<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1999
REGISTRATION NO. 333-63641
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 6
TO
FORM S-4
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 (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
515 CONGRESS AVENUE
SUITE 2626
AUSTIN, TEXAS 78701
512/476-9095
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
J. MERRITT BELISLE
CHIEF EXECUTIVE OFFICER
CLASSIC COMMUNICATIONS, INC.
515 CONGRESS AVENUE
SUITE 2626
AUSTIN, TEXAS 78701
512/476-9095
(Name, address including zip code, and telephone number, including area code, of
agent for service)
---------------------
<TABLE>
<S> <C>
Copies of all communications to:
TIMOTHY E. YOUNG, ESQ. BRUCE A. CHEATHAM, ESQ.
WINSTEAD SECHREST & MINICK P.C. WINSTEAD SECHREST & MINICK P.C.
100 CONGRESS AVE., SUITE 800 1201 ELM STREET, SUITE 5400
AUSTIN, TEXAS 78701 DALLAS, TEXAS 75270
512/370-2804 214/745-5213
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
[CLASSIC CABLE LOGO]
PROSPECTUS
EXCHANGE OFFER FOR
$114,000,000
13 1/4% SENIOR DISCOUNT NOTES DUE 2009
Terms of Exchange Offer
- Expires 5:00 p.m., New York City time, , 1999, unless
extended
- Not subject to any condition other than that the exchange offer not
violate applicable law or any applicable interpretation of the Staff of
the Securities and Exchange Commission
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged
- Tenders of outstanding notes may be withdrawn any time prior to the
expiration of the exchange offer
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes
- We will not receive any proceeds from the exchange offer
- The terms of the notes to be issued are substantially identical to the
outstanding notes, except for certain transfer restrictions and
registration rights relating to the outstanding notes
- As of March 31, 1999, on a pro forma basis, we had approximately $479.7
million of senior indebtedness
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1999
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
As a result of this exchange offer, we will become subject to the
informational requirements of the Securities Exchange Act of 1934. As a result,
we will be required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any of these reports, statements and other information
that we may 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 will also be 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-4 to register with the SEC
the exchange notes to be issued in exchange for the old notes. 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.
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical fact, included in this
prospectus are forward-looking statements. Forward-looking statements generally
can 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 following the Buford acquisition;
- 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 our outstanding indebtedness;
- 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.
<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 the acquisition of Buford Group, Inc. by our subsidiary, Classic
Cable, Inc. and the other acquisitions completed by either Classic Cable or
Buford prior to the date of this prospectus. Reference should be made to the
"Selected Historical Consolidated Financial Data -- Classic Communications,
Inc.," "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.
THE EXCHANGE OFFER
Exchange Notes............. The forms and terms of the exchange notes are
identical in all material respects to the terms of
the old notes, except for certain transfer
restrictions, registration rights and liquidated
damages provisions relating to the old notes. These
are described elsewhere in this prospectus under
"Description of the Exchange Notes" and "The
Exchange Offer."
The Exchange Offer......... We are offering to exchange up to $114,000,000 of
the exchange notes for up to $114,000,000 of the
old notes. Old notes may be exchanged only in
$1,000 increments.
Expiration Date; Withdrawal
of Tender.................. Unless we extend the exchange offer, it will expire
at 5:00 p.m., New York City time, on ,
1999. We will not extend this time period to a date
later than , 1999. You may withdraw any
old notes you tender pursuant to the exchange offer
at any time prior to , 1999. We will
return, as promptly as practicable after the
expiration or termination of the exchange offer,
any old notes not accepted for exchange for any
reason without expense to you.
Certain Conditions to the
Exchange Offer........... The exchange offer is subject to the following
conditions, which we may waive.
These conditions permit us to refuse acceptance of
the old notes or to terminate the exchange offer
if:
- a lawsuit is instituted or threatened in a court
or before a government agency which may impair
our ability to proceed with the exchange offer;
- a law, statute, rule or regulation is proposed or
enacted or interpreted by the SEC which may
impair our ability to proceed with the exchange
offer; or
- any governmental approval is not received which
we think is necessary to consummate the exchange
offer.
Procedures for Tendering
Old Notes................ If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal
in accordance with the instructions, and deliver
the letter of transmittal, along with the old notes
and any other
1
<PAGE> 5
required documentation, to the exchange agent. By
executing the letter of transmittal, you will
represent to us that, among other things:
- any exchange notes you receive will be acquired
in the ordinary course of your business;
- you have no arrangement with any person to
participate in the distribution of the exchange
notes; and
- you are not an affiliate of Classic or, if you
are an affiliate, you will comply with the
registration and prospectus delivery requirements
of the Securities Act of 1933 to the extent
applicable.
If you hold your old notes through the Depository
Trust Corporation and wish to participate in the
exchange offer, you may do so through the
Depository Trust Corporation's Automated Tender
Offer Program. By participating in the exchange
offer, you will agree to be bound by the letter of
transmittal as though you had executed such letter
of transmittal.
Interest on the Exchange
Notes...................... Interest on the exchange notes will not accrue
until August 1, 2003. No additional interest will
be paid on the old notes tendered and accepted for
exchange.
Payment of Interest........ Cash interest will not accrue on the exchange notes
prior to August 1, 2003, at which time cash
interest will accrue on the exchange notes at a
rate of 13 1/4% per annum, is payable semi-annually
in arrears on each February 1 and August 1,
commencing on February 1, 2004.
Special Procedures for
Beneficial Owners.......... If you are a beneficial owner whose old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
wish to tender such old notes in the exchange
offer, please contact the registered holder as soon
as possible and instruct them to tender on your
behalf and comply with our instructions set forth
elsewhere in this prospectus.
Guaranteed Delivery
Procedure.................. If you wish to tender your old notes, you may, in
certain instances, do so according to the
guaranteed delivery procedures set forth elsewhere
in this prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures."
Registration Rights
Agreement.................. We sold the old notes to the initial purchaser in a
transaction exempt from the registration
requirements of the Securities Act on July 29,
1998. At that time, Classic and the initial
purchaser entered into a registration rights
agreement which grants the holders of the old notes
certain exchange and registration rights. This
exchange offer satisfies those rights, which
terminate upon consummation of the exchange offer.
You will not be entitled to any exchange or
registration rights with respect to the exchange
notes.
Certain Federal Tax
Considerations........... With respect to the exchange of the old notes for
the exchange notes:
- the exchange will not constitute a taxable
exchange for U.S. federal income tax purposes;
- you will not recognize gain or loss upon receipt
of the exchange notes;
2
<PAGE> 6
- you must include the original issue discount in
gross income to the same extent as the old notes;
and
- you will be able to tack the holding period of
the exchange notes to the holding period of the
old notes.
Use of Proceeds............ We will not receive any proceeds from the exchange
of notes pursuant to the exchange offer.
Exchange Agent............. We have appointed Bank One, N.A., as the exchange
agent for the exchange offer. The address and
telephone number of the exchange agent are Bank
One, N.A., 235 West Schrock Road, Westerville, Ohio
43271-0184, Attention: Corporate Trust Operations,
telephone (800) 346-5153.
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<PAGE> 7
TERMS OF THE NOTES
The form and terms of the exchange notes are substantially the same as the
form and terms of the old notes, except that the exchange notes are registered
under the Securities Act. As a result, the exchange notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damages provisions contained in the old notes.
Issuer..................... Classic Communications, Inc.
Securities Offered......... $114,000,000 aggregate principal amount of 13 1/4%
Senior Discount Notes due 2009.
Maturity................... August 1, 2009
Interest Payment Dates..... February 1 and August 1 of each year, commencing
February 1, 2004.
Sinking Fund............... None.
Optional Redemption........ Except as described below and under "Description of
the Exchange Notes -- Repurchase at the Option of
Holders -- Change of Control," 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 (as
defined), 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. In the event of a change
of control, Classic may not have sufficient funds
available to repurchase the exchange notes.
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 exchange notes will
be issued and the old 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;
4
<PAGE> 8
- sale and leaseback transactions; and
- liens.
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.
Absence of a Public Market
for the Exchange Notes..... In general, you may freely transfer the exchange
notes. However, there are exceptions to this
general statement. Holders may not freely transfer
the exchange notes if:
- they acquire the exchange notes outside of their
ordinary course of business;
- they have an arrangement with any person to
participate in the distribution of the exchange
notes; or
- they are an affiliate of Classic.
Further, the exchange notes will be new securities
for which there will not initially be a market. As a
result, the development or liquidity of any market
for the exchange notes may not occur. The initial
purchaser has advised us that it currently intends
to make a market in the exchange notes. However, you
should be aware that the initial purchaser is not
obligated to do so. In the event such a market may
develop, the initial purchaser may discontinue it at
any time without notice. We do not intend to apply
for a listing of the exchange notes on any
securities exchange or on any automated dealer
quotation system.
5
<PAGE> 9
OUR BUSINESS
We are a growth oriented cable operator focused on non-metropolitan markets
in the central United States. We have experienced growth in subscribers,
revenues and cash flows, primarily through the successful execution and
integration of over 20 acquisitions of clustered cable systems in nine
contiguous states. Pro forma for the pending acquisition of Buford Group, Inc.,
and after giving effect to other recently announced cable transactions, we are
the 14th largest cable operator in the United States, with systems that pass
approximately 609,000 homes and serve approximately 360,000 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. Pro forma for the Buford acquisition and
the completed acquisitions, we have annualized three months ending May 31, 1999
pro forma revenues of $156.7 million, pro forma Adjusted EBITDA of $66.5
million, and a pro forma Adjusted EBITDA margin of 42.3%.
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.
- 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 the state-of-the-art call center we are
acquiring with the Buford acquisition to complement our existing superior
level of 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 begin offering high-speed Internet access in selected
systems, 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 with broadband capacity 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.
6
<PAGE> 10
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 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 will be further
enhanced by the addition of several key members of Buford's management team,
including Ron Martin, who will become our Executive Vice President of
Operations, and Kay Monigold, who will become 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.
Members of our management team collectively own or have the right to
acquire approximately 15% of the common stock of Classic and up to an additional
10% of Classic's common stock has been set aside for issuance to management
pursuant to options granted to them.
THE BUFORD ACQUISITION
In May 1999, our subsidiary Classic Cable, entered into a definitive
agreement to purchase all of the outstanding stock of the Buford Group, Inc.,
which operates cable television systems in Arkansas, Louisiana, Missouri and
Texas, for approximately $300 million in cash. All of Buford's existing
indebtedness will be repaid at the closing of the Buford acquisition. The Buford
cable systems serve approximately 172,000 basic subscribers and, we believe,
represent an excellent geographic and strategic fit with our existing cable
systems. In addition, we believe that the Buford acquisition provides other
benefits, including an opportunity to reduce programming costs, consolidate
headends and enhance customer service. Consummation of this offering is
contingent upon the closing of the Buford acquisition and the Brera Classic
equity investment.
THE BRERA CLASSIC EQUITY INVESTMENT
In connection with the Buford acquisition, we will receive $100.0 million
from Brera Classic, L.L.C., $97.0 million of which we will contribute in cash to
Classic Cable. This equity investment will be financed through the sale of our
common stock to Brera Classic. Brera Classic is a subsidiary of Brera Capital
Partners Limited Partnership. Brera Capital Partners is a $650 million private
equity investment firm based in New York. Brera Capital Partners invests in a
limited number of industries, including telecommunications and media. Brera
Capital Partners prefers to invest alongside management teams to assist them in
achieving the operating and financial goals of their companies. After
consummation of the equity investment, Brera Classic will own approximately 64%
of the outstanding capital stock of Classic, subject to dilution in connection
with the issuance of options to certain members of our management team. See
"Certain Relationships and Related Transactions" and "Principal Stockholders."
7
<PAGE> 11
OTHER RECENT DEVELOPMENTS
Results of Classic's Operations for March, April, and May 1999: For the
three months ended May 31, 1999, Classic had revenues of $19.8 million and
Adjusted EBITDA of $8.7 million, representing an EBITDA margin of 43.9%. These
amounts represent a substantial increase over the comparable period in the prior
year, primarily as a result of acquisitions.
Results of Buford's Operations for March, April, and May 1999: For the
three months ended May 31, 1999, Buford had revenues of $19.4 million and
Adjusted EBITDA of $7.5 million, representing an EBITDA margin of 38.7%. These
amounts represent a substantial increase over the comparable period in the prior
year, primarily as a result of an acquisition.
Results of Pro Forma Consolidated Classic/Buford Operations for March,
April and May 1999: For the three months ended May 31, 1999, pro forma
consolidated revenues totaled $39.2 million and pro forma Adjusted EBITDA
totaled $16.6 million, representing a pro forma Adjusted EBITDA margin of 42.3%.
RISK FACTORS
You should consider carefully the information set forth under the caption
"Risk Factors" beginning on page 15 and all the other information set forth in
this prospectus before deciding whether to participate in the exchange offer.
------------------------
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.
