Any sales of securities by these stockholders could have a material
adverse effect on the trading price of our Class A common stock. See
"Description of Capital Stock -- Registration Rights".
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IMPORTANT UNITED STATES FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS
This is a general discussion of certain United States federal tax
consequences of the acquisition, ownership, and disposition of our Class A
common stock by a holder that, for U.S. federal income tax purposes, is not a
U.S. person as we define that term below. A holder of our Class A common stock
who is not a U.S. person is a non-U.S. holder. We assume in this discussion that
you will hold our Class A common stock issued pursuant to the offering as a
capital asset (generally, property held for investment). We do not discuss all
aspects of U.S. federal taxation that may be important to you in light of your
individual investment circumstances, such as special tax rules that would apply
to you, for example, if you are a dealer in securities, financial institution,
bank, insurance company, tax-exempt organization, partnership or owner of more
than 5% of our Class A common stock. Our discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, judicial opinions, published positions of the U.S. Internal Revenue
Service and other applicable authorities, all as in effect on the date of this
prospectus and all of which are subject to differing interpretations or change,
possibly with retroactive effect. We have not sought, and will not seek, any
ruling from the IRS or opinion of counsel with respect to the tax consequences
discussed in this prospectus, and there can be no assurance that the IRS will
not take a position contrary to the tax consequences discussed below or that any
position taken by the IRS would not be sustained. We urge you to consult your
tax advisor about the U.S. federal tax consequences of acquiring, holding, and
disposing of our Class A common stock, as well as any tax consequences that may
arise under the laws of any foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a U.S. person means any one of the
following:
- a citizen or resident of the U.S.
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source.
- a trust, the administration of which is subject to the primary
supervision of a U.S. court and that has one or more U.S. persons who
have the authority to control all substantial decisions of the trust
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30%. If, however, the
dividend is effectively connected with the conduct of a trade or business of the
U.S. by the non-U.S. holder, the dividend will be subject to U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax. Non-U.S. holders should consult any applicable income tax treaties
that may provide for a reduction of, or exemption from, withholding taxes. For
purposes of determining whether tax is to be withheld at a reduced rate as
specified by a treaty, we generally will presume that dividends we pay on or
before December 31, 2000, to an address in a foreign country are paid to a
resident of that country.
Under recently finalized Treasury regulations, which in general apply to
dividends that we pay after December 31, 2000, to obtain a reduced rate of
withholding under a treaty, a non-U.S. holder generally will be required to
provide certification as to that non-U.S. holder's entitlement to treaty
benefits. These regulations also provide special rules to determine whether, for
purposes of applying a treaty, dividends that we pay a non-U.S. holder that is
an entity should be treated as paid to holders of interests in that entity.
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GAIN ON DISPOSITION
A non-U.S. holder will generally not be subject to United States federal
income tax, including by way of withholding, on gain recognized on a sale or
other disposition of our Class A common stock unless any one of the following is
true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates
- we are or have been during certain periods a "United States real property
holding corporation" for U.S. federal income tax purposes
If we are or have been a United States real property holding corporation, a
non-U.S. holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our Class A common stock provided
that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding Class A
common stock and
- our Class A common stock is and continues to be regularly traded on an
established securities market for U.S. federal income tax purposes.
We believe that our Class A common stock will be regularly traded on an
established securities market for this purpose in any year in which it is listed
on the Nasdaq National Market.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our Class A common stock as well as to a withholding tax,
generally at a rate of 10% of the proceeds. Any amount withheld pursuant to a
withholding tax will be creditable against a non-U.S. holder's U.S. federal
income tax liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but will generally not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our Class A common stock that is owned or treated as owned by an individual
who is not a citizen or resident of the U.S., as specially defined for U.S.
federal estate tax purposes, on the date of that person's death will be included
in his or her estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends that we paid to a holder, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a county in which the non-U.S. holder resides.
Under current U.S. Treasury regulations, U.S. information reporting
requirements and backup withholding tax will generally not apply to dividends
that we pay on our Class A common stock to a non-U.S. holder at an address
outside the U.S. Payments of the proceeds of a sale or other taxable disposition
of our Class A common stock by a U.S. office of a broker are subject to both
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backup withholding at a rate of 31% and information reporting, unless the holder
certifies as to its non-U.S. holder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirements, but not
backup withholding tax, will also apply to payments of the proceeds of a sale or
other taxable disposition of our Class A common stock by foreign offices of U.S.
brokers or foreign brokers with certain types of relationships to the U.S.
unless the broker has documentary evidence in its records that the holder is a
non-U.S. holder and certain other conditions are met or the holder otherwise
established an exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
The U.S. Treasury Department has promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general,
those regulations do not significantly alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify reliance standards. The final regulations are generally
effective for payments made after December 31, 2000, subject to transition
rules.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago,
Illinois. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Latham & Watkins, New York, New York.
EXPERTS
The financial statements of Classic Communications, Inc. as of December 31,
1998 and 1997 and for each of the two years in the period ended December 31,
1998 as well as the financial statements of Star Cable Associates as of December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998, included in this prospectus, have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the year ended December 31, 1996, as set forth in their
report. We have included our 1996 financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
The consolidated financial statements of Buford Group, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In September 1999, we decided to replace Ernst & Young LLP with
PricewaterhouseCoopers LLP as our independent public accountants to audit our
financial statements for the years ended December 31, 1997 and December 31,
1998. The decision to change independent public accountants from Ernst & Young
LLP to PricewaterhouseCoopers LLP was approved by our board of directors.
We believe, and have been advised by Ernst & Young LLP that it concurs with
such belief, that, for the years ended December 31, 1997 and December 31, 1998,
we and Ernst & Young LLP did not have any disagreement on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement, if not
109
<PAGE> 113
resolved to the satisfaction of Ernst & Young LLP would have caused it to make
reference in connection with its report on our financial statements to the
subject matter of the disagreement.
The report of Ernst & Young LLP on our financial statements for the years
ended December 31, 1997 and December 31, 1998 did not contain an adverse opinion
or a disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During that period there were no
"reportable events" within the meaning of Item 304(a)(l)(v) of regulation S-K
promulgated under the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. We are required to file annual, quarterly and special reports and
other information with the Securities and Exchange Commission. You may read and
copy any of these reports, statements and other information that we file at the
SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the
public reference rooms. Our filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at http://www.sec.gov.
We have filed a registration statement on Form S-1 to register with the SEC
the Class A common stock. This prospectus is part of that registration
statement. As allowed by the SEC's rules, this prospectus does not contain all
of the information you can find in the registration statement or the exhibits to
the registration statement.
110
<PAGE> 114
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CLASSIC COMMUNICATIONS, INC.
Audited Annual Financial Statements
Report of Independent Accountants...................... F-2
Report of Independent Auditors......................... F-3
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-4
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997, and 1996............... F-5
Consolidated Statements of Stockholders' Deficit for
the years ended December 31, 1998, 1997, and 1996..... F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996............... F-7
Notes to Consolidated Financial Statements............. F-8
Unaudited Interim Financial Statements
Unaudited Consolidated Balance Sheets as of June 30,
1999.................................................. F-22
Unaudited Consolidated Statements of Operations for the
six months ended June 30, 1999 and 1998............... F-23
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998............... F-24
Notes to Unaudited Consolidated Financial Statements... F-25
BUFORD GROUP, INC.
Audited Annual Financial Statements
Independent Auditors' Report........................... F-29
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-30
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997, and 1996............... F-31
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997, and 1996......... F-32
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996............... F-33
Notes to Consolidated Financial Statements............. F-34
Unaudited Interim Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of
June 30, 1999......................................... F-42
Unaudited Condensed Consolidated Statements of
Operations for the six months ended June 30, 1999 and
1998.................................................. F-43
Unaudited Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 1999 and
1998.................................................. F-44
Notes to Unaudited Condensed Consolidated Financial
Statements............................................ F-45
STAR CABLE ASSOCIATES
Audited Annual Financial Statements
Report of Independent Accountants...................... F-47
Balance Sheets as of December 31, 1998 and 1997........ F-48
Statements of Operations and Changes in Partners'
Capital (Deficiency) for the years ended December 31,
1998, 1997, and 1996.................................. F-49
Statements of Cash Flows for the years ended December
31, 1998, 1997, and 1996.............................. F-50
Notes to the Financial Statements...................... F-51
Unaudited Interim Financial Statements
Unaudited Condensed Balance Sheets as of June 30,
1999.................................................. F-59
Unaudited Condensed Statement of Operations and Changes
in Partners' Capital (Deficiency) for the six months
ended June 30, 1999 and 1998.......................... F-60
Unaudited Condensed Statements of Cash Flows for the
six months ended June 30, 1999 and 1998............... F-61
Notes to the Condensed Financial Statements
(Unaudited)........................................... F-62
</TABLE>
F-1
<PAGE> 115
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Classic Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows present fairly, in all material respects, the financial position
of Classic Communications, Inc. and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Austin, Texas
October 14, 1999
F-2
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Classic Communications, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Classic Communications, Inc.
and its subsidiaries (the "Company") for the year ended December 31, 1996. Our
audit also included the financial statement schedule listed in Item 16(b) of
this Registration Statement (insofar as it relates to the statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
December 31, 1996). 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Classic Communications, Inc. and its subsidiaries for the year ended December
31, 1996 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-3
<PAGE> 117
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 -- affiliates........................... -- 4,023
Deferred taxes, net....................................... 1,068 2,918
-------- --------
Total liabilities................................... 301,392 206,643
Commitments and Contingencies
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................................ 30,464 33,405
Unearned compensation..................................... (1,920) (2,118)
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-4
<PAGE> 118
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)
======== ======== ========
Basic and diluted loss per share:
Loss per share applicable to common stockholders before
extraordinary item...................................... $ (11.43) $ (7.53) $ (7.30)
Extraordinary loss on extinguishment of debt.............. (2.12) -- --
-------- -------- --------
Loss per share applicable to common stockholders.......... $ (13.55) $ (7.53) $ (7.30)
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 119
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
------------------ ------------------ ---------------- ADDITIONAL
SHARES SHARES SHARES PAID-IN ACCUMULATED UNEARNED
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT COMPENSATION
------ ------ ------ ------ ------ ------ ---------- ----------- ------------
<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) $ --
Conversion of common
stock................. (542,995) (5) 542,995 5 -- -- -- -- --
Restricted stock awards.. 258,813 3 -- -- -- -- 4,231 -- (4,234)
Stock exchange.......... 258,813 2 -- -- (10,075) -- (2) -- --
Compensation on
restricted stock...... -- -- -- -- -- -- -- -- 1,058
Expenses related to
equity transactions... -- -- -- -- -- -- (85) -- --
Accretion of discount on
preferred stock....... -- -- -- -- -- -- (237) -- --
Dividends on preferred
stock................. -- -- -- -- -- -- (3,331) -- --
Net loss................ -- -- -- -- -- -- -- (13,166) --
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1996.................... 621,532 6 2,185,532 22 -- -- 37,485 (30,372) (3,176)
Compensation on
restricted stock...... -- -- -- -- -- -- -- -- 1,058
Accretion of discount on
preferred stock....... -- -- -- -- -- -- (237) -- --
Dividends on preferred
stock................. -- -- -- -- -- -- (3,843) -- --
Net loss................ -- -- -- -- -- -- -- (14,129) --
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1997.................... 621,532 6 2,185,532 22 -- -- 33,405 (44,501) (2,118)
Issuance of common
stock................. 355,258 4 -- -- -- -- 1,336 -- --
Conversion of common
stock................. 657,271 6 (657,271) (6) -- -- -- -- --
Compensation on
restricted stock...... -- -- -- -- -- -- -- -- 1,108
Exchange of restricted
common stock.......... 188,085 2 -- -- -- -- 1,122 -- (1,124)
Repurchase and
cancellation of
treasury stock........ (101,538) (1) -- -- -- -- (987) -- 214
Accretion of discount on
preferred stock....... -- -- -- -- -- -- (1,869) -- --
Dividends on preferred
stock................. -- -- -- -- -- -- (2,542) -- --
Net loss................ -- -- -- -- -- -- -- (30,863) --
Other................... -- -- -- (1) -- -- (1) -- --
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1998.................... 1,720,608 $17 1,528,261 $15 -- $ -- $30,464 $(75,364) (1,920)
========= === ========= === ======= ==== ======= ======== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance at December 31,
1995.................... $ 19,726
Conversion of common
stock................. --
Restricted stock awards.. --
Stock exchange.......... --
Compensation on
restricted stock...... 1,058
Expenses related to
equity transactions... (85)
Accretion of discount on
preferred stock....... (237)
Dividends on preferred
stock................. (3,331)
Net loss................ (13,166)
--------
Balance at December 31,
1996.................... 3,965
Compensation on
restricted stock...... 1,058
Accretion of discount on
preferred stock....... (237)
Dividends on preferred
stock................. (3,843)
Net loss................ (14,129)
--------
Balance at December 31,
1997.................... (13,186)
Issuance of common
stock................. 1,340
Conversion of common
stock................. --
Compensation on
restricted stock...... 1,108
Exchange of restricted
common stock.......... --
Repurchase and
cancellation of
treasury stock........ (774)
Accretion of discount on
preferred stock....... (1,869)
Dividends on preferred
stock................. (2,542)
Net loss................ (30,863)
Other................... (2)
--------
Balance at December 31,
1998.................... $(46,788)
========
</TABLE>
See accompanying notes.
F-6
<PAGE> 120
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
Non-cash 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-7
<PAGE> 121
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 a cable television system in Texas (with a fair value of
approximately $0.6 million) and cash consideration of $2.4 million.
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 $4.9 million.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
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.
F-8
<PAGE> 122
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Management reviews the valuation and amortization
periods of goodwill on a periodic basis, taking into consideration any events or
circumstances which might result in diminished fair value or revised useful
life. No events or circumstances have occurred to warrant a diminished fair
value or reduction in the useful life of goodwill.
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
F-9
<PAGE> 123
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, as
amended, is required to be adopted in years beginning after June 15, 2000.
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-10
<PAGE> 124
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-11
<PAGE> 125
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>
1998 Credit Agreement
Term loans................................................ $ 75,000 $ --
Revolving loans........................................... 20,800 --
13.25% Senior Discount Notes................................ 114,000 --
Unamortized discount...................................... (51,963) --
9.875% Senior Subordinated Notes............................ 125,000 --
Unamortized discount...................................... (563) --
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. At December 31, 1998, the weighted average
interest rate in effect was 7.6%. 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, resulting in a discount being recorded on
the debt of $1.3 million. This per share amount represents the fair value of the
stock as of the date of the offering.
The 1998 Credit Agreement of Classic Cable is collateralized by 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
F-12
<PAGE> 126
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The Senior Discount Notes are unsecured and rank without preference with
all existing and future unsecured indebtedness of the Company, and senior to all
future subordinated indebtedness of the Company. The notes are also subordinate
to all existing and future liabilities of the Company's subsidiaries. The Senior
Subordinated Notes are unsecured and are subordinated to all existing and future
senior indebtedness of Classic Cable. The notes rank without preference with all
existing and future senior subordinated indebtedness of Classic Cable. Both the
Senior Discount Notes and the Senior Subordinated Notes may be redeemed
contingent on certain events and/or the passage of time at the redemption price,
which may include a premium. Restrictive covenants associated with these notes
limit our ability to enter into certain transactions.
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 using the interest method 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>
F-13
<PAGE> 127
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBORDINATED DEBT -- AFFILIATES
Subordinated debt was held by shareholders of the Company and 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.
8. CAPITAL STOCK
SHARES RESERVED
At December 31, 1998, 152,418 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 was
recorded as deferred compensation and is expensed ratably over the vesting
period. The fair value of the restricted Voting Common Stock and the Class A
Common Stock was determined as of the issuance date 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 was recorded as deferred compensation and is expensed ratably over the
vesting period. The fair value was determined by an independent valuation.
F-14
<PAGE> 128
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 in 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.
F-15
<PAGE> 129
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-16
<PAGE> 130
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
At December 31, 1998, the Company had net operating loss carryforwards of
$46,411,000 for federal income tax purposes, which begin to expire in 2002 if
not utilized. Utilization of the loss carryforwards is subject to various
limitations under the Internal Revenue Code (including limitations of Section
382 of the Internal Revenue Code), which could result in expiration of the loss
carryforwards 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 may match employee
contributions for an amount up to 6% 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
F-17
<PAGE> 131
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-18
<PAGE> 132
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Loss before extraordinary item............................ $(25,339) $(14,129) $(13,166)
Preferred stock dividends................................. (2,542) (3,843) (3,331)
Accretion of discount on preferred stock.................. (1,869) (237) (237)
-------- -------- --------
Loss applicable to common stockholders before
extraordinary item...................................... $(29,750) $(18,209) $(16,734)
======== ======== ========
Net loss.................................................. $(30,863) $(14,129) $(13,166)
Preferred stock dividends................................. (2,542) (3,843) (3,331)
Accretion of discount on preferred stock.................. (1,869) (237) (237)
-------- -------- --------
Loss applicable to common stockholders.................... $(35,274) $(18,209) $(16,734)
======== ======== ========
Weighted-average shares outstanding....................... 2,968 2,807 2,639
Less unvested portion of restricted stock................. (365) (388) (346)
-------- -------- --------
Adjusted weighted-average shares outstanding.............. 2,603 2,419 2,293
======== ======== ========
Basic and diluted loss per share:
Loss per share applicable to common stockholders before
extraordinary item...................................... $ (11.43) $ (7.53) $ (7.30)
Extraordinary loss on extinguishment of debt.............. (2.12) -- --
-------- -------- --------
Loss per share applicable to common stockholders.......... $ (13.55) $ (7.53) $ (7.30)
======== ======== ========
</TABLE>
Warrants to purchase 335,853 shares of common stock at $.001 per share were
outstanding during 1998, 1997 and 1996 but were not included in the computation
of diluted earnings per share as the effect of their exercise would be
antidilutive.
15. SUBSEQUENT EVENT
ACQUISITIONS
On July 28, 1999, the Company's wholly-owned subsidiary, Classic Cable,
acquired all of the outstanding stock and partnership interests of the Buford
Group, Inc., for approximately $300 million in cash. The acquisition was
financed through a) the $95.7 million capital contribution from Brera Classic,
described in the Equity Investment below, b) the proceeds from the Company's
1999 credit facility and c) the proceeds from a private debt offering of $150
million of Classic Cable's senior subordinated notes, which were registered in
August 1999 as described below. The transaction will be accounted for as a
purchase transaction and the assets and liabilities assumed will be recorded at
fair value.
On October 14, 1999, Classic Cable entered into an asset purchase agreement
to purchase substantially all of the assets of Star Cable Associates for
approximately $110 million in cash and 555,555 shares of Class A common stock.
The purchase will be financed through the use of the Company's credit facility
and the proceeds from the initial public offering.
The following summarized unaudited pro forma financial information assumes
the Buford acquisition had occurred on January 1, 1998 and 1997, respectively
and that the acquisition of Cable One had occurred on January 1, 1998 and 1997
(see Note 2). The following pro forma information is not necessarily indicative
of the results that would have occurred had the transaction been
F-19
<PAGE> 133
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
completed at the beginning of the period indicated, nor is it indicative of
future operating results (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues................................................. $149,897 $(139,531)
Loss before extraordinary item........................... (47,614) (30,781)
Net loss................................................. (53,138) (30,781)
Basic and diluted loss per share......................... $ (6.08) $ (3.45)
</TABLE>
REGISTRATION OF DEBT
On August 24, 1999, the Company's Registration Statements related to the
Classic Cable 9.875% subordinated notes due in 2008 and the Classic
Communications 13.25% senior discount notes due 2009 were declared effective
with the Securities and Exchange Commission. On September 3, 1999, the
Registration Statement of the Classic Cable 9.375% senior subordinated notes due
2009 was declared effective.
CHANGE OF CONTROL OFFERS
Pursuant to the change of control resulting from the Brera investment
discussed below, and in accordance with the indentures of the note agreement,
the Company offered to redeem all of its outstanding 9.875% subordinated notes
due 2008 and 13.25% senior discount notes due 2009. The Company redeemed $86
million of the 9.875% senior subordinated notes due 2008 at 101% of face value
plus accrued interest. This resulted in an extraordinary loss from the early
extinguishment of debt in the third quarter of 1999 equal to the amount of the
unamortized discount and financing costs on the notes and the 1% premium paid.
The Company borrowed $90.0 million under its credit facility to repurchase the
tendered 2008 subordinated notes and to pay associated fees and expenses
incurred as a result of the change of control offer. None of the 13.25% senior
discount notes were tendered for redemption.
1999 CREDIT FACILITY
The Company also entered into a $350 million credit facility in July 1999.
The facility is composed of a Revolving Credit Facility of $75 million, Term
Loan A of $75 million, Term Loan B of $100 million and a Term Loan C of $100
million. 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.
EQUITY INVESTMENT
On July 28, 1999, the Company sold 6,490,734 shares, or 64% of Classic
Communications voting common stock to Classic LLC for $100 million. The proceeds
were distributed as follows: $95.7 million was contributed to Classic Cable, a
wholly owned subsidiary, $3.3 million was paid to Brera Classic pursuant to
management and advisory fee agreements, and approximately $1 million was paid to
Brera Classic as reimbursement for certain of its fees and expenses incurred in
connection with the investment. The agreement further provides that the Company
is to pay an annual management fee of $250,000 to Brera until the Company is
sold or closes an initial public offering, the first payment of which was made
at the closing of the Buford agreement.
RELATED PARTY TRANSACTIONS
In accordance with various provisions of executive management's employment
agreements, the Company made payments totaling approximately $5 million in
relation to the Buford
F-20
<PAGE> 134
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition and change of control that resulted from the Brera equity
investment. All payments to management were treated as a current period cost in
the third quarter of 1999.
In connection with the closing of the Brera equity investment, certain
officers of the Company were granted stock options with a 10-year term to
purchase 559,748 shares of common stock at an exercise price of $14.57 per
share, which vest over a three-year period, or earlier in the event of a sale or
disposition of the Company. The $14.57 exercise price represented the fair value
of the common stock at the date the original Brera commitment was received and
the date the commitment to grant such options was made to the officers.
Additionally, the officers will receive options with a 10-year term to
purchase 559,748 shares of Class B common stock at an exercise price equal to
the initial offering price per share to the public of the Class A common stock
in the stock offering described below. These options vest over a three year
period.
In connection with the Buford acquisition, Classic Communications paid a
transaction fee of $300,000 to The Austin Advisory, a financial consulting firm
in which a former member of executive management is a principal.
STOCK TRANSACTIONS
In October 1999, the Company amended its Articles of Incorporation. As a
result, all shares of existing voting stock were converted into shares of Class
B common stock and the terms of the nonvoting shares were amended. In addition,
a new class of common stock, Class A, was authorized. The shares of voting
common stock were converted to Class B common stock on a one-for-one basis. Each
share of Class A common stock receives one vote per share. Each share of Class B
stock receives ten votes per share.
STOCKHOLDERS' AGREEMENT
Effective July 28, 1999, significant stockholders of the Company's
outstanding stock entered into the 1999 stockholders' agreement which subjects
the equity securities owned by these stockholders to a right of first offer to
the Company and to other stockholders party to the stockholders' agreement. The
agreement also contains preemptive purchase rights in favor of these
stockholders in the event the Company issues or sells additional securities,
other than in an initial public offering. The 1999 stockholders' agreement
replaces the 1995 stockholders' agreement.
STOCK OPTION GRANTS AND THE 1999 OMNIBUS STOCK INCENTIVE PLAN
In August 1999, options to purchase one million shares of Class A common
stock were issued to certain officers and key employees. These options have
10-year terms and vest ratably over four years.
In October 1999, the 1999 Omnibus Stock Incentive Plan was adopted
contingent on the stock offering discussed below. One million shares of Class A
stock are reserved for issuance under the plan. The plan provides for the
issuance of stock-based incentive awards, including stock options, stock
appreciation rights, limited stock appreciation rights, restricted stock,
deferred stock and performance shares. An award may consist of one arrangement
or benefit or two or more of them in tandem or in the alternative. Under this
plan, awards covering no more than 20% of the shares reserved for issuance under
the plan may be granted to any participant in any one year.
STOCK OFFERING
In October 1999, the Board of Directors approved plans for the Company to
register shares of its Class A common stock for sale to the public.
F-21
<PAGE> 135
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1999
--------
<S> <C>
Cash and cash equivalents................................... $ 638
Accounts receivable, net.................................... 5,136
Prepaid expenses............................................ 1,341
Property, plant, and equipment.............................. 135,177
Less accumulated depreciation............................... (47,486)
--------
87,691
Deferred financing costs, net............................... 9,028
Intangible assets:
Subscriber relationships.................................. 95,367
Franchise rights.......................................... 71,500
Noncompete agreements..................................... 8,425
Goodwill.................................................. 40,865
--------
216,157
Less accumulated amortization............................... (76,415)
--------
139,742
--------
Total assets......................................... $243,576
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable.......................................... $ 489
Subscriber deposits and unearned income................... 5,203
Accrued expenses.......................................... 5,465
Accrued interest.......................................... 5,731
Long-term debt............................................ 288,292
Deferred taxes, net....................................... 1,068
--------
Total liabilities.................................... 306,248
Stockholders' equity (deficit):
Common Stock, voting...................................... 17
Common Stock, nonvoting................................... 15
Additional paid-in capital................................ 30,464
Unearned compensation..................................... (1,257)
Accumulated deficit....................................... (91,911)
--------
Total stockholders' equity (deficit)................. (62,672)
--------
Total liabilities and stockholders' equity
(deficit)........................................... $243,576
========
</TABLE>
See accompanying notes.
F-22
<PAGE> 136
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30
-------------------
1999 1998
---- ----
<S> <C> <C>
Revenues.................................................... $ 39,286 $ 32,214
Operating expenses:
Programming............................................... 10,427 8,218
Plant and operating....................................... 4,401 3,865
General and administrative................................ 5,755 5,357
Marketing and advertising................................. 452 339
Corporate overhead........................................ 1,725 1,259
Depreciation and amortization............................. 18,096 14,169
-------- --------
Total operating expenses............................... 40,856 33,207
-------- --------
Loss from operations........................................ (1,570) (993)
Interest expense............................................ (14,992) (10,497)
Other income (expense)...................................... 15 64
-------- --------
Loss before taxes........................................... (16,547) (11,426)
Income tax benefit.......................................... -- 1,041
-------- --------
Net loss.................................................... $(16,547) $(10,385)
======== ========
Basic and diluted loss applicable to common stockholders.... $(16,547) $(12,850)
======== ========
Basic and diluted loss per share applicable to common
stockholders.............................................. $ (5.85) $ (5.09)
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 137
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(16,547) $(10,385)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for bad debt................................. 386 365
Depreciation........................................... 7,509 5,504
Amortization of intangibles............................ 10,587 8,665
Amortization of deferred financing costs............... 421 660
Discount accretion on long-term debt................... 4,267 217
Non-cash compensation.................................. 663 476
PIK interest on Senior Subordinated Promissory Notes... -- 232
Change in operating assets and liabilities:
Accounts receivable.................................. (48) (363)
Prepaid expenses..................................... (917) 236
Accounts payable..................................... (158) (450)
Subscriber deposits and unearned income.............. 357 574
Accrued expenses..................................... (641) (687)
Accrued interest..................................... (152) 649
Deferred taxes....................................... -- (1,041)
-------- --------
Net cash provided by operating activities................. 5,727 4,652
INVESTING ACTIVITIES
Payments for other intangibles............................ (513) (5)
Purchase of property, plant and equipment................. (8,008) (4,200)
-------- --------
Net cash used in investing activities..................... (8,521) (4,205)
FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 5,500 1,665
Repayments of long-term debt.............................. (4,317) (82)
Financing costs........................................... (530) --
Cash dividends paid on preferred stock.................... -- (51)
Repurchase of common stock................................ -- (774)
Other..................................................... -- (2)
-------- --------
Net cash provided by financing activities................. 653 756
-------- --------
Change in cash and cash equivalents....................... (2,141) 1,203
Cash and cash equivalents at beginning of period.......... 2,779 616
-------- --------
Cash and cash equivalents at end of period................ $ 638 $ 1,819
======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE> 138
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Classic
Communications, Inc. ("CCI"), have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
2. ACCOUNTS RECEIVABLE
The activity in CCI's allowance for doubtful accounts for the six months
ending June 30, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
FOR THE SIX MONTHS ENDED OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
June 30, 1999.............. $325 $386 $385 $326
June 30, 1998.............. 260 365 374 251
</TABLE>
3. INCOME TAXES
CCI did not record an income tax benefit for the six months ended June 30,
1999. The effective tax rates for the six months ended June 30, 1999 and June
30, 1998 differ primarily due to an increase in the valuation allowance on
deferred tax assets. CCI believes it is more likely than not that such deferred
tax assets will not be utilized in the near term.
CCI's benefit for income taxes differs from the amount computed by applying
the statutory rate to loss before income taxes primarily due to the impact of
permanent differences, an increase in the valuation allowance and other items as
discussed above.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net loss.................................................... $(16,547) $(10,385)
Preferred stock dividends................................... -- (2,182)
Accretion of discount on preferred stock.................... -- (283)
-------- --------
Loss applicable to common stockholders...................... $(16,547) $(12,850)
======== ========
Weighted-average shares outstanding......................... 3,249 2,768
Less unvested portion of restricted stock................... (419) (244)
-------- --------
Adjusted weighted-average shares outstanding................ 2,830 2,524
======== ========
Basic and diluted earnings per share:
Loss per share applicable to common stockholders............ $ (5.85) $ (5.09)
======== ========
</TABLE>
F-25
<PAGE> 139
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants to purchase 335,853 shares of common stock at $.001 per share
outstanding during 1999 and 1998 but were not included in the computation of
diluted earnings per share as the effect of their exercise would be
antidilutive.
5. SUBSEQUENT EVENT
ACQUISITIONS
On July 28, 1999, the Company's wholly-owned subsidiary, Classic Cable,
acquired all of the outstanding stock and partnership interests of the Buford
Group, Inc., for approximately $300 million in cash. The acquisition was
financed through a) the $95.7 million capital contribution from Brera Classic,
described in the Equity Investment below, b) the proceeds from the Company's
1999 credit facility and c) the proceeds from a private debt offering of $150
million of Classic Cable's senior subordinated notes, which were registered in
August 1999 as described below. The transaction will be accounted for as a
purchase transaction and the assets and liabilities assumed will be recorded at
fair value.
On October 14, 1999, Classic Cable entered into an asset purchase agreement
to purchase substantially all of the assets of Star Cable Associates for
approximately $110 million in cash and 555,555 shares of Class A common stock.
The purchase will be financed through the use of the Company's credit facility
and the proceeds from the initial public offering.
The following summarized unaudited pro forma financial information assumes
the Buford acquisition had occurred on January 1, 1999 and 1998, respectively
and that the acquisition of Cable One had occurred on January 1, 1998 (see Note
2). 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, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues................................................... $ 77,684 $ 70,840
Net loss................................................... (19,515) (17,838)
Basic and diluted loss per share........................... $ (2.09) $ (1.98)
</TABLE>
REGISTRATION OF DEBT
On August 24, 1999, the Company's Registration Statements related to the
Classic Cable 9.875% subordinated notes due in 2008 and the Classic
Communications 13.25% senior discount notes due 2009 were declared effective
with the Securities and Exchange Commission. On September 3, 1999, the
Registration Statement of the Classic Cable 9.375% senior subordinated notes due
2009 was declared effective.
CHANGE OF CONTROL OFFERS
Pursuant to the change of control resulting from the Brera investment
discussed below, and in accordance with the indentures of the note agreement,
the Company offered to redeem all of its outstanding 9.875% subordinated notes
due 2008 and 13.25% senior discount notes due 2009. The Company redeemed $86
million of the 9.875% senior subordinated notes due 2008 at 101% of face value
plus accrued interest. This resulted in an extraordinary loss from the early
extinguishment of debt in the third quarter of 1999 equal to the amount of the
unamortized
F-26
<PAGE> 140
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discount and financing costs on the notes and the 1% premium paid. The Company
borrowed $90.0 million under its credit facility to repurchase the tendered 2008
subordinated notes and to pay associated fees and expenses incurred as a result
of the change of control offer. None of the 13.25% senior discount notes were
tendered for redemption.
1999 CREDIT FACILITY
The Company also entered into a $350 million credit facility in July 1999.
The facility is composed of a Revolving Credit Facility of $75 million, Term
Loan A of $75 million, Term Loan B of $100 million and a Term Loan C of $100
million. 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.
EQUITY INVESTMENT
On July 28, 1999, the Company sold 6,490,734 shares, or 64% of Classic
Communications voting common stock to Brera Classic LLC for $100 million. The
proceeds were distributed as follows: $95.7 million was contributed to Classic
Cable, a wholly owned subsidiary, $3.3 million was paid to Brera Classic LLC
pursuant to management and advisory fee agreements, and approximately $1 million
was paid to Brera Classic as reimbursement for certain of its fees and expenses
incurred in connection with the investment. The agreement further provides that
the Company is to pay an annual management fee of $250,000 to Brera until the
Company is sold or closes an initial public offering, the first payment of which
was made at the closing of the Buford agreement.
RELATED PARTY TRANSACTIONS
In accordance with various provisions of executive management's employment
agreements, the Company made payments totaling approximately $5 million in
relation to the Buford acquisition and change of control that resulted from the
Brera equity investment. All payments to management were treated as a current
period cost in the third quarter of 1999.
In connection with the closing of the Brera equity investment, certain
officers of the Company were granted stock options with a 10-year term to
purchase 559,748 shares of common stock at an exercise price of $14.57 per
share, which vest over a three-year period, or earlier in the event of a sale or
disposition of the Company. The $14.57 exercise price represented the fair value
of the common stock at the date the original Brera commitment was received and
the date the commitment to grant such options was made to the officers.
Additionally, the officers will receive options with a 10-year term to
purchase 559,748 shares of Class B common stock at an exercise price equal to
the initial offering price per share to the public of the Class A common stock
in the stock offering described below. These options vest over a three year
period.
In connection with the Buford acquisition, Classic Communications paid a
transaction fee of $300,000 to The Austin Advisory, a financial consulting firm
in which a former member of executive management is a principal.
STOCK TRANSACTIONS
In October 1999, the Company amended its Articles of Incorporation. As a
result, all shares of existing voting stock were converted into shares of Class
B common stock and the terms of the nonvoting shares were amended. In addition,
a new class of common stock, Class A, was
F-27
<PAGE> 141
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
authorized. The shares of voting common stock were converted to Class B common
stock on a one-for-one basis. Each share of Class A common stock receives one
vote per share. Each share of Class B stock receives ten votes per share.
STOCKHOLDERS' AGREEMENT
Effective July 28, 1999, significant stockholders of the Company's
outstanding stock entered into the 1999 stockholders' agreement which subjects
the equity securities owned by these stockholders to a right of first offer to
the Company and to other stockholders party to the stockholders' agreement. The
agreement also contains preemptive purchase rights in favor of these
stockholders in the event the Company issues or sells additional securities,
other than in an initial public offering. The 1999 stockholders' agreement
replaces the 1995 stockholders' agreement.
STOCK OPTION GRANTS AND THE 1999 OMNIBUS STOCK INCENTIVE PLAN
In August 1999, options to purchase approximately one million shares of
Class A common stock were issued to certain officers and key employees at an
exercise price of $20 per share. These options have 10-year terms and vest
ratably over four years.
In October 1999, the 1999 Omnibus Stock Incentive Plan was adopted
contingent on the stock offering discussed below. One million shares of Class A
stock are reserved for issuance under the plan. The plan provides for the
issuance of stock-based incentive awards, including stock options, stock
appreciation rights, limited stock appreciation rights, restricted stock,
deferred stock and performance shares. An award may consist of one arrangement
or benefit or two or more of them in tandem or in the alternative. Under this
plan, awards covering no more than 20% of the shares reserved for issuance under
the plan may be granted to any participant in any one year.
STOCK OFFERING
In October 1999, the Board of Directors approved plans for the Company to
register shares of its Class A common stock for sale to the public.
F-28
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Buford Group, Inc.:
We have audited the accompanying consolidated balance sheets of Buford
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Buford
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
March 5, 1999
F-29
<PAGE> 143
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents................................... $ 7,903 $ 7,890
Accounts receivable, net.................................... 2,878 2,514
Prepaid expenses............................................ 166 342
Property, plant and equipment............................... 200,727 166,886
Less accumulated depreciation and amortization.............. (87,483) (71,198)
-------- --------
113,244 95,688
Intangible assets:
Franchise rights.......................................... 54,417 35,767
Noncompetition agreements................................. 7,434 7,434
Excess cost over net assets of acquired companies......... 2,114 2,114
Other..................................................... 2,116 2,031
-------- --------
66,081 47,346
Less accumulated amortization............................. (16,705) (12,001)
-------- --------
49,376 35,345
Other assets................................................ 2,386 2,153
-------- --------
$175,953 $143,932
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 1,033 $ 1,209
Deposits and unearned revenues.............................. 2,234 1,984
Accrued expenses............................................ 8,642 7,052
Long-term obligations....................................... 118,000 85,000
Deferred federal income taxes............................... 1,238 1,763
-------- --------
Total liabilities...................................... 131,147 97,008
-------- --------
Stockholders' equity:
Common stock, $1 par value. Authorized 2,000 shares;
issued and outstanding 1,000 shares.................... 1 1
Additional capital........................................ 14,833 6,945
Retained earnings......................................... 29,972 39,978
-------- --------
Total stockholders' equity............................. 44,806 46,924
Commitments and contingencies...............................
-------- --------
$175,953 $143,932
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 144
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cable television revenues.................................. $ 70,475 $58,136 $49,561
Operating expenses:
Programming.............................................. 18,339 14,349 11,596
Plant and operating...................................... 6,937 6,567 5,705
General and administrative............................... 16,183 14,910 12,557
Marketing and advertising................................ 345 174 176
Corporate overhead....................................... 9,364 4,858 2,898
Depreciation and amortization............................ 21,399 17,753 17,175
-------- ------- -------
72,567 58,611 50,107
-------- ------- -------
Operating loss........................................ (2,092) (475) (546)
-------- ------- -------
Other income (expense):
Interest expense......................................... (7,919) (5,787) (5,345)
Interest income.......................................... 307 324 521
Gain (loss) on sales of assets........................... (165) 829 5,655
Other, net............................................... (363) (294) (414)
-------- ------- -------
(8,140) (4,928) 417
-------- ------- -------
Loss before income taxes.............................. (10,232) (5,403) (129)
Income tax benefit (expense)............................... 226 315 (94)
-------- ------- -------
Net loss.............................................. $(10,006) $(5,088) $ (223)
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 145
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.......... $1 $ 1,968 $45,289 $ 47,258
Employee stock appreciation........... -- 1,458 -- 1,458
Net loss.............................. -- -- (223) (223)
-- ------- -------- --------
Balance at December 31, 1996.......... 1 3,426 45,066 48,493
Employee stock appreciation........... -- 3,519 -- 3,519
Net loss.............................. -- -- (5,088) (5,088)
-- ------- -------- --------
Balance at December 31, 1997.......... 1 6,945 39,978 46,924
Employee stock appreciation........... -- 7,888 -- 7,888
Net loss.............................. -- -- (10,006) (10,006)
-- ------- -------- --------
Balance at December 31, 1998.......... $1 $14,833 $29,972 $ 44,806
== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 146
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(10,006) $ (5,088) $ (223)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................... 21,399 17,753 17,175
Non-cash interest expense.......................... 171 168 --
(Gain) loss on sales of assets..................... 165 (829) (5,655)
Employee stock appreciation expense................ 7,888 3,519 1,458
Deferred federal income tax expense (benefit)...... (525) (449) 94
Changes in assets and liabilities, excluding
acquisitions and dispositions:
Accounts receivable........................... (364) (1,031) 484
Prepaid expenses.............................. 176 (30) (47)
Federal income taxes receivable............... -- -- 1,040
Accounts payable and accrued expenses......... 1,414 1,908 (522)
Deposits and unearned revenue................. 250 1,418 79
Other......................................... (234) (467) (255)
-------- -------- --------
Net cash provided by operating activities..... 20,334 16,872 13,628
-------- -------- --------
Cash flows from investing activities:
Acquisitions of cable systems........................... (29,900) (17,771) (18,350)
Additions to property, plant and equipment.............. (20,469) (22,042) (15,593)
Additions to intangible assets.......................... (3,139) (1,098) --
Net proceeds from sale of assets........................ 357 -- --
Net proceeds from disposition of cable systems.......... -- 1,228 13,654
-------- -------- --------
Net cash used in investing activities......... (53,151) (39,683) (20,289)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term obligations..................... 33,000 25,000 4,260
Payments of long-term obligations....................... -- (53) (14,850)
Payment of debt issuance costs.......................... (170) -- (337)
-------- -------- --------
Net cash provided by (used in) financing
activities................................. 32,830 24,947 (10,927)
Net increase (decrease) in cash and cash equivalents...... 13 2,136 (17,588)
Cash and cash equivalents at beginning of year............ 7,890 5,754 23,342
-------- -------- --------
Cash and cash equivalents at end of year.................. $ 7,903 $ 7,890 $ 5,754
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 147
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
Buford Group, Inc. and subsidiaries (the "Company") are engaged in cable
television operations within the United States. The Company owns and operates
cable television systems primarily in Texas, Louisiana, Arkansas, and Missouri.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Buford Group,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
During 1998, the Company purchased the remaining 76.8% of Friendship Cable,
Ltd. ("FCL"), a Texas limited partnership in which the Company had held a 1%
general partner interest and limited partner interests aggregating 22.2%. The
accounts of FCL for 1998 and 1997 are consolidated because the Company, as
general partner, is required to fund deficits incurred during the period from
inception to January 1, 2000, and certain shareholders of the Company controlled
the limited partner interests of FCL through the date of the Company's
acquisition of the remaining interests. In prior years, allocated net losses to
the limited partners had reduced their capital accounts to zero.
(c) REVENUE RECOGNITION
Revenues from basic and premium services are recognized when the related
services are provided.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
estimated average period that customers are expected to remain connected to the
cable television system.
(d) STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
The Company uses the indirect method to present cash flows from operating
activities. Supplemental disclosures of cash flow information follow:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest paid............................................. $7,593,000 $4,588,000
========== ==========
Income taxes paid......................................... $ 250,000 $ 59,000
========== ==========
</TABLE>
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost, including all direct
cost and certain indirect costs of construction of cable television transmission
and distribution systems, and the cost of new customer installations.