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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 the Brera Classic equity
investment, Classic Cable's new credit facility, the Buford acquisition, and the
completed acquisitions as if all of these transactions had been consummated on
January 1, 1998 in the case of the income statement data and on March 31, 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 and
Buford, 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 and Buford's consolidated financial statements and the notes relating
to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(IN THOUSANDS, EXCEPT
SUBSCRIBER DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................... $149,949 $ 38,437
Costs and expenses.......................................... 97,350 22,799
Depreciation and amortization............................... 66,257 17,402
-------- --------
Operating loss.............................................. (13,658) (1,764)
Interest expense............................................ (51,167) (12,763)
Other income (expense)...................................... (841) 40
-------- --------
Loss before income tax benefit.............................. (65,666) (14,487)
Income tax benefit.......................................... 2,156 87
-------- --------
Net loss.................................................... $(63,510) $(14,400)
======== ========
BALANCE SHEET DATA:
Total cash and cash equivalents............................. -- $ 12,521
Total assets................................................ -- 578,532
Total debt.................................................. -- 517,805
Total liabilities........................................... -- 543,912
Total stockholders' equity.................................. -- 34,620
OTHER FINANCIAL DATA:
Adjusted EBITDA(1).......................................... $ 61,595(2) $ 15,970
Adjusted EBITDA margin(3)................................... 41.1% 41.5%
Ratio of net debt to annualized Adjusted EBITDA(4).......... -- 7.9x
Ratio of Adjusted EBITDA to interest expense................ -- 1.3x
Ratio of Adjusted EBITDA to cash interest expense........... -- 1.3x
Capital expenditures........................................ $ 34,228 $ 6,219
Deficiency of earnings to fixed charges(5).................. (65,666) (14,487)
OPERATING DATA:
Homes passed(6)............................................. 612,624 609,107
Basic subscribers(7)........................................ 361,428 361,137
Basic penetration(8)........................................ 59.0% 59.3%
Digital subscribers......................................... 1,454 2,626
Premium subscribers(9)...................................... 194,106 194,742
Premium penetration(10)..................................... 31.7% 32.0%
Average monthly basic revenue per basic subscriber(11)...... $ 28.02 $ 28.94
Average monthly total revenue per basic subscriber(12)...... $ 34.44 $ 35.56
</TABLE>
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- ---------------
(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
$332,000 as well as Buford's compensation relating to stock appreciation
rights of $7,888,000 and none for the periods ended December 31, 1998 and
March 31, 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 $62,370,000.
(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.
(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.
(9) For the Classic 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.
10
<PAGE> 14
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(AUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................... $ 59,821 $ 60,995 $ 69,802 $ 16,072 $ 19,576
Costs and expenses................................. 33,553 36,555 42,070 9,613 11,514
Depreciation and amortization...................... 27,510 27,832 30,531 7,006 8,955
-------- -------- -------- -------- --------
Operating loss..................................... (1,242) (3,392) (2,799) (547) (893)
Interest expense................................... (20,633) (21,299) (24,442) (5,014) (7,446)
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 30 17
-------- -------- -------- -------- --------
Loss before income tax benefit and extraordinary
loss............................................. (19,968) (21,476) (27,269) (5,531) (8,322)
Income tax benefit................................. 6,802 7,347 1,930 684 --
Extraordinary loss................................. -- -- (5,524) -- --
-------- -------- -------- -------- --------
Net loss........................................... $(13,166) $(14,129) $(30,863) $ (4,847) $ (8,322)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total cash and cash equivalents.................... $ 653 $ 616 $ 2,779 $ -- $ 3,472
Total assets....................................... 245,922 220,162 254,604 -- 249,888
Total debt......................................... 197,504 191,990 282,842 -- 290,428
Total liabilities.................................. 219,232 206,643 301,392 -- 304,666
Total redeemable preferred stock................... 22,726 26,705 -- -- --
Total stockholders' equity......................... 3,965 (13,186) (46,788) -- (54,778)
OTHER FINANCIAL DATA:
Cash flows from operating activities............... $ 7,933 $ 7,892 $ 14,262 $ 887 $ (1,060)
Cash flows from investing activities............... 3,387 (1,341) (57,245) (2,140) (3,370)
Cash flows from financing activities............... (12,155) (6,588) 45,146 829 5,123
Adjusted EBITDA(1)................................. 27,326 25,498(2) 28,840(3) 6,697 8,394
Adjusted EBITDA margin(4).......................... 45.7% 41.8% 41.3% 41.7% 42.9%
Ratio of net debt to annualized Adjusted
EBITDA(5)........................................ -- -- -- -- 10.5x
Ratio of Adjusted EBITDA to interest expense....... -- -- -- -- 1.1x
Ratio of Adjusted EBITDA to cash interest
expense.......................................... -- -- -- -- 1.1x
Capital expenditures............................... $ 8,212 $ 10,135 $ 13,759 $ 2,122 $ 3,230
Deficiency of earnings to fixed charges(6)......... (19,968) (21,476) (27,269) (5,531) (8,332)
OPERATING DATA (END OF PERIOD, EXCEPT AVERAGE):
Homes passed(7).................................... 259,181 254,649 296,995 249,475 293,478
Basic subscribers(8)(9)............................ 171,657 165,737 188,871 165,102 188,775
Basic penetration(9)(10)........................... 66.2% 65.1% 63.6% 66.2% 64.3%
Digital subscribers................................ -- -- 200 -- 1,069
Premium subscribers(11)............................ 62,458 63,819 71,702 63,268 70,526
Premium penetration(12)............................ 36.4% 38.5% 38.0% 38.3% 37.4%
Average monthly basic revenue per basic
subscriber(13)................................... $22.77 $25.22 $27.87 $27.09 $28.81
Average monthly total revenue per basic
subscriber(14)................................... $27.68 $30.14 $33.24 $32.30 $34.57
</TABLE>
11
<PAGE> 15
- ---------------
(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 three month
periods ended March 31, 1998 and 1999 related to compensation on restricted
stock and were $1,058,000, $1,058,000, $1,108,000, $238,000 and $332,000,
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 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 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.
(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.
(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.
12
<PAGE> 16
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1996 1997 1998 1998 1999
-------- -------- -------- ------- --------
(AUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................................ $ 49,561 $ 58,136 $ 70,475 $15,263 $ 18,861
Costs and expenses.................................. 32,932 40,858 51,168 11,656 11,538
Depreciation and amortization....................... 17,175 17,753 21,399 4,870 5,727
-------- -------- -------- ------- --------
Operating income (loss)............................. (546) (475) (2,092) (1,263) 1,596
Interest expense.................................... (5,345) (5,787) (7,919) (1,592) (2,094)
Gain on sale of cable systems....................... 5,418 -- -- -- --
Other income (expense).............................. 344 859 (221) 60 23
-------- -------- -------- ------- --------
Loss before income taxes and cumulative effect of
change in accounting principle.................... (129) (5,403) (10,232) (2,795) (475)
Income tax benefit (expense)........................ (94) 315 226 (156) 87
Cumulative effect of change in accounting principle,
net of taxes...................................... -- -- -- -- (207)
-------- -------- -------- ------- --------
Net loss............................................ $ (223) $ (5,088) $(10,006) $(2,951) $ (595)
======== ======== ======== ======= ========
BALANCE SHEET DATA:
Total assets........................................ $117,676 $143,932 $175,953 -- $174,080
Total debt.......................................... 60,053 85,000 118,000 -- 118,000
Total liabilities................................... 69,182 97,008 131,147 -- 129,869
Total stockholders' equity.......................... 48,493 46,924 44,806 -- 44,211
OTHER FINANCIAL DATA:
Cash flows from operating activities................ $ 13,628 $ 16,872 $ 20,334 $ 3,522 $ 4,267
Cash flows from investing activities................ (20,289) (39,683) (53,151) (4,333) (3,121)
Cash flows from financing activities................ (10,927) 24,947 32,830 -- --
Adjusted EBITDA(1).................................. 18,087 20,797 27,195 5,283 7,323
Adjusted EBITDA margin(2)........................... 36.5% 35.8% 38.6% 34.6% 38.8%
Capital expenditures................................ $ 15,593 $ 22,042 $ 20,469 $ 4,496 $ 3,121
Deficiency of earnings to cover fixed charges(3).... (129) (5,403) (10,232) (2,795) (475)
OPERATING DATA (END OF PERIOD, EXCEPT AVERAGE):
Homes passed(4)..................................... 234,994 270,430 315,629 270,430 315,629
Basic subscribers(5)................................ 131,148 143,829 172,557 148,550 172,362
Basic penetration(6)................................ 55.8% 53.2% 54.7% 54.9% 54.7%
Digital subscribers................................. -- 65 1,254 92 1,557
Premium subscribers(7).............................. 92,247 99,644 122,404 102,769 124,216
Premium penetration(8).............................. 70.3% 69.3% 70.9% 69.2% 72.1%
Average monthly basic revenue per basic
subscriber(9)..................................... $ 24.80 $ 26.31 $ 28.17 $ 27.15 $ 29.06
Average monthly total revenue per basic
subscriber(10).................................... $ 32.05 $ 33.68 $ 35.64 $ 34.54 $ 36.55
</TABLE>
13
<PAGE> 17
- ---------------
(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 three month
periods ended March 31, 1998 and 1999 related to employee stock
compensation were $1,458,000, $3,519,000, $7,888,000, $1,676,000 and none,
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.
14
<PAGE> 18
RISK FACTORS
In addition to the other information set forth in this prospectus, you
should carefully review the following risk factors before deciding to
participate in the exchange offer.
WE ARE A HOLDING COMPANY AND ARE DEPENDENT ON THE OPERATIONS 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, including the
payment of principal and interest on the notes. The ability of our subsidiaries
to pay dividends or make other payments will be subject to applicable state
laws.
WE DEPEND UPON OUR SUBSIDIARIES FOR FUNDS NECESSARY TO MAKE PAYMENTS ON THE
NOTES.
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. The debt instruments of Classic Cable severely
restrict, among other things, the payment of dividends, the making of loans by
Classic Cable or its subsidiaries to us and our ability to purchase exchange
notes tendered pursuant to a change of control offer.
As a result of the relationship between Classic Cable and us, our
creditors, including the holders of the exchange notes, will effectively rank
junior to all creditors of Classic Cable, including the bank lenders under
Classic Cable's new credit facility, the holders of the senior subordinated
notes of Classic Cable and the trade creditors of Classic Cable and its
subsidiaries, notwithstanding that the exchange notes will be our senior
obligations. Accordingly, in the event of the dissolution, bankruptcy,
liquidation or reorganization of Classic Cable and/or us, the holders of the
exchange notes may not receive any amounts with respect to the exchange notes
until after the payment in full of the claims of creditors of Classic Cable. As
of March 31, 1999, pro forma for the Buford acquisition, the aggregate amount of
indebtedness and other obligations of Classic Cable and its subsidiaries, to
which the holders of the exchange notes will be structurally subordinated, would
have been approximately $479.7 million.
The exchange notes will not be secured by any of our assets. We will pledge
all of the capital stock of Classic Cable to collateralize borrowings of Classic
Cable under its new credit facility. If Classic Cable becomes insolvent or is
liquidated, or if payment under its new credit facility is accelerated, the
lenders under Classic Cable's new credit facility would be entitled to exercise
the remedies available to a secured lender under applicable law and pursuant to
Classic Cable's new credit facility. Accordingly, these lenders have a prior
claim on our assets.
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 March 31, 1999, pro forma for the Buford acquisition, we
would have owed approximately $517.8 million under our various debt agreements.
The maximum amount of senior debt that we would have been able to borrow on that
date was $71.3 million, subject to limitations contained in Classic Cable's new
credit facility. Under Classic Cable's new 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 to you as a holder of the notes, 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;
15
<PAGE> 19
- 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 $65.7 million for the year ended December 31, 1998 and by $14.5
million for the three months ended March 31, 1999. However, you should know that
these amounts reflect non-cash charges totaling approximately $75.3 million for
the year ended and $17.7 million for the three months, primarily from
depreciation and amortization.
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 new credit facility would
permit additional borrowing of up to $75.0 million after completion of the
Buford acquisition and related financings, and all of those borrowings will be
senior to the notes. 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 Other Indebtedness" and "Description of the Exchange Notes."
WE MAY NOT HAVE ENOUGH CASH TO SERVICE OUR INDEBTEDNESS AND TO FUND OUR CAPITAL
EXPENDITURES AND ACQUISITIONS.
Our ability to make payments on and to refinance our indebtedness,
including these notes, 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, including indebtedness under these notes, or
to fund our other liquidity needs. We may need to refinance all or a portion of
our indebtedness, including these notes, 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 these notes, on commercially reasonable terms or at
all.
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 and Buford
may not be realized if combining Classic Cable's business and Buford'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 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 operations
successfully, Classic Cable's operations and our financial results could be
affected, both materially and adversely.
16
<PAGE> 20
IF WE CANNOT ADEQUATELY MANAGE OUR INCREASED SIZE RESULTING FROM CLASSIC CABLE'S
ACQUISITION OF BUFORD, ITS FUTURE OPERATIONS MAY BE ADVERSELY AFFECTED.
Classic Cable's operations will approximately double with the purchase of
Buford. Its future operations depend largely upon its ability to manage this
sizeable and growing business successfully. In addition, Classic Cable's
management team will have to manage 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, a material adverse effect could result.
WE MAY CONTINUE TO INCUR NET LOSSES.
We had a pro forma consolidated net loss of $63.5 million for the year
ended December 31, 1998 and a pro forma net loss of $14.4 million for the three
months ended March 31, 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.