Maintenance and repairs are charged to expense as incurred and equipment
replacements and betterments are capitalized. The Company charges
F-34
<PAGE> 148
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation to operations on a straight-line basis over the estimated useful
lives of the related property and equipment as follows:
<TABLE>
<S> <C>
Cable distribution equipment......................... 3 - 12 years
Furniture, fixtures, automobiles and other........... 3 - 12 years
Buildings and improvements........................... 5 - 20 years
</TABLE>
(f) INTANGIBLE ASSETS
The excess cost over net identifiable tangible and intangible assets of
acquired companies is being amortized on a straight-line basis over the
estimated economic lives of 40 years. Franchise rights purchased in connection
with cable television operations are being amortized on a straight-line basis
over 5 to 15 years. The costs of noncompetition agreements are being amortized
on a straight-line basis over the terms of the respective agreements.
The Company assesses the recoverability of intangible assets as well as the
related amortization lives by determining whether the carrying value of the
intangible assets can be recovered over the remaining lives through projected
undiscounted future cash flows. To the extent that such projections indicate
that undiscounted future cash flows are not expected to be adequate to recover
the carrying amounts of the related intangible assets, such carrying amounts are
adjusted for impairment to a level commensurate with the estimated fair value of
the underlying assets.
(g) FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount more likely than not to be realized.
Income tax expense is the total of tax payable for the period and the change
during the period in deferred tax assets and liabilities.
(h) DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Any derivative financial
instruments are used to manage well-defined interest rate risks related to the
Company's outstanding debt.
Any costs of interest rate agreements are initially recognized as assets
and amortized to interest expense over the lives of the agreements using the
interest method. Under all interest rate agreements, the differential to be paid
or received is recognized as an adjustment to interest expense. During the years
ended December 31, 1998, 1997 and 1996, the Company recognized net expenses of
$39,000, $38,000 and $59,000, respectively, under its interest rate agreements
(see note 6).
The carrying amounts of cash equivalents, accounts receivable and accounts
payable reported in the accompanying consolidated financial statements
approximate fair value due to their short maturities. The outstanding borrowings
under the Company's credit agreement (note 6) bear interest at current market
rates, and thus, the carrying amount of debt approximates estimated fair value.
The fair value of the interest rate agreements (note 6) was
F-35
<PAGE> 149
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $(449,000) at December 31, 1998, which represents the estimated
amount, based on dealer quotations, that the Company would pay, excluding
accrued interest, to terminate the contracts at December 31, 1998, taking into
account the current unrealized loss on open contracts.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," in the first
quarter of 1998, which required companies to disclose comprehensive income
separately from net income. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-ownership sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. The
adoption of this statement had no effect on the Company at December 31, 1998,
because the Company has no elements of other comprehensive income. Accordingly,
comprehensive income and net income are the same amount for each period
presented.
(2) ACQUISITIONS AND DISPOSITIONS
In April 1998, the Company acquired cable systems from three unaffiliated
parties for $29.9 million. In April and May 1997, the Company acquired cable
systems from unaffiliated parties for $17.8 million. During 1996, the Company
acquired cable systems from unaffiliated parties for $18.4 million.
The acquisitions were accounted for as purchases and, accordingly, the
purchase prices were allocated to tangible and intangible assets based on
estimated fair values at the dates of the acquisitions. Operating results of the
acquired systems are included in the accompanying financial statements from the
dates of acquisition. Net assets acquired as a result of these acquisitions
included $15.6 million, $7.4 million and $7.0 million in franchise rights and
$14.3 million, $10.4 million and $11.4 million in property, plant and equipment
during 1998, 1997 and 1996, respectively.
On October 1, 1996, the Company sold all of its cable television systems
operating in North Carolina for a cash purchase price of $11.8 million,
resulting in a gain of $4.7 million. Additionally, on October 1, 1996, the
Company sold cable television system assets of a consolidated partnership
(70%-owned) for a total cash price of $2.1 million, resulting in a gain of
$717,000.
In September 1998, the Company acquired the remaining 76.8% of FCL for $2.8
million. The Company accounted for this transaction as a purchase business
combination, and accordingly, allocated the purchase price to FCL's assets
(primarily intangible assets) based on their estimated fair values.
Unaudited pro forma operating results as though the 1998 and 1997
acquisitions discussed above had occurred on January 1, 1997, with adjustments
to give effect to amortization of
F-36
<PAGE> 150
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
franchises, depreciation of property, plant and equipment, interest expense and
certain other adjustments is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 73,531 $67,354
Operating income (loss)..................................... (1,630) 1,801
Net loss.................................................... (10,177) (4,831)
</TABLE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Accounts receivable, trade.................................. $2,665 $2,417
Accounts receivable, other.................................. 627 554
------ ------
3,292 2,971
Less allowance for doubtful accounts........................ (414) (457)
------ ------
$2,878 $2,514
====== ======
</TABLE>
(4) OTHER ASSETS
The Company is the named beneficiary on life insurance policies for key
management members. The cash surrender value of the policies is recorded net of
policy loans of $5,977,000 and $5,553,000 at December 31, 1998 and 1997,
respectively. The net amounts of $2,153,000 and $1,837,000 at December 31, 1998
and 1997, respectively, are included in other assets in the accompanying
consolidated balance sheets.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and accumulated depreciation and
amortization follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Cable distribution equipment................................ $188,264 $155,119
Furniture, fixtures, automobiles and other.................. 8,572 7,520
Buildings, land and improvements............................ 3,891 4,247
-------- --------
200,727 166,886
Less accumulated depreciation and amortization.............. (87,483) (71,198)
-------- --------
Property, plant and equipment, net..................... $113,244 $ 95,688
======== ========
</TABLE>
(6) LONG-TERM OBLIGATIONS
The Company had outstanding borrowings of $118,000,000 and $85,000,000 at
December 31, 1998 and 1997, respectively, under a credit agreement with banks
providing for up to $140,000,000 of borrowings. Borrowings bear interest at the
bank's floating rate, the London
F-37
<PAGE> 151
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interbank Offered Rate ("LIBOR"), or a combination thereof as selected by the
Company, plus a margin dependent on the Company's leverage ratio (as defined in
the credit agreement). The weighted average effective interest rate at December
31, 1998 and 1997 was 6.75%. The Company must pay an annual commitment fee
ranging from .25% to .375% of the unfunded portion of the commitment. Borrowings
under the credit agreement are secured by the common stock of the Company and
its subsidiaries. The credit agreement contains certain provisions which limit
the Company as to additional indebtedness, sales of assets, liens, guarantees,
investments and acquisitions. Additionally, the Company must maintain certain
specified financial ratios.
On April 30, 1998, the bank amended the credit agreement to extend the
final maturity date to June 30, 2005. Beginning September 30, 1999, and
quarterly thereafter through June 30, 2005, the commitment amount is to be
reduced by quarterly amounts ranging from $2,655,000 to $12,685,000.
Additionally, on or before April 30 of each year, commencing April 30, 2000, the
Company is required to make mandatory payments equal to 50% of the excess cash
flow for the previous fiscal year, if any, as defined in the credit agreement.
In accordance with the credit agreement, the Company has interest rate
agreements with various banks to reduce the impact of changes in interest rates.
At December 31, 1998, the Company had three interest rate collar agreements
expiring in May 1999, October 1999 and June 2000 with a bank covering notional
principal amounts of $10,000,000, $10,000,000 and $15,000,000, respectively.
These agreements have maximum cap rates of 8.20%, 7.50% and 6.55%, respectively,
and each has a minimum floor rate of 5.65%. The Company also had an interest
rate swap agreement with a bank covering a notional amount of $25,000,000, with
a fixed rate of 5.73%, which expires in January 2000.
The Company is exposed to credit loss in the event of nonperformance of the
other parties to the above agreements; however, the Company does not anticipate
nonperformance by such counterparties.
As of December 31, 1998, principal payments due on indebtedness in future
years was as follows (in thousands):
<TABLE>
<S> <C>
1999..................................................... $ 5,310
2000..................................................... 10,620
2001..................................................... 15,340
2002..................................................... 18,880
Thereafter............................................... 67,850
</TABLE>
(7) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Accrued programming......................................... $2,970 $1,312
Accrued property taxes...................................... 1,704 1,389
Accrued payroll and benefits................................ 1,279 1,764
Accrued interest............................................ 514 938
Accrued other............................................... 2,175 1,649
------ ------
$8,642 $7,052
====== ======
</TABLE>
F-38
<PAGE> 152
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997
and 1996 includes the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current -- State.......................................... $ 250 $ 134 $--
Current -- Federal........................................ 49 -- --
Deferred -- Federal....................................... (525) (449) 94
----- ----- ---
$(226) $(315) $94
===== ===== ===
</TABLE>
Actual income tax expense (benefit) differs from the "expected" income tax
expense (benefit) (computed by applying the U.S. federal corporate tax rate of
35% to the loss before income taxes) as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed expected tax benefit......................... $(3,581) $(1,891) $ (45)
Change in the valuation allowance..................... 394 328 1
Revision of prior year estimate....................... 299 -- (252)
Employee stock appreciation........................... 2,760 1,231 509
Other................................................. (98) 17 (119)
------- ------- -----
$ (226) $ (315) $ 94
======= ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are presented as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 8,616 $ 5,992
Alternative minimum tax credit carryforwards.............. 5,692 5,692
Investment in partnerships................................ -- 1,593
Deferred compensation..................................... -- 116
Other..................................................... 968 670
------- -------
Total gross deferred tax assets...................... 15,276 14,063
Less valuation allowance.................................. (4,764) (4,370)
------- -------
Net deferred tax assets.............................. 10,512 9,693
------- -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation........................................... $11,118 $10,898
Other..................................................... 632 558
------- -------
Total gross deferred tax liabilities................. 11,750 11,456
------- -------
Net deferred tax liability........................... $(1,238) $(1,763)
======= =======
</TABLE>
The net changes in the valuation allowance for 1998, 1997 and 1996 were
increases of $394,000, $328,000, and $1,000, respectively. The Company has
recognized deferred tax assets
F-39
<PAGE> 153
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the extent such assets can be realized through future reversals of existing
temporary differences.
At December 31, 1998, the Company had approximately $24,596,000 of tax net
operating loss carryforwards which expire in years 2007 through 2012. In
addition, the Company had approximately $5,700,000 of alternative minimum tax
credit carryforwards available to reduce future regular federal income taxes
over an indefinite period.
(9) LEASE OBLIGATIONS
Total rental expense for operating leases was $1,427,000, $1,433,000 and
$1,264,000 in 1998, 1997 and 1996, respectively. Included in these amounts are
payments for pole rental agreements amounting to $1,313,000, $1,306,000 and
$1,102,000 in 1998, 1997 and 1996, respectively. Pole rental agreements may be
terminated by either party by written notice ranging up to ninety days. The
remaining operating lease agreements are primarily for office space and annual
minimum aggregate rentals under such leases are not considered material.
(10) EMPLOYEE BENEFIT PLANS
In January 1992, the Company established a savings plan to provide elective
employee and employer contributions under Section 401(k) of the Internal Revenue
Code. Under the terms of the plan, the Company may make voluntary contributions
to the plan matching employee contributions in percentages and discretionary
amounts as determined by the Board of Directors. The Company made matching and
discretionary contributions to the plan of $423,000, $459,000 and $397,000 in
1998, 1997 and 1996, respectively.
Under the terms of the Buford Television Partnership Agreement (the
"Agreement") effective January 1, 1994, a new partnership, Buford Television
Partnership ("BTP"), was formed to hold the outstanding shares of the Company.
Under the terms of this Agreement, the stockholders on January 1, 1994
contributed 100% of their shares to the Partnership. Key employees were granted
12% ownership of future appreciation in the market value of the Company's common
stock, as defined in the Agreement, through appreciation percentages. These
appreciation percentages have none of the rights associated with ownership of
the common stock of the Company, such as voting or dividend rights, and will
have no value outside the context of the Agreement. However, the partners of
BTP, which include the key employees, have voting rights in the management of
BTP, the purpose of which is to acquire, manage, vote, pledge, hold and dispose
of the Company's stock and to perform all duties necessary to accomplish the
purposes of BTP. On December 1, 1997, the Agreement was amended whereby 620
shares of the Company's common stock were withdrawn from BTP by the principal
stockholders, leaving BTP with 380 shares of the Company's common stock, or 38%
ownership. However, the aforementioned key employees still retain 12% ownership
of the future appreciation in the market value of 100% of the Company's common
stock. Participants have vested 20% each year in the accumulated value of their
appreciation percentages, and became fully vested as of December 31, 1998. The
Company records expense for the accumulated value of the common stock
appreciation based on vesting criteria over the five year vesting period, and
subsequently, will continue to record expense based on the fully vested status
of the key employees and changes in fair value of the Company's common stock.
For the years ended December 31, 1998, 1997 and 1996, the Company recognized
$7,888,000, $3,519,000 and $1,458,000, respectively, in expense related to the
Agreement. The cumulative amount recorded pursuant to this agreement was
$14,833,000 as of December 31, 1998.
F-40
<PAGE> 154
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has agreements with several employees that provide for amounts
to be paid to such employees in the event of a sale of certain cable systems'
assets. The amounts to be paid are based on several factors, including
historical cash flow. No amounts have been recorded related to these agreements
as the Company has not consummated a sale of any of the cable systems' assets
covered by these agreements.
(11) CONTINGENCIES
In October 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act"). During May 1993, pursuant to
authority granted to it under the 1992 Cable Act, the Federal Communications
Commission ("FCC") issued its rate regulation rules which became effective
September 1, 1993. These rate regulation rules required cable systems in
franchised areas serving at least 1,000 customers, which receive certification
and are not subject to effective competition, as defined, to set rates for basic
and cable programming services, as well as related equipment and installations,
pursuant to general cost-of-service standards or FCC prescribed benchmarks. The
Act also entailed quality service criteria and must carry/retransmission
requirements.
On February 1, 1996, Congress passed The Telecommunications Act of 1996
(the "1996 Act") which was signed into law on February 6, 1996. This new law
altered federal, state and local laws and regulations for telecommunications
providers and services, including the Company. Several aspects of the 1996 Act
impact cable television, including the elimination of regulation of the cable
programming service tier for certain smaller cable providers, including the
Company.
The Company believes that it has complied with all provisions of the 1992
Cable Act and the 1996 Act including the rate setting provisions promulgated by
the FCC.
(12) SUBSEQUENT EVENT (UNAUDITED)
In May 1999, the Company and its stockholders entered into an agreement to
sell all of the common stock of the Company to Classic Cable, Inc. for
approximately $302.3 million.
F-41
<PAGE> 155
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 2,890
Accounts receivable, net of allowance for doubtful accounts
of $398................................................... 2,846
Prepaid expenses............................................ 484
Property, plant and equipment............................... 208,268
Less accumulated depreciation and amortization.............. (96,913)
--------
111,355
Intangible assets:
Franchise rights....................................... 54,417
Noncompetition agreements.............................. 7,434
Excess cost over net assets of acquired companies...... 2,114
Other.................................................. 1,089
--------
65,054
Less accumulated amortization.......................... (18,613)
--------
46,441
Other assets................................................ 2,586
--------
$166,602
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 491
Deposits and unearned revenues.............................. 2,341
Accrued expenses............................................ 7,073
Long-term obligations....................................... 112,000
Deferred federal income taxes............................... 976
--------
Total liabilities................................. 122,881
--------
Stockholders' equity:
Common stock, $1 par value. Authorized 2,000 shares;
issued and outstanding 1,000 shares................... 1
Additional capital..................................... 14,058
Retained earnings...................................... 29,662
--------
Total stockholders' equity........................ 43,721
Commitments and contingencies...............................
--------
$166,602
========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-42
<PAGE> 156
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cable television revenues........................... $19,537 $17,680 $38,398 $32,943
------- ------- ------- -------
Operating expenses:
Programming....................................... 5,213 4,657 10,430 8,762
Plant and operating............................... 1,683 1,688 3,377 3,345
General and administrative........................ 4,301 4,239 8,461 7,936
Marketing and advertising......................... 128 57 237 150
Corporate overhead................................ (430) 2,250 (72) 4,354
Depreciation and amortization..................... 6,378 5,267 12,105 10,137
------- ------- ------- -------
17,273 18,158 34,538 34,684
------- ------- ------- -------
Operating income (loss)........................ 2,264 (478) 3,860 (1,741)
------- ------- ------- -------
Other income (expense):
Interest expense.................................. (2,001) (2,089) (4,095) (3,681)
Interest income................................... 74 90 166 172
Other, net........................................ (175) (77) (244) (99)
------- ------- ------- -------
(2,102) (2,076) (4,173) (3,608)
------- ------- ------- -------
Loss before income taxes and cumulative effect
of change in accounting principle............ 162 (2,554) (313) (5,349)
Income tax benefit (expense)........................ 123 131 210 (25)
------- ------- ------- -------
Loss before cumulative effect of change in
accounting principle......................... 285 (2,423) (103) (5,374)
Cumulative effect of change in accounting principle,
net of income tax benefit of $52.................. -- -- 207 --
------- ------- ------- -------
Net loss....................................... 285 $(2,423) $ (310) $(5,374)
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-43
<PAGE> 157
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (310) $ (5,374)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................ 12,105 10,137
Non-cash interest expense............................ 12 42
Employee stock appreciation expense.................. (775) 3,550
Deferred federal income tax benefit.................. (210) (274)
Cumulative effect of change in accounting
principle........................................... 207 --
Changes in assets and liabilities:
Accounts receivable............................... 32 (718)
Prepaid expenses.................................. (318) (188)
Accounts payable and accrued expenses............. (2,111) 1,272
Deposits and unearned revenues.................... 107 201
Other............................................. (212) (178)
------- --------
Net cash provided by operating activities......... 8,527 8,470
------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (7,540) (10,980)
Acquisition of cable systems.............................. -- (29,900)
Other..................................................... -- (89)
------- --------
Net cash used in investing activities............. (7,540) (40,969)
------- --------
Cash flows from financing activities:
Proceeds from long-term obligations....................... -- 30,000
Payments of long-term obligations......................... (6,000) --
------- --------
Net cash provided by (used in) financing
activities...................................... (6,000) 30,000
------- --------
Net decrease in cash and cash equivalents................... (5,013) (2,499)
Cash and cash equivalents at beginning of period............ 7,903 7,890
------- --------
Cash and cash equivalents at end of period.................. $ 2,890 $ 5,391
======= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-44
<PAGE> 158
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(1) GENERAL AND BASIS OF PRESENTATION
(a) ORGANIZATION
Buford Group, Inc. and subsidiaries are engaged in cable television
operations within the United States. The Company owns and operates cable
television systems primarily in Texas, Louisiana, Arkansas, and Missouri.
(b) PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the
accounts of Buford Group, Inc. and its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
(c) INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of June 30, 1999, and the results of
operations and cash flows for the three and six months ended June 30, 1999 and
1998. These results are not necessarily indicative of the results to be expected
for the full fiscal year.
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(e) COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," in the first
quarter of 1998, which required companies to disclose comprehensive income
separately from net income. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-ownership sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. The
adoption of this statement had no effect on the Company at December 31, 1998,
because the Company has no elements of other comprehensive income. Accordingly,
comprehensive income and net income are the same amount for each period
presented.
(2) RECENT ACCOUNTING PRONOUNCEMENT
The Company adopted the provisions of Statement of Position 98-5 ("SOP
98-5"), "Reporting on the Costs of Start-up Activities," effective as of January
1, 1999. This pronouncement requires that costs of start-up activities,
including organizational costs, should be expensed as incurred. As a result of
adopting SOP 98-5, the Company recorded a charge of $259,000, less tax benefit
of $52,000, as the cumulative effect of recording the change in accounting
principle as of January 1, 1999.
F-45
<PAGE> 159
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(3) CONTINGENCIES
In October 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act"). During May 1993, pursuant to
authority granted to it under the 1992 Cable Act, the Federal Communications
Commission ("FCC") issued its rate regulation rules which became effective
September 1, 1993. These rate regulation rules required cable systems in
franchised areas serving at least 1,000 customers, which receive certification
and are not subject to effective competition, as defined, to set rates for basic
and cable programming services, as well as related equipment and installations,
pursuant to general cost-of-service standards or FCC prescribed benchmarks. The
Act also entailed quality service criteria and must carry/retransmission
requirements.
On February 1, 1996, Congress passed The Telecommunications Act of 1996
(the "1996 Act") which was signed into law on February 6, 1996. This new law
altered federal, state and local laws and regulations for telecommunications
providers and services, including the Company. Several aspects of the 1996 Act
impact cable television, including the elimination of regulation of the cable
programming service tier for certain smaller cable providers, including the
Company.
The Company believes that it has complied with all provisions of the 1992
Cable Act and the 1996 Act including the rate setting provisions promulgated by
the FCC.
(4) SUBSEQUENT EVENTS
In May 1999, the Company and its shareholders entered into an agreement to
sell the common stock of the Company to Classic Cable, Inc. On July 29, 1999,
the sale was consummated for a total selling price of approximately $297.8
million. In connection with the Buford Television Partnership Agreement (the
"Agreement"), the Buford Television Partnership granted ownership in 12% of
future appreciation in the market value of the Company's common stock, to
certain key employees. At December 31, 1998, the Company had accrued an
estimated liability under this agreement of approximately $14.8 million. The key
employees covered by the Agreement received approximately $14.1 million in
satisfaction of their rights under the agreement at the time of sale.
Accordingly, the Company recorded a credit of approximately $.7 million to
corporate overhead expense during the three months ended June 30, 1999.
Additionally, the Company paid out approximately $2.6 million to certain
employees under separate agreements that provided for payments in the event of
the sale of certain cable systems' assets. The Company has not recognized
expense at June 30, 1999 related to these agreements as such amounts are payable
only upon consummation of a sale of cable system assets and were recognized when
the sale closed.
F-46
<PAGE> 160
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Star Cable Associates
In our opinion, the accompanying balance sheets and the related statements of
operations and changes in partners' capital (deficiency) and cash flows present
fairly, in all material respects, the financial position of Star Cable
Associates at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
July 26, 1999
F-47
<PAGE> 161
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,013 $ 3,044
Accounts receivable, net.................................. 871 649
Construction materials.................................... 348 400
Prepaid expenses and other current assets................. 194 219
-------- -------
Total current assets.............................. 4,426 4,312
Property, plant and equipment net, (Note 6)................. 50,478 49,710
Deferred financing costs, net............................... 451 249
Intangible assets:
Subscriber lists.......................................... 538 538
Franchise rights.......................................... 8,687 2,994
Noncompete agreements..................................... 1,157 1,157
Goodwill.................................................. 6,585 4,714
Other..................................................... 41 38
-------- -------
17,008 9,441
Less accumulated amortization............................. (6,818) (6,276)
-------- -------
10,190 3,165
-------- -------
Total assets...................................... $ 65,545 $57,436
======== =======
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current Liabilities:
Accounts payable.......................................... $ 1,250 $ 1,114
Subscriber deposits and unearned income................... 1,012 805
Other accrued liabilities................................. 157 277
Accrued interest payable.................................. 228 185
Management fees payable (Note 12)......................... 120 50
-------- -------
Total current liabilities......................... 2,767 2,431
Deferred installation revenue............................... 235 278
Accrued interest payable -- subordinated debt............... 250 250
Senior debt (Note 7)........................................ 39,000 31,200
Subordinated debt -- Related party (Note 8)................. 35,245 32,209
-------- -------
Total liabilities................................. 77,497 66,368
-------- -------
Commitments and contingencies (Notes 3, 11 and 13)
Partners' capital (deficiency).............................. (11,952) (8,932)
-------- -------
Total liabilities and partners' capital
(deficiency).................................... $ 65,545 $57,436
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 162
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues.................................................... $ 18,447 $16,950 $15,902
-------- ------- -------
Operating expenses:
Programming............................................... 5,435 5,016 4,449
CATV system operating costs............................... 2,588 2,536 2,538
General and administrative................................ 1,691 1,603 1,787
Marketing and advertising................................. 230 207 163
Management fees........................................... 644 589 547
Depreciation and amortization............................. 5,393 5,122 5,395
-------- ------- -------
Total operating expenses.......................... 15,981 15,073 14,879
-------- ------- -------
Income from operations...................................... 2,466 1,877 1,023
-------- ------- -------
Other income (expense):
Interest income........................................... 167 192 182
Interest expense (Note 8)................................. (5,652) (5,575) (4,440)
(Loss) gain on sale of assets............................. (1) (5) 714
-------- ------- -------
(5,486) (5,388) (3,544)
-------- ------- -------
Loss before extraordinary item.............................. (3,020) (3,511) (2,521)
Extraordinary item:
Loss on early extinguishment of debt...................... -- (249) --
-------- ------- -------
Net loss.......................................... (3,020) (3,760) (2,521)
Partners' capital (deficiency), beginning of year........... (8,932) (5,172) (2,651)
-------- ------- -------
Partners' capital (deficiency), end of year................. $(11,952) $(8,932) $(5,172)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE> 163
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (3,020) $ (3,760) $(2,521)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 4,854 4,706 4,908
Amortization of intangibles............................ 539 416 487
Amortization of deferred financing costs............... 37 49 45
Accrued interest on subordinated debt -- Related
party................................................ 3,036 3,552 2,457
Extraordinary item -- loss on early extinguishment of
debt................................................. -- 249 --
Loss (gain) on sale of assets.......................... 1 5 (714)
Changes in working capital:
Accounts receivable, net............................... (222) 203 (196)
Construction materials................................. 52 24 124
Prepaid expenses and other current assets.............. 25 36 175
Accounts payable....................................... 136 263 (209)
Subscriber deposits and unearned income................ 207 (26) (76)
Other accrued liabilities.............................. (120) (47) (405)
Accrued interest payable............................... 43 (28) 95
Deferred installation revenue.......................... (43) (111) (95)
Management fees payable................................ 70 4 42
-------- -------- -------
Net cash provided by operating activities......... 5,595 5,535 4,117
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of CATV systems.................................. (9,586) -- (585)
Capital expenditures...................................... (3,612) (2,460) (2,750)
Proceeds from sale of other assets........................ 11 10 8
Proceeds from sale of CATV systems, net................... -- -- 902
-------- -------- -------
Net cash used in investing activities............. (13,187) (2,450) (2,425)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility................ 39,000 31,200 --
Repayments of revolving credit facility................... (31,200) (24,250) (750)
Repayments of subordinated debt -- Related party.......... -- (10,650) (1,000)
Expenditures for deferred financing costs................. (239) (257) (161)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 7,561 (3,957) (1,911)
-------- -------- -------
Net decrease in cash and cash equivalents................... (31) (872) (219)
Cash and cash equivalents, beginning of year................ 3,044 3,916 4,135
-------- -------- -------
Cash and cash equivalents, end of year...................... $ 3,013 $ 3,044 $ 3,916
======== ======== =======
Supplemental schedule of cash flow information:
Cash interest paid........................................ $ 2,536 $ 1,928 $ 1,653
======== ======== =======
Accrued interest on subordinated debt -- Related party.... $ 3,036 $ 3,552 $ 2,457
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE> 164
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Star Cable Associates (the Partnership) is a general partnership formed
under the laws of the Commonwealth of Pennsylvania on August 6, 1986 to acquire,
develop and operate community antenna television systems (CATV systems). The
Partnership is governed by the Partnership Agreement and the Pennsylvania
Uniform Partnership Act. The Partnership operates CATV systems in Texas,
Louisiana and Ohio.
Distributions, additional capital contributions and allocations of profits
and losses among the partners are determined in accordance with the provisions
of the Partnership Agreement. The Partnership Agreement also provides the
general partners with the right to acquire each other's respective Partnership
interests under certain conditions. Star Cable Management, Inc. (SCM), is the
managing general partner (Note 12).
2. ACQUISITIONS
In November 1998, the Partnership acquired additional CATV systems in
Louisiana from Galaxy Telecom L.P. (the Galaxy acquisition) for approximately
$9,586,000 in cash, including transaction costs. Based on appraised values,
approximately $2,022,000 of the purchase price was allocated to tangible assets
(primarily distribution systems) and $7,564,000 was allocated to intangible
assets. The purchase price was financed from borrowings under the Partnership's
senior revolving credit facility.
In February 1999, the Partnership acquired certain operating assets of a
CATV system from Illini Cablevision of Sabine, Inc., Illini Cablevision of Fort
Polk, Inc. and Cable West of Louisiana, Inc. (the Illini acquisition) for
approximately $15,000,000 in cash. Based on appraised values, approximately
$4,952,000 of the purchase price has been allocated to tangible assets
(primarily distribution systems) and $10,048,000 has been allocated to
intangible assets. These acquisitions were financed primarily from additional
borrowings of approximately $12,700,000 under the Partnership's revolving credit
facility.
The above acquisitions were accounted for using the purchase method and,
accordingly, the operating results of the systems acquired have been included in
the Partnership's financial statements since the date of acquisition.
The following summarized unaudited pro forma financial information assumes
the Galaxy acquisition had occurred on January 1, 1998 and 1997, respectively,
and the Illini acquisition had occurred on January 1, 1998. 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>
YEARS ENDED
DECEMBER 31
-----------------
1998 1997
---- ----
<S> <C> <C>
Revenues.................................................... $24,907 $19,587
Net loss.................................................... $ (871) $(3,540)
</TABLE>
3. CABLE RATE REGULATION
In recent years, the cable television industry has been subject to Federal
Communications Commission (FCC) regulation under the Telecommunications Act of
1996 and, previously, the Cable Television Consumer Protection and Competition
Act of 1992 and related FCC regulations.
F-51
<PAGE> 165
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
On April 1, 1999, programming tier cable television rates were deregulated.
Basic rates remain subject to local rate regulations if the community becomes
certified to regulate through the FCC. The Partnership currently has no
communities actively regulating basic rates.
During the periods the Partnership's cable rates were subject to regulation
under the 1996 Act, the Partnership believes it met the FCC definition for small
system relief from certain of the regulations. During the period its rates were
subject to the 1992 Act, the Partnership generally justified its rates on the
"cost-of-service" basis. In each case, management believes it fairly interpreted
and applied the applicable laws and regulations.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS SEGMENT
The Partnership is primarily engaged in one line of business and has one
industry segment, which is to acquire, develop and operate CATV systems.
REVENUE RECOGNITION
Revenue from cable services includes earned subscriber service revenue and
fees for installations and connections. Subscriber service revenue 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 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.
INCOME TAXES
The partners are required to report their respective share of the
Partnership's taxable income or loss in their individual income tax returns and
are personally liable for any related taxes thereon. Accordingly, no provision
for income taxes has been made in the accompanying financial statements of the
Partnership.
The Partnership has not provided unaudited pro forma information as if the
Partnership was a taxable entity, since the Partnership would have no income tax
benefit under the provisions of Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," due to the recognition of a full valuation allowance against the
Partnership's net deferred tax assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid
investments with original maturities of 3 months or less.
CONSTRUCTION MATERIALS
Construction materials are carried at cost and represent electronic
components and other materials purchased to maintain or to construct cable
television systems.
F-52
<PAGE> 166
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
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 and improvements............................. 25 years
Cable television distribution systems and plant........ 7-12 years
Equipment.............................................. 5-7 years
Transportation vehicles................................ 5 years
Furniture and fixtures................................. 7 years
</TABLE>
Leasehold improvements are amortized over the shorter of their estimated
life or the period of the related leases.
Initial subscriber costs are capitalized as part of cable television
distribution systems pursuant to industry practice. Costs related to disconnects
and reconnects of customers are expensed as incurred. Maintenance and repair
costs are charged to expense as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs are capitalized and amortized using the interest
method over the term of the related debt.
INTANGIBLE ASSETS
Amounts allocated to specific identifiable intangible assets in connection
with CATV system acquisitions are capitalized and amortized using the
straight-line method over periods ranging as follows:
<TABLE>
<S> <C>
Noncompete agreements.................................. 5-15 years
Subscriber lists....................................... 10 years
Franchise rights....................................... 7 years
Goodwill............................................... 20 years
</TABLE>
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 SFAS 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. At this time, future cash inflows exceed future cash
outflows; thus, no impairment loss has been
recognized. Management reviews the valuation and amortization periods of
goodwill on a periodic basis, taking into consideration any events or
circumstances which might result in diminished fair value or revised useful
life. No events or circumstances have occurred to warrant a diminished fair
value or reduction in the useful life of goodwill.
F-53
<PAGE> 167
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Partnership 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 Partnership receivables are limited due to the
geographic dispersion and large number of customers, individually small
balances, short payment terms and required deposits.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable and other accrued
liabilities approximate fair value because of their short maturities. The fair
value of the Partnership's debt (Notes 7 and 8) approximates the book value due
to the variable interest rates of the debt.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Recently, the FASB delayed the effective date of
this statement for one year through the issuance of SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of SFAS No. 133 and an Amendment of SFAS No. 133." Because of the
Partnership'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 Partnership.
5. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------
1998 1997
---- ----
<S> <C> <C>
Accounts receivable, subscriber............................. $915 $643
Accounts receivable, related party.......................... 10 41
Less allowance for doubtful accounts........................ (54) (35)
---- ----
Accounts receivable, net of allowance....................... $871 $649
==== ====
</TABLE>
F-54
<PAGE> 168
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
---- ----
<S> <C> <C>
Land........................................................ $ 54 $ 54
Buildings and improvements.................................. 232 232
Cable television distribution systems....................... 55,269 50,487
Towers, head-ends and transmission equipment................ 6,648 6,324
Transportation vehicles..................................... 1,355 1,181
Furniture and fixtures...................................... 1,822 1,590
-------- --------
65,380 59,868
Less accumulated depreciation............................... (14,902) (10,158)
-------- --------
$ 50,478 $ 49,710
======== ========
</TABLE>
7. SENIOR DEBT
The Partnership has a revolving credit facility with certain lenders. In
October 1997, the Partnership amended its loan agreement with the lenders to
increase the maximum borrowing under the revolving credit facility from $25
million to $35 million. This amendment resulted in the write-off of unamortized
debt issuance costs of approximately $249,000 which had been reflected as an
extraordinary item in the 1997 Statement of Operations.
In November 1998, in connection with the acquisition of the CATV systems in
Louisiana, the loan agreement was again amended to increase the maximum
borrowings under the revolving credit facility from $35 million to $55 million.
The borrowings outstanding under the revolving credit facility totaled $39
million and $31.2 million at December 31, 1998 and 1997, respectively.
Under the Amended and Restated Loan Agreement, interest accrues at the
option of the Partnership at (1) 0.375% to 1.5% over the bank's prime rate or
(2) 1.375% to 2.5% over the LIBOR rate based on the Partnership's leverage
ratio, as defined in the loan agreement. Based on the option selected, interest
is payable currently on a quarterly basis for option (1) or at the end of the
selected term (which can range between 1 and 6 months) for option (2). The
interest rate in effect under the revolving credit facility was in a range of
7.50% to 7.66% at December 31, 1998 and was 8.19% at December 31, 1997. Terms of
the loan agreement provides for fees of .25 percent per annum on the average
daily unused balance of the revolving credit facility.
The revolving credit facility requires quarterly payments of principal
beginning March 31, 2001 through December 31, 2006. In the event that current
borrowings do not increase and no principal payments are made before they are
required, quarterly principal payments would range from $1,375,000 to
$2,062,500.
F-55
<PAGE> 169
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of principal payments as of December 31, 1998
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------
<S> <C>
1999..................................................... $ --
2000..................................................... --
2001..................................................... 5,500
2002..................................................... 5,500
2003..................................................... 8,250
Thereafter............................................... 19,750
-------
$39,000
=======
</TABLE>
The loan agreement includes various covenants and restrictions relating to
additional indebtedness, disposition of major assets, capital expenditures,
management fees, and certain operating and financial covenants. The loan
agreement limits Partnership distributions and provides reimbursement to the
bank, under certain circumstances, for any potential reduction in the rate of
return on the bank's capital as a consequence of its obligations under the
agreement. The loan is collateralized by substantially all of the Partnership's
assets.
8. SUBORDINATED DEBT-RELATED PARTY
Subordinated debt-Related party consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1998 1997
---- ----
<S> <C> <C>
Subordinated notes -- Principal............................. $27,040 $27,040
Subordinated notes -- accrued interest...................... 8,205 5,169
------- -------
Total............................................. $35,245 $32,209
======= =======
</TABLE>
The Partnership entered into a series of loan agreements with the managing
general partner of the Partnership. At December 31, 1998 and 1997, $27,039,673
of principal remained outstanding under the loan agreements. The loans mature on
December 31, 2003 and accrue interest at prime plus 1/2% due monthly. The
interest rate in effect at December 31, 1998 and 1997 was 8.25% and 9.0%,
respectively.
In connection with the October 1997 amendment to the Partnership's Senior
Debt (Note 7), principal and accrued interest outstanding on subordinated notes
in the amount of approximately $10,650,000 were paid off.
On October 31, 1997, the Partnership entered into a new subordination
agreement that prohibits any repayment of principal and interest on the
subordinated notes until such time as the senior debt has been paid or the
senior lenders agree to such repayments. Accrued interest is added to principal
on its due date.
9. SELF-INSURED MEDICAL PLAN
The Partnership participates in a self-insured medical plan with certain
related entities. Medical claims are paid by the Partnership for all related
entities that share in the proportional risk of the plan. Claims paid by the
Partnership on behalf of these entities are subsequently reimbursed. Claims paid
relating to the Partnership's employees amounted to approximately
F-56
<PAGE> 170
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
$227,000, $129,000 and $146,000 in 1998, 1997 and 1996, respectively. The
Partnership is liable for each employee's medical expenses up to $32,500 per
year with claims in excess of $32,500 reinsured with a third party.
10. DEFINED CONTRIBUTION SAVINGS PLAN
The Partnership has a defined contribution 401(k) plan available to
substantially all employees. Under the plan, the Partnership matches 50% of
eligible employees' annual contributions up to $250 per employee. Partnership
matching contributions to the plan in 1998, 1997 and 1996 were approximately
$9,400, $9,400 and $9,200, respectively.
11. DEFERRED COMPENSATION
The Partnership has a Deferred Equity Bonus Plan (the Plan) for certain key
employees providing for the earning of bonuses based on the appreciation in the
market value of the Partnership's various CATV systems from the base year as
defined in the Plan document. The bonus earned vests over a ten year period from
the date an employee becomes operating manager at a CATV system and is payable
at the time such CATV system is sold. As of December 31, 1998 and 1997, no
amounts were due under the Plan.
12. RELATED-PARTY TRANSACTIONS
SCM, the managing general partner, supervises and manages the operations of
the Partnership's CATV systems and performs certain other duties with respect to
the Partnership's operations. Management fees, as prescribed by the management
agreement, are not to exceed 3.5% of the quarterly gross revenues of the
Partnership, plus additional amounts as defined under the terms of the
management agreement. SCM is also entitled to be reimbursed for certain direct
costs incurred on behalf of the Partnership. The management agreement expires on
the earlier of January 31, 2001, the date SCM is no longer a general partner, or
(as to any individual CATV system) on the closing date of the sale of the
respective system. Management fees earned by SCM in 1998, 1997 and 1996
approximated $644,000, $589,000 and $547,000, respectively.
The Partnership pays certain employee wages and benefits, lease and general
and administrative costs on behalf of certain related entities. These costs are
included in other receivables and are subsequently reimbursed by the related
entities. At December 31, 1998 and 1997, such related-party receivables were
approximately $10,000 and $41,000, respectively.
13. LEASE COMMITMENTS
The Partnership leases office space and land used in the conduct of its
business under long-term noncancelable operating leases expiring at various
times. In May 1997, the Partnership entered into a 3-year operating lease
renewal with a related entity for its office space. The rental obligation
provides for monthly rentals of approximately $3,500 over the term of the lease.
Total rent expense for all leases, including cancelable pole use leases, for the
years ended December 31, 1998, 1997 and 1996 was approximately $81,000, $84,000
and $243,000, respectively.
F-57
<PAGE> 171
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of minimum lease payments required under
noncancelable operating leases as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- -----------------------
<S> <C>
1999........................................................ $ 88
2000........................................................ 39
2001........................................................ 13
2002........................................................ 4
2003........................................................ 2
Thereafter.................................................. 3
----
$149
====
</TABLE>
F-58
<PAGE> 172
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
UNAUDITED CONDENSED BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS
JUNE 30
1999
-------
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 3,692
Accounts receivable, net.................................. 832
Construction materials.................................... 349
Prepaid expenses and other current assets................. 62
--------
Total current assets.............................. 4,935
Property, plant and equipment net,.......................... 53,225
Deferred financing costs, net............................... 474
Intangible assets:
Subscriber lists.......................................... 538
Franchise rights.......................................... 16,128
Noncompete agreements..................................... 1,416
Goodwill.................................................. 9,064
Other..................................................... 650
--------
27,796
Less accumulated amortization............................. (8,160)
--------
19,636
--------
Total assets...................................... $ 78,270
========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current Liabilities:
Accounts payable.......................................... $ 1,215
Subscriber deposits and unearned income................... 1,087
Other accrued liabilities................................. 252
Accrued interest payable.................................. 382
Management fees payable................................... 74
--------
Total current liabilities......................... 3,010
Deferred installation revenue............................... 192
Deferred compensation....................................... 425
Accrued interest payable-subordinated debt.................. 121
Senior debt................................................. 51,700
Subordinated debt -- Related party.......................... 36,872
--------
Total liabilities................................. 92,320
--------
Commitments and contingencies
Partners' capital (deficiency).............................. (14,050)
--------
Total liabilities and partners' capital
(deficiency)...................................... $ 78,270
========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-59
<PAGE> 173
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
UNAUDITED CONDENSED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
(DEFICIENCY)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues.................................................... $ 12,434 $ 8,976
-------- --------
Operating expenses:
Programming............................................... 3,742 2,589
CATV system operating costs............................... 2,010 1,234
General and administrative................................ 1,083 795
Marketing and advertising................................. 152 146
Management fees........................................... 433 313
Depreciation and amortization............................. 3,722 2,479
-------- --------
Total operating expenses.......................... 11,142 7,556
-------- --------
Income from operations...................................... 1,292 1,420
-------- --------
Other income (expense):
Interest income........................................... 58 79
Interest expense.......................................... (3,406) (2,804)
Loss on sale of assets.................................... (42) (1)
-------- --------
(3,390) (2,726)
-------- --------
Net loss.......................................... (2,098) (1,306)
Partners' capital (deficiency), beginning of period......... (11,952) (8,932)
-------- --------
Partners' capital (deficiency), end of period............... $(14,050) $(10,238)
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-60
<PAGE> 174
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (2,098) $(1,306)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation........................................... 2,609 2,315
Amortization of intangibles............................ 1,113 164
Amortization of deferred financing costs............... 28 16
Accrued interest on subordinated debt -- Related
party................................................. 1,627 1,624
Loss (gain) on sale of assets.......................... 42 1
Deferred compensation.................................. 425 --
Changes in working capital:
Accounts receivable, net............................... 39 7
Construction materials................................. (1) 51
Prepaid expenses and other current assets.............. 132 1
Accounts payable....................................... (35) (149)
Subscriber deposits and unearned income................ 75 40
Other accrued liabilities.............................. 95 (137)
Accrued interest payable............................... 154 22
Deferred installation revenue.......................... (43) (22)
Accrued interest payable -- subordinated debt.......... (129) (129)
Management fees payable................................ (46) 3
-------- -------
Net cash provided by operating activities......... 3,987 2,501
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of CATV systems.................................. (14,500) --
Capital expenditures...................................... (1,469) (1,602)
Proceeds from sale of other assets........................ 12 11
Proceeds from sale of CATV systems, net................... -- --
-------- -------
Net cash used in investing activities............. (15,957) (1,591)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility................ 12,700 --
Expenditures for deferred financing costs................. (51) (5)
-------- -------
Net cash provided by (used in) financing
activities...................................... 12,649 (5)
-------- -------
Net decrease in cash and cash equivalents................... 679 905
Cash and cash equivalents, beginning of period.............. 3,013 3,044
-------- -------
Cash and cash equivalents, end of period.................... $ 3,692 $ 3,949
======== =======
Supplemental schedule of cash flow information:
Cash interest paid........................................ $ 1,744 $ 1,272
======== =======
Accrued interest on subordinated debt -- Related party.... $ 1,627 $ 1,624
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
F-61
<PAGE> 175
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
Star Cable Associates (the Partnership) is a general partnership formed
under the laws of the Commonwealth of Pennsylvania on August 6, 1986 to acquire,
develop and operate community antenna television systems (CATV systems). The
Partnership is governed by the Partnership Agreement and the Pennsylvania
Uniform Partnership Act. The Partnership operates CATV systems in Texas,
Louisiana and Ohio.