The indenture and Classic Cable's new credit facility impose significant
operating and financial restrictions on us and our subsidiaries.
The loan documents Classic Cable will sign 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 new 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 the indenture and its new 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 make payments on our notes 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 new credit facility is secured by substantially all of Classic Cable's
and its subsidiaries' assets. Should a default or 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 the Exchange
Notes -- Certain Covenants" and "Description of Other Indebtedness."
WE MAY BE REQUIRED TO REPURCHASE OUR OUTSTANDING NOTES.
Upon consummation of the Brera Classic equity investment, a change of
control will occur and we will be required to offer to repurchase our
outstanding old notes at a purchase price equal to 101% of the accreted value of
such notes plus accrued and unpaid interest. We cannot assure you that some or
all of the holders of those notes will not require us to repurchase their notes,
and we cannot assure you that we will have enough funds to pay for all of the
notes. We have not arranged for financing to repurchase these notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --
17
<PAGE> 21
Liquidity and Capital Resources -- Pro Forma for the Buford Acquisition and
Other Completed Acquisitions."
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE TO PURCHASE THESE NOTES.
If a change of control occurs after the change of control resulting from
consummation of the Brera Classic equity investment, we will be required to make
an offer to purchase all of the exchange notes then outstanding. We will be
required to purchase the exchange notes at 101% of their accreted value, plus
accrued and unpaid interest to the date of repurchase. If a change of control
occurs, we cannot be sure that we will have enough funds to pay for all of the
notes. If we are required to purchase the notes, we will need to secure
third-party financing if we do not have available funds to meet our purchase
obligations. However, we cannot assure you that we will be able to secure such
financing on favorable terms, if at all.
Also, our financing arrangements will restrict our ability to repurchase
the notes, including pursuant to a change of control. Furthermore, a change of
control will result in an event of default under Classic Cable's new credit
facility and may lead to an acceleration of any other senior indebtedness it may
have at that time. The restrictions on Classic Cable would require it to pay its
new credit facility and any other senior indebtedness in full before it could
pay dividends enabling us to repurchase our outstanding notes. See "-- We may be
required to repurchase our outstanding notes" and "Description of the Exchange
Notes -- Repurchase at the Option of Holders -- Change of Control." The
inability to purchase all of the tendered notes would constitute an event of
default under the indenture.
BRERA CLASSIC WILL BE OUR CONTROLLING STOCKHOLDER.
After the Brera Classic equity investment, Brera Classic will hold
approximately 64% of our issued and outstanding shares of common stock. As a
result, Brera Classic will control us and will have the ability to elect the
majority of our directors. The board, in turn, may appoint new senior management
and approve any actions requiring the approval of our stockholders. 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, Classic and their respective affiliates may conflict with the
interests of the holders of the notes.
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 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."
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
18
<PAGE> 22
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 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. 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, Internet
providers.
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 need government approval for a number of
license transfers that are required in connection with the Brera Classic equity
investment and the Buford acquisition. While we do not anticipate problems in
obtaining approval, we may need to complete the acquisition and the offering
using temporary licenses or oral agreements. If we cannot obtain final approval,
our ability to operate some of our cable systems could be significantly
impaired. With respect to a small number of other licenses, additional filings
will be required to ensure compliance with the FCC's foreign ownership
restrictions.
THE CABLE TELEVISION INDUSTRY IS EXTREMELY COMPETITIVE AND WE CANNOT PREDICT
WHETHER WE WILL BE SUCCESSFUL IN REMAINING COMPETITIVE.
Because our franchises are non-exclusive, there is the potential for
competition with our cable systems from other operators of cable systems,
including systems operated by local governments and from other distribution
systems capable of delivering programming to homes or businesses, including
direct broadcast satellite systems, known as DBS, and multichannel multipoint
distribution service systems, known as wireless cable, because these systems 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
19
<PAGE> 23
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 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 has
enabled local telephone companies to provide a wide variety of video services
competitive with services provided by cable systems and to provide cable
services directly to 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."
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES.
Currently, there is no public market for the notes. We do not intend to
apply for listing of the notes on any securities exchange or on any automated
dealer quotation system. Although the initial purchaser has informed us that it
intends to make a market in the notes, it is not obligated to do so and may
discontinue any such market at any time without notice. In addition, such market
making activity may be limited during the exchange offer or during an offering
under a shelf registration statement should we decide to file one. As a result,
we can make no assurances to you as to the development or liquidity of any
market for the notes, your ability to sell the notes, or the price at which you
may be able to sell the notes. Future trading prices of the notes will depend on
many factors, including, among other things, prevailing interest rates, our
operating results and the market for similar securities. Historically, the
market for securities similar to the notes, including non-investment grade debt,
has been subject to disruptions that have caused substantial volatility in the
prices of such securities. We cannot assure you that, if a market develops, it
will not be subject to similar disruptions.
20
<PAGE> 24
THE OLD NOTES WERE ISSUED AT A DISCOUNT, WHICH MAY RESULT IN ADVERSE
CONSEQUENCES TO A HOLDER OF THE NOTES AND CLASSIC.
The old notes were issued at a substantial discount from their principal
amount at maturity. Although cash interest will not accrue on the notes prior to
August 1, 2003, and there will be no payments of cash interest on the notes
prior to February 1, 2004, original issue discount, the difference between the
stated redemption price at maturity of the exchange notes and the issue price of
the old notes, will accrue from the issue date of the old note and generally
will be includible as interest income in the notes holder's gross income for
United States federal income tax purposes in advance of the cash payments to
which the income is attributable.
Furthermore, the exchange notes will be subject to the high yield discount
obligation rules which will defer and may in part eliminate our ability to
deduct the original issue discount attributable to the exchange notes.
Accordingly, our after tax cash flow might be less than if the original issue
discount on the notes were deductible when it accrues. See "United States
Federal Income Tax Considerations." Similar results may apply under state tax
laws.
If a bankruptcy case is commenced by or against Classic or Classic Cable
under the Federal Bankruptcy Code after the issuance of the exchange notes, the
claim of a holder of exchange notes with respect to the principal amount thereof
may be limited to an amount equal to the sum of (i) the initial offering price
allocable to the notes and (ii) that portion of the original issue discount
which is not deemed to constitute unmatured interest for purposes of the
Bankruptcy Code. Any original issue discount that was not amortized as of any
such bankruptcy filing would constitute unmatured interest.
21
<PAGE> 25
USE OF PROCEEDS
We will receive no cash proceeds from the exchange pursuant to the exchange
offer. The exchange offer is intended to satisfy our obligations under the
registration rights agreement.
The net proceeds to Classic and Classic Cable from the offering of the old
notes of Classic and the old notes of Classic Cable, along with the proceeds
from the senior credit agreement, were approximately $280.2 million and were
used to
- fund the acquisition of certain assets of Cable One, Inc. ($41.7
million),
- redeem existing preferred stock and accrued dividends ($31.0 million),
- retire the outstanding subordinated debt and accrued interest ($4.5
million),
- repay the previous senior credit agreement and other outstanding debt
($190.3 million) and interest ($2.6 million) and
- pay fees and expenses of these transactions ($10.1 million).
The preferred stock accrued dividends at rates ranging from 8% to 15% and
had mandatory redemption requirements in 2001 and 2005. The subordinated debt
accrued interest at rates ranging from 7.5% to 15% and matured in 2002 and 2007.
The senior credit agreement accrued interest at the LIBOR rate plus an
applicable margin. Principal payments were to begin in 1999 with the balance due
in 2005.
22
<PAGE> 26
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 and Buford
included elsewhere in this prospectus, and unaudited financial information of
certain systems acquired by Classic Cable in July 1998 from Cable One 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 and Buford 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 the financing we are entering into in connection with the Buford
acquisition as if it had occurred on March 31, 1999. The Unaudited Pro Forma
Consolidated Statements of Operations have been prepared to give effect to the
Buford acquisition and the other acquisitions completed by both Classic Cable
and Buford during 1998 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 the purchase price for the Buford acquisition based upon our current
estimates of the 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.
23
<PAGE> 27
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC
COMMUNICATIONS BUFORD ADJUSTMENTS PRO FORMA
-------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 3,472 $ 9,049 -- $ 12,521
Accounts receivable, net.................... 5,061 2,516 -- 7,577
Prepaid expenses............................ 872 241 -- 1,113
Property, plant and equipment............... 130,399 203,848 $(80,639)(d)(l) 253,608
Accumulated depreciation.................... (43,641) (91,905) 91,905(e) (43,641)
-------- -------- -------- --------
86,758 111,943 11,266 209,967
Deferred financing costs, net............... 9,061 154 14,319(f)(u)(w) 23,534
Other assets................................ -- 2,365 -- 2,365
Intangible assets:
Subscriber relationships.................. 95,367 -- 82,042(m) 177,409
Franchise rights.......................... 71,486 54,417 31,877(g)(n) 157,780
Noncompete agreements..................... 8,425 7,434 (441)(h)(o) 15,418
Goodwill.................................. 40,506 3,203 (1,741)(i)(p) 41,968
-------- -------- -------- --------
215,784 65,054 111,737 392,575
Less accumulated amortization............... (71,120) (17,242) 17,242(j) (71,120)
-------- -------- -------- --------
144,664 47,812 128,979 321,455
-------- -------- -------- --------
Total assets....................... $249,888 $174,080 $154,564 $578,532
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................... $ 593 $ 416 -- $ 1,009
Subscriber deposits and unearned income... 5,011 2,351 -- 7,362
Accrued expenses.......................... 4,779 8,003 -- 12,782
Accrued interest.......................... 2,787 -- -- 2,787
Long-term debt............................ 290,428 118,000 $109,377(k)(q)(s)(t) 517,805
Deferred taxes, net....................... 1,068 1,099 -- 2,167
-------- -------- -------- --------
Total liabilities.................. 304,666 129,869 109,377 543,912
Stockholders' equity:
Common stock, voting...................... 17 1 64(a)(r1) 82
Common stock, nonvoting................... 15 -- -- 15
Additional paid-in capital................ 28,876 14,833 82,102(b)(r2)() 125,811
Accumulated deficit....................... (83,686) 29,377 (36,979)(c)(v)(w) (91,288)
-------- -------- -------- --------
Total stockholders' equity......... (54,778) 44,211 45,187 34,620
-------- -------- -------- --------
Total liabilities and stockholders' equity... $249,888 $174,080 $154,564 $578,532
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
24
<PAGE> 28
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
The following pro forma adjustments to the unaudited consolidated balance
sheet assume the Buford acquisition and the related financing had been
consummated on March 31, 1999.
The Buford acquisition will be accounted for using the purchase method. The
cost of the acquisition will be allocated to the fair value of the assets
acquired as of the closing date, based upon valuations that are not yet
complete. Accordingly, the allocations of the purchase price may change upon
completion of the acquisition. This pending acquisition is dependent upon
obtaining various approvals and sufficient financing.
The estimated purchase price of Buford and the preliminary allocations are
as follows:
<TABLE>
<S> <C> <C>
Purchase price of Buford.................................... $ 302,302
=========
Eliminate Buford equity:
(a) Common stock................................................ $ 1
(b) Additional paid-in capital.................................. 14,833
(c) Accumulated deficit......................................... 29,377
---------
Total Buford equity......................................... 44,211
Eliminate historical property, plant and equipment:
(d) Costs....................................................... (203,848)
(e) Accumulated deprecation..................................... 91,905
Eliminate historical intangible assets:
(f) Deferred financing costs.................................... (154)
(g) Franchise rights............................................ (54,417)
(h) Noncompete agreements....................................... (7,434)
(i) Goodwill and other intangible assets........................ (3,203)
(j) Accumulated amortization.................................... 17,242
(k) Eliminate long-term debt not assumed........................ 118,000
Adjustments to record assets at fair value:
(l) Property, plant and equipment............................... 123,209
(m) Subscriber relationships.................................... 82,042
(n) Franchise rights............................................ 86,294
(o) Noncompete agreements....................................... 6,993
(p) Goodwill.................................................... 1,462
---------
Total....................................................... $ 302,302
=========
</TABLE>
25
<PAGE> 29
Sources and uses of funds for the Buford acquisition are as follows:
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
(q) The offering of new subordinated notes by Classic Cable..... $ 150,000
(r) The Brera Classic equity investment:
(1) Common stock, voting.................................... 65
(2) Additional paid-in capital.............................. 96,935
(s) New Classic Cable credit facility........................... 178,677
---------
Total sources of funds...................................... $ 425,677
=========
USES OF FUNDS:
(t) Retirement of existing credit facility...................... $ 101,300
Buford acquisition.......................................... 302,302
Fees and expenses:
(u) Deferred financing costs.................................... 16,875
(v) Other transaction costs..................................... 5,200
---------
Total uses of funds......................................... $ 425,677
=========
</TABLE>
(w) Concurrent with the Buford acquisition, we will write off unamortized
deferred financing costs of $2,402 related to the existing credit facility.
The charge for the write off will be reflected as an extraordinary charge in
the income statement for the period during which the Buford acquisition is
closed. No such charge is included in the pro forma income statement
information presented in this prospectus.