2. ACQUISITIONS
In November 1998, the Partnership acquired additional CATV systems in
Louisiana from Galaxy Telecom L.P. (Galaxy acquisition) for approximately
$9,586,000 in cash, including transaction costs. Based on appraised values,
approximately $2,022,000 of the purchase price was allocated to tangible assets
(primarily distribution systems) and $7,564,000 was allocated to intangible
assets. The purchase price was financed from borrowings under the Partnership's
senior revolving credit facility.
In February 1999, the Partnership acquired certain operating assets of a
CATV system from Illini Cablevision of Sabine, Inc., Illini Cablevision of Fort
Polk, Inc. and Cable West of Louisiana, Inc. (the Illini acquisition) for
approximately $15,000,000 in cash. Based on appraised values, approximately
$4,952,000 of the purchase price has been allocated to tangible assets
(primarily distribution systems) and $10,048,000 has been allocated to
intangible assets. These acquisitions were financed primarily from additional
borrowings of approximately $12,700,000 under the Partnership's revolving credit
facility.
These acquisitions were accounted for using the purchase method, and
accordingly, the operating results of the systems acquired have been included in
the Partnership's financial statements since the date of acquisition.
The following summarized unaudited pro forma financial information assumes
the Illini acquisition had occurred on January 1, 1999 and 1998, respectively,
and the Galaxy acquisition had occurred on January 1, 1998. 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>
SIX MONTHS
ENDED
JUNE 30
-----------------
1999 1998
---- ----
<S> <C> <C>
Revenues.................................................... $12,790 $12,406
Net loss.................................................... $(2,001) $ (130)
</TABLE>
F-62
<PAGE> 176
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
3. DEFERRED COMPENSATION
The Partnership has a Deferred Equity Bonus Plan (the Plan) for certain key
employees providing for the earning of bonuses based on the appreciation in the
market value of the
Partnership's various CATV systems from the base year as defined in the Plan
document. The bonus earned vests over a ten year period from the date an
employee becomes operating manager at a CATV system and is payable at the time
such CATV system is sold. For the six months ended June 30, 1999 and 1998, the
Partnership recognized approximately $425,000 and $0 of expense, respectively,
related to the Plan. The liability outstanding under the Plan at June 30, 1999
and 1998 was approximately $425,000 and $0, respectively.
F-63
<PAGE> 177
UNDERWRITING
Classic, the Selling Stockholders and the underwriters for the U.S.
offering (the "U.S. Underwriters") named below have entered into an underwriting
agreement with respect to the shares being offered in the United States. Subject
to certain conditions, each U.S. underwriter has severally agreed to purchase
the number of shares indicated in the following table. Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation are the representatives of the U.S.
underwriters.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
------------ ------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Donaldson, Lufkin & Jenrette Securities Corporation.........
Total..............................................
-------
=======
</TABLE>
If the U.S. underwriters sell more shares than the total number set forth
in the table above, the U.S. underwriters have an option to buy up to an
additional shares from to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the U.S. underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts to
be paid to the U.S. underwriters by Classic. Such amounts are shown assuming
both no exercise and full exercise of the U.S. underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
PAID BY CLASSIC
--------------------
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per share................. $ $
Total..................... $ $
</TABLE>
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. underwriters by . Such
amounts are shown assuming full exercise of the U.S. underwriters' option to
purchase additional shares from .
<TABLE>
<CAPTION>
PAID BY
-------
<S> <C>
Per share................
Total....................
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover page of this
prospectus. Any shares sold by the underwriters to securities dealers may be
sold at a discount of up to $ per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to $
per share from the initial public offering price. If all of the shares are not
sold at the initial public offering price, the representatives may change the
offering price and the other selling terms.
Classic and the Selling Stockholders have entered into underwriting
agreements with the underwriters for the international offering for the sale of
shares outside of the United States. The terms and conditions of both
offerings are the same and the sale of shares in both offerings are conditioned
on each other. Goldman Sachs International, Merrill Lynch International and
Donaldson,
U-1
<PAGE> 178
Lufkin & Jenrette International are
representatives of the underwriters for the international offering outside the
United States ("the International Underwriters"). Classic has granted the
International Underwriters a similar option to purchase up to an aggregate of an
additional shares.
The underwriters for both of the offerings have entered into an agreement
in which they have agreed to restrictions on where and to whom they and any
dealer purchasing from them may offer shares as a part of the distribution of
the shares. The underwriters have also agreed that they may sell shares among
each of the underwriting groups.
Classic, all of its directors and executive officers, and approximately %
of its stockholders have agreed with the underwriters not to dispose of or hedge
any of their Class A common stock or securities convertible into or exchangeable
for shares of Class A common stock during the period from the date of this
prospectus continuing through the date 180 days after the date of this
prospectus, except with the prior written consent of Goldman, Sachs & Co. This
agreement does not apply to any existing employee benefit plans. See "Shares
Eligible for Future Sale" for a discussion of certain transfer restrictions.
Prior to the offerings, there has been no public market for the shares. The
initial public offering price will be negotiated among Classic and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Classic's historical performance, estimates of the business
potential and earnings prospects of Classic, an assessment of Classic's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Application has been made for quotation of the Class A common stock on the
Nasdaq National Market under the symbol "CLSC".
In connection with the offering, the underwriters may purchase and sell
shares of Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
common stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the Class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the underwriters at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Classic and the Selling Stockholders estimate that their share of the total
expenses of the offerings, excluding underwriting discounts and commissions,
will be approximately $ and $ , respectively.
Classic and the Selling Stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
Certain of the underwriters and their affiliates have in the past provided,
and may in the future from time to time provide, investment banking and general
financing and banking services to Classic and its affiliates for which they have
in the past received, and may in the future receive, customary fees.
Specifically, Goldman, Sachs & Co., Merrill
U-2
<PAGE> 179
Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation served as the initial purchasers in the July 1999
offering of $150,000,000 of 9 3/8% Senior Subordinated Notes due 2009 of Classic
Cable. The initial purchasers received customary underwriting discounts.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of shares, including sales of shares initially
sold by the underwriters in the offering being made outside of the United
States, to persons located in the United States.
Affiliates of Goldman, Sachs & Co. own a 9% interest in Brera Classic,
which owns approximately 64% of the capital stock of Classic prior to this
offering and % after giving effect to this offering. See "Principal and
Selling Stockholders."
U-3
<PAGE> 180
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 14
Forward-Looking Statements............ 21
Use of Proceeds....................... 21
Dividend Policy....................... 22
Capitalization........................ 23
Dilution.............................. 25
Unaudited Pro Forma Consolidated
Financial Information............... 26
Selected Historical Consolidated
Financial Data -- Classic
Communications, Inc. ............... 36
Selected Historical Consolidated
Financial Data -- Buford Group,
Inc. ............................... 37
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 38
Business.............................. 51
Legislation and Regulation............ 66
Management............................ 77
Certain Relationships and Related
Transactions........................ 86
Principal and Selling Stockholders.... 88
Description of Certain Indebtedness... 90
Description of Capital Stock.......... 98
Shares Eligible for Future Sale....... 105
Important United States Federal Tax
Considerations for Non-United States
Holders............................. 107
Legal Matters......................... 109
Experts............................... 109
Change in Accountants................. 109
Where You Can Find More Information... 110
Index to Consolidated Financial
Statements.......................... F-1
Underwriting.......................... U-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Shares
CLASSIC COMMUNICATIONS, INC.
Class A Common Stock
---------------------
[CLASSIC COMMUNICATIONS LOGO]
---------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
Representatives of the Underwriters
------------------------------------------------------
------------------------------------------------------
<PAGE> 181
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $55,948
NASD Filing fee............................................. $20,625
Nasdaq National Market listing fee.......................... $
Printing and engraving expenses............................. $
Legal fees and expenses..................................... $
Accounting fees and expenses................................ $
Blue sky fees and expenses.................................. $ 7,500
Transfer agent and registrar fees and expenses.............. $ 5,000
Miscellaneous fees and expenses............................. $
-------
Total............................................. $
</TABLE>
Classic will bear all of the expenses shown above.
ITEM 14. 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 8 of the Registrant's Amended and Restated Certificate of
Incorporation provides as follows: The Corporation shall indemnify its directors
and may indemnify its officers to the fullest extent authorized or permitted by
law, as now or hereafter in effect, and such right to indemnification shall
continue as to a person who has ceased to be a director or officer of the
Corporation and shall inure to the benefit of his or her heirs, executors and
personal and legal representatives; provided, however, that, except for
proceedings to enforce rights to indemnification, the Corporation shall not be
obligated to indemnify any director or officer (or his or her heirs, executors
or personal or legal representatives) in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the board of directors of the Corporation. The
right to indemnification shall include the right to be paid by the Corporation
the expenses incurred in defending or otherwise participating in any proceeding
in advance of its final disposition. The Corporation may, to the extent
authorized from time to time by the board of directors of the Corporation,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred to directors
and officers of the Corporation. The rights to indemnification and to the
advancement of expenses shall not be exclusive of any other right
II-1
<PAGE> 182
which any person may have or hereafter acquire under the Certificate of
Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of
the stockholders of the Corporation or disinterested directors of the
Corporation or otherwise. Any repeal or modification of the Certificate of
Incorporation shall not adversely affect any rights to indemnification and to
the advancement of expenses of a director or officer of the corporation existing
at the time of such repeal or modification with respect to any acts or omissions
occurring prior to such repeal or modification. Article 8 of the Registrant's
By-Laws provides the same.
Each of the directors of the Registrant are parties to indemnification
agreements whereby the Registrant agrees to indemnify each director to the
fullest extent authorized or permitted by law for claims relating to the fact
that the individual is or was a director of the Registrant. The agreement also
provides that if the Registrant maintains an insurance policy providing
directors liability insurance, the director shall be covered to the maximum
extent of the coverage available.
The foregoing statements are subject to the detailed provisions of Section
102(b)(7) of the DGCL, Article 8 of the Amended and Restated 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 Amended and Restated Certificate of Incorporation and
By-Laws.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 28, 1999, the Registrant issued 5,490,734 shares of its voting
common stock at a price of $14.57 per share and 1,000,000 shares of its voting
common stock at a price of $20.00 per share to Brera Classic, LLC, for an
aggregate offering price of $100,000,000.
On September 15, 1998, the Registrant issued 6,631 shares of its voting
common stock to Nationsbanc Capital Corp. (n/k/a BA Capital Company, L.P.) and
1,326 shares of its voting common stock to BT Capital Partners, Inc. for an
aggregate offering price of approximately $30,000. On September 15, 1998 the
Registrant also sold 2,653 shares of voting common stock to each of J. Merritt
Belisle and Steven E. Seach for an aggregate consideration of approximately
$20,000.
On July 30, 1998, the Registrant issued 323,832 shares of its voting common
stock to Austin Ventures, L.P. in exchange for 323,832 shares of its nonvoting
common stock, 223,422 shares of its voting common stock to Austin Ventures
III-A, L.P. in exchange for 223,422 shares of its nonvoting common stock, and
188,733 shares of its voting common stock to Austin Ventures III-B, L.P. in
exchange for 188,733 shares of its nonvoting common stock and no additional
consideration.
On July 29, 1998, the Registrant issued 242,209 shares of restricted voting
common stock to each of J. Merritt Belisle and Steven E. Seach under the terms
of the Registrant's 1998 Restricted Stock Plan in exchange for the shares of
restricted stock held by Messrs. Belisle and Seach under the Registrant's 1996
Restricted Stock Award Plan of which all shares are fully vested. While these
shares of common stock were granted in exchange for no additional cash
consideration, such shares are subject to a distribution threshold equal to
$3.77 per share, i.e., the first $3.77 of distributions with respect to such
shares is to be withheld.
We believe that the sale and issuance of securities in all the above
transactions were exempt from registration under the Securities Act by virtue of
Section 4(2) thereof, or Regulation D thereunder, as transactions by an issuer
not involving a public offering. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information. In addition, the
foregoing transactions were consummated
II-2
<PAGE> 183
without the use of underwriters and public offering documents and involved a
very small number of purchasers.
On July 14, 1998, the Registrant issued 114,000 units, consisting of
$114,000,000 aggregate principal amount 13 1/4% Senior Discount Notes due 2009
and 342,000 shares of the Registrant's common stock, to Merrill, Lynch, Pierce,
Fenner & Smith Incorporated as initial purchaser, the aggregate proceeds of
which was $60 million.
We believe that the sale and issuance of securities in the above
transaction was exempt from registration under the Securities Act by virtue of
Rule 144A, as private resales of securities to institutions. Appropriate legends
are affixed to the stock certificates issued in such transactions. Similar
legends were imposed in connection with any subsequent sales of any such
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
1.1 -- Form of Underwriting Agreement (U.S. Version).
1.2** -- Form of Underwriting Agreement (International Version).
2.1* -- Securities Purchase Agreement between Classic Cable, Inc.
and Buford Group, Inc. dated as of May 11, 1999.
2.2 -- Asset Purchase Agreement between Universal Cable
Holdings, Inc. and Star Cable Associates, dated as of
October 14, 1999.
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.
3.1(c)* -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Classic Communications,
Inc. dated July 28, 1999.
3.1(d) -- Form of Amended and Restated Certificate of Incorporation
of Classic Communications, Inc.
3.2* -- Amended and Restated Bylaws of Classic Communications,
Inc.
3.2(b) -- Form of Amended and Restated Bylaws of Classic
Communications, Inc.
4.1** -- Form of certificate evidencing shares of Class A common
stock.
5.1(a)** -- Opinion of Skadden, Arps, Slate, Meagher and Flom
(Illinois), special counsel to Classic Communications,
Inc.
10.1 -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Ronald W. Martin.
10.2 -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Elizabeth Kay Manigold.
</TABLE>
II-3
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.3* -- Employment Agreement dated as of July 28, 1999 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.4* -- Employment Agreement dated as of July 28, 1999 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.5* -- 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.
10.6* -- Amended and Restated Credit Agreement dated July 28, 1999
among Classic Cable, Inc., as Borrower, the Lenders
Parties thereto, Goldman Sachs Credit Partners, L.P., as
Lead Arranger and Syndication Agent, and The Chase
Manhattan Bank, as Documentation Agent, and Union Bank of
California, N.A., as Administrative Agent.
10.7* -- Facilities Commitment Letter, dated June 24, 1999,
between Classic Cable, Inc. and Goldman Sachs Credit
Partners L.P.
10.8* -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.8(b)* -- Assignment of Asset Purchase Agreement dated June 19,
1998.
10.8(c)* -- Amendment No. 1 to Asset Purchase Agreement dated July
15, 1998.
10.9* -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.10* -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
10.10(a)* -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.10(b)* -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
10.11* -- Investment Agreement dated as of May 24, 1999 between
Brera Classic, LLC and Classic Communications, Inc.
10.12* -- Management and Advisory Fee Agreement dated May 24, 1999.
10.14* -- Stockholders' Agreement, dated as of July 28, 1999, by
and among Classic Communications, Inc., Brera Classic,
LLC and the additional parties named therein.
10.15* -- Registration Rights Agreement, dated as of July 28, 1999,
among Classic Communications, Inc., Brera Classic, LLC,
and the additional parties named therein.
10.16* -- Purchase Agreement, dated July 21, 1999, by and among
Classic Cable, Inc. and Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
10.17* -- Exchange and Registration Rights Agreement, dated July
28, 1999, by and between Classic Cable, Inc. and Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
10.18* -- Indenture for $150,000,000 9 3/8% Senior Subordinated
Notes due 2009, dated as of July 28, 1999 between Classic
Cable, Inc., as Issuer, the Guarantors listed on Schedule
1 thereto, and Chase Bank of Texas, National Association,
as Trustee.
10.19* -- Form of Global 9 3/8% Senior Subordinated Note due 2009.
</TABLE>
II-4
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.20 -- 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 (incorporated by reference to
Exhibit 4.1 to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-63641)).
10.21 -- Form of Global 13 1/4 Senior Discount Note due 2009
(incorporated by reference to Exhibit 4.2 to Classic
Communications, Inc.'s Registration Statement on Form S-4
(Registration No. 333-63641)).
10.22 -- Registration Rights Agreement dated as of July 29, 1998,
by and between Classic Communications, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (incorporated
by reference to Exhibit 4.3A to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-63641)).
10.23 -- 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 (incorporated by reference to
Exhibit 4.3B to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-63641)).
10.24 -- 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) (incorporated by reference to
Exhibit 4.3C to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-63641)).
10.25 -- 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) (incorporated by reference to Exhibit
4.3D to Classic Communications, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-63641)).
10.26 -- First Supplemental Indenture, dated as of July 28, 1999,
between Classic Cable, Inc., as Issuer, the Subsidiary
Guarantors named thereon, as Guarantors, and Chase Bank
of Texas, National Association, as Trustee (incorporated
by reference to Exhibit 4.4 to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-63641)).
10.27** -- Form of Amendment to Stockholders' Agreement, dated as of
July 28, 1999, by and among Classic Communications, Inc.,
Brera Classic, LLC and the additional parties named
therein.
10.28** -- Form of Amendment No. 3 to Amended and Restated
Registration Rights Agreement dated as of October 31,
1995, as modified.
10.29** -- 1999 Omnibus Stock Incentive Plan of Classic
Communications, Inc.
21.1* -- Subsidiaries of Classic Communications, Inc.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of KPMG LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP
</TABLE>
II-5
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5** -- Consent of Skadden, Arps, Slate, Meagher and Flom
(Illinois) (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
</TABLE>
- ---------------
* Incorporated by reference to the identically numbered Exhibit to Classic
Communications, Inc.'s Registration Statement on Form S-4 (Registration No.
333-63641).
** To be filed by amendment.
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 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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-6
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Austin, State of Texas, on
the 19th day of October, 1999.
CLASSIC COMMUNICATIONS, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
POWER OF ATTORNEY
We the undersigned directors and officers of Classic Communications, Inc.,
do hereby constitute and appoint Steven E. Seach and J. Merritt Belisle our true
and lawful attorneys-in-fact and agents, to do any and all acts and things in
our names and on our behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our name in the capacities
indicated below, which said attorneys and agents may deem necessary or advisable
to enable said Corporation to comply with the Securities Act of 1933 and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this registration statement, or any registration statement
for this offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, including specifically, but without
limitation, power and authority to sign for us or any of us in our names in the
capacities indicated below, any and all amendments (including post-effective
amendments) hereto; and we do hereby ratify and confirm all that said attorneys
and agents shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
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/ ALBERTO CRIBIORE Chairman of the Board October 19, 1999
- -----------------------------------------------------
Alberto Cribiore
/s/ J. MERRITT BELISLE Chief Executive Officer and October 19, 1999
- ----------------------------------------------------- Director (Principal
J. Merritt Belisle Executive Officer)
/s/ STEVEN E. SEACH President and Chief October 19, 1999
- ----------------------------------------------------- Financial Officer and a
Steven E. Seach Director (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ LISA A. HOOK Director October 19, 1999
- -----------------------------------------------------
Lisa A. Hook
/s/ DAVID WEBB Director October 19, 1999
- -----------------------------------------------------
David Webb
/s/ MARTIN PAYSON Director October 19, 1999
- -----------------------------------------------------
Martin Payson
</TABLE>
II-7
<PAGE> 188
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Classic Communications, Inc.
In our opinion, the 1998 and 1997 information set forth in the accompanying
condensed financial statement schedule of Classic Communications, Inc. (parent
company only) is fairly stated, in all material respects, in relation to the
consolidated financial statements of Classic Communications, Inc. and
subsidiaries from which it has been derived. This condensed financial statement
schedule is the responsibility of the Company's management; our responsibility
is to express an opinion on the schedule based on our audits. We conducted our
audits of the consolidated financial statements of Classic Communications, Inc.
and subsidiaries in accordance with generally accepted auditing standards; and
in our report dated October 14, 1999, we expressed an unqualified opinion on
those financial statements.
PricewaterhouseCoopers LLP
Austin, Texas
October 14, 1999
S-1
<PAGE> 189
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CLASSIC COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
---- ----
<S> <C> <C>
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 from subsidiary............................... 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........................................... 30,464,000 33,405,000
Unearned compensation..................................... (1,920,000) (2,118,000)
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-2
<PAGE> 190
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) 197,000 169,000
------------ ------------ ------------
Net loss..................................... $(30,863,000) $(14,129,000) $(13,166,000)
============ ============ ============
</TABLE>
S-3
<PAGE> 191
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-4
<PAGE> 192
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.
The 1998 Credit Agreement of Classic Cable is collateralized by 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.
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
S-5
<PAGE> 193
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-6
<PAGE> 194
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
1.1 -- Form of Underwriting Agreement (U.S. Version).
1.2** -- Form of Underwriting Agreement (International Version).
2.1* -- Securities Purchase Agreement between Classic Cable, Inc.
and Buford Group, Inc. dated as of May 11, 1999.
2.2 -- Asset Purchase Agreement between Universal Cable
Holdings, Inc. and Star Cable Associates, dated as of
October 14, 1999.
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.
3.1(c)* -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Classic Communications,
Inc. dated July 28, 1999.
3.1(d) -- Form of Amended and Restated Certificate of Incorporation
of Classic Communications, Inc.
3.2* -- Amended and Restated Bylaws of Classic Communications,
Inc.
3.2(b) -- Form of Amended and Restated Bylaws of Classic
Communications, Inc.
4.1** -- Form of certificate evidencing shares of Class A common
stock.
5.1(a)** -- Opinion of Skadden, Arps, Slate, Meagher and Flom
(Illinois), special counsel to Classic Communications,
Inc.
10.1 -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Ronald W. Martin.
10.2 -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Elizabeth Kay Monigold.
10.3* -- Employment Agreement dated as of July 28, 1999 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.4* -- Employment Agreement dated as of July 28, 1999 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.5* -- 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.
10.6* -- Amended and Restated Credit Agreement dated July 28, 1999
among Classic Cable, Inc., as Borrower, the Lenders
Parties thereto, Goldman Sachs Credit Partners, L.P., as
Lead Arranger and Syndication Agent, and The Chase
Manhattan Bank, as Documentation Agent, and Union Bank of
California, N.A., as Administrative Agent.
10.7* -- Facilities Commitment Letter, dated June 24, 1999,
between Classic Cable, Inc. and Goldman Sachs Credit
Partners L.P.
10.8* -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.8(b)* -- Assignment of Asset Purchase Agreement dated June 19,
1998.
10.8(c)* -- Amendment No. 1 to Asset Purchase Agreement dated July
15, 1998.
10.9* -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.10* -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
10.10(a)* -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.10(b)* -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
10.11* -- Investment Agreement dated as of May 24, 1999 between
Brera Classic, LLC and Classic Communications, Inc.
10.12* -- Management and Advisory Fee Agreement dated May 24, 1999.
10.14* -- Stockholders' Agreement, dated as of July 28, 1999, by
and among Classic Communications, Inc., Brera Classic,
LLC and the additional parties named therein.
10.15* -- Registration Rights Agreement, dated as of July 28, 1999,
among Classic Communications, Inc., Brera Classic, LLC,
and the additional parties named therein.
10.16* -- Purchase Agreement, dated July 21, 1999, by and among
Classic Cable, Inc. and Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
10.17* -- Exchange and Registration Rights Agreement, dated July
28, 1999, by and between Classic Cable, Inc. and Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
10.18* -- Indenture for $150,000,000 9 3/8% Senior Subordinated
Notes due 2009, dated as of July 28, 1999 between Classic
Cable, Inc., as Issuer, the Guarantors listed on Schedule
1 thereto, and Chase Bank of Texas, National Association,
as Trustee.
10.19* -- Form of Global 9 3/8% Senior Subordinated Note due 2009.
10.20 -- 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 (incorporated by reference to
Exhibit 4.1 to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-63641)).
10.21 -- Form of Global 13 1/4 Senior Discount Note due 2009
(incorporated by reference to Exhibit 4.2 to Classic
Communications, Inc.'s Registration Statement on Form S-4
(Registration No. 333-63641)).
10.22 -- Registration Rights Agreement dated as of July 29, 1998,
by and between Classic Communications, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (incorporated
by reference to Exhibit 4.3A to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-63641)).
10.23 -- 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 (incorporated by reference to
Exhibit 4.3B to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-63641)).
</TABLE>
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
10.24 -- 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) (incorporated by reference to
Exhibit 4.3C to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-63641)).
10.25 -- 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) (incorporated by reference to Exhibit
4.3D to Classic Communications, Inc.'s Registration
Statement on Form S-4 (Registration No. 333-63641)).
10.26 -- First Supplemental Indenture, dated as of July 28, 1999,
between Classic Cable, Inc., as Issuer, the Subsidiary
Guarantors named thereon, as Guarantors, and Chase Bank
of Texas, National Association, as Trustee (incorporated
by reference to Exhibit 4.4 to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-63641)).
10.27** -- Form of Amendment to Stockholders' Agreement, dated as of
July 28, 1999, by and among Classic Communications, Inc.,
Brera Classic, LLC and the additional parties named
therein.
10.28** -- Form of Amendment No. 3 to Amended and Restated
Registration Rights Agreement dated as of October 31,
1995, as modified.
10.29** -- 1999 Omnibus Stock Incentive Plan of Classic
Communications, Inc.
21.1* -- Subsidiaries of Classic Communications, Inc.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of KPMG LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP
23.4 -- Consent of PricewaterhouseCoopers LLP
23.5** -- Consent of Skadden, Arps, Slate, Meagher and Flom
(Illinois) (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
</TABLE>
- ---------------
* Incorporated by reference to the identically numbered Exhibit to Classic
Communications, Inc.'s Registration Statement on Form S-4 (Registration No.
333-63641).
** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
CLASSIC COMMUNICATIONS, INC.
CLASS A COMMON STOCK
PAR VALUE $0.01 PER SHARE
----------------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
__________________, 1999
Goldman, Sachs & Co.,
Merrill Lynch, Pierce Fenner & Smith Incorporated
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Classic Communications, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of _______ shares ("Firm Shares") of Class A common stock, par value $0.01 per
shares, ("Stock") of the Company and the stockholders of the Company named in
Schedule II hereto (the "Selling Stockholders") propose, subject to the terms
and conditions stated herein, to sell to the Underwriters, at the election of
the Underwriters, up to __________ additional shares ("Optional Shares") of
Stock. The Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for the sale by the Company
and the Selling Stockholders of up to a total of _________ shares of Stock (the
"International Shares"), including the overallotment option thereunder, through
arrangements with certain underwriters outside the United States (the
"International Underwriters"), for whom Goldman Sachs International and Merrill
Lynch International are acting as lead managers. Anything herein or therein to
the contrary notwithstanding, the respective closings under this Agreement and
the International Underwriting Agreement are hereby expressly made conditional
on one another. The Underwriters hereunder and the International Underwriters
are simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
<PAGE> 2
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages as included in the registration statement and amendments
thereto as mentioned below. Except as used in Sections 2, 3, 4, 9 and 11 herein,
and except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
The Shares are being issued and sold in connection with an Asset
Purchase Agreement (the "Asset Purchase Agreement") dated ____________, 1999, as
amended, by and between Classic Cable, Inc., a Delaware corporation ("Classic
Cable") and Star Cable Associates, a ____________ ("Star"). The Asset Purchase
Agreement provides that, subject to certain conditions as described therein,
Classic Cable will, directly or indirectly, acquire substantially all of the
assets of Star (the "Acquisition") for a purchase price of approximately
$__________ million in cash (the "Asset Purchase Consideration").
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 33-______)
(the "Initial Registration Statement") in respect of the Shares has
been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered
to you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
the Initial Registration Statement, any post-effective amendment
thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in
the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the
time it was declared effective each as amended at the time such part of
the Initial Registration Statement became effective or such part of the
Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and
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<PAGE> 3
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein or by a Selling Stockholder expressly for use in the
preparation of the answers therein to Items 7 and 11(m) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of
the applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Stockholder expressly for use in the preparation of the answers therein
to Items 7 and 11(m) of Form S-1;
(iv) Neither the Company nor any of its subsidiaries has, and
after giving effect to the Acquisition pursuant to the terms of the
Asset Purchase Agreement will have, sustained since the date of the
latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been, and
after giving effect to the Acquisition pursuant to the terms of the
Asset Purchase Agreement will not be, any change in the capital stock
or long-term debt of the Company or any of its subsidiaries or any
material adverse change in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus;
(v) The Company and its subsidiaries have, and after giving
effect to the Acquisition pursuant to the terms of the Asset Purchase
Agreement will have, good and marketable title in fee simple to all
real property and good and marketable title to all personal property
owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as
do not in the aggregate, materially affect the value of such property
and do not in the aggregate, materially interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries;
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<PAGE> 4
(vi) The Company has been, and after giving effect to the
Acquisition pursuant to the terms of the Asset Purchase Agreement will
be, duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been, and after giving
effect to the Acquisition pursuant to the terms of the Asset Purchase
Agreement will be, duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been, and after giving effect to the Acquisition pursuant to the
terms of the Asset Purchase Agreement will be, duly incorporated and is
validly existing in good standing under the laws of its jurisdiction of
organization;
(vii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been, and after giving effect to the Acquisition pursuant
to the terms of the Asset Purchase Agreement will be, duly and validly
authorized and issued, are fully paid and non-assessable and conform to
the description of the Stock contained in the Prospectus; and all of
the issued shares of capital stock of each subsidiary of the Company
have been, and after giving effect to the Acquisition pursuant to the
terms of the Asset Purchase Agreement will be, duly and validly
authorized and issued, are fully paid and non-assessable and (except
for directors' qualifying shares and except as set forth in the
Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims;
(viii) The Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares to be sold by the Company
hereunder and under the International Underwriting Agreement and the
compliance by the Company with all of the provisions of this Agreement
and the International Underwriting Agreement and the consummation of
the transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is, or after giving effect to the
Acquisition pursuant to the terms of the Asset Purchase Agreement will
be, a party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of its
subsidiaries is, or after giving effect to the Acquisition pursuant to
the terms of the Asset Purchase Agreement will be, subject (except such
as will not individually or in the aggregate have a Material Adverse
Effect), nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties [(other than immaterial FCC and
local franchise authority requirements);] and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale
of the Shares or the
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<PAGE> 5
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters and the
International Underwriters;
(x) Neither the Company nor any of its subsidiaries is, and after
giving effect to the Acquisition pursuant to the terms of the Asset
Purchase Agreement will be, in violation of its Certificate of
Incorporation or By-laws or in default in the performance or observance
of any obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its
properties may be bound, except for such default that would not have a
Material Adverse Effect;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the captions "Legislation
and Regulation", "Certain Relationships and Related Transactions",
"Description of Certain Indebtedness", "Certain United States Federal
Income Tax Considerations" and "Underwriting", insofar as they purport
to describe the provisions of the laws and documents referred to
therein, are accurate and complete in all material respects;
(xii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is, and after giving effect to the Acquisition
pursuant to the terms of the Asset Purchase Agreement will be, a party
or to which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, could reasonably be expected to individually or in the
aggregate have a material adverse effect on the general affairs,
management, the current or future financial position, business,
stockholders' equity or results of operations of the Company and its
subsidiaries (a "Material Adverse Effect"); and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(xiii) The Company is not and, after giving effect to the
offering and sale of the Shares and after giving effect to the
Acquisition pursuant to the terms of the Asset Purchase Agreement, will
not be an "investment company", as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company
Act");
(xiv) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its subsidiaries and Star and
its subsidiaries, Ernst & Young, LLP, who have certified certain
financial statements of the Company and its subsidiaries, and KPMG LLP,
who have certified certain financial statements of Buford Group, Inc.,
a Delaware corporation, and its subsidiaries, are each independent
public accountants as required by the Act and the rules and regulations
of the Commission thereunder;
(xv) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to
which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of
such review, the Company has no reason to believe, and does not
believe, that the Year 2000 Problem will
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<PAGE> 6
have a Material Adverse Effect. The "Year 2000 Problem" as used herein
means any significant risk that computer hardware or software used in
the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the
operation of mechanical or electrical systems of any kind will not, in
the case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
(xvi) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, and after giving effect to the Acquisition
pursuant to the terms of the Asset Purchase Agreement will own or
possess, or be able to acquire on reasonable terms, adequate patents,
patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now
operated by them, or operated by them after giving effect to the
Acquisition, except as would not result in a Material Adverse Effect,
and neither the Company nor any of its subsidiaries has received, and
after giving effect to the Acquisition pursuant to the terms of the
Asset Purchase Agreement will have received, any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect;
(xvii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of (collectively,
"authorizations"), any court or governmental authority or agency
(including the Federal Communications Commission (the "FCC")) is
necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or
sale of the Shares hereunder or the consummation of the transactions
contemplated by this Agreement or the Asset Purchase Agreement (other
than filings which have been made and authorizations which have been
obtained in the case of the Asset Purchase Agreement and other than
immaterial FCC and local franchise authority requirements); except for
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(xviii) The Company and its subsidiaries possess, and after
giving effect to the Acquisition pursuant to the terms of the Asset
Purchase Agreement will possess, such permits, franchises, licenses
(including licenses of the FCC), approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess such Governmental Licenses would not have
a Material Adverse Effect; the Company and its subsidiaries are, and
after giving effect to the Acquisition pursuant to the terms of the
Asset Purchase Agreement will be, in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
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<PAGE> 7
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect;
(xix) The Company and its subsidiaries have filed, and after
giving effect to the Acquisition pursuant to the terms of the Asset
Purchase Agreement will have filed, all federal, state, local and
foreign tax returns that are required to be filed or have duly
requested extensions thereof and have paid all material taxes required
to be paid by any of them and any related assessments, fines or
penalties, except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements, together with the related schedules and notes,
included in the Prospectus in respect of all material federal, state,
local and foreign taxes for all periods as to which the tax liability
of the Company or any of its subsidiaries has not been fully determined
or remains open to examination by applicable taxing authorities;
(xx) Except as described in the Prospectus and except as such
matters as would not, singly or in the aggregate, result in a Material
Adverse Effect, (i) neither the Company nor any of its subsidiaries is,
and after giving effect to the Acquisition pursuant to the terms of the
Asset Purchase Agreement will be, in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (ii) the Company and its subsidiaries have, and
after giving effect to the Acquisition pursuant to the terms of the
Asset Purchase Agreement will have, all permits, authorizations and
approvals required under any applicable Environmental Laws and are
each, and after giving effect to the Acquisition pursuant to the terms
of the Asset Purchase Agreement will each be, in compliance with their
requirements, (iii) there are, and after giving effect to the
Acquisition pursuant to the terms of the Asset Purchase Agreement there
will be, no pending or to the Company's knowledge threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Laws against
the Company or any of its subsidiaries and (iv) there are, and after
giving effect to the Acquisition pursuant to the terms of the Asset
Purchase Agreement there will be, no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or Environmental Laws;
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<PAGE> 8
(xxi) The Company and its subsidiaries carry or are entitled to
the benefits of, and after giving effect to the Acquisition pursuant to
the terms of the Asset Purchase Agreement will carry or be entitled to
the benefits of, insurance, with financially sound and reputable
insurers, in such amounts and covering such risks as is generally
maintained by companies of established repute engaged in the same or
similar business, and all such insurance is in full force and effect in
all material respects; and
(xxii) The Company is, and after giving effect to the
Acquisition pursuant to the terms of the Asset Purchase Agreement will
be, Solvent. As used herein, the term "Solvent" means, with respect to
the Company on a particular date, that on such date (i) the fair market
value of the assets of the Company is greater than the total amount of
liabilities (including contingent liabilities) of the Company, (ii) the
present fair salable value of the assets of the Company is greater than
the amount that will be required to pay the probable liabilities of the
Company on its debts as they become absolute and matured, (iii) the
Company is able to realize upon its assets and pay its debts and other
liabilities, including contingent obligations, as they mature, and (iv)
the Company does not have unreasonably small capital.