26
<PAGE> 30
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BUFORD
CLASSIC CABLE 1998 TOTAL PRO
COMMUNICATIONS ONE BUFORD ACQUISITION ADJUSTMENTS FORMA
-------------- ------ -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 69,802 $6,616 $ 70,475 $3,056 -- $149,949
Operating expenses:
Programming................. 17,840 1,762 18,339 708 -- 38,649
Plant and operating......... 8,437 829 6,937 397 -- 16,600
General and
administrative............ 11,295 1,109 16,183 557 -- 29,144
Marketing and advertising... 850 141 345 -- -- 1,336
Corporate overhead.......... 3,648 -- 9,364 99 $ (1,490)(a) 11,621
Depreciation and
amortization.............. 30,531 759 21,399 750 12,818(b) 66,257
-------- ------ -------- ------ -------- --------
Total operating
expenses............. 72,601 4,600 72,567 2,511 11,328 163,607
-------- ------ -------- ------ -------- --------
Operating income (loss)......... (2,799) 2,016 (2,092) 545 (11,328) (13,658)
Interest expense................ (24,442) -- (7,919) (34) (18,772)(c) (51,167)
Other income (expense).......... (28) (593) (221) 1 -- (841)
-------- ------ -------- ------ -------- --------
Income (loss) before income
taxes......................... (27,269) 1,423 (10,232) 512 (30,100) (65,666)
Income tax benefit.............. 1,930 -- 226 -- --(d) 2,156
-------- ------ -------- ------ -------- --------
Net Income (loss)............... $(25,339) $1,423 $(10,006) $ 512 $(30,100) $(63,510)
======== ====== ======== ====== ======== ========
</TABLE>
See the Notes to the Unaudited Pro Forma Consolidated Statement of
Operations.
27
<PAGE> 31
CLASSIC COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC TOTAL PRO FORMA
COMMUNICATIONS BUFORD ADJUSTMENTS AS ADJUSTED
-------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................... $19,576 $18,861 -- $ 38,437
Operating expenses:
Programming............................. 5,231 5,217 -- 10,448
Plant and operating..................... 2,306 1,694 -- 4,000
General and administrative.............. 2,948 4,160 -- 7,108
Marketing and advertising............... 173 109 -- 282
Corporate overhead...................... 856 358 $ (253)(a) 961
Depreciation and amortization........... 8,955 5,727 2,720(b) 17,402
------- ------- ------- --------
Total operating expenses........... 20,469 17,265 2,467 40,201
------- ------- ------- --------
Income (loss) from operations................ (893) 1,596 (2,467) (1,764)
Interest expense............................. (7,446) (2,094) (3,223)(c) (12,763)
Other income (expense)....................... 17 23 -- 40
------- ------- ------- --------
Loss before income taxes..................... (8,322) (475) (5,690) (14,487)
Income tax benefit........................... -- 87 --(d) 87
------- ------- ------- --------
Net loss..................................... $(8,322) $ (388) $(5,690) $(14,400)
======= ======= ======= ========
</TABLE>
See the Notes to Unaudited Pro Forma Consolidated Statements of Operations.
28
<PAGE> 32
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 three months ended March 31, 1999
reflect the pro forma adjustments described below as if the Buford acquisition
and the related financing as well as acquisitions completed in 1998 by Classic
Cable and Buford all 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 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 will be 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 was $1,490 and $253 for the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively.
(b) Represents pro forma adjustments to depreciation and amortization
in connection with the Buford acquisition and the 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 THREE MONTHS
DECEMBER 31, ENDED
1998 MARCH 31, 1999
------------ --------------
<S> <C> <C>
Depreciation and amortization expense on the purchased basis
of property, plant and equipment and intangible assets
acquired.................................................. $35,726 $8,447
Elimination of historical depreciation and amortization
expense................................................... (22,908) (5,727)
------- ------
Total adjustment to depreciation and
amortization.................................... $12,818 $2,720
======= ======
</TABLE>
The property, plant, and equipment and intangible assets acquired in
connection with the Buford acquisition are estimated below:
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIOD
(YEARS)
-------------
<S> <C> <C>
Land........................................................ $ 888 --
Buildings................................................... 3,909 30
Leasehold improvements...................................... 818 7
Vehicles.................................................... 3,766 5
Cable television distribution systems....................... 43,940 12
UHF system.................................................. 9,280 7
Mobile radio equipment...................................... 364 7
Headend electronics......................................... 26,406 7
Headend tower and antennae.................................. 11,077 7
Microwave equipment......................................... 4,657 7
Shop and test equipment..................................... 5,517 7
Drops....................................................... 9,622 7
Furniture and fixtures...................................... 1,608 7
Office equipment............................................ 986 7
Computer hardware and equipment............................. 322 4
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIOD
(YEARS)
-------------
<S> <C> <C>
Computer software........................................... 49 3
Subscriber relationships.................................... 82,042 12
Franchise rights............................................ 86,294 8
Noncompete agreements....................................... 6,993 5
Goodwill.................................................... 1,462 20
-------- --
$300,000
========
</TABLE>
(c) Represents:
- interest expense on the new credit facility using a current
interest rate of 7.60%, 7.60% and 7.85% for the revolver, the
Term A and the Term B loans, respectively, per annum,
- interest expense on the notes using a rate of 9.00% per annum,
- amortization expense of deferred financing fees related to the
new debt under our financing,
- elimination of historical interest expense related to Buford's
debt not assumed, and
- elimination of historical interest expense from the repayment of
the current credit facility with proceeds from the financing and
elimination of the related amortization of deferred financing
costs, as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ------------------
<S> <C> <C>
Interest expense on the new Classic Cable credit facility... $ 13,823* $ 3,456*
Interest expense on the new subordinated Classic Cable
notes..................................................... 13,500 3,375
Full year interest expense on exchange notes................ 12,632 --
Amortization expense of deferred financing fees related to
the financing............................................. 1,867 467
Elimination of historical interest expense on the current
credit facility and subordinated debt and related
amortization of deferred financing costs.................. (23,050) (4,075)
-------- -------
Total increase to interest expense................ $ 18,772 $ 3,223
======== =======
</TABLE>
- ---------------
* The total effect of a 1/8% variance in the interest rate would be $223 and
$56, 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.
30
<PAGE> 34
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 THREE MONTHS
DECEMBER 31, ENDED
1998 MARCH 31, 1999
------------ --------------
<S> <C> <C>
Total pro forma adjustments................................. (30,100) (5,690)
Tax rate.................................................... 34% 34%
------- -------
10,234 1,935
Total Cable One and the Buford 1998 acquisition pre tax
income.................................................... 1,935 --
Tax rate.................................................... 34% 34%
------- -------
(658) --
Effect of valuation allowance............................... (9,576) (1,935)
------- -------
Total adjustment to income tax benefit...................... -- --
======= =======
</TABLE>
31
<PAGE> 35
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. The historical data for the three months ended March 31, 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues......................................... $16,019 $ 36,677 $ 59,821 $ 60,995 $ 69,802 $ 16,072 $ 19,576
Costs and expenses............................... 8,372 18,911 33,553 36,555 42,070 9,613 11,514
Depreciation and amortization.................... 6,383 16,427 27,510 27,832 30,531 7,006 8,955
------- -------- -------- -------- -------- -------- --------
Operating income (loss).......................... 1,264 1,339 (1,242) (3,392) (2,799) (547) (893)
Interest expense................................. (4,975) (14,199) (20,633) (21,299) (24,442) (5,014) (7,446)
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 30 17
------- -------- -------- -------- -------- -------- --------
Loss before income tax benefit, minority interest
and extraordinary loss......................... (3,596) (12,860) (19,968) (21,476) (27,269) (5,531) (8,322)
Income tax benefit............................... 1,121 4,533 6,802 7,347 1,930 684 --
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) $ (4,847) $ (8,322)
======= ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Total assets..................................... $96,136 $271,516 $245,922 $220,162 $254,604 -- $249,888
Total debt....................................... 58,161 207,706 197,504 191,990 282,842 -- 290,428
Total liabilities................................ 78,251 232,531 219,232 206,643 301,392 -- 304,666
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) -- (54,778)
</TABLE>
32
<PAGE> 36
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
three months ended March 31, 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
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 $ 15,263 $ 18,861
Costs and expenses.............................. 26,755 32,965 32,932 40,858 51,168 11,656 11,538
Depreciation and amortization................... 13,670 17,379 17,175 17,753 21,399 4,870 5,727
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)......................... (3,393) (786) (546) (475) (2,092) (1,263) 1,596
Interest expense................................ (2,823) (6,332) (5,345) (5,787) (7,919) (1,592) (2,094)
Gain on sale of cable systems................... -- 8,506 5,418 -- -- -- --
Other income (expense).......................... 191 1,443 344 859 (221) 60 23
-------- -------- -------- -------- -------- -------- --------
Loss before income tax benefit (expense) and
cumulative effect of change in accounting
principle..................................... (6,025) 2,831 (129) (5,403) (10,232) (2,795) (475)
Income tax benefit (expense).................... 3,027 7,235 (94) 315 226 (156) 87
Cumulative effect of change in accounting
principle..................................... -- -- -- -- -- -- (207)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................... $ (2,998) $ 10,066 $ (223) $ (5,088) $(10,006) $ (2,951) $ (595)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................... $127,702 $127,379 $117,676 $143,932 $175,953 -- $174,080
Total debt...................................... 72,110 70,643 60,053 85,000 118,000 -- 118,000
Total liabilities............................... 91,773 80,122 69,182 97,008 131,147 -- 129,869
Total stockholders' equity...................... 35,969 47,257 48,493 46,924 44,806 -- 44,211
</TABLE>
33
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding our
financial condition and results of operations for each of the years ended
December 31, 1996, 1997 and 1998. 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 both Classic's and
Buford'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 after giving effect to other
recently announced cable transactions, we are the 14th largest cable television
operator in the United States. We own, operate and develop cable television
systems in selected non-metropolitan markets across nine contiguous states
primarily located in the central United States. Since 1992, we have completed
and integrated over 20 acquisitions. As of March 31, 1999, our collective
systems passed approximately 609,000 homes and served approximately 360,000
basic subscribers.
We have developed a plan to integrate the operation of Buford's cable
systems with Classic Cable's cable systems. The major initiatives of this plan
are to (A) eliminate duplicative general and administrative expenses, (B)
enhance our customer service program with the addition of Buford's call center
and satellite-based communications service system, (C) reduce duplicative
service costs pursuant to our "clustering" philosophy, and (D) increase the
quality of programming services in the acquired systems.
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 March 31, 1999, our collective systems served approximately 360,000
basic subscribers and approximately 194,000 premium units, representing a basic
penetration rate of approximately 59% and a premium penetration rate of
approximately 32%. The table below sets forth for the periods indicated the
percentage of our total revenues attributable to the various sources:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ -------------
<S> <C> <C>
Basic............................................... 84.0% 84.1%
Premium............................................. 11.2 10.9
Other............................................... 4.8 5.0
----- -----
Total revenues............................ 100.0% 100.0%
===== =====
</TABLE>
34
<PAGE> 38
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
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1999
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $16,072 100.0% $19,576 100.0%
Operating expenses:
Programming................................... 4,118 25.6 5,231 26.7
Plant and operating........................... 1,959 12.2 2,306 11.8
General and administrative.................... 2,699 16.8 2,948 15.1
Marketing and advertising..................... 208 1.3 173 0.9
Corporate overhead................................. 629 3.9 856 4.4
Depreciation and amortization...................... 7,006 43.6 8,955 45.7
------- ----- ------- -----
Loss from operations..................... $ (547) (3.4)% $ (893) (4.6)%
======= ===== ======= =====
</TABLE>
Revenues. Revenues increased $3.5 million, or 22%, for the three months
ended March 31, 1999, as compared to the corresponding prior year period. Basic
revenues increased by $3.0 million due to increased subscribers of approximately
24,000 and basic rate increases. The increase in 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 6.3% from $27.09 to $28.81 quarter to quarter. 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 $3.9 million, or 23%, for
the three months ended March 31, 1999, as compared to the corresponding prior
year period. Programming expense increased $1.1 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 three months ended March 31, 1999 was $9.0 million, an increase
of $1.9 million over the same period in 1998. The increase represents the effect
of acquisitions and capital expenditures.
35
<PAGE> 39
Other Income and Expenses. Interest expense increased $2.4 million, or 49%,
for the three months ended March 31, 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 $0.7 million for the
three months ended March 31, 1999, as compared to the corresponding prior year
period. No tax benefit was recognized in 1999. The effective tax rates for the
three months ended March 31, 1999 and March 31, 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 $8.3 million for the three months ended
March 31, 1999 increased by $3.5 million, as compared to the net loss of $4.8
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 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. Other 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
36
<PAGE> 40
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.
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
37
<PAGE> 41
revenue decreased, however, 3.2% from $6.5 million in 1996 to $6.3 million in
1997 due in large part to the system divestitures and discounted pricing offered
in connection with the various marketing campaigns. Other revenues also
decreased 11.0%, from $4.1 million in 1996 to $3.6 million in 1997, largely as a
function of the system divestitures and free or heavily-discounted installation
marketing promotions. The decrease was partially offset by $196,698 or 181%,
increase in pay-per-view event revenue.
Operating Expenses. Operating expenses increased $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 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
repurchase certain stock of Classic in which the officer's wife held a community
property interest and provide monetary consideration for the release of certain
claims. Legal, consultant and other fees of approximately $1.4 million were
charged to corporate overhead for 1997 in connection with this matter. The
remainder of the increase was due primarily to the hiring of the Vice President
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.