(b) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, each of the Underwriters and the Company
that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement, the International Underwriting Agreement, the Power of
Attorney and the Custody Agreement hereinafter referred to, and for the
sale and delivery of the Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement, have been
obtained; and such Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power-of-Attorney and the
Custody Agreement and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and under the International Underwriting
Agreement and the compliance by such Selling Stockholder with all of
the provisions of this Agreement, the International Underwriting
Agreement, the Power of Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such Selling
Stockholder if such Selling Stockholder is a partnership or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or the property
of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder and under the International
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<PAGE> 9
Underwriting Agreement, free and clear of all liens, encumbrances,
equities or claims; and, upon delivery of such Shares and payment
therefor pursuant hereto and thereto, good and valid title to such
Shares, free and clear of all liens, encumbrances, equities or claims,
will pass to the several Underwriters or the International
Underwriters, as the case may be;
(iv) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell contract to sell or otherwise dispose
of, except as provided hereunder or under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without the
prior written consent of Goldman, Sachs & Co.;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and
any further amendments or supplements to the Registration Statement and
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform in all material respects
to the requirements of the Act and the rules and regulations of the
Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the first Time of Delivery (as hereinafter defined) of the Optional
Shares a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement have been placed in custody under
a Custody Agreement, in the form heretofore furnished to you (the
"Custody Agreement"), duly executed and delivered by such Selling
Stockholder to [NAME OF CUSTODIAN], as custodian (the "Custodian"), and
such Selling Stockholder has duly executed and delivered a Power of
Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this
Agreement and the International Underwriting Agreement on behalf of
such Selling Stockholder, to determine the purchase price to be paid by
the Underwriters and the International Underwriters to the Selling
Stockholders as provided in Section 2
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hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by
this Agreement, the International Underwriting Agreement and the
Custody Agreement; and
(ix) The Shares represented by the certificates held in custody
for such Selling Stockholder under the Custody Agreement are subject to
the interests of the Underwriters hereunder and the International
Underwriters under the International Underwriting Agreement; the
arrangements made by such Selling Stockholder for such custody, and the
appointment by such Selling Stockholder of the Attorneys-in-Fact by the
Power of Attorney, are to that extent irrevocable; the obligations of
the Selling Stockholders hereunder shall not be terminated by operation
of law, whether by the death or incapacity of any individual Selling
Stockholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of
any other event; if any individual Selling Stockholder or any such
executor or trustee should die or become incapacitated, or if any such
estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should
occur, before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of the
Selling Stockholders in accordance with the terms and conditions of
this Agreement, of the International Underwriting Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant
to the Powers of Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred,
regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity,
termination, dissolution or other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company at a purchase
price per share of $_________, the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto and (b) in the event and to the
extent that the Underwriters shall exercise the election to purchase Optional
Shares as provided below, the each of the Selling Stockholders agrees, severally
and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the each of the
Selling Stockholders, at the purchase price per share set forth in clause (a) of
this Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by a
fraction the numerator of which is the maximum number of Optional Shares which
such Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the right
to purchase at their election up to ________ Optional Shares, at the purchase
price per share set forth in the paragraph above, for the sole purpose of
covering sales of shares in excess of the number of Firm Shares. Any such
election to purchase Optional Shares shall be made in proportion to the number
of Optional Shares to be sold by each Selling Stockholder. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Attorneys-in-Fact, given within a period of 30 calendar days after
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<PAGE> 11
the date of this Agreement and setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to be
delivered, as determined by you but in no event earlier than the First Time of
Delivery (as defined in Section 4 hereof) or, unless you and the
Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co.,
through the facilities of the Depository Trust Company ("DTC"), for the account
of such Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire transfer of Federal (same-day) funds to the
account specified by the Company and the CUSTODIAN, to Goldman, Sachs & Co. at
least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York time, on ____________, 1999 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Selling
Stockholders may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(p) hereof, will be delivered at the offices
of Latham & Watkins, 885 Third Avenue, New York, New York 10022 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at 3:00
p.m., New York City time, on the New York Business Day next preceding such Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make
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<PAGE> 12
no further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement
has been filed or becomes effective or any supplement to the Prospectus
or any amended Prospectus has been filed and to furnish you with copies
thereof; to advise you, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any events shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus in order to comply with the Act, to
notify you and upon your request to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and
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<PAGE> 13
the rules and regulations of the Commission thereunder (including, at
the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder and under the International
Underwriting Agreement, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing
on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without the
prior written consent of Goldman, Sachs & Co.;
(f) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent
public accountants) and, as soon as practicable after the end of each
of the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), to make available to its stockholders consolidated summary
financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to stockholders,
and to deliver to you (i) as soon as they are available, copies of any
reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption
"Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations
National Market System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q of
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on
the date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that (a) the Company and such
Selling Stockholder will
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<PAGE> 14
pay or cause to be paid a pro rata share (based on the number of Shares to be
sold by the Company and such Selling Stockholder hereunder the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreements, the Blue
Sky Memorandum, closing documents (including any compilations thereof) and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey (iv) all fees and expenses in connection with listing the Shares
on the NASDAQ; and (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; and (b) the Company will pay or cause to be
paid: (i) the cost of preparing stock certificates; (ii) the cost and charges of
any transfer agent or registrar and (iii) all other costs and expenses incident
to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 6; and (c) [such Selling Stockholder
will pay or cause to be paid all costs and expenses incident to the performance
of such Selling Stockholder's obligations hereunder which are not otherwise
specifically provided for in this Section, including (i) any fees and expenses
of counsel for such Selling Stockholder, (ii) such Selling Stockholder's pro
rata share of the fees and expenses of the Attorneys-in-Fact and the Custodian,
and (iii) all expenses and taxes incident to the sale and delivery of the Shares
to be sold by such Selling Stockholder to the Underwriters hereunder. In
connection with clause (c) (iii) of the preceding sentence, Goldman, Sachs & Co.
agrees to pay New York State stock transfer tax, and the Selling Stockholder
agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such
tax payment is not rebated on the day of payment and for any portion of such tax
payment not rebated.] It is understood, however, that [the Company shall bear,
and the Selling Stockholders shall not be required to pay or to reimburse the
Company for, the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that], except as provided
in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement; no stop order suspending
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<PAGE> 15
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Latham & Watkins, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions, dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (vi),
(x) and (xiii) of subsection (c) below as well as such other related
matters as you may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Skadden, Arps, Slate, Meagher & Flom, counsel for the
Company, shall have furnished to you their written opinion, dated such
Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly and validly authorized and
issued and are fully paid and non-assessable; and the Shares
conform to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material
liability or disability by reason of failure to be so qualified
in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state
that they believe that both you and they are justified in relying
upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly
organized and is validly existing as a corporation, limited
liability company or limited partnership in good standing under
the laws of its jurisdiction of organization; and all of the
issued shares of capital stock of each such subsidiary have been
duly and validly authorized and issued, are fully paid and
non-assessable, and (except for directors' qualifying shares and
except as otherwise set forth in the Prospectus) are owned
directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(v) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the
Company or
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<PAGE> 16
any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vi) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by
the Company;
(vii) The Asset Purchase Agreement has been duly
authorized, executed and delivered by the parties thereto and
constitutes a valid and legally binding instrument, enforceable
in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(viii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws, or
Certificate of Limited Liability Company or Limited Liability
Company Agreement, or Certificate of Limited Partnership or
Limited Partnership Agreement, of the Company or any of its
subsidiaries or any statute or any order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries
or any of their properties;
(ix) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares,
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(x) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport
to constitute a summary of the terms of the Stock, under the
captions "Certain Relationships and Related Transactions",
Description of Certain Indebtedness", "Certain United States
Federal Income Tax Considerations", and "Underwriting", insofar
as they purport to describe the provisions of the laws and
documents referred to therein, are accurate and complete in all
material respects;
(xi) The Company is not an "investment company", as such
term is defined in the Investment Company Act;
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<PAGE> 17
(xii) Except as set forth in the Prospectus, each of the
Company and its subsidiaries has all of the licenses, permits,
franchises and authorizations required by each state in which it
operates, or the political subdivisions thereof, for the
provision of cable television services (as such counsel
understands service to be provided which may be based on a
certificate of an officer of the Company, provided that such
counsel shall state that they believe that both the Underwriters
and such counsel are justified in relying on such certificate),
where the failure to obtain or hold such license, permit,
franchise or authorization would have a Material Adverse Effect;
and
(xiii) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules
and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (xi) of this Section 7(c), they have no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any
contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which
are not filed or described as required;
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States;
(d) Cole Raywid & Braverman, regulatory counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The statements set forth in the Prospectus under the caption
"Legislation and Regulation," insofar as they purport to describe the
provisions of the laws and documents referred to therein, are accurate
and complete in all material respects;
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<PAGE> 18
(ii) The Company and its subsidiaries operate cable television
systems which serve the communities listed on Attachment 1 hereto. Each
such community has been registered with the FCC;
(iii) The Company and its subsidiaries hold the FCC licenses set
forth on Attachment 1 hereto, each of which is in full force and
effect, and each of the Company and its subsidiaries have fulfilled and
performed all material obligations with respect thereto. To the best of
our knowledge, these are the only FCC licenses which are presently
necessary to the business of the Company and its subsidiaries as now
conducted, except for those licenses that are not material to the
Company. To the best of our knowledge, no condition exists or event has
occurred which permits or which after lapse of time or the giving of
notice or both would permit the suspension, revocation, impairment,
forfeiture, nonrenewal or termination of any FCC license set forth on
Attachment 1. To the best of our knowledge, neither the Company nor any
of its subsidiaries has received written notice of any violation or
institution of any cease and desist proceeding with respect thereto;
(iv) Except with respect to general rulemakings and similar
matters relating generally to the cable television industry, there is
no action, suit or proceeding pending at the FCC, or, to the best of
our knowledge after due investigation with respect thereto, any inquiry
or investigation by the FCC pending or proceeding threatened by the FCC
against or affecting the Company or any of its subsidiaries which might
have Material Adverse Effect upon the Company and its subsidiaries or
the operation of the cable systems of the Company and its subsidiaries;
and
(v) The execution, delivery and performance by the Company of
the Underwriting Agreement and the consummation of the Acquisition do
not require the approval of the FCC and will not result in any
violation of the Communications Act of 1934, as amended, or any rule or
regulation of the FCC; provided however, that prior FCC approval is
required for the transfer of control of FCC licenses.
(e) The respective counsel for each of the Selling Stockholders,
as indicated in Schedule II hereto, each shall have furnished to you
their written opinion with respect to each of the Selling Stockholders
for whom they are acting as counsel (a draft of each such opinion is
attached as Annex II(c) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Stockholder and
constitute valid and binding agreements of such Selling
Stockholder in accordance with their terms;
(ii) This Agreement and the International Underwriting
Agreement has been duly executed and delivered by or on behalf of
such Selling Stockholder; and the sale of the Shares to be sold
by such Selling Stockholder hereunder and thereunder and the
compliance by such Selling Stockholder with all of the provisions
of this Agreement and the International Underwriting Agreement,
the Power-of-Attorney and the Custody Agreement and the
consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any
terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan
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<PAGE> 19
agreement or other agreement or instrument known to such counsel
to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the property or
assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation, the
Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership or any order, rule or regulation
known to such counsel of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property
of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation of the transactions contemplated by this Agreement
and the International Underwriting Agreement in connection with
the Shares to be sold by such Selling Stockholder hereunder or
thereunder, except such as have been obtained under the Act and
such as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of such Shares
by the Underwriters or the International Underwriters;
(iv) Immediately prior to such Time of Delivery, such
Selling Stockholder had good and valid title to the Shares to be
sold at such Time of Delivery by such Selling Stockholder under
this Agreement and the International Underwriting Agreement, free
and clear of all liens, encumbrances, equities or claims, and
full right, power and authority to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder
hereunder and thereunder; and
(v) Good and valid title to such Shares, free and clear of
all liens, encumbrances, equities or claims, has been transferred
to each of the several Underwriters or International
Underwriters, as the case may be.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States and in
rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(f) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished
to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto;
(g) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Ernst & Young LLP shall have furnished to you a
letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in
Annex I hereto;
19
<PAGE> 20
(h) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, KPMG LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex I
hereto;
(i) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Gainer Donnelly & Desroches shall have furnished
to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you;
(j)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(k) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term
is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities;
(l) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii)
a suspension or material limitation in trading in the Company's
securities on NASDAQ; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York State authorities;
(iv) the outbreak or escalation of hostilities involving the United
States or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this clause (iv)
in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus; or (v) the occurrence of any
material adverse change in the existing financial, political or
economic conditions in the United States or elsewhere which, in the
judgment of the Representatives, would materially and adversely affect
the financial markets or the markets for the Shares;
20
<PAGE> 21
(m) The Shares to be sold by the Company and the Selling
Stockholders at such Time of Delivery shall have been duly listed for
quotation on NASDAQ;
(n) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each director, officer and
stockholder of the Company listed on Schedule III hereto, substantially
to the effect set forth in Subsection 1(b)(iv) hereof in form and
substance satisfactory to you;
(o) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
and
(p) The Company and the Selling Stockholders shall have furnished
or caused to be furnished to you at such Time of Delivery certificates
of officers of the Company and of the Selling Stockholders,
respectively, satisfactory to you as to the accuracy of the
representations and warranties of the Company and the Selling
Stockholders, respectively, herein at and as of such Time of Delivery,
as to the performance by the Company and the Selling Stockholders of
all of their respective obligations hereunder to be performed at or
prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to
be furnished certificates as to the matters set forth in subsections
(a) and (j) of this Section.
(q) The Company shall have entered into the Asset Purchase
Agreement (the form and substance of which shall be acceptable to the
Underwriters) and the Underwriters shall have received counterparts,
conformed as executed thereof and of all other documents and agreements
entered into in connection therewith.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co.
expressly for use therein.
(b) Each of the Selling Stockholders will indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the
21
<PAGE> 22
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder expressly for
use therein; and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that such Selling Stockholder shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein; provided, further that
the liability of a Selling Stockholder shall not exceed the product of the
number of Shares sold by such Selling Stockholder and the initial public
offering price of the Shares as set forth in the Prospectus;
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or such Selling Stockholder may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the
22
<PAGE> 23
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of Shares purchased under
this Agreement (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
23
<PAGE> 24
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
respective Selling Stockholders may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become a director of the Company) and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company and the Selling Stockholders shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all of the Shares to be purchased at such Time of
Delivery, then the Company and the Selling Stockholders shall have the right to
require each non-defaulting Underwriter to purchase the number of Shares which
such Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or
24
<PAGE> 25
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Selling
Stockholders to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Stockholders, except for the expenses to be borne by the Company and the
Selling Stockholders and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, and shall survive delivery of and payment for the
Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and each of
the Selling Stockholders pro rata (based on the number of Shares to be sold by
the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares not so delivered, but the Company and the Selling Stockholders shall then
be under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary, with a
copy to Brera Classic L.L.C., 712 Fifth Avenue, 34th Floor, New York, New York
10019; provided, however, that any notice to an Underwriter pursuant to Section
8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission
to such Underwriter at its address set forth in its Underwriters' Questionnaire
or telex constituting such Questionnaire, which address will be
25
<PAGE> 26
supplied to the Company or the Selling Stockholders by you on request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel and the Custodian, if any counterparts hereof, and upon the
acceptance hereof by you, on behalf of each of the Underwriters, this letter and
such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and each of the Selling Stockholders. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in a form of Agreement among Underwriters
(U.S. Version), the form of which shall be submitted to the Company and the
Selling Stockholders for examination, upon request, but without warranty on your
part as to the authority of the signers thereof.
26
<PAGE> 27
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
Classic Communications, Inc.
By:
----------------------------------
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By:
----------------------------------
Name:
Title:
As Attorney-in-Fact acting on
behalf of each of the Selling
Stockholders named in Schedule
II to this Agreement.
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BY:
------------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
27
<PAGE> 28
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
--------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.................................................
Merrill Lynch, Pierce Fenner & Smith Incorporated...................
Donaldson, Lufkin & Jenrette Securities Corporation.................
--------- --------
Total......................................................
========= ========
</TABLE>
28
<PAGE> 29
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- ------------------
<S> <C> <C>
The Company........................................................
The Selling Stockholder(s):...................................
[NAME OF SELLING STOCKHOLDER](a)......................
[NAME OF SELLING STOCKHOLDER](b)......................
[NAME OF SELLING STOCKHOLDER](c)......................
[NAME OF SELLING STOCKHOLDER](d)......................
[NAME OF SELLING STOCKHOLDER](e)......................
--------- --------
Total......................................................
========= ========
</TABLE>
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL] and
has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL] and
has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL] and
has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL] and
has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [NAME AND ADDRESS OF COUNSEL] and
has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
29
<PAGE> 30
SCHEDULE III
[List of directors, officers and stockholders to sign Lock-Ups]
30
<PAGE> 31
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Sections 7(f), 7(g), 7(h) and 7(i) of the Underwriting
Agreement, the accountants shall furnish letters to the Underwriters to the
effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished to the representatives of
the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which have been separately furnished to the Representatives and on
the basis of specified procedures including inquiries of officials of
the Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such five fiscal years which were included or incorporated by reference
in the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302,
402 and 503(d), respectively, of Regulation S-K;
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<PAGE> 32
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the
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latest balance sheet included in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified
by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except
in each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
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EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
UNIVERSAL CABLE HOLDINGS, INC.
AND
STAR CABLE ASSOCIATES
DATED AS OF OCTOBER 14, 1999
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TABLE OF CONTENTS
<TABLE>
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SECTION 1. DEFINITIONS.................................................................................-1-
1.1 AFFILIATE............................................................................-1-
1.2 ANNUALIZED EBITDA....................................................................-1-
1.3 INTENTIONALLY LEFT BLANK.............................................................-2-
1.4 ASSETS...............................................................................-2-
1.5 BASIC SERVICES.......................................................................-2-
1.6 BUSINESS.............................................................................-2-
1.7 CCI..................................................................................-2-
1.8 BUSINESS DAY.........................................................................-2-
1.9 CLEANUP..............................................................................-2-
1.10 CLOSING..............................................................................-2-
1.11 CLOSING DATE.........................................................................-2-
1.12 COMMUNICATIONS ACT...................................................................-3-
1.13 ENCUMBRANCE..........................................................................-3-
1.14 ENVIRONMENTAL LAW....................................................................-3-
1.15 EQUIPMENT............................................................................-3-
1.16 EQUIVALENT BASIC SUBSCRIBERS (OR EBS'S)..............................................-3-
1.17 GOVERNMENTAL AUTHORITY...............................................................-4-
1.18 GOVERNMENTAL PERMITS.................................................................-4-
1.19 HAZARDOUS SUBSTANCES.................................................................-4-
1.20 INTANGIBLES..........................................................................-4-
1.21 KNOWLEDGE............................................................................-5-
1.22 LEGAL REQUIREMENT....................................................................-5-
1.23 PAY TV...............................................................................-5-
1.24 PAY UNIT.............................................................................-5-
1.25 PERMITTED ENCUMBRANCES...............................................................-5-
1.26 PERSON...............................................................................-5-
1.27 PREFERRED STOCK......................................................................-5-
1.28 REAL PROPERTY........................................................................-6-
1.29 RELEASE..............................................................................-6-
1.30 REQUIRED CONSENTS....................................................................-6-
1.31 SELLER CONTRACTS.....................................................................-6-
1.32 SERVICE AREA.........................................................................-6-
1.33 STOCK AGREEMENTS.....................................................................-6-
1.34 SYSTEM...............................................................................-6-
1.35 OTHER DEFINITIONS....................................................................-7-
SECTION 2. SALE OF ASSETS..............................................................................-8-
2.1 PURCHASE AND SALE OF ASSETS..........................................................-8-
SECTION 3. CONSIDERATION...............................................................................-9-
3.1 BASE PURCHASE PRICE..................................................................-9-
3.2 ADJUSTMENTS TO BASE PURCHASE PRICE...................................................-9-
</TABLE>
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3.3 DETERMINATION OF ADJUSTMENTS........................................................-11-
3.4 ALLOCATION OF CONSIDERATION.........................................................-12-
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS....................................................-12-
4.1 ASSIGNMENT AND ASSUMPTION...........................................................-12-
4.2 EXCLUDED ASSETS.....................................................................-12-
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER...................................................-13-
5.1 ORGANIZATION AND QUALIFICATION......................................................-13-
5.2 AUTHORITY AND VALIDITY..............................................................-13-
5.3 NO BREACH OR VIOLATION..............................................................-13-
5.4 ASSETS..............................................................................-14-
5.5 REAL PROPERTY.......................................................................-14-
5.6 ENVIRONMENTAL MATTERS...............................................................-15-
5.7 COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS...........................................-16-
5.8 PATENTS, TRADEMARKS AND COPYRIGHTS..................................................-17-
5.9 FINANCIAL STATEMENTS................................................................-17-
5.10 LEGAL PROCEEDINGS...................................................................-18-
5.11 TAX RETURNS; OTHER REPORTS..........................................................-18-
5.12 EMPLOYMENT MATTERS..................................................................-18-
5.13 SYSTEM DATA.........................................................................-19-
5.14 FINDERS AND BROKERS.................................................................-20-
5.15 INTANGIBLES.........................................................................-20-
5.16 ACCOUNTS RECEIVABLE.................................................................-20-
5.17 BONDS; LETTERS OF CREDIT; CERTIFICATES OF INSURANCE.................................-20-
5.18 RIGHTS IN ASSETS....................................................................-20-
5.19 BOOKS AND RECORDS...................................................................-20-
5.20 DISCLOSURE..........................................................................-20-
5.21 COMMITMENTS.........................................................................-21-
5.22 TRANSACTIONS WITH AFFILIATES........................................................-21-
5.23 YEAR 2000...........................................................................-21-
5.24 ABSENCE OF CERTAIN CHANGES..........................................................-22-
5.25 OWNERSHIP OF PREFERRED STOCK........................................................-23-
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................-24-
6.1 ORGANIZATION AND QUALIFICATION......................................................-24-
6.2 AUTHORITY AND VALIDITY..............................................................-24-
6.3 NO BREACH OR VIOLATION BY TRANSMISSION, L.L.C.......................................-24-
6.4 ORGANIZATION AND QUALIFICATION OF TRANSMISSION, L.L.C...............................-24-
6.5 AUTHORITY AND VALIDITY OF TRANSMISSION, L.L.C.......................................-25-
6.6 NO BREACH OR VIOLATION..............................................................-25-
6.7 FINDERS AND BROKERS.................................................................-25-
6.8 ORGANIZATION; GOOD STANDING; QUALIFICATION OF CCI...................................-25-
6.9 AUTHORIZATION OF CCI................................................................-26-
6.10 VALID ISSUANCE OF PREFERRED AND COMMON STOCK........................................-26-
6.11 CAPITALIZATION OF CCI...............................................................-26-
</TABLE>
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<TABLE>
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SECTION 7. ADDITIONAL COVENANTS.......................................................................-26-
7.1 ACCESS TO PREMISES AND RECORDS......................................................-26-
7.2 CONTINUITY AND MAINTENANCE OF OPERATIONS; FINANCIAL STATEMENTS......................-26-
7.3 EMPLOYEE MATTERS....................................................................-28-
7.4 LEASED EQUIPMENT....................................................................-29-
7.5 REQUIRED CONSENTS, ESTOPPEL CERTIFICATES AND FRANCHISE RENEWALS.....................-29-
7.6 MDU AGREEMENTS......................................................................-29-
7.7 TITLE COMMITMENTS AND SURVEYS.......................................................-29-
7.8 NO SHOPPING.........................................................................-30-
7.9 NOTIFICATION OF CERTAIN MATTERS.....................................................-30-
7.10 RISK OF LOSS; CONDEMNATION..........................................................-30-
7.11 TRANSFER TAXES......................................................................-31-
7.12 DISTANT BROADCAST SIGNALS...........................................................-31-
7.13 NON-COMPETITION AGREEMENT...........................................................-31-
7.14 UPDATED SCHEDULES...................................................................-31-
7.15 LIEN AND JUDGMENT...................................................................-32-
7.16 USE OF SELLER'S NAME................................................................-32-
7.17 SATISFACTION OF CONDITIONS..........................................................-32-
7.18 CONFIDENTIALITY.....................................................................-32-
7.19 MEMORANDA OF LEASE..................................................................-32-
7.20 HSR NOTIFICATION....................................................................-33-
7.21 EARNEST MONEY.......................................................................-33-
7.22 LEGEND..............................................................................-33-
SECTION 8. CLOSING....................................................................................-33-
SECTION 9. CONDITIONS TO CLOSING......................................................................-34-
9.1 CONDITIONS TO THE OBLIGATIONS OF BUYER AND SELLER...................................-34-
9.2 CONDITIONS TO THE OBLIGATIONS OF BUYER..............................................-34-
9.3 CONDITIONS TO OBLIGATIONS OF SELLER.................................................-37-
9.4 WAIVER OF CONDITIONS................................................................-38-
SECTION 10. TERMINATION................................................................................-38-
10.1 EVENTS OF TERMINATION...............................................................-38-
10.2 LIABILITIES IN EVENT OF TERMINATION.................................................-38-
10.3 PROCEDURE UPON TERMINATION..........................................................-38-
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION............................................................................-39-
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................................-39-
11.2 INDEMNIFICATION BY SELLER...........................................................-39-
11.3 INDEMNIFICATION BY BUYER............................................................-40-
11.4 PROCEDURE FOR INDEMNIFICATION.......................................................-40-
11.5 LIMITATIONS ON INDEMNIFICATION BY SELLER............................................-41-
11.6 LIMITATIONS ON INDEMNIFICATION BY BUYER.............................................-41-
</TABLE>
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<TABLE>
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SECTION 12. MISCELLANEOUS..............................................................................-42-
12.1 PARTIES OBLIGATED AND BENEFITTED.....................................................-42-
12.2 NOTICES..............................................................................-42-
12.3 ATTORNEYS' FEES......................................................................-43-
12.4 RIGHT TO SPECIFIC PERFORMANCE........................................................-44-
12.5 WAIVER...............................................................................-44-
12.6 CAPTIONS.............................................................................-44-
12.7 CHOICE OF LAW........................................................................-44-
12.8 VENUE................................................................................-44-
12.9 TERMS................................................................................-44-
12.10 RIGHTS CUMULATIVE....................................................................-44-
12.11 FURTHER ACTIONS......................................................................-44-
12.12 TIME.................................................................................-44-
12.13 COUNTERPARTS.........................................................................-45-
12.14 ENTIRE AGREEMENT.....................................................................-45-
12.15 SEVERABILITY.........................................................................-45-
12.16 CONSTRUCTION.........................................................................-45-
12.17 LATE PAYMENTS........................................................................-45-
12.18 EXPENSES.............................................................................-45-
12.19 BULK SALES...........................................................................-45-
</TABLE>
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LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
A - Earnest Money Escrow Agreement
B - Indemnity Escrow Agreement
C - Required Consent
D - Non-Competition Agreement
E - Memorandum of Lease
F - Bill of Sale
G - Assignment and Assumption Agreement
H - Assignment of Leases
I - Consent and Joinder
J - Non-Foreign Affidavit
K - Opinion of Seller's Counsel
L - Opinion of Seller's FCC Counsel
M - Opinion of Buyer's Counsel
N - Certificate of Designation
SCHEDULES
1.6 - The Business
1.15 - Owned Equipment and Vehicles
1.28 - Real Property
1.30 - Required Consents
1.31 - Seller Contracts
4.2 - Excluded Assets
5.4 - Encumbrances
5.6 - Environmental Matters
5.7.2 - Governmental Permits
5.7.4 - Towers
5.7.6 - Rate Regulation
5.10 - Proceedings and Judgments
5.11 - Tax Matters
5.12 - Employment Matters
5.17 - Bonds; Letters of Credit; Cost of Insurance
5.18 - Rights in Assets
5.21 - Binding Commitments
5.22 - Transactions with Affiliates
5.24 - Exceptions to Ordinary Course of Business
6.11 - Capitalization of CCI
7.2.1 - Capital Expenditure Plan
7.4 - Leased Equipment
7.5.2 - Extended Franchise Renewals
7.6 - MDU Agreements
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<PAGE> 7
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made as of October 14,
1999, (the "Effective Date") by and between UNIVERSAL CABLE HOLDINGS, INC., a
Delaware corporation ("Buyer"), and STAR CABLE ASSOCIATES, a Pennsylvania
general partnership ("Seller").
RECITALS
Seller is engaged in the business of providing cable television service
to subscribers in the Service Area, as defined herein. Buyer desires to purchase
and Seller desires to sell substantially all assets of Seller used or useful in
connection with its cable television business in the Service Area as more fully
set forth herein.
AGREEMENTS
In consideration of the above recitals and the mutual agreements stated
in this Agreement, the parties agree as follows:
SECTION 1. DEFINITIONS.
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms, when used in this Agreement, will have the meanings set forth
below:
1.1 AFFILIATE. With respect to any Person, any other Person
controlling, controlled by or under common control with such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.2 ANNUALIZED EBITDA. At any date of determination, the
product of (a) the sum (determined without duplication in accordance with
generally accepted accounting principles ("GAAP"), consistently applied and
consistent with Seller's financial statements) of the following: (i) the
aggregate gross operating revenue for the six (6) most recently consecutive
completed months derived in the ordinary course of business in respect of the
Systems (including revenues arising from second outlets and remotes and
advertising revenues, and including pay-per-view revenues and installation fees,
but excluding interest income, programming launch incentives and extraordinary
items) minus (ii) all operating expenses for such period, including, without
limitation, technical, programming (no credit shall be given for launch
incentives), selling and general administration expenses, and management fees,
but excluding (to the extent included in operating expenses) interest expense,
amortization, depreciation, income and withholding taxes, other non-cash charges
and
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<PAGE> 8
extraordinary gains or losses plus (iii) to the extent included in operating
expenses, actual management fees paid, said amount not to exceed the lesser of:
(x) three and one-half percent (3 1/2 %) of Seller's gross operating revenue for
such period; or (y) the sum of $400,000, plus (iv) to the extent included in
operating expenses, actual home office expenses for Seller's headquarters in
Pittsburgh, Pennsylvania, said amount not to exceed $100,000, times (b) two (2).
1.3 INTENTIONALLY LEFT BLANK.
1.4 ASSETS. All properties, privileges, rights, interests and
claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held, used, useful, or held for use in the
Business or in the operations of the Systems in which Seller has any right,
title or interest or in which Seller acquires any right, title or interest on or
before the Closing Date, including, without limitation, Governmental Permits,
Intangibles, Seller Contracts, Equipment and Real Property, but excluding any
Excluded Assets.
1.5 BASIC SERVICES. The basic tier of cable television
programming sold to subscribers of the Systems as a package, including broadcast
and satellite programming for which a subscriber pays a fixed monthly fee to
Seller, but not including Pay TV.
1.6 BUSINESS. The cable television business conducted by
Seller through one or more Systems in and around the Service Area, as described
on Schedule 1.6, in accordance with the categories set forth in Section 5.13.
1.7 CCI. Classic Communications, Inc., a Delaware corporation.
1.8 BUSINESS DAY. Any day other than Saturday, Sunday or a day
on which banking institutions in Austin, Texas, or New York, New York, are
required or authorized to be closed.
1.9 CLEANUP. All actions required to: (1) cleanup, remove,
treat or remediate Hazardous Substances in the indoor or outdoor environment;
(2) prevent the Release of Hazardous Substances so that they do not migrate,
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential clean up, removal, treatment or remediation of
Hazardous Substances in the indoor or outdoor environment.
1.10 CLOSING. The consummation of the transactions
contemplated by this Agreement, as described in Section 8, the date of which is
referred to as the Closing Date.
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1.11 CLOSING DATE. The date described in Section 8 or such
later date as extended by Buyer or Seller in accordance with Section 10.1,
unless Buyer and Seller agree otherwise in writing.
1.12 COMMUNICATIONS ACT. Title VI of the Communications Act
and all other provisions of the Cable Communications Policy Act of 1984, Pub. L.
No. 98-549, the Cable Television Consumer Protection and Competition Act of
1992, Pub. L. No. 102-385, and the provisions of the Telecommunications Act of
1996 amending Title VI of the Communications Act, as such statutes may be
amended from time to time, and the rules and regulations promulgated thereunder.
1.13 ENCUMBRANCE. Any mortgage, lien, security interest,
security agreement, conditional sale or other title retention agreement,
limitation, pledge, option, charge, assessment, restrictive agreement,
restriction, encumbrance, adverse interest, restriction on transfer or any
exception to or defect in title or other ownership interest (including
reservations, rights of way, possibilities of reverter, encroachments,
easements, rights of entry, restrictive covenants, leases and licenses).
1.14 ENVIRONMENTAL LAW. Any Legal Requirement relating to
pollution or protection of public health, safety, or welfare or the environment,
including those relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment (including ambient air,
surface water, ground water or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances.
1.15 EQUIPMENT. All towers, tower equipment, antennae,
electronic devices, trunk and distribution coaxial and optical fiber cable,
amplifiers, power supplies, conduit, vaults and pedestals, grounding and pole
hardware, subscriber's devices (including converters, encoders, transformers
behind television sets and fittings), headend hardware (including origination,
earth stations, transmission and distribution system), test equipment, office
equipment, vehicles and other tangible personal property owned, leased, used or
held for use in the Business, as described on Schedule 1.15 (and with respect to
leased Equipment, on Schedule 1.31).
1.16 EQUIVALENT BASIC SUBSCRIBERS (OR EBS'S). As of any date
and for each franchise area served by a System, the number derived by dividing
(a) the total monthly billings for sales of Basic Services by the System during
the most recent month ended prior to the date of calculation (including billings
to single family residences and dwelling units in multiple dwelling unit
buildings, subscribers in commercial and other buildings and bulk subscribers,
whether on a discounted or undiscounted basis, but excluding billings in excess
of a single month's charges for any account), by (b) the standard monthly rate
(without discount of any kind) charged by Seller during such month to single
family residences for Basic Services sold by the System, which monthly rate will
not be less than the amount specified in Schedule 1.6. For purposes of the
foregoing, there will be excluded (i) all billings to any
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<PAGE> 10
subscriber who is sixty (60) days or more past due in the payment of any amount
payable to Seller, (ii) all billings to any subscriber who has not paid at least
one full month's payment for Basic Services and all installation charges owed
and due, (iii) that portion of the billings to each subscriber representing an
installation or other non-recurring charge, a charge for equipment or for any
outlet or connection other than the first outlet or first connection in any
single family residence or, with respect to a bulk account, in any residential
unit (e.g., an individual apartment or rental unit), or a pass-through charge
for sales taxes, line-itemized franchise fees and charges and the like, (iv) all
billings to any subscriber whose service is pending disconnection for any
reason, and (v) all billings to any subscriber who was solicited since the
Effective Date of this Agreement, to purchase such services by any non-standard
promotion or by offer of a non-standard discount. For purposes of this
Agreement, payments on account of monthly billings to a subscriber of a System
will be deemed to be due on the first day of the month during which the service
to which such billings relate is provided.
1.17 GOVERNMENTAL AUTHORITY. (i) The United States of America,
(ii) any state, commonwealth, territory or possession of the United States of
America and any political subdivision thereof (including counties,
municipalities and the like), (iii) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof or (iv) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
1.18 GOVERNMENTAL PERMITS. All franchises, franchise
applications (if any), approvals, agreements, authorizations, ordinances,
permits, licenses (including, without limitation, television translator station
licenses, microwave licenses (including, without limitation, cable television
relay service), business radio licenses and TVRO earth station registration),
easements, registrations, qualifications, leases, variances and similar rights
issued or obtained from any Governmental Authority.
1.19 HAZARDOUS SUBSTANCES. Any pollutant, contaminant,
chemical, industrial, toxic, hazardous or noxious substance or waste which is
regulated by any Governmental Authority, including (a) any petroleum or
petroleum compounds (refined or crude), flammable substances, explosives,
radioactive materials or any other materials or pollutants which pose a hazard
or potential hazard to the Real Property or to Persons in or about the Real
Property or cause the Real Property to be in violation of any laws, regulations
or ordinances of federal, state or applicable local governments, (b) asbestos or
any asbestos-containing material of any kind or character, (c) polychlorinated
biphenyls ("PCBs"), as regulated by the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., (d) any materials or substances designated as "hazardous
substances" pursuant to the Clean Water Act, 33 U.S.C. Section 1251 et seq., (e)
"economic poison," as defined in the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 135 et seq., (f) "chemical substance," "new
chemical substance" or "hazardous substance or mixture" pursuant to the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., (g) "hazardous
substances" pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 et seq., and
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<PAGE> 11
(h) "hazardous waste" pursuant to the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.
1.20 INTANGIBLES. All intangible assets, including subscriber
lists, accounts receivable, claims (excluding any claims relating to Excluded
Assets), patents, trademarks and trade names (as described in Section 5.15),
copyrights, goodwill, going concern value, proprietary information, technical
information and data, machinery and equipment warranties, maps, computer disks
and tapes, phones, diagrams, blueprints and schematics, and all files of
correspondence, lists, records, and reports concerning subscribers and
prospective subscribers of the Systems, signal and program carriage, and
dealings with Governmental Authorities (including, without limitation, all
reports filed by or on behalf of Seller with the FCC with respect to the
Systems, all correspondence between Seller and Governmental Authorities relating
to any of the Systems, and statements of account filed by or on behalf of Seller
with the U.S. Copyright Office with respect to the Systems), if any, owned, used
or held for use in the Business.
1.21 KNOWLEDGE. With respect to any entity, actual knowledge
of any of the executive officers or of the entity specified and any of the
executive officers of its partners and its individual partners. For Seller, the
executive officers shall include, without limitation, James C. Roddey, Thomas D.
Wright, Richard Talarico, Henry Posner, Jr. and Michael Haislip.
1.22 LEGAL REQUIREMENT. Any statute, ordinance, code, law,
rule, regulation, order or other requirement, standard or procedure enacted,
adopted or applied by any Governmental Authority, including decisions, orders,
writs, awards, or injunctions of an arbitrator or a court or other Governmental
Authority.
1.23 PAY TV. Premium programming services selected by and sold
to subscribers on an a la carte basis for monthly fees in addition to the fee
for Basic Services.
1.24 PAY UNIT. Each Pay TV service subscribed for by any
subscriber of a System.
1.25 PERMITTED ENCUMBRANCES. The following Encumbrances: (a)
liens for taxes, assessments and governmental charges not yet due and payable;
(b) zoning laws and ordinances and similar Legal Requirements; (c) rights
reserved to any Governmental Authority to regulate the affected property; and
(d) as to Real Property interests, any easements, rights-of-way, servitudes,
permits, restrictions, reservations, licenses, severances of oil, gas or other
mineral estates, utilities as installed, and minor imperfections or
irregularities in title which are reflected in the public records or are
apparent from an inspection or survey of the Real Property and which do not
individually or in the aggregate materially interfere with the right or ability
to own, use or operate such parcel of Real Property for the purposes for which
it is currently being used or to convey indefeasible title to
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such Real Property; provided that Permitted Encumbrances will not include any
item which could materially adversely affect in any way the conduct of the
Business.
1.26 PERSON. Any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.27 PREFERRED STOCK. CCI's Cumulative Redeemable Convertible
Preferred Stock (Series A), which shall be convertible upon an initial public
offering at $36.00 per share and at the option of CCI, two years following the
Closing Date, at $32.00 per share to Class A Common Stock of CCI, with one (1)
vote per share of such common stock ("Class A Common Stock").
1.28 REAL PROPERTY. All Assets consisting of realty, including
appurtenances, improvements and fixtures located on such realty, and any other
interests in real property, including, without limitation, fee and leasehold
interests on which Seller's offices and headend sites are located, as described
on Schedule 1.28. All interests for which consideration includes the provision
of any free cable services will be set forth on Schedule 1.28.
1.29 RELEASE. Any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, and surface or subsurface
strata) or into or out of any property, including the movement of Hazardous
Substances through or in the air, soil, surface water, groundwater or property.
1.30 REQUIRED CONSENTS. As set forth on Schedule 1.30, all
franchises, licenses, authorizations, approvals and consents required under
Governmental Permits, material Seller Contracts or otherwise for (a) Seller to
transfer the Assets and the Business to Buyer as provided in this Agreement, (b)
Buyer to conduct the Business and to own, lease, use and operate the Assets at
the places and in the manner in which the Business is conducted as of the date
of this Agreement and on the Closing Date, (c) Buyer to assume and perform the
Governmental Permits and Seller Contracts, and (d) Buyer to collaterally assign
the Assets to its lenders as security for Buyer's indebtedness. Schedule 1.30
will specifically identify all FCC television translator licenses under the
heading Governmental Permits. Such television translator licenses will be
transferred in accordance with Section 9.2.4 of this Agreement.
1.31 SELLER CONTRACTS. All contracts and agreements, other
than Governmental Permits, pertaining to the ownership, operation and
maintenance of the Assets or the Business or used or held for use in the
Business other than programming contracts except those which are to be
transferred to Buyer as set forth on Schedule 1.31, and Real Property leasehold
interests and easements set forth on Schedule 1.28.
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1.32 SERVICE AREA. The area in which Seller operates the
Business, specifically in and around the Systems set forth on Schedule 1.6.
1.33 STOCK AGREEMENTS. That certain Stockholders' Agreement
dated July 28, 1999, among CCI, Brera Classic, L.L.C., and the additional
parties named therein (the "Stockholders' Agreement"), and that certain
Registration Rights Agreement dated July 28, 1999, among CCI, Brera Classic,
L.L.C., and the additional parties named therein.
1.34 SYSTEM. A complete cable television reception and
distribution system operated in the conduct of the Business, consisting of one
or more headends, subscriber drops and associated electronic and other
equipment, and which is, or is capable of being, without modification, operated
as an independent system without interconnections to other systems. Any systems
which are interconnected or which are served in whole or in part by a common
headend will be considered a single System. "Systems" means the Systems owned
and operated by Seller in the Service Area.
1.35 OTHER DEFINITIONS. The following terms are defined in the
Sections indicated:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Annual Financial Statements 5.9
Assumed Liabilities 4.1
Base Purchase Price 3.1
Buyer Damages 11.5
CCI Derivative Securities 6.11
CCI Equity Securities 6.11
Certificate of Designation 3.1.4
Claiming Party 3.3.3
Class A Common Stock 1.27
Communications Act 1.12
Deposit 7.21
Dispute Adjustment Amount 3.3.3
Earnest Money Escrow Agreement 3.1.2
ERISA 5.12.1
</TABLE>
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<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Escrow Agent 3.1.2
Excluded Assets 4.2
Extended Franchises 7.5.2
FAA 5.7.4
FCC 5.4
Final Adjustments Report 3.3.2
Final Determination 3.3.3
Financial Statements 5.9
GAAP 1.2
Homes passed 5.13
HSR Act 7.20
Indemnitee 11.4
Indemnitor 11.4
Indemnity Escrow Agreement 3.1.3
Interim Financial Statements 5.9
ISP Contract 4.2
Material Adverse Effect 5.3
Newton System 4.2
Preliminary Adjustments Report 3.3.1
Prime Rate 12.17
Responsible Party 3.3.3
Securities Act 5.25
Seller Damages 11.6
Stockholders' Agreement 1.33
Survival Period 11.1
Taking 7.10.2
Transmission, L.L.C. 2.1
Year 2000 Problem 5.23
</TABLE>
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SECTION 2. SALE OF ASSETS
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and
conditions set forth in this Agreement, at the Closing, Seller will sell,
convey, assign, transfer and deliver to Buyer, and Buyer will purchase from
Seller, free and clear of all Encumbrances (other than Permitted Encumbrances),
and with full warranties of title and with full substitution and subrogation to
all rights and actions of warranty against all preceding owners, all of Seller's
rights, title and interest in, to and under the Assets. All television
translator licenses identified on Schedule 1.30 shall be transferred and
assigned to Classic Network Transmission, L.L.C. ("Transmission, L.L.C.").
Except as otherwise specifically provided in this Agreement, all the Assets are
intended to be transferred to Buyer, whether or not described in the Schedules.
SECTION 3. CONSIDERATION
3.1 BASE PURCHASE PRICE. As consideration for the Assets and
for the covenant of Seller contained in the Non-Competition Agreement attached
hereto as Exhibit D, Buyer will pay to Seller total consideration of One Hundred
Thirty Million Dollars ($130,000,000) (the "Base Purchase Price"), paid at the
Closing as set forth below, subject to adjustment as provided in Sections 3.2
and 3.3, and Buyer will assume certain obligations of Seller as provided in
Section 4:
3.1.1 $102,000,000 to be paid by Buyer to Seller at the
Closing by wire transfer of immediately available funds, at the accounts
designated by Seller not less than five (5) days prior to the Closing;
3.1.2 $3,000,000 to be paid by Buyer to Norwest Bank
Texas, N.A. (the "Escrow Agent"), subject to the earnest money escrow agreement,
substantially in the form of Exhibit A, to be entered into on the Effective Date
of this Agreement by Seller, Buyer and the Escrow Agent (the "Earnest Money
Escrow Agreement");
3.1.3 $5,000,000 to be paid by Buyer to the Escrow
Agent, subject to the indemnity escrow agreement, substantially in the form of
Exhibit B, to be entered into on the Closing Date by Seller, Buyer and the
Escrow Agent (the "Indemnity Escrow Agreement"); and
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3.1.4 Subject to the terms and conditions of and in
reliance upon the representations, warranties and covenants contained in this
Agreement, at the Closing Date, Buyer's corporate parent, CCI, shall issue to
Seller 20,000 shares of Preferred Stock with an initial stated value of $1,000
per share. In the event the Closing of the transaction contemplated by this
Agreement occurs after a Qualified Initial Public Offering, as defined in the
Certificate of Designation in the form attached hereto as Exhibit N (the
"Certificate of Designation"), Seller shall be issued an amount of Class A
Common Stock pursuant to the Optional Conversion provisions in the Certificate
of Designation as if the Preferred Stock referenced in the preceding sentence
had been issued as of the date hereof.
3.2 ADJUSTMENTS TO BASE PURCHASE PRICE. The portion of the
Base Purchase Price payable pursuant to Section 3.1.1 will be adjusted as
follows:
3.2.1 If the Business has fewer than 56,820 EBS's as of
the Closing Date, the Base Purchase Price will be reduced by an amount equal to
$2,288 multiplied by the difference between (x) 56,820 and (y) the number of
EBS's as of the Closing Date.
3.2.2 Adjustments on a pro rata basis as of the Closing
Date will be made for all prepaid expenses (to the extent such prepayments may
accrue to Buyer's benefit), prepaid income and accounts receivable of active
subscribers, and to reflect the principle that all expenses (including real
estate taxes, stand by fees and assessment by any taxing authority for the Real
Property) and income attributable to the Business for the period prior to the
Closing Date are for the account of Seller, and all expenses and income
attributable to the Business for the period on and after the Closing Date are
for the account of Buyer; provided, however, that Seller and Buyer shall not
prorate any items or expense payables under any Excluded Assets, all of which
shall remain and be solely for the account of Seller. Seller will receive no
credit for any accounts receivable (i) any portion of which is more than sixty
(60) days past due as of the Closing Date, or (ii) from subscribers whose
accounts are inactive or whose service is pending disconnection for any reason
as of the Closing Date.