38
<PAGE> 42
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
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
Revenues. Revenues for the three months ended March 31, 1999 were $18.9
million, an improvement of $3.6 million, or 23.5%, over revenues of $15.3
million for the corresponding prior year period. Revenues for the three months
ended March 31, 1999 included the revenues for the systems acquired in late
April 1998. Average monthly basic revenue per basic subscriber increased 7.0%
from $27.15 in the first three months of 1998 to $29.06 in the first three
months of 1999.
Operating Expenses. Operating expenses increased $1.6 million from $9.6
million for the three months ended March 31, 1998 to $11.2 million for the three
months ended March 31, 1999. Programming costs for the three months ended March
31, 1999 increased $1.1 million, or 26.8%, over the corresponding prior year
period to $5.2 million. As a percentage of revenue, programming costs increased
from 26.8% for the three months ended March 31, 1998 to 27.5% for the three
months ended March 31, 1999. 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
$1.7 million for the three months ended March 31, 1999 and March 31, 1998. Plant
and operating expenses as a percent of revenues decreased from 11.1% for the
three months ended March 31, 1998 to 9.0% for the three months ended March 31,
1999 reflecting the continued benefits derived from Buford's cluster strategy.
General and administrative expenses for the three months ended March 31, 1999
were $4.2 million, up $0.5 million, or 13.5%, 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 24.2% for the three months ended March 31, 1998 to 22.2% for the
three months ended March 31, 1999. Marketing and advertising expenses for the
three months ended March 31, 1999 and 1998 were relatively flat at $0.1 million.
Corporate Overhead. Corporate overhead for the three months ended March
31, 1999 was $0.4 million, a decrease over the three months ended March 31, 1998
of approximately $1.7 million due primarily to compensation expense related to
employee stock appreciation rights in 1998. The management group's appreciation
rights are tied to the appreciation in the market value of Buford's common
stock. The value of the appreciation rights at December 31, 1998 approximated
the proposed sales price that Classic offered for the company, therefore, no
additional compensation expense was recorded in 1999.
Depreciation and Amortization. Depreciation and amortization expense for
the three months ended March 31, 1999 was $5.7 million, an increase of $0.8
million or 16.3% 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
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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
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.
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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.
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. Capital stock of Classic is owned by institutional investors,
including Austin Ventures, L.P., NationsBanc Capital Corp., The Texas Growth
Fund, BT Capital Partners, Inc., and certain members of its bank group led by
The Chase Manhattan Bank and Union Bank Ventures. These institutional investors
have contributed approximately $34.1 million of total equity financing to
Classic. At March 31, 1999, Classic had aggregate consolidated indebtedness of
approximately $290.4 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.
Since its inception, Buford has been supported by commercial banking
institutions and insurance company funding. At March 31, 1999, Buford had
aggregate consolidated indebtedness of $118.0 million, all of which will be
repaid on the date of acquisition. Borrowings bear 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 March 31, 1999 was 6.125%. The bank credit agreement has a
final maturity date of June 30, 2005, with quarterly principal payments
beginning September 30, 1999.
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.
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PRO FORMA FOR THE BUFORD 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.
We have formulated a capital expenditures plan to spend by August 2003
approximately:
- $100.0 million to establish a technical standard of 550-750 MHz bandwidth
capacity, or 78 analog channels, in cable television systems serving
approximately 75% of our basic subscribers and headend consolidation;
- $45.0 million for ongoing maintenance and replacement, for installations
and extensions to improve the cable plant related to customer growth; and
- $15.0 million for the purchase of additional addressable converters and
headend equipment to support the deployment of digital services. See
"Business."
Following the Buford acquisition, 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 $40 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 March 31,
1999, we had $71.3 million available under Classic Cable's line of credit
subject to some limitations.
Upon consummation of the Brera Classic equity investment, a change of
control will occur and we will be required to offer to repurchase the exchange
notes at a purchase price equal to 101% of the accreted value of the notes plus
accrued and unpaid interest. Because these notes are trading at a premium
substantially higher than 101%, we have made no provision to repurchase the
outstanding notes in the event the holders require us to repurchase them. See
"Description of Other Indebtedness." Although we do not expect that the holders
will require us to repurchase these notes, we cannot assure you that some or all
of them will not do so.
Our ability to make payments on and to refinance our indebtedness,
including the exchange notes, 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, including these notes,
or to fund our other liquidity needs. We may need to refinance all or a portion
of our indebtedness, including these notes 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 these notes, on commercially reasonable
terms or at all. See "Risk Factors."
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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. We have begun taking measures to address this problem. However,
we have not yet completed the assessment of the potential impact of Year 2000 on
our key business applications, operational systems, or relationships with key
business partners. We have initiated an extensive assessment of Year 2000
readiness relative to our information system and communications technology. In
addition, we have engaged an outside consultant in performing this evaluation
and expect that it will be completed by the end of the third quarter of 1999. We
cannot estimate what the total cost will be to implement our remediation efforts
for our critical operational systems, but it is possible that such costs will be
material.
We have also started an ongoing program to review the status of key
supplier Year 2000 compliance efforts. While we believe we are taking all
appropriate steps to insure Year 2000 compliance, there can be no assurance that
these key partners, which may include third-party vendors and service providers,
will complete their own Year 2000 compliance projects in a timely manner and
that failure to do so will not have an adverse impact on our business. Further,
until we have completed our Year 2000 assessment, we cannot determine whether a
contingency plan is required nor the timetable for establishment of such a plan.
The lack of contingency plans could prevent us from resolving Year 2000 issues
in a timely and efficient manner, and could heighten the risk that the Year 2000
problem may have a material adverse effect on our financial condition and
results of operations.
The Year 2000 problem is pervasive as virtually every computer operation
will be affected in some way. Consequently, no assurance can be given that Year
2000 compliance can be achieved without costs that might affect future financial
results or cause reported financial information not to be necessarily indicative
of future operating results or future financial condition.
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BUSINESS
COMPANY OVERVIEW
We are a growth oriented cable operator focused on non-metropolitan markets
in the central United States. We have experienced growth in subscribers,
revenues and cash flows, primarily through the successful execution and
integration of over 20 acquisitions of clustered cable systems in nine
contiguous states. Pro forma for the pending acquisition of Buford Group, Inc.
and after giving effect to other recently announced cable transactions, we are
the 14th largest cable operator in the United States, with systems that pass
approximately 609,000 homes and serve approximately 360,000 basic subscribers.
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 80% 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 539 cable systems
in nine contiguous states. Approximately 70% of our customers are located on
approximately 26% 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.
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.
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As a result of the Buford acquisition, our management team will be further
enhanced by the addition of several key members of Buford's management team,
including Ron Martin, who will become our Executive Vice President of Operations
and Kay Monigold, who will become 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.
Members of our management team collectively own or have the right to
acquire approximately 15% of our common stock and up to an additional 10% of our
common stock will be 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 Austin Ventures, L.P.,
NationsBanc Capital Corp., The Texas Growth Fund, BT Capital Partners, Inc., and
certain members of our existing bank group led by The Chase Manhattan Bank and
Union Bank Ventures. These institutional investors have contributed
approximately $34.1 million of total equity financing to us. At March 31, 1999,
we had long-term debt of approximately $290.4 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 has focused on serving growing non-metropolitan
communities in the central United States. For example, approximately 80% 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 97 systems owned by us are projected
to grow by approximately 9.4%, versus the national average of 5.7%, from 1997 to
2002. Those 97 systems currently serve approximately 60.1% of our total
subscribers. We believe that our cable systems generally involve 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 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.
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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
existing Buford 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
the call center can accommodate 250,000 subscribers with our current facilities.
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.
The 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 call center in Plainville, Kansas also offers 24-hour, 7-day per week
coverage to existing Classic customers on a toll-free basis. The customer
service center is supported by three T-1 lines and can handle up to 60 incoming
calls at any given time through a 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 local offices'
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, 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.
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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
direct-to-home solution. In larger systems, 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
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<PAGE> 51
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 comparable
programming selection 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 7 systems which in the aggregate pass
approximately 64,000 homes, representing approximately 39,000 cable subscribers.
As of March 31, 1999, we had approximately 2,600 digital customers. We plan to
offer digital cable service in 23 additional markets, serving approximately
63,000 additional subscribers over the next few 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 provides Internet access at download speeds
350 times faster than typical 28.8 kilobit dial-up telephone modem connections.
We have introduced Internet access via the 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. Our initial launch plan will include 43
additional systems representing approximately 253,000 homes passed within the
next twelve months. Presently, we have six active sites passing approximately
17,000 homes.
SYSTEM LOCATION
We operate cable television systems in non-metropolitan markets across 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:
<TABLE>
<CAPTION>
EQUIVALENT
HOMES BASIC BASIC STATE
STATE PASSED UNITS PENETRATION RANK
- ----- ------------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Texas......................................... 275,325 148,706 54.0% 5
Arkansas...................................... 95,728 58,034 60.0 4
Oklahoma...................................... 81,270 50,932 62.7 6
Missouri...................................... 67,288 38,757 57.6 6
Kansas........................................ 50,965 35,412 69.5 3
Louisiana..................................... 27,381 16,376 59.8 8
Colorado...................................... 5,157 5,383 104.4 7
Nebraska...................................... 3,389 2,102 62.0 12
New Mexico.................................... 2,604 1,697 65.2 11
------- ------- -----
Subtotals................................ 609,107 357,399 58.7%
=====
CCT...................................... 3,748
------- -------
Totals.............................. 609,107 361,147
======= =======
</TABLE>
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As part of the Buford acquisition, we will acquire 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 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 it is meeting the demands of our customers and stays 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 three months ended March 31, 1999, programming costs
as a percentage of revenues were 25.8% and 27.2%, 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
March 31, 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 March
31, 1999, the weighted average price for our monthly full basic service was
approximately $30.28.
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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 44 channels with 33 channels in use. The table below
summarizes our existing technical profile, as of March 31, 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.............. 18 240 124 62 95 539
Miles of plant................. 169 4,578 4,596 3,097 4,144 16,584
Homes passed................... 7,001 145,782 164,570 99,536 192,218 609,107
Basic subscribers.............. 3,492 78,022 99,324 55,914 120,647 357,399(1)
% of total basic subscribers... 1.0% 21.8% 27.8% 15.6% 33.8% 100.0%
Basic subscribers per plant
mile......................... 20.7 17.0 21.6 18.1 29.1 21.6
Premium subscribers............ 1,033 38,603 42,824 39,156 72,762 194,378
Premium penetration............ 29.6% 49.5% 43.1% 70.0% 60.3% 54.4%
</TABLE>
-------------------------
(1) Does not include approximately 3,700 equivalent basic units
related to CCT.
Our capital improvement plan contemplates the investment of approximately
$160.0 million over the next four years as follows:
- $100.0 million to establish a technical standard of 550-750 MHz bandwidth
capacity in cable television systems serving approximately 75% of our
basic subscribers and headend consolidation;
- $45.0 million for ongoing maintenance and replacement, for installations
and extensions to the cable plant related to customer growth; and
- $15.0 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)............. -- 205 112 38 184 539
Miles of plant................... -- 3,016 1,634 891 11,043 16,584
Homes passed..................... 89,358 61,497 26,778 431,474 609,107
Basic subscribers................ -- 44,910 30,659 12,176 269,654 357,399(2)
% of total basic subscribers..... -- 12.6% 8.6% 3.4% 75.4% 100.0%
Basic subscribers per plant
mile........................... -- 14.9 18.8 13.7 24.4 21.6
Premium subscribers.............. -- 20,295 11,781 8,666 153,636 194,378
Premium penetration.............. -- 45.2% 38.4% 71.2% 57.0% 53.8%
</TABLE>
-------------------------
(1) The analysis above does not reflect the impact of anticipated
headend consolidations achieved through the selective deployment
of fiber optic technology.
(2) Does not include approximately 3,700 equivalent basic units
related to CCT.
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
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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 617 towers that are used to receive off-air broadcast
signals from the nearest urban transmit site or via intermittent microwave relay
stations. Our towers range from 15 feet to 600 feet in height and 138 of our
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 March 31, 1999, pro forma for the Buford acquisition, we held 695
franchises. These franchises, all of which are non-exclusive, generally provide
for the payment of fees to the issuing authority. Annual franchise fees imposed
on the 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.
The following table sets forth the number of franchises by year of
franchise expiration and the approximate number and percentage of basic
subscribers at March 31, 1999:
<TABLE>
<CAPTION>
NUMBER % OF NUMBER % OF
OF TOTAL OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 2000............................... 29 4.2% 26,395 7.3%
2000 to 2003................................ 177 25.5 84,695 23.5
After 2003.................................. 489 70.3 250,057 69.2
--- ----- ------- -----
Total............................. 695 100.0% 361,147 100.0%
=== ===== ======= =====
</TABLE>
The Cable Acts provide, among other things, comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merits and not as part of a comparative process with
competing applications. See "Legislation and Regulation." We believe that we
have good relationships with our franchising communities. To date, we have never
had a franchise revoked or
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<PAGE> 56
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, 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 continue to develop and become more commercially
viable.