3.2.3 All advance payments to, or funds of third parties
on deposit with, Seller as of the Closing Date, relating to the Business,
including advance payments and deposits by subscribers served by the Business
for converters, encoders, decoders, cable television service and related sales,
will be retained by Seller and will reduce the Base Purchase Price accordingly.
3.2.4 All deposits relating to the Business that are
held by third parties as of the Closing Date for the account of Seller or as
security for Seller's performance of its obligations (other than with respect to
(i) Excluded Assets; and (ii) any other deposits the full benefit of which will
not be available to Buyer following the Closing Date); provided, however, credit
will be given for those deposits for which partial credit can be determined,
including deposits on leases and deposits for utilities, will be credited to the
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<PAGE> 17
account of Seller in their full amounts to increase the Base Purchase Price and
will become the property of Buyer.
3.2.5 The Base Purchase Price payable pursuant to
Section 3.1.1 will be reduced by an amount equal to the difference between (i)
the amounts of the required cumulative capital expenditures for each of the
categories designated as Items 1 through 9 as set forth on Schedule 7.2.1
through the month of the Closing and (ii) the amount of the capital expenditures
actually incurred and paid in cash by Seller through the Closing Date in
connection with each such corresponding capital expenditure categories. By way
of example, Schedule 7.2.1 sets forth a budgeted $5,000 per month in the year
2000 in capital expenditures for the category of New Construction. If the
Closing Date were to occur in February 2000, the cumulative monthly capital
expenditures for that category through February 2000 would total $247,000. To
the extent that Seller had only expended $242,000 in cash in this category
through the Closing Date, the reduction in the Base Purchase Price payable
pursuant to Section 3.1.1 would be $5,000. Similar adjustments would be made on
a category by category basis.
3.2.6 The Base Purchase Price payable pursuant to
Section 3.1.1 will be reduced by an amount equal to the difference between (i)
the amounts of the Cumulative Capital Expenditures for the category designated
as Item 10 as set forth on Schedule 7.2.1 through the month of the Closing and
(ii) the amount of the capital expenditures actual incurred and paid in cash by
Seller through the Closing Date in connection with the category designated as
Item 10 of Schedule 7.2.1; provided, however, to the extent that through the
date of Closing Seller has exceed the capital expenditure budgeted amounts for
any of the capital categories designated as Items 1 through 9 on Schedule 7.2.1,
such amounts shall be allowed as credit against any reduction otherwise to be
made pursuant to this Section 3.2.6.
3.3 DETERMINATION OF ADJUSTMENTS. Preliminary and final
adjustments to the Base Purchase Price will be determined as follows:
3.3.1 At least three (3) Business Days prior to the
Closing, Seller will deliver to Buyer a report (the "Preliminary Adjustments
Report"), certified as to completeness and accuracy by Seller, showing in detail
the preliminary determination of the adjustments referred to in Section 3.2,
which are calculated as of the Closing Date (or as of any other date agreed to
by the parties) and any documents substantiating the adjustments proposed in the
Preliminary Adjustments Report. The Preliminary Adjustments Report will include
a detailed calculation of the number of Equivalent Basic Subscribers and a
schedule setting forth advance payments and deposits made to or by Seller, as
well as accounts receivable information relating to the Business (showing sums
due and their respective aging as of the Closing Date). Also included in the
Preliminary Adjustments Report will be a calculation of actual capital
expenditures in cash through the Closing Date on a category by category basis
per Schedule 7.2.1 as compared to the cumulative monthly budgets for capital
expenditures as set forth in Schedule 7.2.1. Seller also will furnish to Buyer
its billing report
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<PAGE> 18
for the most current period as of the Closing Date. The net adjustment shown in
the Preliminary Adjustments Report will be reflected as an adjustment to the
portion of the Base Purchase Price payable at the Closing pursuant to Section
3.1.1.
3.3.2 Within sixty (60) days after the Closing, Seller
will deliver to Buyer a report (the "Final Adjustments Report"), similarly
certified by Seller, showing in detail the final determination of all
adjustments which were not calculated as of the Closing Date and containing any
corrections to the Preliminary Adjustments Report, together with any documents
substantiating the adjustments proposed in the Final Adjustments Report. Buyer
will provide Seller with reasonable access to all records which Buyer has in its
possession and which are necessary for Seller to prepare the Final Adjustments
Report.
3.3.3 Within thirty (30) days after receipt of the Final
Adjustments Report, Buyer will give Seller written notice of Buyer's objections,
if any, to the Final Adjustments Report. If Buyer makes any such objection, the
parties will agree on the amount, if any, which is not in dispute within thirty
(30) days after Seller's receipt of Buyer's notice of objections to the Final
Adjustments Report. Any undisputed amount will serve as an adjustment to the
portion of the Base Purchase Price payable under Section 3.1.1. The adjustment
of the Base Purchase Price payable under Section 3.1.1, as so adjusted (but
excluding any amounts disputed), will be paid by Buyer to Seller, or paid by
Seller to Buyer, whichever the case may be, within ninety (90) days after the
Closing Date or within three (3) Business Days after agreement on the undisputed
portion of the Final Adjustments Report, if later. Any disputed amounts will be
determined within one hundred twenty (120) days after the Closing Date by the
accounting firm of Arthur Andersen, LLP, whose determination will be conclusive.
Seller and Buyer will bear the fees and expenses payable to such firm in
connection with such determination in reverse proportion to the manner in which
the disputed amounts are allocated by the accountants. The payment required
after determination of all disputed amounts (the "Dispute Adjustment Amount")
will be made by the responsible party (the "Responsible Party") by wire transfer
of immediately available funds to the other party (the "Claiming Party") within
three (3) Business Days after the final determination (the "Final
Determination").
3.4 ALLOCATION OF CONSIDERATION. Buyer and Seller will use
their best efforts to agree on an allocation of the Base Purchase Price
(excluding transaction costs incurred by each of them) within forty-five (45)
days after the Closing. Upon such agreement, each of Buyer and Seller will
complete Form 8594, Asset Acquisition Statement of Allocation, consistent with
such mutually agreed allocation and each will file a copy of such form with its
federal income tax return for the applicable tax year, and will file all returns
and reports with respect to the transactions contemplated by this Agreement,
including all federal, state and local tax returns, on the basis of such
allocation. Buyer and Seller further agree not to take any position inconsistent
with such mutually agreed allocation for any tax purpose. If, after good-faith
efforts, Buyer and Seller are unable to agree upon an allocation within sixty
(60) days after the Closing, then each party will be free to report its own
position to the Internal Revenue Service and other taxing authorities.
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SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS
4.1 ASSIGNMENT AND ASSUMPTION. Seller will assign, and Buyer
will assume and perform, the "Assumed Liabilities," which are defined as: (a)
Seller's obligations to subscribers of the Business for (i) subscriber deposits
held by Seller as of the Closing Date and which are refundable, in the amount
for which Buyer received credit under Section 3.3, (ii) subscriber advance
payments held by Seller as of the Closing Date for services to be rendered by a
System on or after the Closing Date, in the amount for which Buyer received
credit under Section 3.3 and (iii) the delivery of cable television service to
subscribers of the Business on or after the Closing Date; (b) obligations
accruing and relating to periods after the Closing Date under Governmental
Permits and Seller Contracts; and (c) capital expenditures actually incurred by
Seller as set forth in Section 3.2.5 through the Closing Date, but not paid in
cash by Seller prior to Closing, provided that Buyer has received a reduction in
the Base Purchase Price pursuant to Section 3.2 of an equal amount. Buyer will
not assume or have any responsibility for any liabilities or obligations of
Seller other than the Assumed Liabilities. In no event will Buyer assume or have
any responsibility for any liabilities or obligations associated with the
Excluded Assets.
4.2 EXCLUDED ASSETS. The excluded assets (the "Excluded
Assets"), which will be retained by Seller and are specifically excluded from
the Assets, will consist of the following: (a) programming contracts (other than
those listed on Schedule 1.31); (b) insurance policies and rights and claims
thereunder (except as otherwise provided in Section 7.10); (c) bonds, letters of
credit, surety instruments and other similar items; (d) cash and cash
equivalents; (e) Seller's rights under any agreement governing or evidencing an
obligation of Seller for borrowed money; (f) Seller's rights under any contract,
license, authorization, agreement or commitment other than those creating or
evidencing Assumed Liabilities; (g) billing agreements; (h) that certain ISP
Channel Affiliate Agreement dated April 30, 1999, by and between ISP Channel,
Inc., a subsidiary of Softnet Systems, Inc., and Seller (the "ISP Contract");
provided, however, that Buyer shall accept through a partial assignment the
benefits and obligations under the ISP Contract, in a form satisfactory to
Buyer's counsel, solely as it relates to the system deployed as of the Effective
Date by ISP Channel, Inc. in Seller's Newton, Ohio system (the "Newton System")
and Buyer shall assume the obligations of Seller under the ISP Contract solely
as it relates directly to the Newton System; and (i) the office equipment,
furnishings and other personal property located at Seller's headquarters at 100
Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220, as set
forth in Schedule 4.2.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER
To induce Buyer to enter into this Agreement, Seller represents and
warrants to Buyer, as of the date of this Agreement and as of the Closing, as
follows:
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5.1 ORGANIZATION AND QUALIFICATION. Seller is a general
partnership duly organized and validly existing under the laws of its
jurisdiction set forth in the forepart of this Agreement and has all requisite
power and authority to own, lease, use and operate the Assets as they are
currently owned, leased, used and operated and to conduct the Business as it is
currently conducted. Seller is duly qualified or licensed to do business under
the laws of each jurisdiction in which the character of the properties owned,
leased, used or operated by it or the nature of the activities conducted by it
makes such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed would not have a material adverse effect
on Seller or on the validity, binding effect or enforceability of this
Agreement.
5.2 AUTHORITY AND VALIDITY. Seller has all requisite
organizational power and authority to execute and deliver, to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement. The execution and delivery by Seller of, the performance by Seller of
its obligations under, and the consummation by Seller of the transactions
contemplated by, this Agreement have been duly authorized by all requisite
organizational action of Seller. This Agreement has been duly executed and
delivered by Seller and is the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except insofar as
enforceability may be affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by principles governing the availability of
equitable remedies.
5.3 NO BREACH OR VIOLATION. The execution, delivery and
performance of this Agreement by Seller does not and will not: (a) conflict with
or violate any provision of the partnership agreement of Seller; (b) violate any
Legal Requirement; (c) except as set forth on Schedule 1.30, require any
consent, approval or authorization of, or any filing with or notice to, any
Person; or (d) (i) violate, conflict with or constitute a breach of or default
under, (ii) permit or result in the termination, suspension or modification of,
(iii) result in the acceleration of (or give any Person the right to accelerate)
the performance of Seller under, or (iv) result in the creation or imposition of
any Encumbrance under, any Seller Contract or any other instrument evidencing
any of the Assets or any instrument or other agreement to which Seller is a
party or by which Seller or any of its assets is bound or affected, except for
purposes of this clause (d) such violations, conflicts, breaches, defaults,
terminations, suspensions, modifications, and accelerations as would not,
individually or in the aggregate, have a material adverse effect on any System,
the financial condition, results of operations or prospects of the Business or
Seller (a "Material Adverse Effect"); provided, however, that such an occurrence
in fewer than five (5) Systems having fewer than 2,000 in the aggregate EBS will
not be deemed to have a Material Adverse Effect.
5.4 ASSETS. Seller has good and marketable title to (or, in
the case of Assets that are leased, valid leasehold interests in) the Assets
claimed by Seller (other than Real Property, as to which the representations and
warranties in Section 5.5 apply). The Assets are free and clear of all
Encumbrances of any kind or nature, except (a) Permitted Encumbrances, (b)
restrictions stated in the Governmental Permits and (c) Encumbrances disclosed
on
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Schedule 5.4 which will be removed and released at or prior to the Closing.
Except as set forth on Schedule 1.31, none of the Equipment is leased by Seller
from any other Person. The Assets, together with the Excluded Assets, are all
the assets and rights necessary to permit Buyer to conduct the Business
substantially as it is being conducted on the date of this Agreement in
compliance with all material Legal Requirements, and under the rules and
policies of the Federal Communications Commission (the "FCC"), and to perform
all the Assumed Liabilities. All the Equipment is suitable and adequate for
continued use in the manner it is presently used. Except as set forth on
Schedule 5.4, no Person other than Seller is operating or, to Seller's
Knowledge, has proposed to operate, a cable television system in the Service
Area.
5.5 REAL PROPERTY.
5.5.1 All the Assets consisting of Real Property
interests are described on Schedule 1.28. Except as otherwise disclosed on
Schedule 1.28, Seller holds indefeasible fee simple title to the Real Property
shown as being owned by Seller on Schedule 1.28 and the valid and enforceable
right to use and possess such Real Property, subject only to the Permitted
Encumbrances. Seller has valid leasehold interests in Real Property pursuant to
the leases described on Schedule 1.28 with respect to other Real Property not
owned or leased by Seller, Seller has the valid and enforceable right to use all
other Real Property pursuant to the easements, licenses, rights-of-way or other
rights described on Schedule 1.28, subject only to Permitted Encumbrances. The
Real Property includes all the real property interests necessary to permit Buyer
to conduct the Business substantially as it is being conducted on this date in
compliance with all Legal Requirements.
5.5.2 The documents delivered by Seller to Buyer as
evidence of each lease of Real Property constitute the entire agreement with the
landlord in question and are valid and in full force and effect. There are no
leases or other agreements, oral or written, granting to any Person other than
Seller the right to occupy or use any Real Property, except Permitted
Encumbrances or as described on Schedule 1.28. All leases, easements,
rights-of-way and other rights appurtenant to, or which are necessary for
Seller's current use of, any Real Property are valid and in full force and
effect, and Seller has not given or received any notice with respect to the
termination or breach of any rights or obligations under such agreements. Each
parcel of Real Property, any improvements constructed thereon and their current
use conform to (a) all applicable Legal Requirements, including zoning
requirements and the Americans with Disabilities Act, and (b) all restrictive
covenants, if any, or other Encumbrances affecting all or part of such parcel.
5.6 ENVIRONMENTAL MATTERS.
5.6.1 The Real Property currently complies with and, to
Seller's Knowledge, has previously been operated in compliance with, all
Environmental Laws. Seller has not generated, released, stored, used, treated,
handled, discharged or disposed of any Hazardous Substances at, on, under, in or
about, or in any other manner affecting, any Real
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<PAGE> 22
Property, transported any Hazardous Substances to or from any Real Property or
discharged any Hazardous Substances from any Real Property into any body of
water, directly or indirectly, and, to Seller's Knowledge, no other present or
previous owner, tenant, occupant or user of any Real Property or any other
Person has committed or suffered any of the foregoing. To Seller's Knowledge, no
release of Hazardous Substances outside the Real Property has entered or
threatens to enter any Real Property, nor is there any pending or threatened
claim based on Environmental Laws which arises from any condition of the land
surrounding any Real Property. Except as set forth on Schedule 5.6, no claim or
investigation based on Environmental Laws which relates to any Real Property or
any operations on it (a) has been asserted or conducted in the past or is
currently pending against or with respect to Seller or, to Seller's Knowledge,
any other Person, or (b) to Seller's Knowledge, is threatened or contemplated,
and Seller is not aware of any condition that could give rise to such a claim or
investigation.
5.6.2 Except as described on Schedule 5.6, (a) no
underground storage tanks are currently or, to the Knowledge of Seller, have
been located on any Real Property, (b) to the Knowledge of Seller, no Real
Property has been used at any time as a gasoline service station or any other
facility for storing, pumping, dispensing or producing gasoline or any other
petroleum products or wastes, (c) to the Knowledge of Seller, no building or
other structure on any Real Property contains asbestos, (d) to the Knowledge of
Seller, no Real Property contains any equipment using PCB's, and (e) to the
knowledge of Seller, there are no incinerators, septic tanks or cesspools on the
Real Property and all sanitary waste is discharged into a public sanitary sewer
system.
5.6.3 Seller has provided Buyer with complete and
correct copies of (a) all studies, reports, surveys or other materials in
Seller's possession or to which Seller has access relating to the presence or
alleged presence of Hazardous Substances at, on or affecting the Real Property,
(b) all notices or other materials in Seller's possession or to which Seller has
access that were received from any Governmental Authority having the power to
administer or enforce any Environmental Laws relating to current or past
ownership, use or operation of the Real Property or activities at the Real
Property and (c) all materials in Seller's possession or to which Seller has
access relating to any claim, allegation or action by any private third party
under any Environmental Law.
5.7 COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS.
5.7.1 The ownership, leasing and use of the Assets as
they are currently owned, leased and used and the conduct of the Business as it
is currently conducted do not violate any Legal Requirement, which violation,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Systems, the Business, or Seller. Seller has not
received notice claiming a violation by the Business of any Legal Requirement
applicable to Seller or the Business as it is currently conducted and, to
Seller's Knowledge, there is no basis for any claim that such a violation
exists.
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5.7.2 Complete and correct copies of the Governmental
Permits, all of which are listed on Schedule 5.7.2, have been delivered by
Seller to Buyer. The Governmental Permits are currently in full force and
effect, are not in default, and are valid under all applicable Legal
Requirements according to their terms. There is no legal action, governmental
proceeding or investigation, pending or threatened, to terminate, suspend or
modify any Governmental Permit and, except as set forth on Schedule 5.7.2,
Seller is in material compliance with the terms and conditions of all the
Governmental Permits and with other applicable requirements of all Governmental
Authorities relating to the Governmental Permits, including all requirements for
notifications, filing, reporting, posting and maintenance of logs and records.
5.7.3 Without limiting the generality of the foregoing,
(a) Seller has made all required registration statement filings and annual
report filings with the FCC; (b) Seller has filed all required annual employment
reports with the FCC pursuant to the FCC's employment opportunity rules; and (c)
each System is in substantial and material compliance with all signal leakage
criteria prescribed by the FCC and all must carry requirements and has received
all necessary retransmission consents. Seller has delivered to Buyer complete
and correct copies of all reports and filings with respect to the Business for
the past three (3) years made or filed pursuant to the Communications Act or FCC
rules and regulations, and all notices alleging non-compliance with the
Communications Act, the rules and regulations of the FCC.
5.7.4 All necessary Federal Aviation Administration
("FAA") and FCC approvals and waivers have been obtained and all required
filings have been timely made with respect to the height and location of towers
used in connection with the operation of the Systems and such towers are being
operated in compliance in all material respects with applicable FAA and FCC
rules. True and correct information relating to all towers used in connection
with the operation of the System is set forth on Schedule 5.7.4, which will
include for each tower (i) location, (ii) coordinates, (iii) height above ground
level, (iv) height above mean sea level, (v) distance to nearest airport runway,
and (vi) FAA study number, if applicable.
5.7.5 A request for renewal has been timely filed
pursuant to Section 626(a) of the Cable Act with the proper Governmental
Authority with respect to any franchise that expires within thirty-six (36)
months after the date of this Agreement.
5.7.6 Except as set forth on Schedule 5.7.6, as of the
date of this Agreement (i) to Seller's Knowledge, the rates charged by Seller to
subscribers of the Systems for the "cable programming services tier" (as such
term is defined in the FCC's rate regulations) offered by the Systems are in
compliance with FCC rules and orders, (ii) to Seller's Knowledge, there are no
rate complaints pending at the FCC with respect to the Systems, and (iii) no
Governmental Authority is presently regulating the "basic tier" rates being
charged to subscribers of the Systems nor has Seller received from any
Governmental Authority a copy
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of any FCC Form 328 filed by such Governmental Authority with the FCC requesting
rate regulation certification with respect to the Systems.
5.7.7 Schedule 1.30 sets forth all franchises, licenses,
authorizations, approvals and consents required under Governmental Permits,
Seller Contracts or otherwise for (a) Seller to transfer the Assets and the
Business to Buyer as provided in this Agreement, (b) Buyer to conduct the
Business and to own, lease, use and operate the Assets at the places and in the
manner in which the Business is conducted as of the date of this Agreement and
on the Closing Date, (c) Buyer to assume and perform the Governmental Permits
and Seller Contracts, and (d) Buyer to collaterally assign the Assets to its
lenders as security for Buyer's indebtedness.
5.8 PATENTS, TRADEMARKS AND COPYRIGHTS. Seller has timely and
accurately made all requisite filings and payments with the Register of
Copyrights and is otherwise in substantial and material compliance with all
applicable rules and regulations of the Copyright Office. Seller has delivered
to Buyer complete and correct copies of all current reports and filings, and all
reports and filings for the past three (3) years, made or filed pursuant to
copyright rules and regulations with respect to the Business. Seller does not
possess any patent, patent right, trademark or copyright and is not a party to
any license or royalty agreement with respect to any patent, trademark or
copyright except for licenses respecting program material and obligations under
the Copyright Act of 1976 applicable to cable television systems generally. The
operations of the Business as currently conducted do not violate or infringe
upon the rights of any Person in any copyright, trademark, service mark, patent,
license, trade secret or the like, and, to the Knowledge of Seller, no such
violation or infringement is threatened
5.9 FINANCIAL STATEMENTS. Seller has delivered to Buyer
correct and complete copies of the following: (i) its audited balance sheets for
the fiscal years ended December 31, 1996, 1997 and 1998 (collectively, the
"Annual Financial Statements"), and (ii) its unaudited balance sheets as of
August 31, 1997, 1998 and 1999 and the related statements of income and cash
flows for the six-month periods then ended (collectively, the "Interim Financial
Statements," and, together with the Annual Financial Statements, the "Financial
Statements"). The Financial Statements were prepared in the ordinary course of
business and fairly present, in all material respects, the financial condition,
statements of earnings and cash flows of Seller for the periods or as of the
dates set forth therein, in each case in accordance with GAAP applied on a
consistent basis through the periods covered, except (i) as stated therein or,
where applicable, in the notes thereto, or (ii) with respect to the Interim
Financial Statements, for normal year-end adjustments consistent with past
practice.
Except as set forth on Schedule 5.24 or disclosed by, or reserved
against in, the most recent balance sheet included in the Financial Statements,
Seller did not have, as of the date of such balance sheet, any liability or
obligation, whether accrued or unaccrued, absolute, fixed or contingent
(including liabilities for taxes or unusual forward or long-term commitments),
which was or would be material to the Business or the results of operations or
financial
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condition of the Business, nor to Seller's Knowledge does any aspect of the
Business form a basis for any claim by a third party which, if asserted, could
result in a liability not set forth on Schedule 5.24 or disclosed by or reserved
against in such balance sheet.
5.10 LEGAL PROCEEDINGS. Except as set forth on Schedule 5.10,
there is no judgment or order outstanding, or any claim, action, suit,
complaint, proceeding or investigation by or before any Governmental Authority
or any arbitrator pending, or, to Seller's Knowledge, threatened, involving or
affecting all or any part of the Business.
5.11 TAX RETURNS; OTHER REPORTS. Seller has duly and timely
filed in proper form all income, franchise, sales, use, occupation, service,
transfer, property, excise, payroll, withholding, and other tax returns and all
information and other reports (whether or not relating to taxes) required to be
filed with the appropriate Governmental Authority. All such tax returns and
information and other reports were or will be true, correct and complete when
filed. All taxes, fees and assessment of whatever nature due and payable by
Seller to any Governmental Authority (including, without limitation, interest
additions and penalties) have been paid, except such amounts as are being
contested diligently and in good faith and are not in the aggregate material.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local or foreign income tax return
for any period, and except as set forth on Schedule 5.11, there are no tax
audits pending.
5.12 EMPLOYMENT MATTERS.
5.12.1 Schedule 5.12 includes a complete and correct
list of names and positions of all employees of Seller directly engaged in the
Business, their dates of hire and their current hourly wages or monthly salaries
and other compensation. Seller has complied in all material respects with all
Legal Requirements relating to the employment of labor, including the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), continuation
coverage requirements with respect to group health plans, and those relating to
wages, hours, collective bargaining, unemployment compensation, worker's
compensation, equal employment opportunity, age and disability discrimination,
immigration control and the payment and withholding of taxes. No reportable
event, within the meaning of Title IV of ERISA, has occurred and is continuing
with respect to any "employee benefit plan" or "multiemployer plan" (as those
terms are defined in ERISA) maintained by Seller or any Affiliate of Seller. No
prohibited transaction, within the meaning of Title I of ERISA, has occurred
with respect to any such employee benefit plan or multiemployer plan, and no
material accumulated funding deficiency (as defined in Title I of ERISA) or
withdrawal liability (as defined in Title IV of ERISA) exists with respect to
any such employee benefit plan or multiemployer plan.
5.12.2 Seller is not a party to any contract with any
labor organization, and Seller has not recognized or agreed to recognize or is
required to recognize any union or other collective bargaining unit with respect
to the Business. No union or other
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collective bargaining unit been certified as representing any of its employees,
nor has Seller received any requests from any party for recognition as a
representative of employees for collective bargaining purposes. To Seller's
Knowledge, employees are not engaged in organizing activity with respect to any
labor organization. Seller has no employment agreement of any kind, oral or
written, express or implied, that would require Buyer to employ any Person after
the Closing Date.
5.13 SYSTEM DATA. As of August 31, 1999, the Systems consisted
of approximately 3,215 miles of trunk and distribution plant and approximately
97,600 "homes passed" and have approximately 58,395 EBS's. As used in this
Agreement, "homes passed" means each single family residence or dwelling unit
within a building containing multiple dwelling units plus commercial and other
buildings actually served by the Systems, but does not include dwelling units
within multiple dwelling unit buildings to which the Company has been denied a
right of access to the building by an owner or manager. Schedule 1.6 sets forth
as to each System, as of August 31, 1999:
(i) the approximate number of miles of plant that will be
included in the Assets:
(ii) for the eight-month period ended August 31, 1999, the
number of subscribers of each of the Systems as reflected in Seller's billing
reports;
(iii) for the eight-month period ended August 31, 1999, a
description of basic and optional or tier services available from the Systems
and the rates charged by Seller for each, the number of subscribers receiving
each basic and optional or tier service and the rates charged for each, the date
and amount of the last rate increase for System service, and an explanation of
how subscribers are counted (e.g. does a subscriber with an HBO multiplex count
as one or multiple subscribers?);
(iv) for each of the years ended December 31, 1997 and 1998,
the number of subscribers of each of the Systems and the number of subscribers
receiving basic or optional tier services and the rates charged for each;
(v) the stations and signals carried by the Systems and the
channel position of each such signal and station;
(vi) the MHZ of visual and aural signal that such System is
capable of delivering to substantially all of such System's subscriber terminals
such that the delivered signal meets or exceeds the requirements of part 76,
Paragraph 76.605 of the FCC's rules and regulations;
(vii) the channel capacity for each of the Systems (including
a breakdown of channels utilized and channels available);
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(viii) the disconnection policies of the Systems; and
(ix) the cities, towns, townships, villages and boroughs
served by each System.
5.14 FINDERS AND BROKERS. Other than Morgan Keegan & Company,
Inc., and as disclosed on Schedule 5.10, Seller has not employed, directly or
indirectly, any financial advisor, broker or finder or incurred any liability
for any financial advisory, brokerage, finder's or similar fee or commission in
connection with the transactions contemplated by this Agreement. Seller will pay
all amounts due and owing to Morgan Keegan & Company, Inc.
5.15 INTANGIBLES. Seller neither uses nor holds any
copyrights, trademarks, trade names, service marks, service names, logos,
licenses, permits or other similar intangible property rights and interest in
the operations of the Systems that do not incorporate the name "Star Cable,"
"Star Cable Company," "Star," or variations thereof. In the operation of the
Systems, Seller has no Knowledge that it is infringing upon or otherwise acting
adversely to any such intangible property rights and interests owned by any
other Person or Persons, and there is no claim or action pending, or to Seller's
Knowledge threatened, with respect thereto.
5.16 ACCOUNTS RECEIVABLE. The accounts receivable relating to
the Systems are actual and bona fide receivables representing obligations for
the total dollar amount thereof shown on the books of Seller which resulted from
the regular course of Seller's business. The accounts receivable for which
Seller will receive credit pursuant to Section 3.2.2 will be fully collectible
in accordance with their terms, subject to no offset or reduction of any nature.
5.17 BONDS; LETTERS OF CREDIT; CERTIFICATES OF INSURANCE.
Except as set forth on Schedule 5.17, there are no franchise, construction,
fidelity, performance, or other bonds or letters of credit posted, or
certificates of insurance issued, by Seller in connection with the Systems or
the Assets.
5.18 RIGHTS IN ASSETS. Except as set forth in Schedule 5.18,
no Person (including any Governmental Authority) has any right to acquire an
interest in the Systems or any material Asset (including any right of first
refusal or similar right), other than rights of condemnation or eminent domain
afforded by law (none of which have been exercised and no proceedings therefor
have been commenced).
5.19 BOOKS AND RECORDS. All of the books, records, and
accounts of the Business are in all material respects true and complete, are
maintained in accordance with good business practice and all applicable Legal
Requirements, accurately present and reflect in all material respects all of the
transactions therein described, and are reflected accurately in the Financial
Statements.
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5.20 DISCLOSURE. To Seller's Knowledge, all material facts
relating to the condition of the Systems have been disclosed to Buyer in or in
connection with this Agreement. No representation or warranty by Seller in this
Agreement or in any Schedule or Exhibit to this Agreement, or any certificate
furnished or to be furnished by Seller pursuant to this Agreement, contains or
will contain any untrue statement of material fact, or omits or will omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading in light of the circumstances in
which made. Without limiting the generality of the foregoing, the information
set forth in Schedule 1.6 concerning the Business is accurate and complete in
all material respects.
5.21 COMMITMENTS. Except as described in Schedule 5.21, there
are no unfulfilled binding commitments for capital improvements which Seller is
obligated to make in connection with the Systems. There are no liabilities to
subscribers or to other users of Seller's services which are material to the
Business, except: (i) with respect to deposits made by such subscribers or such
other users; and (ii) the obligation to supply services to subscribers in the
ordinary course of business, pursuant to any franchises. There are no complaints
by subscribers or other users of Seller's services that, individually or in the
aggregate, could materially and adversely affect the financial condition,
Assets, liabilities, operations or prospects for the Systems. Except with
respect to the Persons listed on Schedule 5.21, there is no free service
liability to subscribers existing with respect to the Systems. Except with
respect to deposits for converters, encoders, decoders and related equipment,
and any other item which is to be adjusted pursuant to Section 3.2 hereof,
Seller has no obligations or liability for the refund of monies or for the
provision of rebates to its subscribers. Except as set forth in any franchises
set forth in Schedule 5.7.2, with respect to the Systems, Seller has not made a
commitment to any franchising authority to maintain a local office in any
location. Seller has not made any commitment to any of the municipalities served
by the Systems to pay franchise fees to any such municipalities in excess of the
amounts set forth in the franchises as described in Schedule 5.7.2.
5.22 TRANSACTIONS WITH AFFILIATES. Except as set forth in
Schedule 5.22, none of Seller's partners, their relatives nor any of their
respective Affiliates is involved in any business arrangement or relationship
with Seller, and none of Seller's partners, their relatives nor any of their
respective Affiliates owns any property or right, tangible or intangible, which
is used by Seller in connection with the Business.
5.23 YEAR 2000. Seller has (a) completed a review and
assessment of all areas within the Business and the Systems that could
reasonably be expected to be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by the Business may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (b) developed a plan for
addressing the Year 2000 Problem on a timely basis, which plan has been made
available to Buyer, and (c) to date, implemented the plan. All of Seller's
computer applications that are material to the Business and the Systems will on
a timely basis be able to perform
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date-sensitive functions for all dates before and after January 1, 2000, except
to the extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
5.24 ABSENCE OF CERTAIN CHANGES. Except as described in
Schedule 5.22 or Schedule 5.24, since December 31, 1998, Seller has conducted
the Business in the ordinary and usual course, and there has not been any of the
following:
(a) any material damage, destruction or loss (whether or
not covered by insurance) with respect to any material Assets of Seller;
(b) any change by Seller of its accounting methods,
principles or practices;
(c) any declaration, setting aside or payment of any
dividends or distributions in respect of partnership interests in Seller, or any
redemption, purchase or other acquisition by Seller of its partnership
interests;
(d) any entry into or amendment of any material
employment or severance compensation agreement or consulting or similar
agreement with, or any material increase in the compensation or benefits payable
or the establishment or amendment of any plans to, any employee of Seller;
(e) any re-evaluation by Seller of any of its Assets,
including the writing down or off of Assets, other than in the ordinary course
of business;
(f) any material commitment, agreement or transaction
entered into, amended or terminated (or any waiver of any rights or remedies
under any of the foregoing) by Seller (including any agreement with respect to
any ongoing or threatened litigation), other than in the ordinary course of
business;
(g) any amendment to the partnership agreement of Seller;
(h) any acquisition or disposition of Assets by Seller,
other than acquisitions or dispositions made in the ordinary course of business;
(i) any material amendment of any instrument of
indebtedness, or any Encumbrance, material lease or consent;
(j) any default, event of default or breach (or any event
which, with notice or the passage of time or both, would constitute a default,
event of default or breach) by Seller of any credit, financing or other
agreement or instrument relating to any material indebtedness;
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(k) any sale, payment, loan or advance of any amount or
any transfer or lease of any properties or Assets to, or any agreement or
arrangement with any of Seller's officers or directors, except for directors'
fees and compensation to officers at rates not exceeding the rates of
compensation paid during the year ended December 31, 1998;
(l) any adoption of a plan of or any agreement or
arrangement with respect to resolutions providing for the liquidation,
dissolution, merger, consolidation or other reorganization of Seller;
(m) any settlement or compromise of any claim, other than
those in which the amount paid does not exceed $25,000 individually or in the
aggregate;
(n) any change, condition, occurrence, circumstance or
other event that, individually or in the aggregate, has had or is reasonably
likely to have a Material Adverse Effect; or
(o) any commitment or agreement to do any of the
foregoing, except as otherwise required or expressly permitted by this
Agreement.
5.25 OWNERSHIP OF PREFERRED STOCK. Seller does not own more
than one percent (1%) of the outstanding voting stock of CCI (each of "own" and
"voting stock" as defined for purposes of Section 203 of the Delaware General
Corporation Law). Seller is acquiring the Preferred Stock under this Agreement
for its own account solely for the purpose of investment and not with a view to,
or for sale in connection with, any distribution thereof in violation of the
U.S. Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"). Seller acknowledges that the
Preferred Stock has not been registered under the Securities Act and may be sold
or disposed of in the absence of such registration only pursuant to an exemption
from the registration requirements of the Securities Act. Seller and each of its
members is an accredited investor as defined in Rule 501 of Regulation D under
the Securities Act. Except for the express representations and warranties set
forth in Section 6, Seller agrees that (i) no representation or warranty, either
express or implied, has been made or deemed to have been made and (ii) it is not
relying on any representation or warranty, either express or implied, made or
deemed to have been made, in each case, by Buyer or any of its representatives,
with respect to the Preferred Stock as to the accuracy or completeness of any of
the information (including, without limitation, any reserve estimates,
projections, forecasts or other forward-looking information) provided or
otherwise made available to Seller or any of its representatives with respect to
(w) the appropriateness of the conversion price of the Preferred Stock, (x) the
value of the Preferred Stock, (y) the length of time that Seller will be
required to hold the Preferred Stock, or (z) the business, assets or condition
(financial or otherwise) of Buyer or its subsidiaries. Seller agrees that it
shall not be entitled to any recission rights with respect to the Preferred
Stock or to any further indemnification rights or claims of any nature
whatsoever in respect thereof (whether by contract, common law, statute, law,
regulation or otherwise), other than indemnification rights related to the
representations and warranties made pursuant to Section 6 hereof, all of
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which Seller hereby waives; provided, however, that nothing herein is intended
to waive any claims for intentional fraud.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller as of the date of this Agreement and as of the Closing, as
follows:
6.1 ORGANIZATION AND QUALIFICATION. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and has all requisite corporate power and authority to carry on its business as
currently conducted and to own, lease, use and operate its assets. Buyer is duly
qualified or licensed to do business and is in good standing under the laws of
each jurisdiction in which the character of the properties owned, leased used or
operated by it or the nature of the activities conducted by it makes such
qualification necessary, except any such jurisdiction where the failure to be so
qualified or licensed and in good standing would not have a Material Adverse
Effect on Buyer or on the validity, binding effect or enforceability of this
Agreement.
6.2 AUTHORITY AND VALIDITY. Buyer has all requisite corporate
power and authority to execute and deliver, to perform its obligations under,
and to consummate the transactions contemplated by, this Agreement. The
execution and delivery by Buyer of, the performance by Buyer of its obligations
under, and the consummation by Buyer of the transactions contemplated by, this
Agreement have been duly authorized by all requisite corporate action of Buyer
and this Agreement constitutes the valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except insofar as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by principles governing the availability of
equitable remedies.
6.3 NO BREACH OR VIOLATION BY TRANSMISSION, L.L.C. The
assumption of the television translator licenses by Transmission, L.L.C. will
not: (a) violate any provision of the charter or regulations of Transmission,
L.L.C.; (b) violate any Legal Requirement; (c) require any consent, approval or
authorization of, or any filing with or notice to, any Person; or (d) (i)
violate, conflict with or constitute a breach of or default under (without
regard to requirements of notice, passage of time or elections of any Person),
(ii) permit or result in the termination, suspension or modification of, (iii)
result in the acceleration of (or give any Person the right to accelerate) the
performance of Transmission, L.L.C. under, or (iv) result in the creation or
imposition of any Encumbrance under, any instrument or other agreement to which
Transmission, L.L.C. is a party or by which Transmission, L.L.C. or any of its
assets is bound or affected, except for purposes of this clause (d) such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications, and accelerations as would not, individually or in the aggregate,
have a Material Adverse Effect on Transmission, L.L.C. or on the validity,
binding effect or enforceability of this Agreement.
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<PAGE> 32
6.4 ORGANIZATION AND QUALIFICATION OF TRANSMISSION, L.L.C.
Transmission, L.L.C. is a limited liability company duly organized, validly
existing and in good standing under the laws of Delaware and has all requisite
organizational power and authority to carry on its business as currently
conducted and to own, lease, use and operate its assets. Transmission, L.L.C. is
duly qualified or licensed to do business and is in good standing under the laws
of each jurisdiction in which the character of the properties owned, leased used
or operated by it or the nature of the activities conducted by it makes such
qualification necessary, except any such jurisdiction where the failure to be so
qualified or licensed and in good standing would not have a Material Adverse
Effect on Transmission, L.L.C. or on the validity, binding effect or
enforceability of this Agreement.
6.5 AUTHORITY AND VALIDITY OF TRANSMISSION, L.L.C.
Transmission, L.L.C. has all requisite organizational power and authority to
assume the television translator licenses as contemplated by this Agreement. The
assumption of the television translator licenses by Transmission, L.L.C. and any
related transactions contemplated by this Agreement have been duly authorized by
all requisite organizational action of Transmission, L.L.C. and the assumption
of the television translator licenses under this Agreement constitutes the valid
and binding obligation of Transmission, L.L.C., enforceable against
Transmission, L.L.C. in accordance with its terms, except insofar as
enforceability may be limited or affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally or by principles governing the availability of
equitable remedies.
6.6 NO BREACH OR VIOLATION. Subject to obtaining the Required
Consents, all of which are listed on Schedule 1.30, the execution, delivery and
performance of this Agreement by Buyer will not: (a) violate any provision of
the charter or bylaws of Buyer; (b) violate any Legal Requirement; (c) require
any consent, approval or authorization of, or any filing with or notice to, any
Person; or (d) (i) violate, conflict with or constitute a breach of or default
under (without regard to requirements of notice, passage of time or elections of
any Person), (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of Buyer under, or (iv) result in the
creation or imposition of any Encumbrance under, any instrument or other
agreement to which Buyer is a party or by which Buyer or any of its assets is
bound or affected, except for purposes of this clause (d) such violations,
conflicts, breaches, defaults, terminations, suspensions, modifications, and
accelerations as would not, individually or in the aggregate, have a Material
Adverse Effect on Buyer or on the validity, binding effect or enforceability of
this Agreement.
6.7 FINDERS AND BROKERS. Other than Communications Equity
Associates, Inc., Buyer has not employed any financial advisor, broker or finder
or incurred any liability for any financial advisory, brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement. Buyer's obligation to Communications Equity Associates, Inc. is
limited to $400,000.
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6.8 ORGANIZATION; GOOD STANDING; QUALIFICATION OF CCI. CCI is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and to issue and deliver the Preferred Stock and the Class A Common
Stock issuable upon conversion thereof, and to carry out the provisions in the
Certificate of Designation in the form attached hereto as Exhibit N. CCI is duly
qualified and is authorized to transact business and is in good standing as a
foreign corporation in each jurisdiction in which the failure so to qualify
would have a material adverse effect on its business, properties, prospects, or
financial condition.
6.9 AUTHORIZATION OF CCI. All corporate action on the part of
CCI, its officers, directors and stockholders necessary for the authorization,
issuance (or reservation for issuance), and delivery of the Preferred Stock
being issued hereunder and the Class A Common Stock issuable upon conversion
thereof has been taken or will be taken prior to the Closing.
6.10 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The
Preferred Stock that is being issued to Seller hereunder, when issued and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Stockholders' Agreement
and under applicable state and federal securities laws. The Class A Common Stock
issuable upon conversion of the Preferred Stock under this Agreement has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Certificate of Designation in the form attached hereto as Exhibit
N, will be duly and validly issued, fully paid, and nonassessable and will be
free of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws.
6.11 CAPITALIZATION OF CCI. Schedule 6.11 contains a complete
and correct list of the authorized, issued and outstanding common stock,
preferred stock and any other class of capital stock of CCI ("CCI Equity
Securities") and any subscriptions, options, conversion rights, warrants, or
other agreements, securities or commitments of any kind obligating CCI to issue,
grant, deliver or sell, or cause to be issued, granted, delivered or sold, any
CCI Equity Securities, or securities convertible into or exchangeable for CCI
Equity Securities ("CCI Derivative Securities") as of the date hereof.
SECTION 7. ADDITIONAL COVENANTS
7.1 ACCESS TO PREMISES AND RECORDS. Between the date of
execution and delivery of this Agreement and the Closing Date, and upon not less
than forty-eight (48) hours' notice, Seller will give Buyer and its
representatives full access at reasonable times to all the premises and books
and records of the Business and to all the Assets and will furnish to Buyer and
its representatives all information regarding the Business and the Assets as
Buyer may from time to time reasonably request. Notwithstanding any
investigation that Buyer may
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conduct of the Business and the Assets, Buyer may fully rely on Seller's
representations, warranties, covenants and indemnities, which will not be waived
or affected by or as a result of such investigation; provided, however, that
Buyer has a good faith obligation to provide Seller with written notification of
any actual knowledge of any material variation related to any representation or
warranty discovered prior to the Closing Date.
7.2 CONTINUITY AND MAINTENANCE OF OPERATIONS; FINANCIAL
STATEMENTS. Except as Buyer may otherwise agree in writing, until the Closing:
7.2.1 Seller will continue to operate the Business in
the ordinary course consistent with past practices and will use its best efforts
to keep available the services of its employees employed in connection with the
Systems and to preserve any beneficial business relationships with customers,
suppliers and others having business dealings with Seller relating to the
Business. Seller will continue to construct line extensions required by the
Systems and Governmental Permits in the ordinary course of business and make
capital expenditures to the Systems substantially in accordance with past
practice and as agreed to in the Capital Expenditure Plan set forth on Schedule
7.2.1. Without limiting the generality of the foregoing, Seller will maintain
the Assets in existing condition and repair, will make reasonable efforts to
maintain appropriate staff and management personnel at the Systems, consistent
with past practices, will maintain adequate inventories of spare Equipment
consistent with past practice, will maintain insurance as in effect on the date
of this Agreement and will keep all of the Business' books, records and files in
the ordinary course of business in accordance with past practices. Seller shall
duly comply in all material respects with all applicable material Legal
Requirements and perform all its material obligations under all of the
Governmental Permits and material Seller Contracts without default. Seller will
not itself, and nor will it permit any of its officers, directors, shareholders,
agents or employees to, pay any of the Systems' subscriber accounts receivable
(other than for their own residences) prior to the Closing Date. Seller will
continue to implement its procedures with respect to the Business for
disconnection and discontinuance of service to subscribers whose accounts are
delinquent in accordance with those in effect on the date of this Agreement.
7.2.2 Except as set forth on Schedule 7.2.1, Seller will
not, without the prior written consent of Buyer, (a) change the rate charged for
Basic Services, Pay TV or other services or goods charged to subscribers and
will not add or delete any program services, in either case, unless required to
do so by law, including, without limitation, the Rate Regulation Act or the Rate
Regulation Rules; (b) sell, transfer or assign any of the Assets (other than in
the ordinary course of business) or permit the creation of or fail to take any
action that would result in any material Encumbrance on any Asset; (c) permit
the amendment or cancellation of any of the Governmental Permits, Seller
Contracts or any other material contract or agreement (other than those
constituting Excluded Assets) which affects or is applicable to any System or
the Business; (d) enter into any contract or commitment or incur any
indebtedness or other liability or obligation of any kind relating to any System
or the Business involving an expenditure in excess of $10,000, if such contract,
commitment, indebtedness, liability or obligation, by its terms, will survive
the Closing; (e) implement any
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extraordinary promotions or discounts the terms of which are materially
inconsistent with past practice; or (f) take or omit to take any action that
would cause Seller to be in breach of any of its representations or warranties
in this Agreement. Notwithstanding the foregoing, Seller may, at any time prior
to or at the Closing, transfer, distribute, assign or sell, the Excluded Assets.
No adjustment will be made to the Base Purchase Price by reason of the
distribution, transfer, assignment or sale or retention by Seller of the
Excluded Assets, unless such action results in an adjustment under Section 3.3.
7.2.3 Seller will deliver to Buyer copies of unaudited
monthly balance sheets and statements of operating cash flow for the Business
and any reports with respect to the operations of each System within twenty (20)
days after each month end, which are true and correct in all material respects,
regularly prepared by or for Seller at any time between the date of this
Agreement and the Closing. Seller represents and warrants that all financial
statements so delivered will fairly present, in all material respects, the
financial position, statements of earnings and cash flow for Seller for the
periods or as of the dates set forth therein, in each case in accordance with
federal income tax basis of accounting applied on a consistent basis through the
periods covered, consistent with past practice, subject to normal year end
adjustments, none of which shall materially affect Annualized EBITDA. Seller
covenants to cooperate with Buyer and Buyer's accountants to convert such
financial statements to GAAP basis, and to allow Buyer and Buyer's accountants
access to Seller's books, records and accounting data to facilitate such
conversion.
7.3 EMPLOYEE MATTERS.
7.3.1 Seller will pay to employees employed in the
Business all compensation, including salaries, commissions, bonuses, deferred
compensation, severance, insurance, pensions, profit sharing, vacation, sick pay
and other compensation or benefits to which they are entitled for periods prior
to the Closing. Seller will not, without the prior written consent of Buyer,
change the compensation or benefits of any employees of the Business; provided,
however, that Seller may provide salary increases upon employee anniversary
dates which are consistent with Seller's past practice. Buyer may, but will have
no obligation to, offer employment to any of the current employees of the
Business as Buyer may desire. Buyer anticipates that it will offer employment to
Seller field personnel, but will not retain Seller corporate employees.
7.3.2 Seller will be responsible for maintenance and
distribution of benefits accrued under any employee benefit plan (as defined in
ERISA) maintained by Seller pursuant to the provisions of such plans. Buyer will
assume neither any liability or any such accrued benefits nor any fiduciary or
administrative responsibility to account for or dispose of any such accrued
benefits under any employee benefit plans maintained by Seller.
7.3.3 All claims and obligations under, pursuant to or
in connection with any welfare, medical, insurance, disability or other employee
benefit plans of
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Seller or arising under any Legal Requirement affecting employees of Seller
incurred before the Closing Date or resulting or arising from events or
occurrences occurring or commencing prior to the Closing Date will remain the
responsibility of Seller, whether or not such employees are hired by Buyer after
the Closing. Buyer will have and assume no obligations or liability under or in
connection with any such plan and will assume no obligation of Seller with
respect to any pre-existing condition of any employee of Seller who is hired as
an employee of Buyer. Nothing in this Section 7.3 or in any other provision of
this Agreement is intended to confer upon any employee of Seller or such
employee's legal representative or heirs any rights as a third party beneficiary
or otherwise or any remedies of any kind whatsoever under or by reason of this
Agreement, or the transactions contemplated hereby, including, without
limitation, any rights of employment or continued employment. All rights and
obligations created by this Agreement are solely between the parties.
7.4 LEASED EQUIPMENT. Except as set forth on Schedule 7.4,
Seller will pay the remaining balances on any leases for Equipment used in the
Business and deliver title to such Equipment free and clear of all Encumbrances
(other than Permitted Encumbrances) to Buyer at the Closing.
7.5 REQUIRED CONSENTS, ESTOPPEL CERTIFICATES AND FRANCHISE
RENEWALS.
7.5.1 Seller will use commercially reasonable efforts to
obtain, as soon as possible and, except as otherwise expressly provided in this
Agreement, at its expense, the Required Consents, in form and substance
reasonably satisfactory to Buyer. Any Required Consent will be deemed to be
satisfactory to Buyer if it is identical in all material respects to the
applicable form attached as Exhibit C. Buyer will cooperate with Seller to
obtain the Required Consents, but Buyer will not be required to agree to any
adverse changes in, or the imposition of any condition to the transfer to Buyer
of, any Seller Contract or Governmental Permit as a condition to obtaining any
Required Consent. Seller also will use commercially reasonable efforts to
obtain, at its expense, such estoppel certificates, landlord waivers,
non-disturbance agreements or similar documents from lessors and other Persons
who are parties to Seller Contracts as Buyer may reasonably request.
7.5.2 Seller will use commercially reasonable efforts to
obtain, and Buyer will use commercially reasonable efforts in cooperation with
Seller to obtain, renewals or extensions, at the option of Buyer, of those
franchises (the "Extended Franchises"), set forth on Schedule 7.5.2 for the
required renewal or extension period set forth on Schedule 7.5.2 measured from
or after the expiration date as set forth on Schedule 7.5.2, and upon other
terms and conditions satisfactory to Buyer.
7.6 MDU AGREEMENTS. A list of all multiple dwelling unit
projects that are subject to common ownership which currently receive cable
television service from the Business, including the rates and terms of the
agreements under which services are provided, is provided on Schedule 7.6, has
been delivered to Buyer and all such agreements are
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transferable to Buyer without consent of any other party, except for Required
Consents set forth on Schedule 1.30.
7.7 TITLE COMMITMENTS AND SURVEYS.
7.7.1 Within thirty (30) days after the execution of
this Agreement, Seller will order (a) commitments for owner's title insurance
policies on all Real Property owned by Seller and on easements which provide
access to headend or tower sites, (b) commitments for lessee's title insurance
policies for the Real Property leased by Seller which is used for headend or
tower sites and which are designated by Buyer within ten (10) days after the
execution of this agreement, and (c) to the extent necessary to obtain a clean
title commitment, a perimeter survey on each parcel of Real Property for which a
title insurance policy is to be obtained. Costs for such commitments and surveys
will be shared equally by Buyer and Seller. The title commitments will evidence
a commitment to issue an ALTA title insurance policy insuring good, marketable
and indefeasible fee simple (or easement or leasehold, if applicable) title to
each parcel of the Real Property for such amount as Buyer directs and will
contain no exceptions except for items which in Buyer's reasonable opinion do
not adversely affect (other than in an immaterial way as to any individual
parcel) the good, marketable and indefeasible title to or Buyer's access or
quiet use or enjoyment of such Real Property in the manner the Real Property is
presently used or in the normal conduct of the Business. At the Closing, Seller
will deliver to Buyer such title commitments updated to a date and time near
Closing from title companies acceptable to Buyer. In the event Seller has not
eliminated or caused to be eliminated all unacceptable exceptions from such
policies or commitments prior to Closing, and Buyer elects to proceed with the
Closing, Buyer will be entitled to indemnification with respect to such
exceptions as provided in Section 11.2.
7.7.2 Title insurance policies on all Real Property in
such amounts as Buyer directs (but not to exceed one hundred fifty percent
(150%) of the fair market value thereof) will be delivered to Buyer within
thirty (30) days after the Closing Date, evidencing title to the Real Property
vested in Buyer consistent with the commitments delivered at the Closing
pursuant to Section 7.7.1. Costs for such title insurance policies will be
shared equally by Buyer and Seller.
7.8 NO SHOPPING. Neither Seller nor any agent or
representative of it will, during the period commencing on the date of this
Agreement and ending with the earlier to occur of the Closing or the termination
of this Agreement, directly or indirectly (a) solicit or initiate the submission
of proposals or offers from any Person for, (b) participate in any discussions
pertaining to, or (c) furnish any information to any Person other than Buyer
relating to, any direct or indirect acquisitions or purchase of all or any
portion of the Assets, the Systems or the Business. If Seller or any agent or
representative of it receives from any Person, directly or indirectly, such
solicitation or informational request, Seller will promptly advise such Person,
by written notice, of the terms of this Section 7.8 and will promptly, orally
and in writing, advise Buyer of such solicitation or informational request and
deliver a copy of such notice to Buyer.
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7.9 NOTIFICATION OF CERTAIN MATTERS. Seller will promptly
notify Buyer of any material fact, event, circumstance or action (a) which, if
known on the date of this Agreement, would have been required to be disclosed to
Buyer pursuant to this Agreement or (b) the existence or occurrence of which
would cause any of Seller's representations or warranties under this Agreement
not to be correct and complete.
7.10 RISK OF LOSS; CONDEMNATION.
7.10.1 Seller will bear the risk of any loss or damage
to the Assets resulting from fire, theft or other casualty (except reasonable
wear and tear) at all times prior to the Closing. If any such loss or damage is
so substantial as to prevent normal operation of any material portion of a
System or the replacement or restoration of the lost or damaged property within
twenty (20) days after the occurrence of the event resulting in such loss or
damage, Seller will immediately notify Buyer of that fact and Buyer, at any time
within ten (10) days after receipt of such notice, may elect by written notice
to Seller either (i) to waive such defect and proceed toward consummation of the
acquisition of the Assets in accordance with terms of this Agreement, in which
event Seller shall assign to Buyer all insurance proceeds and insurance policies
relating thereto, or (ii) to adjust the Base Purchase Price commensurate with
such loss or damage on a replacement cost basis.
7.10.2 If, prior to the Closing, any material part of or
interest in the Assets is taken or condemned as a result of the exercise of the
power of eminent domain, or if a Governmental Authority having such power
informs the affected Seller or Buyer that it intends to take or condemn all or
any part of the Assets (such event being called, in either case, a "Taking"),
then (a) Buyer will have the sole right, in the name of Seller, if Buyer so
elects, to negotiate for, claim, contest and receive all damages with respect to
the Taking, (b) Seller will be relieved of its obligation to convey to Buyer the
Assets or interests that are the subject of the Taking, (c) at the Closing,
Seller will assign to Buyer all of Seller's rights to all damages and costs
payable with respect to such Taking and will pay to Buyer all damages and costs
previously paid to Seller with respect to the Taking and (d) following the
Closing, Seller will give Buyer such further assurances of such rights and
assignment with respect to the Taking as Buyer may from time to time reasonably
request. To the extent damages for such taking do not equal replacement cost, a
further adjustment to the Base Purchase Price will be made equal to the
difference between the two values.
7.11 TRANSFER TAXES. Seller will be responsible for the
payment of any state or local sales, use, transfer, excise, documentary or
license taxes or fees or any other charge (including filing fees) imposed by any
Governmental Authority with respect to the transfer of any of the Assets
pursuant to this Agreement; provided, however that Buyer and Seller will equally
share fees related directly to transfer of Seller's motor vehicles.
7.12 DISTANT BROADCAST SIGNALS. If requested by Buyer, at no
cost to Buyer, Seller will delete on or prior to the Closing Date, any distant
broadcast signals which Buyer determines will result in unacceptable liability
on the part of Buyer for copyright
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payments after Closing in excess of those payable by Seller with respect to
carriage of such signals, provided, however, that Seller will not be required to
delete any distant broadcast signals if Seller is bound by a retransmission
agreement or similar contract to carry such signal.
7.13 NON-COMPETITION AGREEMENT. At the Closing, Seller will,
and will cause James C. Roddey, Thomas D. Wright, Richard Talarico and Henry
Posner, Jr., to, sign and deliver Non-Competition Agreements to Buyer in the
form of Exhibit D.
7.14 UPDATED SCHEDULES. Not less than three (3) days prior to
Closing, Seller will deliver to Buyer revised copies of Schedules 1.6 through
7.6 which shall have been updated to show any changes occurring between the
Effective Date of this Agreement and the date of delivery; provided, however,
that for purposes of Seller's representations and warranties and covenants in
this Agreement, all references to the Schedules will mean the version of the
Schedules attached to this Agreement on the date of signing, and provided
further that if the effect of any such updates to Schedules is to disclose any
one or more additional properties, privileges, rights, interests or claims as
Assets, Buyer, at or before Closing, will have the right (to be exercised by
written notice to Seller) to cause any one or more of such items to be
designated as and deemed to constitute Excluded Assets for all purposes under
this Agreement.
7.15 LIEN AND JUDGMENT. Seller will deliver to Buyer, not more
than thirty (30) days after the date of this Agreement, (a) the results of a
lien search conducted by a professional search company of records in the offices
of the secretaries of state in each state and county clerks in each county where
there exist tangible Assets, and in the state and county where Seller's
principal offices are located, including copies of all financing statements or
similar notices or filings (and any continuation statements) discovered by such
search company and (b) the results of a search of the dockets of the clerk of
each federal and state court of general jurisdiction sitting in the city, county
or other applicable political subdivision where such principal offices or any
material Assets of Seller may be located, with respect to judgments, orders,
writs or decrees against or affecting Seller or any of the Assets. Buyer and
Seller will equally share the costs for such searches under this Section 7.15.
7.16 USE OF SELLER'S NAME. Buyer may continue to operate the
Systems using Seller's tradenames and all derivations and abbreviations of such
name and related marks.
7.17 SATISFACTION OF CONDITIONS. Each party will use its best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, as set forth in Section 9, provided that Buyer will not be
required to agree to any increase in the amount payable with respect to, or any
modification that makes more burdensome in any material respect, any of the
Assumed Liabilities.
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7.18 CONFIDENTIALITY. Neither party will issue any press
release or make any other public announcement regarding this Agreement or the
transactions contemplated hereby without the consent of the other party. Each
party will hold, and will cause its employees, consultants, advisors and agents
to hold, in confidence, the terms of this Agreement and any non-public
information concerning the other party obtained pursuant to this Agreement.
Notwithstanding the preceding, a party may disclose such information to the
extent required by any Legal Requirement (including disclosure requirements
under federal and state securities laws), but the party proposing to disclose
such information will first notify and consult with the other party concerning
the proposed disclosure, to the extent reasonably feasible. Each party also may
disclose such information to employees, consultants, advisors, agents and actual
or potential lenders whose knowledge is necessary to facilitate the consummation
of the transactions contemplated by this Agreement. Each party's obligation to
hold information in confidence will be satisfied if it exercises the same care
with respect to such information as it would exercise to preserve the
confidentiality of its own similar information.
7.19 MEMORANDA OF LEASE. Seller will use commercially
reasonable efforts to provide Buyer with recorded documentation of each headend
site lease or easement, by recording the lease or easement or by obtaining from
the appropriate lessor and recording a Memorandum of Lease in substantially the
form set forth on Exhibit E.
7.20 HSR NOTIFICATION. As soon as practicable after the
execution of this Agreement, but in any event no later than ten (10) Business
Days after such execution, Seller and Buyer will each complete and file, or
cause to be completed and filed, any notification and report required to be
filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"). Seller and Buyer will take any additional action that may be
necessary, proper or advisable, will cooperate to prevent inconsistencies
between their respective filings and will furnish to each other such necessary
information and reasonable assistance as the other may reasonably request in
connection with its preparation of necessary filings or submissions under the
HSR Act. Buyer and Seller will equally share the cost of any filing fee
applicable to any notification or report under the HSR Act.
7.21 EARNEST MONEY. To secure Buyer's obligations under this
Agreement, within five (5) Business Days from the Effective Date of this
Agreement, Buyer will deposit either (a) an irrevocable letter of credit payable
for the amount of $3,000,000, or (b) the amount of $3,000,000 in immediately
available funds, or (c) a combination thereof totaling $3,000,000 (the
"Deposit") into an escrow account pursuant to the Earnest Money Escrow
Agreement.
7.22 LEGEND. Seller agrees to the placement on (i)
certificates representing the Preferred Stock issued to Seller hereunder, and
(ii) any certificate issued at any time in exchange or substitution for any
certificate bearing such legend, of a legend substantially as set forth below:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE COMPANY HAS
RECEIVED A WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN
COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE
TRANSFER OF SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
FURTHER RESTRICTIONS, OBLIGATIONS AND OTHER CONDITIONS SPECIFIED IN THE
STOCKHOLDERS' AGREEMENT DATED AS OF JULY 28, 1999 AMONG THE COMPANY AND
CERTAIN STOCKHOLDERS."
SECTION 8. CLOSING
Seller shall provide Buyer with notice of the later to occur of (i) the
expiration of any applicable waiting period occurs or clearance under the HSR
Act has been received, and (ii) Required Consents have been received. The
Closing will be held on the last day of the month which is ten (10) Business
Days after receipt of said notice, or on such date as the parties may agree upon
as soon as both parties are ready to proceed to Closing. The Closing will take
place at the offices of Winstead Sechrest & Minick P.C., 100 Congress Avenue,
Suite 800, Austin, Texas 78701, or such other place as Buyer and Seller may
agree, or by courier and telecopier service.
SECTION 9. CONDITIONS TO CLOSING
9.1 CONDITIONS TO THE OBLIGATIONS OF BUYER AND SELLER. The
obligations of each party to consummate the transactions contemplated by this
Agreement to take place at the Closing are subject to the satisfaction or
waiver, to the extent permitted by applicable Legal Requirements, at or prior to
the Closing Date, of each of the following conditions:
9.1.1 No action, suit or proceeding is pending or
threatened by or before any Governmental Authority and no Legal Requirement has
been enacted, promulgated or issued or deemed applicable to any of the
transactions contemplated by this Agreement by any Governmental Authority, which
would (a) prohibit Buyer's ownership or operation of all or a material portion
of any System, the Business or the Assets, (b) compel Buyer to dispose of or
hold separate all or a material portion of any Systems, the Business or the
Assets as a result of any of the transactions contemplated by this Agreement or
(c) prevent or make illegal the consummation of any transactions contemplated by
this Agreement.
9.1.2 All filings required under the HSR Act, if any,
have been made and the applicable waiting period has expired or been earlier
terminated without the receipt of any objection or the commencement or threat of
any litigation by a
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Governmental Authority of competent jurisdiction to restrain the consummation of
the transactions contemplated by this Agreement.
9.2 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer to consummate the transactions contemplated by this Agreement to take
place at the Closing are subject to the satisfaction or waiver, to the extent
permitted by applicable Legal Requirements, at or prior to the Closing Date, of
each of the following conditions:
9.2.1 All representations and warranties of Seller
contained in this Agreement are, if not specifically qualified by materiality,
true and correct in all respects and, if so qualified, are true and correct in
all material respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date, except for changes contemplated
or permitted by this Agreement.
9.2.2 Seller has in all material respects performed and
complied with each obligation, agreement, covenant and condition required by
this Agreement to be performed or complied with by Seller at or prior to the
Closing.
9.2.3 Seller has executed (or caused to be executed) and
delivered to Buyer each of the following items:
(a) an Earnest Money Escrow Agreement in the form attached
as Exhibit A;
(b) a Bill of Sale in the form attached as Exhibit F;
(c) an Assignment and Assumption Agreement in the form
attached as Exhibit G;
(d) an Assignment of Leases in the form attached as
Exhibit H and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form, as to each leasehold interest of Seller;
(e) Non-Competition Agreements in the form attached as
Exhibit D;
(f) motor vehicle title certificates endorsed for
transfer;
(g) General Warranty Deeds in form reasonably acceptable
to Buyer for each parcel of Real Property owned in fee by Seller;
(h) the Consent to and Joinder in Stock Agreements in the
forms attached as Exhibit I;
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(i) an affidavit of Seller, under penalty of perjury,
that Seller is not a "foreign person" (as defined in the Foreign Investment in
Real Property Tax Act and applicable regulations) and that Buyer is not required
to withhold any portion of the consideration payable under this Agreement under
the provisions of such Act in the form attached as Exhibit J; and
(j) such other transfer instruments as Buyer may deem
necessary or advisable to transfer the Assets to Buyer and to perfect Buyer's
rights in the Assets, including, without limitation, such affidavits,
indemnities and other documents that the title company may require in connection
with the issuance of the title policies and commitments described in Section
7.7.
9.2.4 Seller has delivered to Buyer: (a) evidence, in
form and substance satisfactory to Buyer, that the Required Consents have been
obtained or given and are in full force and effect; and (b) to the extent
obtained, the estoppel certificates or similar documents described in Section
7.5. Seller will deliver to Buyer evidence that with respect to all television
translator licenses identified on Schedule 1.30 that Required Consents to
transfer such licenses to Transmission, L.L.C., or a related entity as may be
identified by Buyer, have been obtained or given and are in full force and
effect.
9.2.5 Buyer has received the opinion of Eckert Seamans
Cherin & Mellott, LLC, counsel for Seller, dated the Closing Date, in the form
set forth in Exhibit K.
9.2.6 Buyer has received the opinion of Wiley, Rein &
Fielding, FCC counsel for Seller, dated the Closing Date, in the form set forth
in Exhibit L.
9.2.7 Except for those agreements which are to be
transferred to Buyer, Buyer has received documentation satisfactory to it of the
termination of all agreements as they relate to the Systems or deletion of the
Systems from Seller's ongoing agreements which are not being assumed by Buyer,
without obligation for payment of any amounts under such agreements to Buyer.
9.2.8 No action, proceeding or investigation has been
instituted or threatened prior to Closing which would, if determined adversely
to Buyer's interest, materially impair the ability of Buyer to realize the
benefits of the transactions contemplated by this Agreement.
9.2.9 Seller has delivered releases, in form
satisfactory to Buyer, of all Encumbrances affecting any of the Assets (other
than Permitted Encumbrances) and, to the extent that the relevant jurisdictions
provide them, a certificate of no taxes due with respect to the Assets issued by
appropriate state taxing authorities as of a date no earlier than ten (10) days
prior to the Closing.
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9.2.10 Seller has delivered to Buyer: (a) a certificate,
dated the Closing Date, signed by Seller's chief executive officer, stating
that, to his or her Knowledge, the conditions set forth in Sections 9.2.1 and
9.2.2 are satisfied; and (b) a copy of the partnership resolutions of Seller
authorizing the execution, delivery and performance of this Agreement by Seller,
and a certificate of Seller, dated as of the Closing, that such resolutions were
duly adopted and are in full force and effect as of the date of Closing, and (c)
such other documents as Buyer may reasonably request in connection with the
transactions contemplated by this Agreement.
9.2.11 Buyer has received title insurance commitments
referred to in Section 7.7.1.
9.2.12 The Extended Franchises have been obtained on
terms and conditions reasonably satisfactory to Buyer.
9.2.13 The Business has no fewer than (a) 56,000 EBS's
and (b) Annualized EBITDA of no less than $12,400,000.
9.2.14 Seller will have terminated the management
agreements, if any, relating to the Assets and will provide a certificate
indicating that all amounts due and owing under the management agreements, if
any, have been paid in full. In addition, Seller and its Affiliates will have
terminated all affiliated management agreements, if any, relating to the Assets,
and will provide a certificate indicating that all amounts due and owing under
the management agreements, if any, have been paid in full.
9.2.15 Between December 31, 1998 and the Closing Date,
there will have been (i) no material adverse change in the financial conditions
of the Assets, the Assumed Liabilities, operations or prospects of the Systems,
whether or not caused by conditions beyond the control of Seller, other than any
change caused by any adjustment to rates or rate rollbacks required in
connection with rate regulation of the Systems or by legislation, rule making or
regulation affecting the cable television industry generally, and (ii) no
material loss, damage, impairment, confiscation or condemnation of any of the
Assets that has not been repaired or replaced.
9.3 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions contemplated by this Agreement to take
place at the Closing are subject to the satisfaction or waiver by Seller, to the
extent permitted by applicable law, at or prior to the Closing Date, of each of
the following conditions:
9.3.1 Buyer has paid the Base Purchase Price required to
be paid at the Closing, as adjusted in accordance with this Agreement and has
delivered to Seller certificates representing the Preferred Stock.
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9.3.2 All representations and warranties of Buyer
contained in this Agreement are, if not specifically qualified by materiality,
true and correct in all respects and, if so qualified, are true and correct in
all material respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
9.3.3 Buyer has in all material respects performed and
complied with each obligation, agreement, covenant and condition required by
this Agreement to be performed or complied with by Buyer at or prior to the
Closing.
9.3.4 Buyer has executed and delivered to Seller an
Assignment and Assumption Agreement in the form attached as Exhibit G.
9.3.5 Buyer has delivered to Seller: (a) a certificate,
dated the Closing Date, signed by the chief executive officer of Buyer, stating
that, to his or her Knowledge, the conditions set forth in Sections 9.3.2 and
9.3.3, are satisfied; (b) a copy of the resolutions of the board of directors of
Buyer authorizing the execution, delivery and performance of this Agreement, and
a certificate of Buyer, dated as of the Closing, that such resolutions were duly
adopted and are in full force and effect as of the date of Closing; and (c) such
other documents as Seller may reasonably request in connection with the
transactions contemplated by this Agreement.
9.3.6 Seller has received the opinion of Winstead
Sechrest & Minick P.C., counsel for Buyer, dated the Closing Date, in the form
of Exhibit M.
9.3.7 A Certificate of Designation in the form attached
as Exhibit N as well as all other required charter amendments shall have been
filed by CCI with the Delaware Secretary of State and shall have become and
remain effective.
9.3.8 Buyer has delivered to Seller the fully-executed
(except as to Seller) Consent to and Joinder in Stock Agreements in the forms
attached as Exhibit I.
9.4 WAIVER OF CONDITIONS. Any party may waive in writing any
or all of the conditions to its obligations under this Agreement.
SECTION 10. TERMINATION
10.1 EVENTS OF TERMINATION. This Agreement may be terminated
and the transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:
(a) by mutual written consent of Seller and Buyer;
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(b) by Buyer if (i) the conditions to Buyer's obligation
to close set forth in Section 9.2 have not been met by Seller, or waived by
Buyer, on or before March 31, 2000, (ii) the failure of such conditions to be
met is not the result of a material breach of any provision of this Agreement by
Buyer; provided, that, in such instance, Buyer may, in its sole and absolute
discretion, extend such date to a later date, but in no event later than July
31, 2000;
(c) by Seller if (i) the conditions to Seller's obligation
to close set forth in Section 9.3 have not been met by Buyer, or waived by
Seller, on or before March 31, 2000, (ii) the failure of such conditions to be
met is not the result of a material breach of any provision of this Agreement by
Seller; provided, that, in such instance, Seller may, in its sole and absolute
discretion, extend such date to a later date but in no event later than July 31,
2000;
(d) by Seller at any time after Buyer breaches its
covenant set forth in Section 7.21; or
(e) by either Buyer or Seller if the Closing has not
occurred before July 31, 2000.
10.2 LIABILITIES IN EVENT OF TERMINATION. The termination of
this Agreement will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to any
of its representations, warranties, covenants or agreements contained in this
Agreement, except that Buyer will have no liability in any event upon exercise
of its right to terminate pursuant to Section 10.1(b) or (e); and provided that
(i) Buyer's liability in the event of termination by Seller pursuant to Section
10.1(c) and 10.1(d) shall be limited to the amount deposited with the Escrow
Agent under the Earnest Money Escrow Agreement; and (ii) Seller shall have no
liability if Seller terminates the Agreement pursuant to Section 10.1(c) or
Section 10.1(e).
10.3 PROCEDURE UPON TERMINATION. In the event of the
termination of this Agreement by Buyer or Seller pursuant to this Section 10,
notice of such termination will promptly be given by the terminating party to
the other.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller and Buyer in this Agreement and in the
documents and instruments to be delivered pursuant to this agreement will
survive the Closing without limitation until eighteen (18) months after the
Closing Date, except that (a) all such representations and warranties with
respect to any Environmental Law will survive until sixty (60) days after the
expiration of the applicable statute of limitations (including any extensions)
for such Environmental Law (b) all representations and warranties with respect
to any federal, state
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or local taxes will survive until three (3) years after the Closing, and (c) the
representations and warranties as to ownership of Real Property set forth in
Section 5.5 will survive the Closing and will continue in full force and effect
without limitation. The periods of survival of the representations and
warranties prescribed by this Section 11.1 are referred to as the "Survival
Period." The liabilities of the parties under their respective representations
and warranties will expire as of the expiration of the applicable Survival
Period, provided, however, that such expiration will not include, extend or
apply to any representation or warranty, the breach of which has been asserted
by either party in written notice to the other before such expiration or about
which either party has given the other written notice before such expiration
indicating the facts or conditions existing that, with the passage of time or
otherwise, can reasonably be expected to result in a breach (and describing such
potential breach in reasonable detail). The covenants and agreements of the
parties in this Agreement and in the other documents and instruments to be
delivered by Seller or Buyer pursuant to this Agreement will survive the Closing
and will continue in full force and effect without limitation.
11.2 INDEMNIFICATION BY SELLER. Seller will indemnify, defend
and hold harmless Buyer and its shareholders and its and their respective
Affiliates, and the shareholders, directors, officers, employees, agents,
successors and assigns of any of such Persons, from and against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to Buyer or any such other indemnified Person resulting from
or arising out of (i) any breach of any representation or warranty made by
Seller in this Agreement, (ii) any breach of any covenant, agreement or
obligation of Seller contained in this Agreement, (iii) any claim with respect
to, or any event or circumstance related to, the ownership or operation of the
Assets or the conduct of the Business, if such claim arises from or is asserted
in connection with any act, omission, event, or circumstance which occurred or
existed prior to or at the Closing Date, without regard to whether a claim with
respect to such matter is asserted before or after the Closing Date, including
any matter described on Schedule 5.10, (iv) any liability or obligation of
Seller not included in the Assumed Liabilities, (v) any title defect Seller
fails to eliminate as an exception from a title insurance commitment referred to
in Section 7.7.1, (vi) any claim that the transactions contemplated by this
Agreement violate the Worker Adjustment and Retraining Notification Act, as
amended, or any similar state or local law or any bulk transfer or fraudulent
conveyance laws of any jurisdiction, (vii) the presence, generation, removal,
Release or transportation of a Hazardous Substance on or from any of the Real
Property prior to the Closing Date, or non-compliance with any Environmental Law
prior to the Closing Date, including the costs of Clean-up of such Hazardous
Substance and other compliance with the provisions of any Environmental Laws
(whether before or after Closing), or (viii) any rate refund ordered by a
governmental authority for periods prior to the Closing Date; and
(b) all claims, actions, suits, proceedings,
demands, judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
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<PAGE> 48
In the event that an indemnified item arises under both clause (a)(i) and under
one or more of clauses (a)(ii) through (a)(viii) of this Section 11.2, Buyer's
rights to pursue its claim under clauses (a)(ii) through (a)(viii), as
applicable, will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause (a)(i).
11.3 INDEMNIFICATION BY BUYER. Buyer will indemnify, defend
and hold harmless Seller and Seller's officers, employees, agents, successors
and assigns, from and against:
(a) all losses, damages, liabilities, deficiencies or
obligations of or to Seller or any such other indemnified Person resulting from
or arising out of (i) any breach of any representation or warranty made by Buyer
in this Agreement, (ii) any breach of any covenant, agreement or obligation of
Buyer contained in this Agreement, (iii) the failure by Buyer to perform any of
its obligations in respect of the Assumed Liabilities, or (iv) any claim with
respect to, or any event or circumstance related to, the ownership or operation
of the Assets or the conduct of the Business, if such claim arises from or is
asserted in connection with any act, omission, event, or circumstance which
occurs or exists after the Closing Date; and
(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or relating to
or resulting from any of the foregoing.
In the event that an indemnified item arises under both clause (a)(i) and under
one or more of clauses (a)(ii) or (a)(iii) of this Section 11.3, Seller's rights
to pursue its claim under clauses (a)(ii) or (a)(iii), as applicable, will exist
notwithstanding the expiration of the Survival Period applicable to such claim
under clause (a)(i).
11.4 PROCEDURE FOR INDEMNIFICATION. In the event that either
party to this Agreement shall incur any damages in respect of which indemnity
may be sought by such party pursuant to this Section 11 or any other provision
of this Agreement, the party indemnified hereunder (the "Indemnitee") shall
notify the party providing indemnification (the "Indemnitor") promptly. In the
case of third party claims, such notice shall in any event be given as soon as
possible of the filing or assertion of any claim against the Indemnitee stating
the nature and basis of such claim; provided, however, that any delay or failure
to notify any Indemnitor of any claim shall not relieve it from any liability
except to the extent that the Indemnitor demonstrates that the defense of such
action has been materially prejudiced by such delay or failure to notify. In the
case of third party claims, the Indemnitor shall, within 10 days of receipt of
notice of such claim, notify the Indemnitee of its intention to assume the
defense of such claim if the Indemnitor concurrently assumes the obligation to
indemnify the Indemnitee. If the Indemnitor assumes the defense of the claim,
the Indemnitor shall have the right and obligation (a) to conduct any
proceedings or negotiations in connection therewith and necessary or appropriate
to defend the Indemnitee, (b) to take all
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other required steps or proceedings to settle or defend any such claims, and (c)
to employ counsel to contest any such claim or liability in the name of the
Indemnitee or otherwise. If the Indemnitor shall not assume the defense of any
such claim or litigation resulting therefrom, the Indemnitee may defend against
any such claim or litigation in such manner as it may deem appropriate and the
Indemnitee may settle such claim or litigation on such terms as it may deem
appropriate, and assert against the Indemnitor any rights or claims to which the
Indemnitee is entitled. Payment of Seller or Buyer damages, as the case may be,
shall be made within ten (10) days of a final determination of a claim. A final
determination of a disputed claim shall be (v) a judgment of any court
determining the validity of the disputed claim, if no appeal is pending from
such judgment or if the time to appeal therefrom has elapsed, (w) an award of
any arbitration determining the validity of such disputed claim, if there is not
pending any motion to set aside such award or if the time within to move to set
such award aside has elapsed, (x) a written termination of the dispute with
respect to such claim signed by all of the parties thereto or their attorneys,
(y) a written acknowledgment of the Indemnitor that it no longer disputes the
validity of such claim, or (z) such other evidence of final determination of a
disputed claim as shall be acceptable to the parties.
11.5 LIMITATIONS ON INDEMNIFICATION BY SELLER. Seller will not
be liable for indemnification arising solely under Section 11.2(a)(i) for (a)
any losses, damages, liabilities, deficiencies or obligations of or to Buyer or
any other person entitled to indemnification from Seller or (b) any claims,
actions, suits, proceedings, demands, judgments, assessments, fines, interest,
penalties, costs and expenses (including settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or relating to
or resulting from any of the foregoing (the items described in clauses (a) and
(b) collectively being referred to for purposes of this Section 11.5 as "Buyer
Damages") unless the amount of Buyer Damages for which Seller would, but for the
provisions of this Section 11.5, be liable exceeds, on an aggregate basis,
$100,000, in which case Seller will be liable for all such Buyer Damages, which
will be due and payable within thirty (30) days after Seller's receipt of a
statement therefor. In no event will Seller be liable for Buyer Damages in
excess of $37,000,000.
11.6 LIMITATIONS ON INDEMNIFICATION BY BUYER. Buyer will not
be liable for indemnification arising solely under Section 11.3(a)(i) for (a)
any losses, damages, liabilities, deficiencies or obligations of or to Seller or
any other person entitled to indemnification from Buyer or (b) any claims,
actions, suits, proceedings, demands, judgments, assessments, fines, interest,
penalties, costs and expenses (including settlement costs and reasonable legal,
accounting, experts' and other fees, costs and expenses) incident or relating to
or resulting from any of the foregoing (the items described in clauses (a) and
(b) collectively being referred to for purposes of this Section 11.6 as "Seller
Damages") unless the amount of Seller Damages for which Buyer would, but for the
provisions of this Section 11.6, be liable exceeds, on an aggregate basis,
$100,000, in which case Buyer will be liable for all such Seller Damages, which
will be due and payable within thirty (30) days after Buyer's receipt of a
statement therefor. In no event will Buyer be liable for damages in excess of
$37,000,000.
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SECTION 12. MISCELLANEOUS
12.1 PARTIES OBLIGATED AND BENEFITTED. Subject to the
limitations set forth below, this Agreement will be binding upon the parties and
their respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other party, neither party
will assign any of its rights under this Agreement or delegate any of its duties
under this Agreement, provided that Buyer may, without the consent of Seller,
(i) assign or delegate its rights or obligations under this Agreement to any
Affiliate of Buyer, and such assignee will be substituted for Buyer under this
Agreement as though it were the original party to this Agreement and Buyer will
be released from all obligations under this Agreement, (ii) make a collateral
assignment of its rights hereunder to Buyer's or such assignee's secured
lenders, and (iii) assign or delegate its rights or obligations under this
Agreement to any successor of Buyer in the event of a merger, consolidation or
sale of stock or to any purchaser of all or substantially all of the Assets, and
to any transferee of all or a substantial part of any of Buyer's assets or
business and any such transferee shall be entitled to enforce Buyer's rights on
an individual basis.
12.2 NOTICES. Any notice, request, demand, waiver or other
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier or,
if receipt is confirmed, by telecopier:
To Buyer at:
Universal Cable Holdings, Inc.
515 Congress Avenue, Suite 2626
Austin, Texas 78701
Attention: J. Merritt Belisle
Telecopy: (512) 476-5204
With a copy (which will not constitute notice) to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, Texas 78701
Attention: Timothy E. Young, Esq.
Telecopy: (512) 370-2850
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With a further copy (which will not constitute
notice) to:
Alberto Cribiore,
Chairman of the Board
Classic Communications, Inc.
712 Fifth Avenue, 34th Floor
New York, New York 10019
Telecopy: (212) 835-1399
With a further copy (which will not constitute
notice) to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 W. Wacker Drive, Suite 2300
Chicago, Illinois 60606
Attention: Peter C. Krupp, Esq.
Telecopy: (312) 407-0411
To Seller at:
Star Cable Associates
100 Greentree Commons
381 Mansfield Avenue
Pittsburgh, Pennsylvania 15220
Attention: Michael R. Haislip, President
Telecopy: (412) 928-0225
With a copy (which will not constitute notice) to:
Eckert Seamans Cherin & Mellott, LLC
600 Grant Street, 44th Floor
Pittsburgh, Pennsylvania 15219
Attention: Louis J. Moraytis, Esq.
Telecopy: (412) 566-6099
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 12.2. All
notices will be deemed to have been received on the date of delivery or on the
third Business Day after mailing in accordance with this Section, except that
any notice of a change of address will be effective only upon actual receipt.
12.3 ATTORNEYS' FEES. In the event of any action or suit based
upon or arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled, subject to the provisions of Sections 11.5 and 11.6, to
recover reasonable attorneys' fees and other costs of such action or suit from
the other party.
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12.4 RIGHT TO SPECIFIC PERFORMANCE. Both parties acknowledge
that the unique nature of the Assets to be purchased by Buyer pursuant to this
Agreement renders money damages an inadequate remedy for the breach by either of
its obligations under this Agreement, and both parties agree that in the event
of such breach, either party will, upon proper action instituted by it, be
entitled to a decree of specific performance of this Agreement.
12.5 WAIVER. This Agreement or any of its provisions may not
be waived except in writing. The failure of any party to enforce any right
arising under this Agreement on one or more occasions will not operate as a
waiver of that or any other right on that or any other occasion.
12.6 CAPTIONS. The article and section captions of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
12.7 CHOICE OF LAW. This agreement and the rights of the
parties under it will be governed by and construed in all respects in accordance
with the laws of the State of Delaware, without regard to the conflicts of laws
rules of the State of Delaware.
12.8 VENUE. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this Agreement shall be
brought by or against any of the parties to this Agreement in the courts of the
State of Delaware, County of New Castle, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of Delaware,
and each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein.
12.9 TERMS. Terms used with initial capital letters will have
the meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than a limiting sense.
12.10 RIGHTS CUMULATIVE. All rights and remedies of each of
the parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
12.11 FURTHER ACTIONS. Seller and Buyer will execute and
deliver to the other, from time to time at or after the Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
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12.12 TIME. Time is of the essence under this Agreement. If
the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
12.13 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original.
12.14 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits referred to in this Agreement, which are incorporated in
and constitute a part of this Agreement) contains the entire agreement of the
parties and supersedes all prior oral or written agreements and understandings
with respect to the subject matter. This Agreement may not be amended or
modified except by a writing signed by the parties.