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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,"
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. We currently face direct competition from traditional
overbuilds in two systems passing approximately 2,500 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 systems. DBS systems can also provide
high speed Internet access. DBS service can be received anywhere in the United
States through installation of a small rooftop or side-mounted antenna. This
technology has the capability of providing more than 100 channels of programming
over a single high-powered satellite with significantly higher capacity if
multiple satellites are placed in the same orbital position. DBS is currently
being heavily marketed on a nationwide basis by 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.
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Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution service, or MMDS, which
use low power microwaves 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
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. PCS will enable license holders, including cable operators, to provide
voice and data services.
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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 March 31, 1999, Classic Cable and Buford employed approximately 707
full-time employees and 49 part-time employees. 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.
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 are required to conduct numerous rulemaking and regulatory proceedings
to implement the 1996 Telecom Act and such proceedings may materially affect the
cable television industry.
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. 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.
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
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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.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request within 120 days after receipt of all information required by
FCC regulations and by the franchising authority. Approval is deemed to be
granted if the franchising authority fails to act within such period.
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
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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,
although the unbundled network element requirements are subject to an FCC
proceeding. 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 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. 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 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 unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. LECs
could be formidable competitors to traditional cable operators, and certain LECs
have begun offering cable services, both within and outside of their service
areas. We currently have telephone overbuilds in two systems passing
approximately 2,500 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.
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Electric Utility Entry Into Telecommunications/Cable Television
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, including cable
television. Electric utilities must establish separate subsidiaries, known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Because of their resources, electric utilities could also be
formidable competitors to traditional cable systems.
Additional Ownership Restrictions
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition against LECs
providing video programming directly to customers within their local telephone
exchange service areas. However, with certain limited exceptions, a LEC may not
acquire more than a 10% equity interest in an existing cable system operating
within the LEC's service area. The 1996 Telecom Act also authorized LECs and
others to operate "open video systems" without obtaining a local cable franchise
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
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, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more, unless there is another single holder of
more than 50% of the voting stock, officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of its 30%
horizontal ownership rule pending the outcome of the appeal from a U.S. District
Court decision holding the multiple ownership limit provision of the 1992 Cable
Act unconstitutional, but maintains certain reporting requirements for multiple
system operators, known as MSOs, passing more than 20% of homes nationwide and
initiated a proceeding to examine its current horizontal ownership limitations
rule and whether it should be modified. The FCC also has initiated a rulemaking
proceeding to review its attribution rules which define what constitutes a
"cognizable interest" triggering application of various FCC rules relating to
the provision of cable services such as cross-ownership, programing access and
channel occupancy rules, and horizontal ownership limitations. In addition, a
rulemaking proceeding to examine, among other issues, whether any limitations
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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 or the FCC licenses commonly employed by
such 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 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. None of the states in which we operate cable systems has
certified to the FCC that it regulates the rates, terms and conditions for pole
attachments. With respect to Buford's operations, Louisiana has certified to the
FCC that it regulates pole attachments. 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
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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.
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
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.
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
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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 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 of various aspects of its rulemaking proceedings. In addition to
the FCC regulations noted above, there are other FCC regulations covering such
areas as:
- equal employment opportunity;
- syndicated program exclusivity;
- network program non-duplication;
- closed captioning of video programming;
- registration of cable systems;
- maintenance of various records and public inspection files;
- microwave frequency usage;
- lockbox availability;
- origination cablecasting and sponsorship identification;
- antenna structure notification;
- marking and lighting;
- carriage of local sports broadcast programming;
- application of rules governing political broadcasts;
- limitations on advertising contained in non-broadcast children's
programming;
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- programmer access to cable systems;
- programming agreements;
- technical standards;
- emergency alert system requirements;
- consumer electronics equipment compatibility; and
- DBS implementation.
The 1992 Cable Act, the 1996 Telecom Act and the FCC's rules implementing
these statutory provisions generally have increased the administrative and
operational expenses of cable systems and have resulted in additional regulatory
oversight by the FCC and local franchise authorities. 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 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
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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.
Earlier this month 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 Circuit Court of
Appeals.
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
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licensing and, in many jurisdictions, state and local franchise requirements,
currently are the subject of a variety of judicial proceedings, legislative
hearings and administrative and legislative proposals which could change, in
varying degrees, the manner in which cable television systems operate. Neither
the outcome of these proceedings nor their impact upon the cable television
industry can be predicted at this time.
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MANAGEMENT
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............................. 53 Director and Chairman of the Board
J. Merritt Belisle........................... 43 Director and Chief Executive Officer
Steven E. Seach.............................. 41 Director, President and Chief Financial
Officer
Ronald W. Martin............................. 47 Executive Vice President of Operations
Kevin P. McCabe.............................. 56 Executive Vice President and Chief
Accounting Officer
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
will be 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 and Director
of Global Decisions Group, LLC, the parent company of Cambridge Energy Research
Associates and MCM Group, Inc.
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.
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.
Ronald W. Martin, who will become our Executive Vice President of
Operations upon the closing of the Buford acquisition, will be responsible for
all of our system operating and marketing functions. Since 1993, he has served
as Buford's Executive Vice President and Chief Operating Officer. A graduate of
Dakota Weslayan, 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. Mr. Martin is a Board Member
and past Chairman of the National Cable Television Cooperative and serves on the
CTAM Digital Committee.
Kevin P. McCabe, our Executive Vice President and Chief Accounting Officer
joined us in February 1999. Mr. McCabe was an advisor to us from October 1998 to
February 1999. From October 1995 until
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February 1999, Mr. McCabe was a principal in The Austin Advisory, a financial
consulting firm. He was employed by Uniquest, Inc. from March 1994 to September
1995. From 1991 to 1994, Mr. McCabe was Vice President, Controller of Dell
Computer Corporation. Mr. McCabe spent 15 years at KPMG LLP, the last five years
as a partner. He subsequently held increasingly responsible financial management
positions at General Foods, Colgate-Palmolive and John Wiley & Sons. Mr. McCabe
received a BS in management from Boston College.
Elizabeth Kay Monigold, who will become our Executive Vice President of
Administration upon the closing of the Buford acquisition, will be responsible
for all of our human resources, legal, information systems and risk management
functions, as well as operating responsibility for CCT. Since 1993, she has
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, will be appointed
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 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.
David Webb, a Principal of Brera Capital Partners, will be 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 1991. 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
the director of the Homes for Homeless Inc.
Martin D. Payson, the Chairman of Latin Communications Group, Inc., a
privately-held Spanish language media company, will be 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.
Our Board of Directors currently has one vacancy. Our existing investor
group has the right to appoint an individual to this directorship.
OTHER CORPORATE PERSONNEL
Bryan D. Noteboom, our Vice President of Finance & Administration, has been
with us since our inception and coordinates our finance, human resources and
risk management functions. Mr. Noteboom has an extensive background in cable
television, accounting, and finance through prior work experience in the cable
industry and as a senior auditor with Coopers & Lybrand. Mr. Noteboom earned a
BBA in Accounting/Finance from the University of Texas at Austin in December
1985 and is a licensed Certified Public Accountant.
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<PAGE> 72
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, 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.
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
Nita M. Basgall, our Regional Manager, has been with us since our inception
and oversees all operational, technical and local marketing aspects of our
systems in Kansas, Nebraska and Northwest Missouri. Ms. Basgall has over 24
years of experience in the cable television industry. Ms. Basgall serves on the
Board of Directors of the Kansas Cable Telecommunications Association.
Arl Cope, our 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 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 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 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.
Rowdy O. Whittington, our Plant Integrity Manager, oversees our system
technical compliance standards. Mr. Whittington also manages the operations of a
select number of systems in Colorado. Mr. Whittington has over 12 years of
experience in the cable television industry.
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<PAGE> 73
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers are the executive officers of Classic Cable and hold
the same offices. Other than the executive officers of Classic and Classic Cable
who are also directors, no other directors of Classic or Classic Cable 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 and other executive officers as to whom the total annual
compensation exceeded $100,000 in 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
---------------------------------------------- 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, options, stock
appreciation rights or other compensation during 1996 under the 1996 Stock
Restricted Plan. See "-- 1996 Restricted Stock Plan." On July 29, 1998,
Messrs. Belisle and Seach held 229,050 shares and 67,283 shares of
restricted stock, respectively, and each of Messrs. Belisle and Seach
exchanged their existing shares of restricted stock for 242,209 new shares
of restricted stock with revised vesting terms and other restrictions. See
"-- 1998 Restricted Stock Plan." Long-term compensation amounts are
calculated by multiplying the number of 1998 restricted shares issued by the
per share value of 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. Such shares vest 33.3% per year
over three years commencing July 29, 1998, provided that upon the occurrence
of certain events, including the consummation of the Brera Classic equity
investment, this vesting may be accelerated. The total value of all
restricted stock owned by Messrs. Belisle and Seach was approximately
$913,000 each, computed without taking into consideration any of the
restrictions. Messrs. Belisle and Seach are entitled to dividends in respect
of their restricted shares in the same manner as the holders of unrestricted
shares, but only to the extent that such dividends exceed the distribution
thresholds applicable thereto. See "-- 1998 Restricted Stock Plan."
(4) 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.
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<PAGE> 74
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. Pursuant to
the granting agreement, such shares of restricted stock were to vest 25.0% per
year over four years. One-half of such shares of restricted stock were subject
to a distribution threshold equal to $9.93 per share, i.e., the first $9.93 of
distributions with respect to such shares were to be withheld and distributed
instead to the other holders of common stock, and one-fourth of the shares were
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
We have adopted the 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 his existing shares under the 1996
Plan for 242,209 shares of restricted common stock pursuant to the 1998 Plan,
each representing approximately 6.8% of common stock on a fully diluted basis.
Pursuant to the granting agreement, such shares of restricted common stock are
to vest 33.3% per year over three years. All of such shares of restricted common
stock are subject to a distribution threshold equal to $3.77 per share.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Upon the consummation of the Brera Classic equity investment, J. Merritt
Belisle and Steven E. Seach will each enter into an employment agreement with
us, on substantially similar terms with their current employment agreements.
Upon consummation of the Brera Classic equity investment, Mr. Belisle will be
paid $780,000 and Mr. Seach will be paid $700,000 under their current employment
agreements. Each of the 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 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 provide that Messrs. Belisle and Seach will each
be granted a stock option to purchase 279,874 shares of common stock at an
exercise price of $14.57 per share, which vests on a monthly basis over a
three-year period, or immediately in the event of a sale of all the stock for
cash or securities by merger, tender offer, stock purchase or an initial public
offering of our common stock.
Messrs. Belisle and Seach will each also receive a second stock option to
purchase 279,874 shares of common stock, to vest over a three-year period
commencing on the date of a sale of all of the stock involving an initial public
offering or a stock-for-stock merger or immediately upon the closing of a sale
of all of the common stock for cash or a sale of substantially all of our
assets. The price of the second option is the gross sale price per share of
common stock in our initial public offering or, in connection with a sale of
stock or assets, an amount equal to $14.57 per share increased by 14% per annum
from the consummation of the Brera Classic equity investment to the date of such
a sale.
The employment agreements of Messrs. Belisle and Seach in effect prior to
the consummation of the Brera Classic equity investment provide a transaction
fee of 1% to be paid on the value of all mergers, acquisitions, or dispositions
of assets or subsidiaries by us that are consummated during their term of
employment. Messrs. Belisle and Seach will each receive a transaction fee of
$1.5 million upon the successful consummation of the Buford acquisition. The
employment agreements to be executed in connection with the Brera Classic
acquisition agreement do not contain a provision for transaction fees to be paid
to Messrs. Belisle and Seach.
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<PAGE> 75
Upon the consummation of the Buford acquisition, we expect to enter into
employment agreements with Ronald W. Martin and Elizabeth Kay Monigold. These
employment agreements will relate to their employment by us as the Executive
Vice President of Operations and the Executive Vice President of Administration,
respectively, and will be for a one year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors as a whole determines the compensation of our
executive officers. J. Merritt Belisle, our Chief Executive Officer, and Steven
E. Seach, our President, as Board members, participate in deliberations of the
Board of Directors with respect to compensation of all executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 NationsBanc Capital Corp. 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.
STOCKHOLDER VOTING AGREEMENTS
Brera Classic has entered into stockholder voting agreements with Austin
Ventures, L.P., BT Capital Partners, Inc., The Texas Growth Fund, BA SBIC
Management, L.L.C., as the successor in interest to NationsBanc Capital Corp.,
J. Merritt Belisle, Steven E. Seach, and Bryan Noteboom, who collectively hold
approximately 80.4% of the fully diluted common stock, before giving effect to
the Brera Classic equity investment. The stockholder voting agreements require
the stockholders to vote in favor of the Brera Classic equity investment. Each
of the stockholders which are a party to these stockholder voting agreements
have granted Brera Classic their irrevocable proxies to give effect to the
stockholder voting agreements.
1995 STOCKHOLDERS AGREEMENT
Each member of management holding shares of our common stock executed a
stockholders agreement with us and our other shareholders dated as of October
15, 1995. The stockholders agreement generally provides us with a right of first
refusal in the event of proposed sales of common stock owned by the members of
management, and upon any termination of a management stockholder's employment,
to repurchase any common stock owned by such management stockholder. The
stockholders agreement contains certain rights of the management stockholders to
participate in sales of common stock and certain obligations of the management
stockholders to sell their common stock in the case of a sale for cash of all
outstanding common stock. Finally, the management stockholders are required to
vote their common stock to elect to our Board of Directors the directors
nominated by the other stockholders under the stockholders agreement. This
stockholders agreement will terminate for our existing stockholders entering
into the 1999 stockholders agreement. The 1995 stockholders agreement, and all
rights and obligations of the management stockholders thereunder described
above, will also terminate following an initial public offering of common stock
meeting certain criteria.