12.15 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable will be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or unenforceable the
remaining rights of the Person intended to be benefitted by such provision or
any other provisions of this Agreement.
12.16 CONSTRUCTION. This Agreement has been negotiated by
Buyer and Seller and its respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
12.17 LATE PAYMENTS. If either party fails to pay the other
any amounts when due under this Agreement, the amounts due will bear interest
from the due date to the date of payment at the annual rate publicly announced
from time to time by Citibank, N.A. at its prime rate (the "Prime Rate") plus
three percent (3%), adjusted as and when changes in the Prime Rate are made.
12.18 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
12.19 BULK SALES. Buyer and Seller agree to waive compliance
with any "Bulk Sales," "Bulk Transfers," or other similar provision of the Legal
Requirements of any state or political subdivision thereof. Seller hereby agrees
to indemnify and hold harmless Buyer, its Affiliates or any institution
providing financing to Buyer from any liabilities arising out of or resulting
from the failure of Seller and/or Buyer to comply with any such "Bulk Sales,"
"Bulk Transfers," or other similar provision of the Legal Requirements of any
state or political subdivision thereof.
* * * *
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The parties have executed this Agreement as of the day and year first
written above.
BUYER:
UNIVERSAL CABLE HOLDINGS, INC.
By: /s/ STEVEN E. SEACH
-------------------------------------
Steven E. Seach
President and Chief Financial Officer
SELLER:
STAR CABLE ASSOCIATES
By: STAR CABLE MANAGEMENT, INC.
By: /s/ RICHARD W. TALARICO
-------------------------------
Name: Richard W. Talarico
-------------------------------
Title: Executive Vice President and
Chief Financial Officer
-------------------------------
<PAGE> 1
Exhibit 3.1(d)
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CLASSIC COMMUNICATIONS, INC.
-----------------------------------------------
Pursuant to Sections 228, 242 and 245 of
the Delaware General Corporation Law
-----------------------------------------------
Classic Communications, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:
(1) The name of the Corporation is Classic Communications,
Inc.
(2) The date of filing of the Corporation's original
certificate of incorporation with the Secretary of State is October 4, 1995
under the name Classic Telecommunications Corp.
(3) This Amended and Restated Certificate of Incorporation
was duly adopted by the Board of Directors of the Corporation and adopted by
the holders of a majority of the issued and outstanding shares of capital stock
of the Corporation, in accordance with Sections 228, 242 and 245 of the
Delaware General Corporation Law.
(4) The Corporation's Certificate of Incorporation, as
heretofore amended, is hereby restated, integrated and amended to read in its
entirety as follows:
FIRST: Name. The name of the Corporation is Classic Communications,
Inc.
<PAGE> 2
SECOND: Registered Agent. The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at that address is Corporation Service Company.
THIRD: Purpose. The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corpora tion Law of the State of Delaware as set forth in Title 8 of
the Delaware Code (the "DGCL").
FOURTH: Authorized Capital Stock. The total number of shares of stock
which the Corporation shall be authorized to issue is [145,000,000]. Such
shares shall be divided into [10,000,000] shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock") and [135,000,000] shares of Common
Stock (the "Common Stock"), $.01 par value per share, which shall be further
divided into two classes, [130,000,000] of which shall have voting rights, $.01
par value per share ("Voting Common Stock"), and [5,000,000] of which shall
have no voting rights, except as may be required by law, $.01 par value per
share ("Nonvoting Common Stock"). The shares of Voting Common Stock shall be
further divided into two classes, consisting of [30,000,000] shares of Class B
Voting Common Stock, $.01 par value per share ("Class B Voting Common Stock"),
and [100,000,000] shares of Class A Voting Common Stock, $.01 par value per
share ("Class A Voting Common Stock").
Upon the effectiveness of this Amended and Restated
Certificate of Incorporation (this "Certificate") pursuant to the DGCL (the
"Effective Time"), and without any further action on the part of the
Corporation or its stockholders, each share of the Corporation's Voting Common
Stock, $.01 par value, then issued (including shares held in the treasury of
the Corporation), shall be automatically reclassified, changed and converted
into one (1) fully paid and non-assessable share of Class B Voting Common
Stock. Any stock certificate that, immediately prior to the Effective Time,
represents shares of Voting Common Stock, $.01 par value, will, from and after
the Effective Time, automatically and without the necessity of presenting the
same for exchange, represent that number of shares of Class B Voting Common
Stock equal to the number of shares of Voting Common Stock represented by such
certificate prior to the effective time. As soon as practicable after the
Effective Time, the Corporation's transfer agent shall mail a transmittal
letter to each record holder who would be entitled to receive a share of Class
B Voting Common Stock.
2
<PAGE> 3
FIFTH: Preferred Stock. Shares of Preferred Stock may be issued from
time to time in one or more series, each of which is to have a distinctive
serial designation as determined in the resolution(s) or such certificate(s) of
designations providing for the issuance of such Preferred Stock from time to
time.
Each series of Preferred Stock:
i. may have such number of shares;
ii. may have such voting powers or may be without voting
powers;
iii. may be subject to redemption at such time or times and
at such price;
iv. may be entitled to receive dividends (which may be cumula
tive or noncumulative) at such rate or rates, or such conditions, from such
date or dates, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes or series of
stock;
v. may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation;
vi. may be made convertible into, or exchangeable for, shares
of any other class or classes, or of any other series of the same class or of
any other class or classes, of stock of the Corporation at such price or prices
or at such rates of exchange, and with adjustments;
vii. may be entitled to the benefit of a sinking fund or
purchase fund to be applied to the purchase or redemption of shares of such
series in such amount or amounts;
viii. may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the Corporation or any
subsidiary, upon the issuance of any additional stock (including additional
shares of such series or of any other series) and upon the payment of dividends
or the making of other distributions on, and the purchase, redemption or other
acquisition by the Corporation of stock of any class; and
3
<PAGE> 4
ix. may have such other relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as in such instance is stated in the resolution(s) of the Board of Directors or
such certificate(s) of designations providing for the issuance of such
Preferred Stock. Except where otherwise set forth in such resolution(s) or such
certificate(s) of designations, the number of shares comprising such series may
be increased or decreased (but not below the number of shares then outstanding)
from time to time by like action of the Board of Directors.
Shares of any series of Preferred Stock which have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased by
the Corpora tion, or which, if convertible or exchangeable, have been converted
into or ex changed for shares of stock of any other class or classes will have
the status of authorized but unissued shares of Preferred Stock and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock created by
resolution(s) or such certificate(s) of designations of the Board of Directors
or as part of any other series of Preferred Stock, all subject to the
conditions or restrictions on issuance set forth in the resolu tion or
resolutions adopted by the Board of Directors providing for the issuance of any
series of Preferred Stock and to any filing required by law.
SIXTH: Common Stock.
(1) Rights Generally. Except as otherwise provided in this
Certificate, each share of Class A Voting Common Stock, Class B Voting Common
Stock, and Nonvoting Common Stock shall have identical powers, preferences,
qualifications, limitations and other rights.
(2) Voting Rights. Subject to the rights of the Preferred
Stock or any series thereof, the holders of Voting Common Stock will have the
exclusive right to vote, together as a single class, for the election of
directors and for all other matters submitted to a vote of the stockholders to
which the holders of Common Stock are entitled to vote, except as may be
required by the DGCL or as otherwise specified in this Certificate. On all
matters to be voted on by the Corporation's stockholders, the holders of the
Class B Voting Common Stock shall each have ten (10) votes per share of Class B
Voting Common Stock held by them and the holders of the Class A Voting Common
Stock shall each have one (1) vote per share of Class A Voting Common Stock
held by them. The Corporation, by action of its Board of
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Directors and the affirmative vote of the holders of a majority of the voting
power of the capital stock of the Corporation entitled to vote, may increase or
decrease the number of authorized shares of Common Stock or Preferred Stock of
the Corporation (but not below the number of shares of Common Stock or
Preferred Stock, respec tively, then outstanding or reserved for issuance upon
the conversion of shares of Class B Voting Common Stock) irrespective of the
provisions of Section 242(b)(2) of the DGCL; PROVIDED, HOWEVER, that any
increase or decrease to the number of authorized shares of Class B Voting
Common Stock shall, in addition to the foregoing, require the affirmative vote
of the holders of a majority of the voting power of the Class B Voting Common
Stock, voting as a separate class. The Corporation may, as a condition to
counting the votes cast by any holder of shares of Class B Voting Common Stock,
require proof as set forth below that the shares of Class B Voting Common Stock
held by such holder have not been converted into shares of Class A Voting
Common Stock. The holders of the Nonvoting Common Stock shall have no right to
vote on any matter, except as may be required by law, and if required by law,
the holders of the Nonvoting Common Stock shall each have one (1) vote per
share of Nonvoting Common Stock held by them.
(3) Dividends and Distributions. Subject to all of the rights
of Preferred Stock or any series thereof, the holders of Common Stock will be
entitled to receive, when and if declared by the Board of Directors, out of
funds legally available therefor, dividends payable in cash, in stock or
otherwise. If and when dividends on the Common Stock are declared and payable
from time to time by the Board of Directors, whether payable in cash, in
property or in shares of stock of the Corporation, the holders of the Common
Stock shall be entitled to share equally, on a per share basis, in such
dividends, except that dividends or other distributions payable on the Common
Stock in shares of any authorized class or series of capital stock of the
Corporation may be made (in each case as determined in the sole discretion of
the Board) (a) in shares of Class A Voting Common Stock to the holders of Class
A Voting Common Stock, (b) in shares of Class B Voting Common Stock to the
holders of Class B Voting Common Stock, (c) in shares of Class A Voting Common
Stock or Nonvoting Common Stock (in each case as determined in the sole
discretion of the Board) to the holders of Nonvoting Common Stock, or (d) in
any other authorized class or series of capital stock to the holders of all
three classes of the Common Stock. In no event will shares of any of the three
classes of Common Stock be split, divided or combined unless the outstanding
shares of the other classes of Common Stock shall be proportionately split,
divided or combined. In the event of a transaction as a result of which the
shares of Class A Voting Common Stock are converted into or exchanged for one
or more other securities,
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cash or other property (a "Class A Conversion Event"), then from and after such
Class A Conversion Event, a holder of Class B Voting Common Stock shall be
entitled to receive, upon the conversion of such Class B Voting Common Stock
pursuant to paragraph 7 of this Article SIXTH, the amount of such securities,
cash and other property that such holder would have received if the conversion
of such Class B Voting Common Stock had occurred immediately prior to the
record date (or if there is no record date, the effective date) of the Class A
Conversion Event. This paragraph shall be applicable in the same manner to all
successive conversions or exchanges of securities issued pursuant to any Class
A Conversion Event. No adjustments in respect of dividends shall be made upon
the conversion of any share of Class B Voting Common Stock; PROVIDED, HOWEVER,
that if a share shall be converted after the record date for the payment of a
dividend or other distribution on shares of Class B Voting Common Stock but
before such payment, then the record holder of such share at the close of
business on such record date shall be entitled to receive the dividend or other
distribution payable on such share of Class B Voting Common Stock on the
payment date notwithstanding the conversion thereof.
(4) Liquidation. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, and subject to
the rights of the holders of Preferred Stock, the remaining net assets of the
Corporation will be distributed pro rata to the holders of all three classes of
the Common Stock.
(5) Merger or Consolidation. In the event of a merger or
consoli dation of the Corporation with or into another entity (whether or not
the Corporation is the surviving entity), all of the holders of Common Stock
shall be entitled to receive the same per share consideration; provided that,
if such consideration shall consist in any part of voting securities (or of
options or warrants to purchase, or of securities convertible into or
exchangeable for, voting securities), (x) the Corpora tion may provide in the
applicable merger agreement for the holders of shares of Class B Voting Common
Stock receive, on a per share basis, voting securities with ten (10) times the
number of votes per share as those voting securities to be received by the
holders of shares of Class A Voting Common Stock (or options or warrants to
purchase, or securities convertible into or exchangeable for, voting securities
with ten (10) times the number of votes per share as those voting securities
issuable upon exercise of the options or warrants to be received by the holders
of the shares of Class A Voting Common Stock, or into which the convertible or
exchangeable securities to be received by the holders of the shares of Class A
Voting Common Stock may be converted or exchanged) and (y) the holders of the
Nonvoting Com mon Stock may receive, on a per share basis, non-voting
securities with conversion
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rights to receive shares of the voting securities to be received by the holders
of Class B Voting Common Stock in such transaction (or options or warrants to
purchase non-voting securities or securities convertible into or exchangeable
for such non-voting securities).
(6) Conversion of Nonvoting Common Stock to Voting Common
Stock.
(a) Conversion of Nonvoting Common Stock. Each record holder
at the Effective Time of Nonvoting Common Stock or Nonvoting Common Stock
issued after the Effective Date to an Initial Holder upon exercise of a warrant
or option (each an "Initial Nonvoting Holder") is entitled at any time, and
from time to time, to convert any or all of such Initial Nonvoting Holder's
shares of Nonvoting Common Stock into the same number of shares of Class B
Voting Common Stock; PROVIDED, HOWEVER, that (x) no Initial Nonvoting Holder is
entitled to convert any share or shares of Nonvoting Common Stock to the extent
that such conversion would be inconsistent with any law or any regulation, rule
or other requirement of any governmental authority applicable at the time of
such conversion, relating to the direct or indirect ownership, control or power
to vote securities of the kind issued by the Corporation and (y) in the event
of (i) any Transfer (as hereinafter defined) of any share of Nonvoting Common
Stock to any Person other than a Permitted Transferee (as hereinafter defined),
(ii) the first date on which the number of shares of Class B Voting Common
Stock then outstanding is less than 5% of all the then outstanding shares of
Common Stock (calculated without regard to the difference in voting rights
between the classes of Common Stock) or (iii) if Brera Classic, LLC and its
Permit ted Transferees elect to convert all of the shares of Class B Voting
Common Stock then held by them into shares of Class A Voting Common Stock, the
right of any Initial Nonvoting Holder to convert any or all of such Initial
Nonvoting Holder's shares to Class B Voting Common Stock pursuant to this
paragraph 6(b) shall terminate. In addition to the foregoing, each record
holder of Nonvoting Common Stock is entitled at any time, and from time to
time, to convert any or all of such holder's shares of Nonvoting Common Stock
into the same number of shares of Class A Voting Common Stock; provided that no
holder of Nonvoting Common Stock is entitled to convert any share or shares of
Nonvoting Common Stock to the extent that such conversion would be inconsistent
with any law or any regulation, rule or other requirement of any governmental
authority applicable at the time of such conversion, relating to the direct or
indirect ownership, control or power to vote securities of the kind issued by
the Corporation.
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(b) Conversion Procedure.
(i) Each conversion of shares of Nonvoting Common
Stock into Voting Common Stock pursuant to the foregoing paragraph 6(a) will be
effected by the delivery to the principal office of the Corporation or any
transfer agent for shares of the Nonvoting Common Stock, (i) the certificate or
certificates representing the shares of Nonvoting Common Stock to be converted
duly endorsed in blank or accompanied by proper instruments of transfer and
(ii) written notice to the Corporation stating (a) that the record holder
elects to convert such share or shares, the number of shares to be converted
and the name or names (with addresses) and denominations in which the
certificate or certificates representing the shares of Common Stock issuable
upon the conversion are to be issued and including instruc tions for the
delivery thereof and (b) upon such conversion such holder and its affiliates
will not directly or indirectly own, control or have the power to vote a
greater quantity of securities of any kind issued by the Corporation than such
holder and its affiliates are permitted to own, control or have the power to
vote under any applicable law or any regulation, rule or other governmental
requirement. Such conversion will be deemed to have been effected as of the
close of business on the date on which delivery is made to the Corporation or
its transfer agent of such written notice and the certificate or certificates
representing the shares of Nonvoting Common Stock to be converted, and as of
such time each Person named in such written notice as the Person to whom a
certificate representing shares of Voting Common Stock is to be issued, shall
be deemed to be the holder of record of the number of shares of such Voting
Common Stock to be evidenced by that certificate. Upon such delivery, the
Corporation or its transfer agent shall promptly issue and deliver at the
stated address of such record holder of shares of Voting Common Stock (x) a
certificate or certificates representing the number of shares of Voting Common
Stock issuable upon such conversion and (y) a certificate or certificates for
any Voting Common Stock which was represented by a surrendered certificate but
which was not converted, and shall cause such shares of such Nonvoting Common
Stock to be registered in the name of the record holder.
(ii) Stock Legend. The Corporation shall include on
the certificate(s) representing the shares of Voting Common Stock subject
thereto a legend referring to the restrictions on conversion imposed by
paragraph (6) of this Article SIXTH.
(iii) Taxes and Costs. The issuance of certificates
for shares of Nonvoting Common Stock or Voting Common Stock, as the case may
be,
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upon conversion of any Nonvoting Common Stock shall be made without charge to
the holders of such shares for any issuance, stamp or other similar tax in
respect of such issuance or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares. However, if
any such certificate is to be issued in a name other than that of the holder of
the shares of Nonvoting Common Stock converted, the Person or Persons
requesting the issuance thereof shall pay to the Corporation the amount of any
tax which may be payable in respect of any Transfer involved in such issuance
or shall establish to the satisfaction of the Corporation that such tax has
been paid or is not required to be paid.
(iv) Books. The Corporation will not close its books
against the transfer of any class of Voting Common Stock issued or issuable
upon conversion of Nonvoting Common Stock in any manner which would interfere
with the timely conversion of any Nonvoting Common Stock.
(7) Conversion of Class B Voting Common Stock.
(a) Voluntary Conversion. Each share of Class B Voting Com
mon Stock shall be convertible, at the option of its record holder, into one
validly issued, fully paid and non-assessable share of Class A Voting Common
Stock at any time.
(b) Voluntary Conversion Procedure. At the time of a
voluntary conversion, the record holder of shares of Class B Voting Common
Stock shall deliver to the principal office of the Corporation or any transfer
agent for shares of the Class A Voting Common Stock (i) the certificate or
certificates representing the shares of Class B Voting Common Stock to be
converted, duly endorsed in blank or accompanied by proper instruments of
transfer and (ii) written notice to the Corpora tion stating that the record
holder elects to convert such share or shares, stating the number of shares to
be converted and stating the name or names (with addresses) and denominations
in which the certificate or certificates representing the shares of Class A
Voting Common Stock issuable upon the conversion are to be issued and includ
ing instructions for the delivery thereof. Conversion shall be deemed to have
been effected as of the close of business on the date on which delivery is made
to the Corporation or its transfer agent of such written notice and the
certificate or certifi cates representing the shares of Class B Voting Common
Stock to be converted, and as of such time each Person named in such written
notice as the Person to whom a certificate representing shares of Class A
Voting Common Stock is to be issued, shall be deemed to be the holder of record
of the number of shares of Class A Voting
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Common Stock to be evidenced by that certificate. Upon such delivery, the
Corporation or its transfer agent shall promptly issue and deliver at the
stated address of such record holder of shares of Class A Voting Common Stock a
certificate or certificates representing the number of shares of Class A Voting
Common Stock to which such record holder is entitled by reason of such
conversion and shall cause such shares of Class A Voting Common Stock to be
registered in the name of the record holder.
(c) Automatic Conversion.
(i) In the event of any Transfer (as hereinafter
defined) of any share of Class B Voting Common Stock to any Person other than a
Permitted Transferee (as hereinafter defined), such share of Class B Voting
Common Stock shall automatically, without any further action, convert into one
share of Class A Voting Common Stock.
(ii) Each share of Class B Voting Common Stock shall
automatically convert into one share of Class A Voting Common Stock (x) on the
first date on which the number of shares of Class B Voting Common Stock then
outstanding is less than 5% of all the then outstanding shares of Common Stock
(calculated without regard to the difference in voting rights between the
classes of Common Stock) or (y) if Brera Classic, LLC and its Permitted
Transferees elects to convert all of the shares of Class B Voting Common Stock
then held by them into shares of Class A Voting Common Stock, without any
further action on the part of the Corporation or any other Person.
(iii) Notwithstanding anything to the contrary set
forth in this Article SIXTH, a holder of shares of Class B Voting Common Stock
may pledge such holder's shares of Class B Voting Common Stock to a financial
institution pursuant to a bona fide pledge of such shares of Class B Voting
Common Stock as collateral security for any indebtedness or other obligation of
any Person (the "Pledge Stock") due to the pledgee or its nominee; PROVIDED,
HOWEVER, that (x) such shares shall not be voted by or registered in the name
of the pledgee and shall remain subject to the provisions of this paragraph (7)
of this Article SIXTH and (y) upon any foreclosure, realization or other
similar action by the pledgee, such Pledged Stock shall automatically convert
into shares of Class A Voting Common Stock on a share for share basis unless
all right, title and interest in such Pledge Stock shall be Transferred
concurrently by the pledgee or the purchaser in such foreclosure to a Permitted
Transferee.
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(iv) The foregoing automatic conversion events
described in this paragraph 7(c) shall be referred to hereinafter as "Events of
Automatic Conversion." The determination of whether an Event of Automatic
Conversion shall have occurred will be made by the Board of Directors or a
committee thereof in accordance with paragraph 7(h) below.
(d) Automatic Conversion Procedure. Any conversion pursuant
to an Event of Automatic Conversion shall be deemed to have been effected at
the closing of business on the date on which the Event of Automatic Conversion
occurred (the "Conversion Time"). At the Conversion Time, the certificate or
certificates that represented immediately prior thereto the shares of Class B
Voting Common Stock which were so converted (the "Converted Class B Voting
Common Stock") shall, automatically and without further action, represent the
same number of shares of Class A Voting Common Stock. Holders of Converted
Class B Voting Common Stock shall deliver their certificates, duly endorsed in
blank or accompanied by proper instruments of transfer, to the principal
office of the Corporation or the office of any transfer agent for shares of the
Class A Voting Common Stock, together with a notice setting out the name or
names (with addresses) and denominations in which the certificate or
certificates representing such shares of Class A Voting Common Stock are to be
issued and including instructions for delivery thereof. Upon such delivery, the
Corporation or its transfer agent shall promptly issue and deliver at such
stated address to such holder of shares of Class A Voting Common Stock a
certificate or certificates representing the number of shares of Class A Voting
Common Stock to which such holder is entitled by reason of such conversion,
and shall cause such shares of Class A Voting Common Stock to be registered in
the name of such holder. The Person entitled to receive the shares of Class A
Voting Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Class A Voting Common Stock at
and as of the Conversion Time, and the rights of such Person as a holder of
shares of Class B Voting Common Stock that have been converted shall cease and
terminate at and as of the Conversion Time, in each case without regard to any
failure by such holder to deliver the certificates or the notice required by
this Article.
(e) Unconverted Shares; Notice Required. In the event of the
conversion of less than all the shares of Class B Voting Common Stock evidenced
by a certificate surrendered to the Corporation in accordance with the
procedures of paragraph 7(b), the Corporation shall execute and deliver to or
upon the written order of the holder of such unconverted shares, without charge
to such holder, a new
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certificate evidencing the number of shares of Class B Voting Common Stock not
converted.
(f) Retired Shares. Shares of Class B Voting Common Stock
that are converted into shares of Class A Voting Common Stock as provided
herein shall be retired and canceled and shall have the status of authorized
but unissued shares of Class B Voting Common Stock.
(g) Reservation. The Corporation shall at all times reserve
and keep available, out of its authorized and unissued shares of Class A Voting
Common Stock, for the purposes of effecting conversions, such number of duly
authorized shares of Class A Voting Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Voting
Common Stock. All the shares of Class A Voting Common Stock so issuable shall,
when so issued, be duly and validly issued, fully paid and non-assessable, and
free from liens and charges with respect to such issuance.
(h) Determination of Voting Rights And Events of Automatic
Conversion. The Board of Directors of the Corporation or a duly authorized
committee thereof shall have the power to determine, in good faith after
reasonable inquiry, whether an Event of Automatic Conversion has occurred with
respect to any share of Class B Voting Common Stock. A determination by the
Board of Directors of the Corporation or such committee that an Event of
Automatic Conversion has occurred shall be conclusive. As a condition to
counting the votes cast by any holder of shares of Class B Voting Common Stock
at any annual or special meeting of shareholders, or in connection with any
written consent of shareholders, or as a condition to registration of transfer
of shares of Class B Voting Common Stock, or for any other purpose, the Board
of Directors or a duly authorized committee thereof, in its discretion, may
require the holder of such shares to furnish such affidavits or other proof as
the Board of Directors or such committee deems necessary or advisable to
determine whether an Event of Automatic Conversion shall have occurred. If the
Board of Directors or such committee shall determine that a holder has
substantially failed to comply promptly with any request by the Board of
Directors of such committee for such proof, such shares shall be entitled to
one (1) vote per share until such time as the Board of Directors or such
committee shall determine that such holder has complied with such request. The
Board of Directors or a committee thereof may exercise the authority granted by
this paragraph 7(h) through duly authorized officers or agent.
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(i) Definitions. For purposes of this paragraph (7):
(1) Affiliate. The term "Affiliate" shall mean any Person
that directly, or indirectly through one of more intermediaries, controls or is
controlled by or is under common control with the Person specified. For
purposes of this definition, "control" of a Person means the power, direct or
indirect, to vote more than fifty percent (50%) of the voting securities of
another Person
(2) Ancestor. The term "Ancestor" with respect to any natural
person shall mean and include the blood ancestors of such person. A natural
person adopted pursuant to a Permitted Adoption shall have the same status and
benefits, and all relationships to or through such person shall be determined
in the same manner, as if such person were a child of the blood of such
person's adoptive parent or parents rather than of such person's natural
parents.
(3) Beneficial Owner. A Person shall be deemed the
"Beneficial Owner" of, and to "Beneficially Own" and to have "Beneficial
Ownership" of, any share (i) which such Person has the power to vote or
dispose, or to direct the voting or disposition of, directly or indirectly,
through any agreement, arrangement or understanding (written or oral), or (ii)
which such Person has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (written or oral), or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise.
(4) Beneficiary. The term "Beneficiary" with respect to any
trust means any Person to whom a current distribution (whether mandatory or
discretionary) of income or principal could be made.
(5) Descendant. The term "Descendant" with respect to any
natural person shall mean and include the blood descendants of such person. A
natural person adopted pursuant to a Permitted Adoption shall have the same
status and benefits, and all relationships to or through such person shall be
determined in the same manner, as if such person were a child of the blood of
such person's adoptive parent or parents rather than of such person's natural
parents.
(6) Initial Holder. The term "Initial Holder" shall mean (i)
each Person in whose name one or more shares of Class B Voting Common Stock are
registered at the Effective Time, (ii) each Initial Nonvoting Holder in whose
name one or more shares of Class B Voting Common Stock become registered in the
event
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of a conversion of Nonvoting Common Stock to Class B Voting Common Stock
pursuant to paragraph 6(b) of Article SIXTH hereof (the "Nonvoting Conversion
Time"), (iii) each joint owner of a share of Class B Voting Common Stock at the
Effective Time or at the Nonvoting Conversion Time, (iv) each minor who is the
beneficiary at the Effective Time or at the Nonvoting Conversion Time of a
Uniform Gifts to Minors Act account under which the custodian, in such
capacity, is an Initial Holder, (v) the settlor of any trust which is an
Initial Holder or any Beneficiary at the Effective Time or at the Nonvoting
Conversion Time of any Irrevocable Trust which is an Initial Holder and (vi)
each record holder of options or warrants to purchase Class B Voting Common
Stock or Nonvoting Common Stock at the Effective Time in whose name one or more
shares of Class B Voting Common Stock or Nonvoting Common Stock, as applicable,
become registered upon exercise of such warrants or options (such options and
warrants are referred to as "Initial Warrants and Options"). A Person will
cease to be an Initial Holder once that Person no longer holds of record or
beneficially any Class B Voting Common Stock or Initial Warrants and Options.
For purposes of the definition of "Initial Holder", if any shares of Class B
Voting Common Stock are registered in the name of a Nominee at the Effective
Time or at the Nonvoting Conversion Time, such shares shall be deemed to be
registered in the name of the Person for whom such Nominee is acting.
(7) Irrevocable Trust. A trust shall be deemed to be an
"Irrevocable Trust" if such trust is not, and can not be amended or revised to
become, revocable at any time after the Initial Date by the Person or Persons
who established such trust.
(8) Nominee. The term "Nominee" shall mean a partnership or
other entity that is acting as a bona fide nominee for the registration of
record ownership of securities Beneficially Owned by another Person.
(9) Permitted Adoption. A "Permitted Adoption" of a natural
person shall have occurred solely if a decree or order of adoption shall have
been made by a duly constituted court or other authority authorized by law to
effect adoptions prior to such person attaining the age of twenty-one (21)
years.
(10) Permitted Charitable Foundation. A charitable foundation
shall be deemed to be a "Permitted Charitable Foundation" if (but only if) such
charitable foundation (i) is a charitable organization qualifying for
tax-exempt status for Federal income tax purposes under Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended (the "Code"), (ii) is classified
as a "private foundation" under Section 509 of the Code and (iii) has a
majority of (x) its members (if any) and Board of Directors or board of
trustees or (y) its trustees, one or more of the Persons described in clause
(i), (ii), or (iii) of the definition of "Permitted Transferee" if the
charitable organization is a not-for-profit organization or charitable trust,
as the case may be.
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(11) Permitted Estate. The term "Permitted Estate" shall mean
the estate of any Initial Holder or of any Person described in clause (ii) of
the definition of "Permitted Transferee", provided that a majority of the
executors, administrators or personal representatives of such estate are (i)
one or more of the Persons described in clause (i), (ii) or (iii) of the
definition of "Permitted Transferee", (ii) one or more licensed attorneys who
acted as the personal attorney or attorneys of such Initial Holder or other
Person or (iii) a commercial bank or trust company regularly engaged in the
business of acting as an executor or administrator and having net capital in
excess of U.S. $10 million.
(12) Permitted Transferee. The term "Permitted Transferee"
shall mean:
(i) any Initial Holder;
(ii) the spouse of an Initial Holder referred to in
the foregoing clause (i), any Descendant or Ancestor of such an Initial Holder
and the spouse of any Descendant of such an Initial Holder;
(iii) a Permitted Trust;
(iv) a Permitted Charitable Foundation; or
(v) an Affiliate of an Initial Holder.
(13) Permitted Trust. A trust (including a voting trust)
shall be deemed to be a "Permitted Trust" if (but only if) such trust (i) has
as a majority of its trustees Permitted Trustees (provided that such condition
shall continue to be satisfied for thirty days following the death,
resignation, removal or incapacity of a Permitted Trustee that would otherwise
result in the failure to satisfy this condition) and (ii) either (x) has no
Beneficiary other than a Permitted Transferee, (y) is a charitable remainder
annuity or unitrust meeting the requirements of Section 664 of the Code and
under which no annuity or unitrust payment will be payable to a Person other
than a Permitted Transferee or (z) is a charitable lead annuity or unitrust
under which the annuity or unitrust payments qualify for a charitable deduction
under Section 2522(c) of the Code and under which no portion of the remainder
interest after the charitable lead term will be payable to (or held for the
benefit of) any Person other than a Permitted Transferee.
(14) Permitted Trustee. The term "Permitted Trustee" with
respect to any trust shall mean (i) a Permitted Transferee, (ii) a licensed
attorney acting as the personal attorney for a natural person who is a
Permitted Transferee and is also the settlor of such trust and (or in the case
of the death of the settlor, was acting as
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the personal attorney for such settlor at the time of his death) and (iii) a
commercial bank or trust company regularly engaged in the business of acting as
a trustee and having net capital in excess of U.S. $10 million.
(15) Person. The term "Person" means any natural person,
corporation, association, partnership, limited liability company,
organization, business, government or political subdivision thereof or
governmental agency.
(16) Transfer. The term "Transfer" shall mean any sale,
transfer (including a transfer made in whole or in part without consideration
as a gift), exchange, assignment, pledge, encumbrance, alienation or any other
disposition or hypothecation of record ownership or of Beneficial Ownership of
any share or option or warrant to purchase any share, whether by operation of
law or otherwise; PROVIDED, HOWEVER, that (i) a pledge of any share made in
accordance with the provisions of paragraph 7(c)(iii) of this Article SIXTH,
(ii) a grant of a proxy with respect to any share to a Person designated by the
Board of Directors of the Corporation who is soliciting proxies on behalf of
the Corporation, and (iii) any conversion by an Initial Nonvoting Holder of
Nonvoting Common Stock to Class B Voting Common Stock pursuant to paragraph
6(b) of Article SIXTH, shall not be considered a "Transfer"; and provided
further that in the case of any transferee of record ownership that is a
Nominee, such Transfer of record ownership shall be deemed to be made to the
Person or Persons for whom such Nominee is acting. The exercise of an option or
warrant to purchase Nonvoting Common Stock or Class B Voting Common Stock by
any Person other than an Initial Holder or Permitted Transferee will be deemed
to be a "Transfer" for purposes of paragraph 7(c)(i), in which case Class A
Voting Common Stock shall be issuable upon exercise of such options and the
Nonvoting Common Stock issued upon exercise of such warrants will not be
convertible into Class B Voting Common Stock.
(j) Stock Legend. The Corporation shall include on the
certificates representing the shares of Class B Voting Common Stock subject
thereto a legend referring to the restrictions on transfer and registration of
transfer imposed by this paragraph 7(c) of this Article SIXTH.
(k) Taxes and Costs. The issuance of a certificate for shares
of Class A Voting Common Stock upon conversion of shares of Class B Voting
Common Stock shall be made without charge to the holders of such shares for any
issuance, stamp or other similar tax in respect of such conversion and issuance
or other cost incurred by the Corporation in connection with such conversion
and issuance. However, if any such certificate is to be issued in a name other
than that of the holder of the shares of Class B Voting Common Stock converted,
the Person or Persons requesting the issuance thereof shall pay to the
Corporation the amount of any tax which may be payable in respect of any
Transfer involved in such issuance or
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shall establish to the satisfaction of the Corporation that such tax has been
paid or is not required to be paid.
(l) Books. The Corporation will not close its books against
the transfer of any Class A Voting Common Stock issued or issuable upon
conversion of Class B Voting Common Stock in any manner which would interfere
with the timely conversion of any Class B Voting Common Stock.
SEVENTH: Directors. The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
i. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors of the Corporation.
ii. The number of directors that shall constitute the whole
Board of Directors shall from time to time be fixed exclusively by the Board of
Directors by a resolution adopted by a majority of the whole Board of Directors
serving at the time of that vote. In no event shall the number of directors
that constitute the whole Board of Directors be less than five or more than
fifteen. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Election of directors need not
be by written ballot unless the By-Laws of the Corporation so provide.
iii. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as possible, of one-third of the total number of directors constituting the
entire Board of Directors. The initial division of the Board of Directors into
classes shall be made by the decision of the affirmative vote of a majority of
the entire Board of Directors. The term of the initial Class I directors shall
expire on the date of the 2000 annual meeting; the term of the initial Class II
directors shall expire on the date of the 2001 annual meeting; and the term of
the initial Class III directors shall expire on the date of the 2002 annual
meeting. If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class,
but in no case will a decrease in the number of directors shorten the term of
any incumbent director.
iv. A director shall hold office until the annual meeting for
the year in which his or her term expires and until his or her successor shall
be elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
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v. Subject to the terms of any one or more classes or series
of Preferred Stock, any vacancy of the Board of Directors that results from an
increase in the number of directors shall be filled by a majority of the Board
of Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors shall be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any directors of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall hold
office for a term that shall coincide with the remaining term of that class.
Any directors elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his or her
predecessor. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or otherwise, to elect directors at an
annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Amended and Restated Certificate of Incorporation
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article SEVENTH unless expressly provided by such
terms.
vi. The presence of a majority of the total number of
directors shall constitute a quorum for the transaction of business and, except
as otherwise provided herein, the vote of a majority of such quorum shall be
required in order for the Board of Directors to act.
vii. In addition to the powers and authority hereinbefore or
by statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and shall do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the provisions
of the DGCL, this Amended and Restated Certificate of Incorporation and any
By-Laws adopted by the stockholders; PROVIDED, HOWEVER, that no By-Laws
hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been adopted.
viii. No director of the Corporation shall be personally
liable to the Corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is not permitted under the DGCL as the
same exists or may hereinafter be amended. If the DGCL is amended hereafter to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent authorized by the DGCL, as so amended. Any repeal
or modification of this Article SEVENTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of
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such repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification.
EIGHTH: Indemnification. The Corporation shall indemnify its directors
and may indemnify its officers to the fullest extent authorized or permitted by
law, as now or hereafter in effect, and such right to indemnification shall
continue as to a person who has ceased to be a director or officer of the
Corporation and shall inure to the benefit of his or her heirs, executors and
personal and legal representatives;
PROVIDED, HOWEVER, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corporation. The right to
indemnification conferred by this Article EIGHTH shall include the right to be
paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors of the Corporation, provide rights to indemnification and to
the advancement of expenses to employees and agents of the Corporation similar
to those conferred in this Article EIGHTH to directors and officers of the
Corporation.
The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of
the stockholders of the Corporation or disinterested directors of the
Corporation or otherwise.
Any repeal or modification of this Article EIGHTH shall not adversely
affect any rights to indemnification and to the advancement of expenses of a
director or officer of the Corporation existing at the time of such repeal or
modification with respect to any acts or omissions occurring prior to such
repeal or modification.
NINTH: Action by Stockholders. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual meeting or special meeting of stockholders of the Corporation, and the
ability of the stockholders to consent in writing to the taking of any action
is hereby specifically denied.
TENTH: Meetings of Stockholders. Meetings of stockholders may be held
within or without the State of Delaware, as the By-Laws may provide. The books
of the Corporation may be kept (subject to any provision contained in the DGCL)
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outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the Corporation.
ELEVENTH: Special Meetings of Stockholders. Unless otherwise required
by law, special meetings of stockholders, for any purpose or purposes, may be
called by either the Chairman of the Board of Directors, if there be one, or a
majority of the Board of Directors and may not be called by any other person.
The ability of the stockholders to call a special meeting of stockholders is
hereby specifically denied.
TWELFTH: Amendment of By-Laws. In furtherance and not in limitation of
the powers conferred upon it by the laws of the State of Delaware, the Board of
Directors shall have the power to adopt, amend, alter or repeal the
Corporation's By-Laws. The affirmative vote of at least a majority of the entire
Board of Directors shall be required to adopt, amend, alter or repeal the
Corporation's By-Laws. The Corporation's By-Laws also may be adopted, amended,
altered or repealed by the affirmative vote of the holders of at least
two-thirds of the voting power of the shares entitled to vote at an election of
directors.
THIRTEENTH: Amendment of Certificate of Incorporation. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Amended and Restated Certificate of Incorporation in the manner now or
hereafter prescribed in this Amended and Restated Certificate of Incorporation,
the Corporation's By-Laws or the DGCL, and all rights herein conferred upon
stockholders are granted subject to such reservation; PROVIDED, HOWEVER, that,
notwithstanding any other provision of this Amended and Restated Certificate of
Incorporation (and in addition to any other vote that may be required by law),
the affirmative vote of the holders of at least two-thirds of the voting power
of the shares entitled to vote at an election of directors shall be required to
amend, alter, change or repeal, or to adopt any provision as part of this
Amended and Restated Certificate of Incorporation inconsistent with the purpose
and intent of Articles SEVENTH, EIGHTH, NINTH, ELEVENTH and TWELFTH of this
Amended and Restated Certificate of Incorporation or this Article THIRTEENTH.
* * *
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IN WITNESS WHEREOF, I, the undersigned, being the Chief Executive
Officer of the Corporation and authorized to execute this Amended and Restated
Certificate of Incorporation, do hereby declare and certify that this is my act
and deed and the facts herein stated are true, and accordingly have hereunto
set by my hand this ___ day of October, 1999
CLASSIC COMMUNICATIONS, INC.
By:
------------------------------
J. Merritt Belisle
Chief Executive Officer
Attest:
- -------------------------------
Bryan Noteboom, Secretary
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EXHIBIT 3.2(b)
FORM OF
AMENDED AND RESTATED
BYLAWS OF
CLASSIC COMMUNICATIONS, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockhold ers
for the election of directors or for any other purpose shall be held at such
time and place, either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors (or any duly authorized
committee thereof).
SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders
for the election of directors shall be held on such date and at such time as
shall be designated from time to time by the Board of Directors (or any duly
authorized committee thereof). Any other proper business may be transacted at
the annual meeting of stockholders.
<PAGE> 2
SECTION 3. SPECIAL MEETINGS. Unless otherwise required by law,
special meetings of stockholders, for any purpose or purposes, may be called as
set forth in the certificate of incorporation of the Corporation, as amended or
amended and restated from time to time (the "Certificate of Incorporation"). At
a special meeting of stockholders, only such business shall be conducted as
shall be specified in the notice of meeting (or any supplement thereto).
SECTION 4. NOTICE. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
SECTION 5. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No
business may be transacted at an annual meeting of stock holders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 5
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 5.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than ninety (90) days nor more than one hundred and twenty (120) days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by
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the stockholder in order to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the annual meeting was mailed or public disclosure of the date of
the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 5; PROVIDED, HOWEVER, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 5 shall be deemed to preclude discussion by
any stockholder of any such business. If the chairman of the annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
SECTION 6. NOMINATION OF DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise provided in
the Certificate of Incorporation. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders, or at any
special meeting of stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 6 and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 6.
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In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
(a) in the case of an annual meeting, not less than ninety (90) days nor more
than one hundred and twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in
the event that the annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of such
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such person and (iv)
any other information relating to such person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other
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filings required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 6. If the chairman of the meeting determines that a nomination was no
made in accordance with the foregoing procedures, the chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 7. ADJOURNMENTS. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 8. QUORUM. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock of
the Corporation issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
in the manner provided in Section 7, until a quorum shall be present or
represented.