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<PAGE> 76
1999 STOCKHOLDERS' AGREEMENT
Upon consummation of the Brera Classic equity investment, Classic, Brera
Classic, BT Capital Partners, Inc., Austin Ventures, L.P., BA SBIC Management,
L.L.C., as the successor in interest to NationsBanc Capital Corp., J. Merritt
Belisle, Steven E. Seach and certain other stockholders of Classic will enter
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. 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. 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. 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 SBIC Management, L.L.C., 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.
MANAGEMENT AND ADVISORY FEE AGREEMENT
As part of the Brera Classic equity investment, Classic and Brera Classic
have entered into an agreement that provides that Brera Classic will be 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.
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<PAGE> 77
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, pro forma for the Brera
Classic equity investment, regarding the beneficial ownership of our common
stock by (A) each executive officer and director, (B) each stockholder known by
us to beneficially own 5.0% or more of such common stock, and (C) all directors
and officers as a group.
<TABLE>
<CAPTION>
PERCENT OF FULLY-
VOTING NON VOTING FULLY-DILUTED DILUTED
COMMON COMMON COMMON COMMON
BENEFICIAL OWNER(1) SHARES(2) SHARES(2) WARRANTS(3) SHARES STOCK(4)
- ------------------- --------- ---------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Brera Classic..................... 6,490,734.. -- -- 6,490,734 64.4%
BT Capital Partners, Inc.......... 1,326.... 735,986 30,225 767,537 7.6
Austin Ventures, L.P.(5).......... 735,987.. -- -- 735,987 7.3
BA SBIC Management, L.L.C.(6)..... 6,631.... 542,995 152,418 702,044 6.9
J. Merritt Belisle................ 244,862.. -- -- 244,862 2.4
Steven E. Seach................... 244,862.. -- -- 244,862 2.4
Lisa A. Hook(7)................... 6,490,734.. -- -- 6,490,734 64.4
Alberto Cribiore(8)............... 6,490,734.. -- -- 6,490,734 64.4
David Webb(9)..................... 6,490,734 -- -- 6,490,734 64.4
--------- --------- ------- --------- ----
All directors and officers as a
group........................... 7,724,402 1,278,981 182,643 9,185,576 91.0%
========= ========= ======= ========= ====
</TABLE>
- ---------------
(1) The address for Brera Classic, Lisa Hook, Alberto Cribiore, and David Webb
is 712 Fifth Avenue, 34th Floor, New York, New York 10009. 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 SBIC
Management L.L.C. is 100 North Tryon Street, Charlotte, North Carolina
28255. The address for J. Merritt Belisle and Steven E. Seach is 515
Congress Ave., Suite 2626, Austin, Texas 78701.
(2) All shares of non-voting common stock are convertible into shares of voting
common stock without cost and without advance notice by the holders thereof.
As a result, we believe that such shares should be taken into account in
considering voting interests in us.
(3) Warrants are for shares of common stock which may be acquired at $.001 per
share pursuant to a warrant which is exercisable at any time.
(4) Assumes exercise of all outstanding warrants.
(5) Austin Ventures, L.P. owns 323,832 shares, Austin Ventures III-A, L.P. owns
223,422 shares and Austin Ventures III-B, L.P. owns 188,733 shares. AV
Partners, L.P. is the general partner of each of these partnerships.
(6) BA SBIC Management L.L.C. is the successor in interest to NationsBanc
Capital Corp.
(7) 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.
(8) 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.
(9) 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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<PAGE> 78
DESCRIPTION OF OTHER INDEBTEDNESS
The description set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the provisions
of the definitive documents which will set forth the terms and conditions of our
new 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 the Buford acquisition,
Classic Cable will borrow up to $250.0 million under a new credit facility,
agented by Goldman Sachs Credit Partners L.P., Union Bank of California, N.A.
and The Chase Manhattan Bank. The new credit facility consists of the following:
<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM ALTERNATE
LIBOR BASE RATE
NEW 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
------
Total Facility............. $250.0
======
</TABLE>
- ---------------
(1) Pricing subject to a leverage-based pricing grid.
The $75.0 million 8.0 year revolving credit facility will be made 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 $175.0 million in term loan facilities, comprised of
a $75.0 million 8.0 year Term loan A facility and a $100.0 million 8.5 year Term
loan B facility, will be 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 new 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 new credit facility is unconditionally guaranteed by each of
Classic Cable's direct and indirect domestic subsidiaries. In addition, the new
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.
As part of the loan documentation, the new credit facility will provide an
additional $100 million incremental facility on a term loan basis, with
amortization no faster and interest rates no higher than those applicable to the
Term loan B facility. This incremental facility will share ratably and equally
in all collateral and guarantees which secure the new credit facility. The
incremental credit facility may be used to redeem Classic Cable's 2008 notes put
by the noteholders as a result of the change of control. Classic Cable's ability
to borrow under this incremental facility terminates on the earlier of 45 days
after the closing of the Brera Classic equity investment or the date on which
the 2008 indenture requires redemption to take place.
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<PAGE> 79
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The old notes were sold by Classic on July 29, 1998, in a transaction
exempt from registration under the Securities Act pursuant to Rule 144A under
the Securities Act. In connection with that placement, Classic entered into the
Registration Rights Agreement, which requires that Classic file the Registration
Statement under the Securities Act with respect to the exchange notes and, upon
the effectiveness of that Registration Statement, offer to the holders of the
old notes the opportunity to exchange their old notes for a like principal
amount of exchange notes, which will be issued without a restrictive legend and
which generally may be reoffered and resold by the holder without registration
under the Securities Act. The Registration Rights Agreement further provides
that Classic must use its best efforts to (i) cause the Registration Statement
with respect to the Exchange Offer to be declared effective on or before
and (ii) consummate the Exchange Offer on or
before . Except as provided below, upon the completion of the
Exchange Offer, Classic's obligations with respect to the registration of the
old notes and the exchange notes will terminate. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this prospectus is a part and the summary herein contains the material
provisions of the agreement; however, for a complete description of the terms
and provisions of the agreement, reference is made to the Registration Rights
Agreement. As a result of the filing and the effectiveness of the Registration
Statement and completion of the Exchange Offer, certain interest rate increases
on the notes provided for in the Registration Rights Agreement will not become
payable by Classic. Following the completion of the Exchange Offer (except as
set forth in the paragraph immediately below), holders of old notes not tendered
will not have any further registration rights and those old notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market of the old notes could be adversely affected upon completion of the
Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
Classic, among other things, that (i) the exchange notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving the exchange notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a distribution of the exchange
notes, (iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the exchange
notes and (iv) neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 promulgated under the Securities Act, of Classic.
Pursuant to the Registration Rights Agreement, Classic is required to file a
"shelf" registration statement for a continuous offering pursuant to Rule 415
under the Securities Act in respect of the old notes if (i) because of any
change in law or applicable interpretations of the staff of the Commission,
Classic is not permitted to effect the Exchange Offer, (ii) the Exchange Offer
is not consummated within 150 days of the Offering or the Registration Statement
related to this Exchange Offer is not declared effective within 120 days of the
Offering, (iii) the Initial Purchaser, (iv) any applicable law or
interpretations do not permit any holder of old notes to participate in the
Exchange Offer, (v) any holder of old notes participates in the Exchange Offer
and does not receive freely transferrable exchange notes in exchange for old
notes or (vi) Classic so elects. In the event that Classic is obligated to file
a "shelf" registration statement, it will be required to keep such "shelf"
registration statement effective for at least three years. Other than as set
forth in this paragraph, no holder will have the right to participate in the
"shelf" registration statement nor otherwise to require that Classic register
such holder's shares of old notes under the Securities Act. See "-- Procedures
for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to Classic, Classic believes that,
with the exceptions set forth below, exchange notes issued pursuant to the
Exchange Offer in exchange for old notes may be offered for resale, resold and
otherwise transferred by any person receiving such exchange notes, whether or
not such person is the registered holder (other than any such holder or such
other person that is an "affiliate" of Classic within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
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prospectus delivery provisions of the Securities Act, provided that the exchange
notes are acquired in the ordinary course of business of the holder or such
other person and neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of such
exchange notes. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the exchange notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives exchange notes
for its own account in exchange for old notes, where the old notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "-- Purpose and Effect"), holders of old notes not
tendered will not have any further registration rights and those old notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's old notes could be adversely affected
upon completion of the Exchange Offer if the holder does not participate in the
Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the Letter of Transmittal, Classic will accept any and all old notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Classic will issue $1,000 principal amount of exchange
notes in exchange for each $1,000 principal amount of outstanding old notes
accepted in the Exchange Offer. Holders may tender some or all of their old
notes pursuant to the Exchange Offer. However, old notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the exchange notes are substantially the same as the
form and terms of the old notes except that the exchange notes have been
registered under the Securities Act and will not bear legends restricting their
transfer. The exchange notes will evidence the same debt as the old notes and
will be issued pursuant to, and entitled to the benefits of, the Indenture
pursuant to which the old notes were issued.
As of July 31, 1998, the old notes representing $114,000,000 aggregate
principal amount at maturity were outstanding and there was one registered
holder, a nominee of DTC. This prospectus, together with the Letter of
Transmittal, is being sent to such registered Holder and to others believed to
have beneficial interests in the old notes. Classic intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission promulgated thereunder.
Classic shall be deemed to have accepted validly tendered old notes when,
as, and if Classic has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the exchange notes from Classic. If any tendered old notes
are not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, certificates for any such
unaccepted old notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender old notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the Exchange Offer. Classic will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
Classic shall keep the Exchange Offer open for at least 20 business days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to holders of the old notes. The term
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<PAGE> 81
"Expiration Date" shall mean 5:00 p.m., New York City time, on ,
1999, unless Classic, in its reasonable discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. In order to extend the Exchange Offer,
Classic will issue a notice of any extension by press release or other public
announcement prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Classic reserves the right, in
its reasonable discretion, (i) to delay accepting any old notes, to extend the
Exchange Offer or, if any of the conditions set forth under "-- Conditions to
the Exchange Offer" shall not have been satisfied, to terminate the Exchange
Offer, by giving oral or written notice of such delay, extension or termination
to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any
manner.
PROCEDURES FOR TENDERING
Only a holder of old notes may tender the old notes in the Exchange Offer.
Except as set forth under "The Exchange Offer -- Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign, and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such old notes must be received by the
Exchange Agent along with the Letter of Transmittal, prior to the Expiration
Date or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such old notes, if that procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and Classic in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO CLASSIC. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose old notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
old notes, either make appropriate arrangements to register ownership of the old
notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless old notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member
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of or participant in the Securities Transfer Agents Medallion Program, the New
York Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any old notes listed therein, the old notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the old notes.
If the Letter of Transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to Classic of
their authority to so act must be submitted with the Letter of Transmittal
unless waived by Classic.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered old notes will be determined by
Classic in its reasonable discretion, which determination will be final and
binding. Classic reserves the absolute right to reject any and all old notes not
properly tendered or any old notes Classic's acceptance of which would, in the
opinion of counsel for Classic, be unlawful. Classic also reserves the right to
waive any defects, irregularities, or conditions of tender as to particular old
notes. Classic's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within such time as Classic
shall determine. Although Classic intends to notify holders of defects or
irregularities with respect to tenders of old notes, neither Classic, the
Exchange Agent, nor any other person shall incur any liability for failure to
give such notification. Tenders of old notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any old
notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, Classic reserves the right in its reasonable discretion to
purchase or make offers for any old notes that remain outstanding after the
Expiration Date or, as set forth under "-- Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase old notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to Classic that, among other
things, (i) the exchange notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
exchange notes, whether or not such person is the registered holder, (ii)
neither the holder nor any such other person is engaging in or intends to engage
in a distribution of such exchange notes, (iii) neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such exchange notes, and (iv) neither the holder nor any
such other person is an "affiliate," as defined under Rule 405 of the Securities
Act, of Classic.
In all cases, issuance of exchange notes for old notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such old notes or a timely
Book-Entry Confirmation of such old notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed Letter
of Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered old notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if old notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged old notes will be returned without expense to the
tendering Holder thereof (or, in the case of old notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged old notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
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Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where the old notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the old notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of old notes being tendered by
causing the Book-Entry Transfer Facility to transfer such old notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of old notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender old notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender such old notes
and the old notes are not immediately available, or time will not permit such
holder's old notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by Classic (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of old notes and the amount of old notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered old
notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered old notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date;
otherwise such tenders are irrevocable.