SECTION 9. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V
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hereof, each stockholder represented at a meeting of stockholders shall be
entitled to cast one vote for each share of the capital stock entitled to vote
thereat held by such stockholder. Such votes may be cast in person or by proxy
but no proxy shall be voted on or after three years from its date, unless such
proxy provides for a longer period. The Board of Directors, in its discretion,
or the officer of the Corporation presiding at a meeting of stockholders, in
such officer's discretion, may require that any votes cast at such meeting shall
be cast by written ballot.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
SECTION 11. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation (or any duly authorized committee thereof) may adopt by resolution
such rules and regulations for the conduct of the meeting of the stockholders as
it shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board of Directors (or any duly authorized
committee thereof), the chairman of any meeting of the stockholders shall have
the right and authority to prescribe such rules, regulations and procedures and
to do all such acts as, in the judgment of such chairman, are appropriate for
the proper conduct of the meeting. Such rules, regulations or procedures,
whether adopted by the Board of Directors (or any duly authorized committee
thereof) or prescribed by the chairman of the meeting, may include, without
limitation, the following: (i) the establishment of an agenda or order of
business for the meeting; (ii) the determination of when the polls shall open
and close for any given matter to be voted on at the meeting; (iii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iv) limitations on attendance at or participation in the meeting to stockhold
ers of record of the corporation, their duly authorized and constituted proxies
or such other persons as the chairman of the meeting shall determine; (v)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (vi) limitations on the time allotted to questions or comments by
participants.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall consist of not less than five (5) nor more than fifteen (15)
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members, the exact number of which shall be determined from time to time by
resolution adopted by the Board of Directors (or any duly authorized committee
thereof). Except as otherwise provided in the Certificate of Incorporation or
these By-Laws, directors shall be elected by a plurality of the votes cast at
the annual meetings of stockholders and each director so elected shall hold
office until such director's successor is duly elected and qualified, or until
such director's earlier death, resignation or removal. Any director may resign
at any time upon written notice to the Corporation. Directors need not be
stockholders.
SECTION 2. VACANCIES. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office for a
term that shall coincide with the remaining term of that class and until their
successors are duly elected and qualified, or until their earlier death,
resignation or removal.
SECTION 3. REMOVAL. Subject to the rights, if any, of the
holders of shares of Preferred Stock then outstanding, any or all of the
directors of the Corporation may be removed from office at any time, but only
for cause and only by the affirmative vote of the holders of at least 51% of the
voting power of the Corporation's then outstanding capital stock entitled to
vote generally in the election of directors.
SECTION 4. DUTIES AND POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
(or any duly authorized committee thereof) which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these By-Laws required to be exercised
or done by the stockholders.
SECTION 5. MEETINGS. The Board of Directors (or any duly
authorized committee thereof) may hold meetings, both regular and special,
either within or without the State of Delaware. Regular meetings of the Board of
Directors (or any duly authorized committee thereof) may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors (or any duly authorized committee thereof). Special meetings
of the Board of Directors (or any duly authorized committee thereof) may be
called by the Chairman, if there be one, the Chief Executive Officer or by any
director. Notice thereof stating
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the place, date and hour of the meeting shall be given to each director either
by mail not less than forty-eight (48) hours before the date of the meeting, by
telephone or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
SECTION 6. QUORUM. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, (i) a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and (ii) at all meetings of any committee thereof, a
majority of the entire committee shall constitute a quorum for the transaction
of business, and, in each case, the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors (or any duly authorized committee thereof), the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
SECTION 7. ACTIONS BY WRITTEN CONSENT. Unless otherwise
provided in the Certificate of Incorporation, or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
SECTION 9. COMMITTEES. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
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disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any absent or disqualified member. Each committee
shall keep regular minutes and report to the Board of Directors when required.
Any committee, to the extent permitted by law and provided in the resolution
establishing such committee, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation.
SECTION 10. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors (or
any duly authorized committee thereof) and may be paid a fixed sum for
attendance at each meeting of the Board of Directors (or any duly authorized
committee thereof) or a stated salary as director, payable in cash or
securities. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors (or any duly authorized committee thereof) and
shall be a Chief Executive Officer, a Secretary and a Treasurer. The Board of
Directors (or any duly authorized committee thereof), in its discretion, also
may choose a Chairman of the Board of Directors (who must be a director), a
President and one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person, unless otherwise prohibited by law or the Certificate of Incorporation.
The officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman, need such officers be directors of the
Corporation.
SECTION 2. ELECTION. The Board of Directors (or any duly
authorized committee thereof), at its first meeting held after each annual
meeting of stockholders (or action by written consent of stockholders in lieu of
the annual
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meeting of stockholders), shall elect the officers of the Corporation who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors
(or any duly authorized committee thereof); and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the Chief Executive Officer, the
President or any Vice President or any other officer authorized to do so by the
Board of Directors (or any duly authorized committee thereof) and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors (or any duly authorized committee thereof) may,
by resolution, from time to time confer like powers upon any other person or
persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman,
if there be one, shall preside at all meetings of the stockholders and of the
Board of Directors. The Chairman shall be the chief administrative and executive
officer of the Corporation. The Chairman of the Board of Directors shall preside
at all meetings of the stockholders and the directors and shall see to it that
all orders and resolutions of the Board of Directors are carried into effect.
Except where by law the signature of the Chief Executive Officer is required,
the Chairman shall possess the same power as the Chief Executive Officer to sign
all contracts, certificates and other instruments of the Corporation which may
be authorized by the Board of Directors (or any duly authorized committee
thereof). The Chairman shall also perform such other duties and may exercise
such other powers as may from time to time be assigned by these By-Laws or by
the Board of Directors (or any duly authorized committee thereof).
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall, subject to the control of the Board of Directors, have general
supervision of the business of the Corporation and shall see that all orders
and resolutions of
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<PAGE> 11
the Board of Directors (or any duly authorized committee thereof) are carried
into effect. The Chief Executive Officer shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these By-Laws,
the Board of Directors or the Chief Executive Officer. If any bond, mortgage,
contract and other instrument of the Corporation is required by law or otherwise
to be signed by the president of a corporation and the Corporation does not have
a President, the Chief Executive Officer shall be deemed to be the President of
the Corporation and shall have the authority to execute such document. In the
absence or disability of the Chairman or if there be none, the Chief Executive
Officer shall preside at all meetings of the stockholders and the Board of
Directors. The Chief Executive Officer shall also perform such other duties and
may exercise such other powers as may from time to time be assigned to such
officer by these By-Laws or by the Board of Directors.
SECTION 6. PRESIDENT. At the request of the Chief Executive
Officer or in the Chief Executive Officer's absence or in the event of the Chief
Executive Officer's inability or refusal to act (and if there be no Chairman),
the President shall perform the duties of the Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer. The President shall perform such other duties
and have such other powers as the Board of Directors from time to time may
prescribe.
SECTION 7. VICE PRESIDENTS. At the request of the Chief
Executive Officer or in the Chief Executive Officer's absence or in the event of
the Chief Executive Officer's inability or refusal to act (and if there be no
Chairman or President), the Vice President, or the Vice Presidents if there is
more than one (in the order designated by the Board of Directors (or any duly
authorized committee thereof)), shall perform the duties of the Chief Executive
Officer, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chief Executive Officer. Each Vice President shall
perform such other duties and have such other powers as the Board of Directors
(or any duly authorized committee thereof) from time to time may prescribe. If
there be no Chairman, President and no Vice President, the Board of Directors
(or any duly authorized committee thereof) shall designate the officer of the
Corporation who, in the absence of the Chief Executive Officer or in the event
of the inability or refusal of the Chief Executive Officer to act, shall perform
the duties of the Chief Executive Officer, and when so
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acting, shall have all the powers of and be subject to all the restrictions upon
the Chief Executive Officer.
SECTION 8. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors (or any duly authorized committee thereof), the Chairman or the
Chief Executive Officer, under whose supervision the Secretary shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors (or any
duly authorized committee thereof) or the Chief Executive Officer may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors (or any duly authorized committee thereof) may give general
authority to any other officer to affix the seal of the Corporation and to
attest to the affixing by such officer's signature. The Secretary shall see that
all books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.
SECTION 9. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors (or any duly authorized committee thereof). The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors (or any duly authorized committee thereof), taking proper vouchers for
such disbursements, and shall render to the Chief Executive Officer and the
Board of Directors (or any duly authorized committee thereof), at its regular
meetings, or when the Board of Directors (or any duly authorized committee
thereof) so requires, an account of all transactions as Treasurer and of the
financial condition of the Corporation.
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SECTION 10. ASSISTANT SECRETARIES. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors (or any duly authorized
committee thereof), the Chief Executive Officer, President, if there be one,
any Vice President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Director (or any duly authorized
committee thereof), the Chief Executive Officer, President, if there be one, any
Vice President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer.
SECTION 12. OTHER OFFICERS. Such other officers as the Board
of Directors (or any duly authorized committee thereof) may choose shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors (or any duly authorized committee thereof). The Board of
Directors (or any duly authorized committee thereof) may delegate to any other
officer of the Corporation the power to choose such other officers and to
prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman, the Chief Executive Officer, President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has
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<PAGE> 14
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors (or any
duly authorized committee thereof) may direct a new certificate to be issued in
place of any certificate theretofore issued by the Corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate, the Board of Directors (or any
duly authorized committee thereof) may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or the owner's legal representative, to advertise the
same in such manner as the Board of Directors (or any duly authorized committee
thereof) shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of the Corporation by an entry showing from and to whom
transferred.
SECTION 5. RECORD DATE.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors (or any duly authorized
committee thereof) may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors (or any duly authorized committee thereof), and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors (or any duly
authorized committee thereof), the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at
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<PAGE> 15
the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; providing, however, that the Board of
Directors (or any duly authorized committee thereof) may fix a new record date
for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors (or any duly authorized
committee thereof) may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty days prior to such action. If no record
date is fixed, the record date for determining stockhold ers for any such
purpose shall be at the close of business on the day on which the Board of
Directors (or any duly authorized committee thereof) adopts the resolution
relating thereto.
SECTION 6. RECORD OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
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SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
(or any duly authorized committee thereof) at any regular or special meeting of
the Board of Directors (or any duly authorized committee thereof) (or any action
by written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors (or any duly authorized committee thereof) from time to time, in
its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors (or any duly authorized committee thereof) may modify or abolish any
such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors (or any duly authorized
committee thereof) may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors (or any duly authorized
committee thereof).
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SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
SECTION 1. The Corporation shall indemnify its directors and
officers to the fullest extent authorized or permitted by law, as now or
hereafter in effect, and such right to indemnification shall continue as to a
person who has ceased to be a director or officer of the Corporation and shall
inure to the benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors (or any duly authorized committee thereof). The
right to indemnification conferred by this Article VIII shall include the right
to be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
SECTION 2. The Corporation may, to the extent authorized from
time to time by the Board of Directors (or any duly authorized committee
thereof), provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
SECTION 3. The rights to indemnification and to the advance of
expenses conferred in this Article VIII shall not be exclusive of any other
right which any person may have or hereafter acquire under this Amended and
Restated Certificate of Incorporation, the By-Laws of the Corporation, any
statute, agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 4. Any repeal or modification of this Article VIII by
the stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer of
the Corporation
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existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. In furtherance and not in limitation of
the powers conferred upon it by the laws of the State of Delaware, the Board of
Directors shall have the power to adopt, amend, alter or repeal the
Corporation's By-Laws. The affirmative vote of at least a majority of the entire
Board of Directors shall be required to adopt, amend, alter or repeal the
Corporation's By-Laws. The Corporation's By-Laws also may be adopted, amended,
altered or repealed by the stockholders of the Corporation in accordance with
the Corporation's Certificate of Incorporation.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
* * *
Adopted as of: October , 1999.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
WITH
RONALD W. MARTIN
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of July 29, 1999, but is effective for all purposes as of the Commencement
Date (as hereinafter defined), by and between CLASSIC CABLE, INC., a Delaware
corporation (the "Employer"), and RONALD W. MARTIN, residing at (the
"Employee").
R E C I T A L S:
Simultaneously with the execution of this Agreement, the Employer has
purchased and acquired all of the shares of Buford Group, Inc., a Delaware
corporation.
The Employer recognizes the important contributions that the Employee
has made to Buford Group, Inc. as an officer and key employee.
The Employer wishes to take steps to ensure that the Employer will
continue to have the Employee's services available to the Employer and its
subsidiaries.
In consideration of the foregoing, the mutual provisions contained
herein, and for other good and valuable consideration, the parties agree with
each other as follows:
1. Employment. The Employer hereby employs the Employee, and the
Employee hereby accepts such employment, upon the terms and subject to the
conditions set forth in this Agreement.
2. Term. The term of employment under this Agreement shall commence on
July 28, 1999 (the "Commencement Date") and shall continue through July 27,
2000, provided, however, that beginning on the Commencement Date, and on each
day thereafter, the term of this Agreement shall be extended by one additional
day, unless either party to this Agreement gives the other written notice of
termination of employment.
3. Compensation; Reimbursement.
(a) The Employer shall pay to the Employee as compensation
for all services rendered by the Employee during the term of this
Agreement a basic annualized salary of $175,000 per year (the "Basic
Salary"), or such other amount as the parties may agree on from time
to time, payable in equal monthly installments or in other more
frequent installments, as determined by the Employer. The Board of
Directors of the Employer shall have the right to increase the
Employee's compensation from time to time by action of the Board of
Directors. In addition, the Board of Directors of the Employer, in its
sole discretion, may, with respect to any year during the term hereof,
award a bonus or bonuses to the Employee in addition to the bonuses
provided for in Section 3(b).
<PAGE> 2
(b) In addition to the Basic Salary paid pursuant to Section
3(a), the Employer may pay as incentive compensation an annual bonus based upon
the Employee's performance, as determined each year by the Board of Directors
of the Employer.
(c) The Employer shall reimburse the Employee for all
reasonable expenses incurred by the Employee in the performance of his duties
under this Agreement; provided, however, that the Employee must furnish to the
Employer an itemized account, satisfactory to the Employer, in substantiation
of such expenditures.
(d) The Employee shall be entitled to the use of (i) a
corporate vehicle, (ii) the use of a country club membership in the name of the
Employer, in either Tyler, Texas or Austin, Texas, subject to the approval of
the Employer; provided that Employer shall pay the membership fee and
reasonable monthly maintenance fees and Employee shall pay all other costs of
such membership; and (iii) such fringe benefits, including, but not limited to,
medical and other insurance benefits, as may be provided from time to time by
the Employer to other senior officers of the Employer.
4. Duties. The Employee is engaged as the Executive Vice
President of Operations of the Employer and of the Employer's various
subsidiaries. In addition, the Employee shall have such other duties and hold
such other offices as may from time to time be reasonably assigned to him by
the Chief Executive Officer and/or President of the Employer.
5. Extent of Services; Vacations and Days Off.
(a) During the term of his employment under this Agreement,
the Employee shall devote substantially all of his time, energy and attention
during regular business hours to the benefit and business of the Employer in
performing his duties pursuant to this Agreement.
(b) The Employee shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Employer as may be established from time to time by the Employer and applied to
other senior officers of the Employer.
6. Facilities. The Employer shall provide the Employee with a
fully furnished office, and the facilities of the Employer shall be generally
available to the Employee in the performance of his duties pursuant to this
Agreement.
7. Termination on Death, Illness or Incapacity.
(a) If the Employee dies during the term of his employment,
the Employer shall pay to the estate of the Employee the Basic Salary that
would have otherwise been paid to the Employee through the end of the month in
which his death occurs. The Employer shall have no additional financial
obligation under this Agreement to the Employee or his estate. After receiving
the payments provided in this subparagraph (a), the Employee and his estate
shall have no further rights under this Agreement.
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(b) (i) During any period of disability, illness or
incapacity during the term of this Agreement which renders the Employee at
least temporarily unable to perform the services required under this Agreement
for a period which does not exceed ninety (90) continuous days in any one-year
period, the Employee shall receive the compensation payable under Section 3(a)
of this Agreement plus any bonus compensation earned up to the date of
termination but not yet paid, less any benefits received by him under any
disability insurance carried by or provided by the Employer.
(ii) The term "permanent disability" as used in this
Agreement shall mean the inability of the Employee, as determined by the Board
of Directors of the Employer, by reason of physical or mental disability to
perform the duties required of him under this Agreement for a period of ninety
(90) days in any one-year period. Successive periods of disability, illness or
incapacity will be considered separate periods unless the later period of
disability, illness or incapacity is due to the same or related cause and
commences less than six (6) months from the ending of the previous period of
disability. Upon such determination, the Board of Directors may terminate the
Employee's employment under this Agreement upon ten (10) days' prior written
notice. If any determination of the Board of Directors with respect to
permanent disability is disputed by the Employee, the parties hereto agree to
abide by the decision of a panel of three physicians. The Employee and the
Employer shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Employee agrees to make himself
available for and to submit to examinations by such physicians as may be
directed by the Employer. Failure to submit to any such examination shall
constitute a breach of a material part of this Agreement.
8. Other Terminations.
(a) (i) The Employee may terminate his employment hereunder
upon giving not more than thirty (30) days' nor less than fifteen (15) days'
prior written notice to the Employer.
(ii) If the Employee gives notice pursuant to Section
8(a) above, the Employer shall have the right to relieve the Employee, in whole
or in part, of his duties under this Agreement (without reduction in
compensation through the termination date set forth in the notice to the
Employer).
(b) The Employer may terminate the Employee's employment
hereunder at any time, without prior notice.
(c) If the Employer shall terminate the employment of the
Employee without Good Cause (as defined below) effective on a date earlier than
the termination date provided for in Section 2, the Employee shall have the
nonforfeitable right to receive the Basic Salary, matching 401-(k)
contributions consistent with past practice (to the extent permitted by law),
health insurance and other existing benefits, paid monthly, that he is entitled
to for the remainder of the term of this Agreement; provided that,
notwithstanding such termination of employment, the Employee's covenants set
forth in Sections 9, 10 and 11 are intended to and shall remain in full force
and effect.
(d) (i) If the employment of the Employee is terminated for
Good Cause, or if the Employee voluntarily terminates his employment, the
Employer shall pay to the Employee any Basic Salary earned but not paid to the
Employee prior to the effective date of such termination.
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<PAGE> 4
Under such circumstances, such payment shall be in full and complete discharge
of any and all liabilities or obligations of the Employer to the Employee
hereunder, and the Employee shall be entitled to no further benefits under this
Agreement.
(ii) "Good cause" shall include:
(1) the Employee's conviction of a criminal offense
that has a material adverse effect upon the business or reputation or the
Employer or any affiliate of the Employer;
(2) commission by the Employee of a material breach
of his duty of loyalty to the Employer, any affiliate of the Employer or
Sections 9, 10 or 11 of this Agreement; and
(3) the willful failure by the Employee to
substantially perform the Employee's duties specified hereunder or such other
duties as may be reasonably defined by the Chief Executive Officer or President
of the Employer from time to time (other than any such failure resulting from
the Employee's disability), which failure to perform has not been cured within
fifteen (15) days after a written demand for substantial performance is
delivered to the Employee by the Chief Executive Officer or President of the
Employer; or
(4) any fraud, material misappropriation, or
embezzlement by the Employee in connection with the operation or management of
the business of the Employer.
(e) The parties agree that, because there can be no exact
measure of the damage that would occur to the Employee as a result of a
termination by the Employer of the Employee's employment without good cause,
the payments and benefits paid and provided pursuant to this Agreement shall be
deemed to constitute liquidated damages and not a penalty for the Employer's
termination of the Employee's employment without good cause; and provided that
Employee shall be required to use all reasonable efforts to mitigate his
damages.
(f) The Employer's obligation to make any of the payments or
provide any of the benefits described above is conditioned upon the Employee
delivering a full release of any known or unknown claims arising out of or
related to this Agreement or the Employee's employment or termination of
employment with the Employer in a form which is reasonably acceptable to the
Employer.
9. Disclosure. The Employee agrees that during the term of his
employment by the Employer, he will disclose and disclose only to the Employer
all material ideas, methods, plans, developments or improvements known by him
which relate directly or indirectly to the business of the Employer, whether
acquired by the Employee before or during his employment by the Employer.
Nothing in this Section 9 shall be construed as requiring any such
communication where the idea, plan, method or development is lawfully protected
from disclosure as a trade secret of a third party or by any other lawful
prohibition against such communication.
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<PAGE> 5
10. Confidentiality. The Employee agrees to keep in strict secrecy and
confidence any and all information the Employee assimilates or to which he has
access during his employment by the Employer and which has not been publicly
disclosed and is not a matter of common knowledge in the fields of work of the
Employer. The Employee agrees that both during and after the term of his
employment by the Employer, he will not, without the prior written consent of
the Employer, disclose any such confidential information to any third person,
partnership, joint venture, company, corporation or other organization.
11. Non-Competition; Non-Solicitation; Non-Disparagement. The Employee
hereby acknowledges that, during and solely as a result of his employment by
the Employer, he has received and shall continue to receive: (1) special
training and education with respect to the operations of a cable television
company and other related matters, and (2) access to confidential information
and business and professional contacts. In consideration of the special and
unique opportunities afforded to the Employee by the Employer as a result of
the Employee's employment, as outlined in the previous sentence, the Employee
hereby agrees as follows:
(a) During a period starting on the date hereof and ending
two (2) years following the termination of his employment under this Agreement,
the Employee shall not, without the prior written consent of the Employer, (i)
directly or indirectly engage in any business that competes with the Employer
or any Affiliate of the Employer in their conduct of the cable television
business, or otherwise receive compensation for any services rendered regarding
any aspect of the cable television business anywhere within a thirty-five (35)
mile radius of any cable television system operated by the Employer or any
Affiliate of the Employer. The Employee acknowledges that these limited
prohibitions are reasonable as to time, geographical area and scope of
activities to be restrained and that the limited prohibitions do not impose a
greater restraint than is necessary to protect the Employer's goodwill,
proprietary information and other business interests. The mere ownership of a
de minimis amount of securities in any competitive enterprise and exercise of
rights appurtenant thereto.
(b) During his employment with the Employer and, except as
may be otherwise herein provided, for a period of two (2) years following the
termination of his employment with the Employer, regardless of the reason for
such termination, the Employee agrees he will refrain from and will not,
directly or indirectly, as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, representative, salesman or otherwise (1) solicit any of the
employees of the Employer to terminate their employment or (2) accept
employment with or seek remuneration by any of the clients or customers of the
Employer with whom the Employer did business during the term of the Employee's
employment.
(c) The Employee agrees that, during the term of this
Agreement and the non-competition period, he will not make or publish any
statement which is, or may reasonably be considered to be, disparaging of the
Employer, its subsidiaries or affiliates, or directors, officers, employees or
the operations, products or services of the Employer or any of its subsidiaries
or affiliates, except in connection with the performance of his services
hereunder to the extent the Employee makes the statement to employees of the
Employer or its affiliates in good faith in furtherance of the Employer's
business.
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(d) The period of time during which the Employee is
prohibited from engaging in certain business practices pursuant to Sections
11(a), (b) or (c) shall be extended by any length of time during which the
Employee is in breach of such covenants.
(e) It is understood by and between the parties hereto that
the foregoing restrictive covenants set forth in Sections 11(a) through (d) are
essential elements of this Agreement, and that, but for the agreement of the
Employee to comply with such covenants, the Employer would not have agreed to
enter into this Agreement. Such covenants by the Employee shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Employee against the Employer, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Employer of such covenants.
(f) It is agreed by the Employer and Employee that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Employer and the Employee agree that, if any court of competent
jurisdiction determines the specified time period or the specified geographical
area applicable to this Section 11 to be invalid, unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, non-arbitrary and not against public policy may be
enforced against the Employee. The Employer and the Employee agree that the
foregoing covenants are appropriate and reasonable when considered in light of
the nature and extent of the business conducted by the Employer.
12. Specific Performance. The Employee agrees that damages at law will
be an insufficient remedy to the Employer if the Employee violates the terms of
Sections 9, 10 or 11 of this Agreement and that the Employer would suffer
irreparable damage as a result of such violation. Accordingly, it is agreed
that the Employer shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief to enforce the provisions of such
Sections, which injunctive relief shall be in addition to any other rights or
remedies available to the Employer. The Employee agrees to pay to the Employer
all costs and expenses incurred by the Employer relating to the enforcement of
the terms of Sections 9, 10 or 11 of this Agreement, including reasonable fees
and disbursements of counsel (both at trial and in appellate proceedings).
13. Compliance with Other Agreements. The Employee represents and
warrants that the execution of this Agreement by him and his performance of his
obligations hereunder will not conflict with, result in the breach of any
provision of or the termination of or constitute a default under any Agreement
to which the Employee is a party or by which the Employee is or may be bound.
14. Waiver of Breach. The waiver by the Employer of a breach of any of
the provisions of this Agreement by the Employee shall not be construed as a
waiver of any subsequent breach by the Employee.
15. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Employer. This
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<PAGE> 7
Agreement is a personal employment contract and the rights, obligations and
interests of the Employee hereunder may not be sold, assigned, transferred,
pledged or hypothecated.
16. Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, between
the Employer (or its subsidiaries) and Employee, with respect to the subject
matter hereof. This Agreement may be changed only by an agreement in writing
signed by the party against whom any waiver, change, amendment, modification or
discharge is sought.
17. Construction and Interpretation.
(a) This Agreement shall be governed by and construed
pursuant to the laws of the State of Texas.
(b) The headings of the various sections in this Agreement
are inserted for convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
(c) Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, unenforceability or non-authorization
without invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
18. Notice. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy
or similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and five days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent:
To the Employer: Classic Cable, Inc.
515 Congress Avenue
Suite 2626
Austin, Texas 78701
Attention: President
7
<PAGE> 8
With copies to: Winstead Sechrest & Minick P.C.
100 Congress Avenue
Suite 800
Austin, Texas 78701
Attention: Timothy E. Young
To the Employee: at the address stated in the
preamble hereto
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first-above written.
CLASSIC CABLE, INC.
By: /s/ Steven E. Seach
-----------------------------------
Name: Steven E. Seach
Title: President and Chief Financial Officer
/s/ Ronald W. Martin
-----------------------------------
RONALD W. MARTIN
8
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
WITH
ELIZABETH KAY MONIGOLD
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of July 29, 1999, but is effective for all purposes as of the
Commencement Date (as hereinafter defined), by and between CLASSIC CABLE, INC.,
a Delaware corporation (the "Employer"), and ELIZABETH KAY MONIGOLD, residing
at 1819 Bent Tree Lane, Tyler, Texas 75703 (the "Employee").
R E C I T A L S:
Simultaneously with the execution of this Agreement, the Employer has
purchased and acquired all of the shares of Buford Group, Inc., a Delaware
corporation.
The Employer recognizes the important contributions that the Employee
has made to Buford Group, Inc. as an officer and key employee.
The Employer wishes to take steps to ensure that the Employer will
continue to have the Employee's services available to the Employer and its
subsidiaries.
In consideration of the foregoing, the mutual provisions contained
herein, and for other good and valuable consideration, the parties agree with
each other as follows:
1. Employment. The Employer hereby employs the Employee, and the
Employee hereby accepts such employment, upon the terms and subject to the
conditions set forth in this Agreement.
2. Term. The term of employment under this Agreement shall commence on
July 28, 1999 (the "Commencement Date") and shall continue through July 27,
2000, provided, however, that beginning on the Commencement Date, and on each
day thereafter, the term of this Agreement shall be extended by one additional
day, unless either party to this Agreement gives the other written notice of
termination of employment.
3. Compensation; Reimbursement.
(a) The Employer shall pay to the Employee as compensation
for all services rendered by the Employee during the term of this Agreement a
basic annualized salary of $120,000 per year (the "Basic Salary"), or such
other amount as the parties may agree on from time to time, payable in equal
monthly installments or in other more frequent installments, as determined by
the Employer. The Board of Directors of the Employer shall have the right to
increase the Employee's compensation from time to time by action of the Board
of Directors. In addition, the Board of Directors of the Employer, in its sole
discretion, may, with respect to any year during the term hereof, award a bonus
or bonuses to the Employee in addition to the bonuses provided for in Section
3(b).
<PAGE> 2
(b) In addition to the Basic Salary paid pursuant to Section
3(a), the Employer may pay as incentive compensation an annual bonus based upon
the Employee's performance, as determined each year by the Board of Directors
of the Employer.
(c) The Employer shall reimburse the Employee for all
reasonable expenses incurred by the Employee in the performance of her duties
under this Agreement; provided, however, that the Employee must furnish to the
Employer an itemized account, satisfactory to the Employer, in substantiation
of such expenditures.
(d) The Employee shall be entitled to the use of a corporate
vehicle and such fringe benefits, including, but not limited to, medical and
other insurance benefits, as may be provided from time to time by the Employer
to other senior officers of the Employer.
4. Duties. The Employee is engaged as the Executive Vice President of
Administration of the Employer and of the Employer's various subsidiaries. In
addition, the Employee shall have such other duties and hold such other offices
as may from time to time be reasonably assigned to her by the Chief Executive
Officer and/or President of the Employer.
5. Extent of Services; Vacations and Days Off.
(a) During the term of her employment under this Agreement,
the Employee shall devote substantially all of her time, energy and attention
during regular business hours to the benefit and business of the Employer in
performing her duties pursuant to this Agreement.
(b) The Employee shall be entitled to vacations with pay and
to such personal and sick leave with pay in accordance with the policy of the
Employer as may be established from time to time by the Employer and applied to
other senior officers of the Employer.
6. Facilities. The Employer shall provide the Employee with a fully
furnished office, and the facilities of the Employer shall be generally
available to the Employee in the performance of her duties pursuant to this
Agreement.
7. Termination on Death, Illness or Incapacity.
(a) If the Employee dies during the term of her employment,
the Employer shall pay to the estate of the Employee the Basic Salary that
would have otherwise been paid to the Employee through the end of the month in
which her death occurs. The Employer shall have no additional financial
obligation under this Agreement to the Employee or her estate. After receiving
the payments provided in this subparagraph (a), the Employee and her estate
shall have no further rights under this Agreement.
(b) (i) During any period of disability, illness or
incapacity during the term of this Agreement which renders the Employee at
least temporarily unable to perform the services required under this Agreement
for a period which does not exceed ninety (90) continuous days in any one-year
period, the Employee shall receive the compensation payable under Section 3(a)
of this Agreement plus any bonus compensation earned up to the date of
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<PAGE> 3
termination but not yet paid, less any benefits received by her under any
disability insurance carried by or provided by the Employer.
(ii) The term "permanent disability" as used in this
Agreement shall mean the inability of the Employee, as determined by the Board
of Directors of the Employer, by reason of physical or mental disability to
perform the duties required of her under this Agreement for a period of ninety
(90) days in any one-year period. Successive periods of disability, illness or
incapacity will be considered separate periods unless the later period of
disability, illness or incapacity is due to the same or related cause and
commences less than six (6) months from the ending of the previous period of
disability. Upon such determination, the Board of Directors may terminate the
Employee's employment under this Agreement upon ten (10) days' prior written
notice. If any determination of the Board of Directors with respect to
permanent disability is disputed by the Employee, the parties hereto agree to
abide by the decision of a panel of three physicians. The Employee and the
Employer shall each appoint one member, and the third member of the panel shall
be appointed by the other two members. The Employee agrees to make herself
available for and to submit to examinations by such physicians as may be
directed by the Employer. Failure to submit to any such examination shall
constitute a breach of a material part of this Agreement.
8. Other Terminations.
(a) (i) The Employee may terminate his employment hereunder
upon giving not more than thirty (30) days' nor less than fifteen (15) days'
prior written notice to the Employer.
(ii) If the Employee gives notice pursuant to Section 8(a)
above, the Employer shall have the right to relieve the Employee, in whole or
in part, of her duties under this Agreement (without reduction in compensation
through the termination date set forth in the notice to the Employer).
(b) The Employer may terminate the Employee's employment
hereunder at any time, without prior notice.
(c) If the Employer shall terminate the employment of the
Employee without Good Cause (as defined below) effective on a date earlier than
the termination date provided for in Section 2, the Employee shall have the
nonforfeitable right to receive the Basic Salary, matching 401-(k)
contributions consistent with past practice (to the extent permitted by law),
health insurance and other existing benefits, paid monthly, that she is
entitled to for the remainder of the term of this Agreement; provided that,
notwithstanding such termination of employment, the Employee's covenants set
forth in Sections 9, 10 and 11 are intended to and shall remain in full force
and effect.
(d) (i) If the employment of the Employee is terminated for
Good Cause, or if the Employee voluntarily terminates her employment, the
Employer shall pay to the Employee any Basic Salary earned but not paid to the
Employee prior to the effective date of such termination. Under such
circumstances, such payment shall be in full and complete
3
<PAGE> 4
discharge of any and all liabilities or obligations of the Employer to the
Employee hereunder, and the Employee shall be entitled to no further benefits
under this Agreement.
(ii) "Good cause" shall include:
(1) the Employee's conviction of a criminal
offense that has a material adverse effect upon the business or reputation or
the Employer or any affiliate of the Employer;
(2) commission by the Employee of a
material breach of her duty of loyalty to the Employer, any affiliate of the
Employer, or Sections 9 or 11 of this Agreement; and
(3) the willful failure by the Employee to
substantially perform the Employee's duties specified hereunder or such other
duties as may be reasonably defined by the Chief Executive Officer or President
of the Employer from time to time (other than any such failure resulting from
the Employee's disability), which failure to perform has not been cured within
fifteen (15) days after a written demand for substantial performance is
delivered to the Employee by the Chief Executive Officer or President of the
Employer; or
(4) any fraud, material misappropriation,
or embezzlement by the Employee in connection with the operation or management
of the business of the Employer.
(e) The parties agree that, because there can be no exact
measure of the damage that would occur to the Employee as a result of a
termination by the Employer of the Employee's employment without good cause,
the payments and benefits paid and provided pursuant to this Agreement shall be
deemed to constitute liquidated damages and not a penalty for the Employer's
termination of the Employee's employment without good cause; provided that the
Employee shall be required to use all reasonable efforts to mitigate her
damages.
(f) The Employer's obligation to make any of the payments or
provide any of the benefits described above is conditioned upon the Employee
delivering a full release of any known or unknown claims arising out of or
related to this Agreement or the Employee's employment or termination of
employment with the Employer in a form which is reasonably acceptable to the
Employer.
9. Disclosure. The Employee agrees that during the term of her
employment by the Employer, she will disclose and disclose only to the Employer
all material ideas, methods, plans, developments or improvements known by her
which relate directly or indirectly to the business of the Employer, whether
acquired by the Employee before or during her employment by the Employer.
Nothing in this Section 9 shall be construed as requiring any such
communication where the idea, plan, method or development is lawfully protected
from disclosure as a trade secret of a third party or by any other lawful
prohibition against such communication.
10. Confidentiality. The Employee agrees to keep in strict secrecy and
confidence any and all information the Employee assimilates or to which she has
access during her
4
<PAGE> 5
employment by the Employer and which has not been publicly disclosed and is not
a matter of common knowledge in the fields of work of the Employer. The
Employee agrees that both during and after the term of her employment by the
Employer, she will not, without the prior written consent of the Employer,
disclose any such confidential information to any third person, partnership,
joint venture, company, corporation or other organization.
11. Non-Competition; Non-Solicitation; Non-Disparagement. The Employee
hereby acknowledges that, during and solely as a result of her employment by
the Employer, she has received and shall continue to receive: (1) special
training and education with respect to the operations of a cable television
company and other related matters, and (2) access to confidential information
and business and professional contacts. In consideration of the special and
unique opportunities afforded to the Employee by the Employer as a result of
the Employee's employment, as outlined in the previous sentence, the Employee
hereby agrees as follows:
(a) During a period starting on the date hereof and ending
two (2) years following the termination of her employment under this Agreement,
the Employee shall not, without the prior written consent of the Employer, (i)
directly or indirectly engage in any business that competes with the Employer
or any Affiliate of the Employer in their conduct of the cable television
business, or otherwise receive compensation for any services rendered regarding
any aspect of the cable television business anywhere within a thirty-five (35)
mile radius of any cable television system operated by the Employer or any
Affiliate of the Employer; or (ii) engage or participate, directly or
indirectly, in any business which is substantially similar to that of the
Employer or any Affiliate of the Employer, including, without limitation,
serving as a consultant, administrator, officer, director, employee, manager,
landlord, lender, guarantor, or in any similar or related capacity or otherwise
receive compensation for services rendered regarding any aspect of the cable
television business anywhere within the states in which any cable television
system is operated by the Employer or any Affiliate of the Employer. The
Employee acknowledges that these limited prohibitions are reasonable as to
time, geographical area and scope of activities to be restrained and that the
limited prohibitions do not impose a greater restraint than is necessary to
protect the Employer's goodwill, proprietary information and other business
interests. The mere ownership of a de minimis amount of securities in any
competitive enterprise and exercise of rights appurtenant thereto are not
prohibited.
(b) During her employment with the Employer and, except as
may be otherwise herein provided, for a period of two (2) years following the
termination of her employment with the Employer, regardless of the reason for
such termination, the Employee agrees she will refrain from and will not,
directly or indirectly, as an individual, partner, officer, director,
stockholder, employee, advisor, independent contractor, joint venturer,
consultant, agent, representative, salesman or otherwise (1) solicit any of the
employees of the Employer to terminate their employment or (2) accept
employment with or seek remuneration by any of the clients or customers of the
Employer with whom the Employer did business during the term of the Employee's
employment.
(c) The Employee agrees that, during the term of this
Agreement and the non-competition period, he will not make or publish any
statement which is, or may reasonably be considered to be, disparaging of the
Employer, its subsidiaries or affiliates, or directors,
5
<PAGE> 6
officers, employees or the operations, products or services of the Employer or
any of its subsidiaries or affiliates, except in connection with the
performance of his services hereunder to the extent the Employee makes the
statement to employees of the Employer or its affiliates in good faith in
furtherance of the Employer's business.
(d) The period of time during which the Employee is
prohibited from engaging in certain business practices pursuant to Sections
11(a), (b) or (c) shall be extended by any length of time during which the
Employee is in breach of such covenants.
(e) It is understood by and between the parties hereto that
the foregoing restrictive covenants set forth in Sections 11(a) through (d) are
essential elements of this Agreement, and that, but for the agreement of the
Employee to comply with such covenants, the Employer would not have agreed to
enter into this Agreement. Such covenants by the Employee shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of the Employee against the Employer, whether
predicated on this Agreement, or otherwise, shall not constitute a defense to
the enforcement by the Employer of such covenants.
(f) It is agreed by the Employer and the Employee that if any
portion of the covenants set forth in this Section 11 are held to be invalid,
unreasonable, arbitrary or against public policy, then such portion of such
covenants shall be considered divisible both as to time and geographical area.
The Employer and the Employee agree that, if any court of competent
jurisdiction determines the specified time period or the specified geographical
area applicable to this Section 11 to be invalid, unreasonable, arbitrary or
against public policy, a lesser time period or geographical area which is
determined to be reasonable, non-arbitrary and not against public policy may be
enforced against the Employee. The Employer and the Employee agree that the
foregoing covenants are appropriate and reasonable when considered in light of
the nature and extent of the business conducted by the Employer.
12. Specific Performance. The Employee agrees that damages at law will
be an insufficient remedy to the Employer if the Employee violates the terms of
Sections 9, 10 or 11 of this Agreement and that the Employer would suffer
irreparable damage as a result of such violation. Accordingly, it is agreed
that the Employer shall be entitled, upon application to a court of competent
jurisdiction, to obtain injunctive relief to enforce the provisions of such
Sections, which injunctive relief shall be in addition to any other rights or
remedies available to the Employer. The Employee agrees to pay to the Employer
all costs and expenses incurred by the Employer relating to the enforcement of
the terms of Sections 9, 10 or 11 of this Agreement, including reasonable fees
and disbursements of counsel (both at trial and in appellate proceedings).
13. Compliance with Other Agreements. The Employee represents and
warrants that the execution of this Agreement by her and her performance of her
obligations hereunder will not conflict with, result in the breach of any
provision of or the termination of or constitute a default under any Agreement
to which the Employee is a party or by which the Employee is or may be bound.
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<PAGE> 7
14. Waiver of Breach. The waiver by the Employer of a breach of any of
the provisions of this Agreement by the Employee shall not be construed as a
waiver of any subsequent breach by the Employee.
15. Assignment. The rights and obligations of the Employer under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Employer. This Agreement is a personal employment
contract and the rights, obligations and interests of the Employee hereunder
may not be sold, assigned, transferred, pledged or hypothecated.
16. Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, between
the Employer (or its subsidiaries) and Employee, with respect to the subject
matter hereof. This Agreement may be changed only by an agreement in writing
signed by the party against whom any waiver, change, amendment, modification or
discharge is sought.
17. Construction and Interpretation.
(a) This Agreement shall be governed by and construed
pursuant to the laws of the State of Texas.
(b) The headings of the various sections in this Agreement
are inserted for convenience of the parties and shall not affect the meaning,
construction or interpretation of this Agreement.
(c) Any provision of this Agreement which is determined by a
court of competent jurisdiction to be prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition, unenforceability or non- authorization
without invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction. In any
such case, such determination shall not affect any other provision of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect. If any provision or term of this Agreement is susceptible to
two or more constructions or interpretations, one or more of which would render
the provision or term void or unenforceable, the parties agree that a
construction or interpretation which renders the term or provision valid shall
be favored.
18. Notice. All notices which are required or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given when
received if personally delivered; when transmitted if transmitted by telecopy
or similar electronic transmission method; one working day after it is sent, if
sent by recognized expedited delivery service; and five days after it is sent,
if mailed, first class mail, certified mail, return receipt requested, with
postage prepaid. In each case notice shall be sent:
To the Employer: Classic Cable, Inc.
515 Congress Avenue
Suite 2626
7
<PAGE> 8
Austin, Texas 78701
Attention: President
With copies to: Winstead Sechrest & Minick P.C.
100 Congress Avenue
Suite 800
Austin, Texas 78701
Attention: Timothy E. Young
To the Employee: at the address stated in the preamble hereto
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first-above written.
CLASSIC CABLE, INC.
By: /s/ Steven E. Seach
----------------------------
Name: Steven E. Seach
Title: President and Chief Financial Officer
/s/ Elizabeth Kay Monigold
--------------------------------
ELIZABETH KAY MONIGOLD
8
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 30, 1999 (insofar as it relates to the statements
of operations, stockholders' equity (deficit) and cash flows for the year ended
December 31, 1996) in the Registration Statement (Form S-1 No. 333- ) and
related Prospectus of Classic Communications, Inc. for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
October 11, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Buford Group, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Experts" and "Selected Historical Consolidated
Financial Data -- Buford Group, Inc." in the prospectus.
/s/ KPMG LLP
Dallas, Texas
October 15, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated October 14, 1999 relating to the financial statements and
financial statement schedule listed in the Index at Item 16(b) of Classic
Communications, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" and "Selected
Historical Consolidated Financial Data -- Classic Communications, Inc." in such
Registration Statement.
PricewaterhouseCoopers LLP
Austin, Texas
October 18, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated July 26, 1999 relating to the financial statements of Star
Cable Associates, which appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Austin, Texas
October 18, 1999