For a withdrawal of a tender of old notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth on the back cover page
of this Prospectus prior to 5:00 p.m., New York City time, on the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited
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the old notes to be withdrawn (the "Depositor"), (ii) identify the old notes to
be withdrawn (including the certificate number or numbers and principal amount
of such old notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such old notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such old notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such old notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined by
Classic, whose determination shall be final and binding on all parties. Any old
notes so withdrawn will be deemed not to have been validly tendered for exchange
for purposes of the Exchange Offer. Any old notes that have been tendered for
exchange but that are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender, or termination of the Exchange Offer. Properly
withdrawn old notes may be retendered by following one of the procedures under
"-- Procedures for Tendering" at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, Classic shall not be
required to accept for exchange, or exchange exchange notes for, any old notes,
and may terminate or amend the Exchange Offer as provided above at any time
before the Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of Classic, might materially impair the
ability of Classic to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to Classic or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of Classic, might materially impair the ability of Classic to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to Classic; or
(c) any governmental approval has not been obtained, which approval
Classic shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If Classic determines in its reasonable discretion that any of the
conditions are not satisfied, Classic may (i) refuse to accept any old notes and
return all tendered old notes to the tendering holders, (ii) extend the Exchange
Offer and retain all old notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such old notes
(see "-- Withdrawal Rights") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered old notes which
have not been withdrawn. Classic shall keep the Exchange Offer open for at least
20 business days (or longer if required by applicable law, including in
connection with any material modification or waiver of the terms or conditions
of the Exchange Offer that requires such extension under applicable law) after
the date notice of the Exchange Offer is mailed to holders or old notes.
In addition, Classic will not accept for exchange any old notes tendered,
and no exchange notes will be issued in exchange for any such old notes, if at
such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "TIA"). In any such event Classic is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
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EXCHANGE AGENT
All executed letters of Transmittal should be directed to the Exchange
Agent. BankOne, N.A. has been appointed as Exchange Agent for the Exchange
Offer. Questions, requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
Deliver to:
BankOne, N.A., EXCHANGE AGENT
<TABLE>
<CAPTION>
By Registered or Certified Mail: By Overnight Courier: By Hand Delivery:
<S> <C> <C>
235 West Schrock Road 235 West Schrock Road 235 West Schrock Road
Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184 Westerville, Ohio 43271-0184
Attention: Corporate Trust Attention: Corporate Trust Attention: Corporate Trust
Operations Operations Operations
</TABLE>
Facsimile Transmission Number:
(For Eligible Institutions Only)
614/248-9987
Confirm Receipt of Facsimile by Telephone:
800/346-5153
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
FEES AND EXPENSES
Classic will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of Classic.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Classic and are estimated in the aggregate to be $175,000,
which includes fees and expenses of the Exchange Agent, accounting, legal,
printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
Classic to register exchange notes in the name of, or request that old notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The notes will be issued under the Indenture (the "Classic Indenture")
dated as of July 29, 1998, between Classic and Bank One, N.A., as Trustee (the
"Trustee"). The following statements are subject to the detailed provisions of
the Classic Indenture and are qualified in their entirety by reference to the
Classic Indenture, including the terms made a part thereof by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Capitalized terms
used herein which are not otherwise defined shall have the meaning assigned to
them in the Classic Indenture.
The Classic common stock issued in conjunction with the Classic private
offering (the "Shares") is not being registered with the exchange notes. Until
the occurrence of the "Separability Date" as defined below, the Shares are not
separately transferable from the old notes. The Shares will not be separately
transferable until the earliest of (i) February 1, 1999; (ii) the date on which
a registration statement with respect to a registered exchange offer for the
exchange notes is declared effective under the Securities Act; (iii) the
occurrence of an Event of Default under the Indenture; or (iv) such earlier date
as determined by the Initial Purchaser in its sole discretion. The date of the
occurrence of an event specified in clauses (i) - (iv) above is referred to as
the "Separability Date."
PRINCIPAL, MATURITY AND INTEREST
The notes will be issued in an aggregate principal amount at maturity of up
to $114.0 million and will mature on August 1, 2009. The old notes were, and the
exchange notes are, being offered at a substantial discount from their principal
amount at maturity. For United States federal income tax purposes, a significant
amount of original issue discount will be recognized by a holder as ordinary
income as such discount is amortized from the Issuance Date, but holders of the
notes will not receive any cash payments on the notes until February 1, 2004.
See "United States Federal Income Tax Considerations -- United States
Holders -- Original Issue Discount."
No cash interest will accrue on the notes until August 1, 2003.
Beginning on August 1, 2003, cash interest on the notes will accrue at the
rate of 13 1/4% per annum and will be payable semiannually in arrears on
February 1 and August 1, commencing February 1, 2004, to holders of record at
the close of business on the January 15 and July 15 immediately preceding the
interest payment date. Cash interest will accrue from the most recent Interest
Payment Date to which interest has been paid or duly provided for, or, if no
interest has been paid or duly provided for, from August 1, 2003. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of
Classic maintained for such purpose in the Borough of Manhattan, The City of New
York (which initially shall be the corporate trust office of the Trustee in care
of First Chicago Trust Company of New York, 14 Wall Street, 8th Floor, Suite
4607, New York, New York 10005), except that, at the option of Classic, payment
of interest, if any, may be made by check mailed to the registered holders of
the notes at their registered addresses.
The notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer, exchange or redemption of the
notes, except in certain circumstances for any tax or other governmental charge
that may be imposed in connection therewith.
RANKING
The notes will be senior unsecured obligations of Classic, ranking pari
passu to all existing and future Senior Indebtedness, and senior in right of
payment with all existing and future unsecured senior subordinated and
subordinated Indebtedness of Classic.
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Classic, on an unconsolidated basis, has no Indebtedness outstanding other
than the old notes.
Substantially all of the operations of Classic are conducted through its
Subsidiaries and, therefore, Classic is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the notes.
Classic's Subsidiaries will not be guarantors of the notes and are separate
entities with no obligation to make payments on the discount notes or to make
funds available therefor. Claims of creditors of such Subsidiaries, including
trade creditors, secured creditors and creditors holding Indebtedness and
guarantees issued by such Subsidiaries, and claims of preferred stockholders (if
any) of such Subsidiaries generally will have priority with respect to the
assets and earnings of such Subsidiaries over the claims of creditors of
Classic, including holders of the notes. The notes, therefore, will be
effectively subordinated to all Indebtedness and other liabilities and
commitments of Classic's Subsidiaries. At December 31, 1998, the total
liabilities of Classic's Subsidiaries was approximately $239.3 million,
including trade payables. Although the Classic Indenture limits the incurrence
of Indebtedness of certain of Classic's Subsidiaries, such limitation is subject
to a number of significant qualifications. Moreover, the Classic Indenture does
not impose any limitation on the incurrence by such Subsidiaries of liabilities
that are not considered Indebtedness under the Classic Indenture. See
"-- Certain Covenants -- Limitation on Indebtedness."
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to Classic or its
assets, or any liquidation, dissolution or other winding up of Classic, whether
voluntary or involuntary, or whether or not involving insolvency or bankruptcy,
or any assignment for the benefit of creditors or other marshaling of assets or
liabilities of Classic, all Senior Indebtedness must be paid in full before any
payment or distribution (excluding distributions of certain permitted equity
interests or subordinated securities) is made on account of the principal of,
premium, if any, or interest on the notes or on account of the purchase,
redemption, defeasance or other acquisition of or in respect of the notes (other
than payments previously made pursuant to the provisions described under
"Defeasance and Covenant Defeasance").
By reason of such subordination, in the event of liquidation or insolvency,
creditors of Classic who are holders of Senior Indebtedness may recover more,
ratably, than the holders of the notes, and funds which would be otherwise
payable to the holders of the notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full and
Classic may be unable to meet its obligations fully with respect to the notes.
The Classic Indenture limits, but does not prohibit, the incurrence by
Classic and its Subsidiaries of additional Indebtedness, and the Classic
Indenture prohibits the incurrence by Classic of Indebtedness that is
subordinated in right of payment to any Senior Indebtedness of Classic and
senior in right of payment to the notes.
OPTIONAL REDEMPTION
The notes will be redeemable, in whole or in part, at any time after August
1, 2003, at the option of Classic, on not less than 30 and not more than 60
days' notice prior to the redemption date by first class mail to each holder of
notes at the following redemption prices (expressed as percentages of the
principal amount at maturity), if redeemed during the twelve-month period
beginning with August 1 of the year indicated below, in each case together with
accrued and unpaid interest, if any, thereon to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003..................................................... 106.63%
2004..................................................... 104.42
2005..................................................... 102.21
2006 and thereafter...................................... 100.00
</TABLE>
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In addition, at any time and from time to time, on or prior to August 1,
2001, Classic may redeem all (but not less than all) of the notes with the Net
Cash Proceeds of one or more Equity Offerings of or Strategic Equity Investment
in Classic, at a redemption price in cash equal to 113.25% of the Accreted Value
to be redeemed plus accrued and unpaid interest, if any, to the date of
redemption. Any such redemption will be required to occur within 45 days
following the closing of any such Equity Offering or Strategic Equity
Investment.
Upon the occurrence of a Change of Control, Classic may redeem all, but not
less than all, the notes in cash, at a redemption price equal to the Accreted
Value thereof plus accrued and unpaid interest to the date of redemption plus
the Applicable Premium. Notice of redemption of the notes pursuant to this
paragraph shall be mailed to holders of the notes not more than 30 days
following the occurrence of a Change of Control. Classic may not redeem notes
pursuant to this paragraph if it has made a Change of Control Offer with respect
to such Change of Control.
If fewer than all the notes are to be redeemed, the Trustee will select the
notes to be redeemed, if the notes are listed on a national securities exchange,
in accordance with the rules of such exchange or, if the notes are not so
listed, on a pro rata basis or by lot or by such other method that the Trustee
deems to be fair and equitable to holders. If any note is to be redeemed in part
only, the notice of redemption that relates to such note shall state the portion
of the principal amount thereof to be redeemed and a new note or notes in
principal amount equal to the unredeemed principal portion thereof will be
issued; provided, that no notes of a principal amount of $1,000 or less shall be
redeemed in part. On and after the redemption date, interest will cease to
accrue on notes or portions thereof called for redemption as long as Classic
shall have deposited with the Paying Agent for the notes funds in satisfaction
of the applicable redemption price pursuant to the Classic Indenture.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
The Classic Indenture provides that upon the occurrence of a Change of
Control, each holder of notes shall have the right to require Classic to
repurchase all or any part of such holder's notes pursuant to an offer described
below (the "Change of Control Offer") at a purchase price equal to 101% of the
Accreted Value thereof plus any accrued and unpaid interest, if any, thereon to
the date of repurchase (the "Change of Control Payment").
A "Change of Control" means the occurrence of any of the following events:
(i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 35% of the total
voting power of the then outstanding Voting Equity Interest of Classic; (ii)
Classic consolidates with, or merges with or into, another Person (other than a
Wholly Owned Restricted Subsidiary) or Classic or any its Subsidiaries sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of Classic and its Subsidiaries (determined on a
consolidated basis) to any Person (other than Classic or any Wholly Owned
Restricted Subsidiary); (iii) Classic is liquidated or dissolved or adopts a
plan of liquidation or dissolution (whether or not otherwise in compliance with
the provisions of the Classic Indenture); or (iv) a majority of the members of
the Board of Directors of Classic shall consist of Persons who are not
Continuing Members.
Within 30 days of the occurrence of a Change of Control, Classic shall send
by first-class mail, postage prepaid, to the Trustee and to each holder of the
notes, at the address appearing in the register of notes maintained by the
Registrar, a notice stating: (i) that the Change of Control Offer is being made
pursuant to this covenant and that all notes tendered will be accepted for
payment; (2) the purchase price
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and the purchase date, which shall be a business day no earlier than 30 days nor
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"); (3) that any note not tendered will continue to accrue interest;
(4) that, unless Classic defaults in the payment of the Change of Control
Payment, any notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date; (5)
that holders accepting the offer to have their notes purchased pursuant to a
Change of Control Offer will be required to surrender the exchange notes to the
Paying Agent at the address specified in the notice prior to the close of
business on the business day preceding the Change of Control Payment Date; (6)
that holders will be entitled to withdraw their acceptance if the Paying Agent
receives, not later than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of the notes delivered for purchase, and a statement that such holder is
withdrawing its election to have such notes purchased; (7) that holders whose
notes are being purchased only in part will be issued new notes equal in
principal amount to the unpurchased portion of the notes surrendered, provided
that each note purchased and each such exchange note issued shall be in an
original principal amount in denominations of $1,000 and integral multiples
thereof; (8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and (9) the name and
address of the Paying Agent.
On the Change of Control Payment Date, Classic shall, to the extent lawful
(i) accept for payment notes or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all notes or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee notes so accepted together with an
Officers' Certificate stating the notes or portions thereof tendered to Classic.
The Paying Agent shall promptly mail to each holder of notes so accepted payment
in an amount equal to the purchase price for such notes, and Classic shall
execute and issue, and the Trustee shall promptly authenticate and mail to such
holder, a new note equal in principal amount to any unpurchased portion of the
notes surrendered; provided that each such new note shall be issued in an
original principal amount in denominations of $1,000 and integral multiples
thereof. The Company will send to the Trustee and the holders of notes on or as
soon as practicable after the Change of Control Payment Date a notice setting
forth the results of the Change of Control Offer.
Classic will not be required to make a Change of Control Offer if a third
party makes the Change of Control Offer in the manner, at the time and otherwise
in compliance with the requirements set forth in the Classic Indenture
applicable to a Change of Control Offer made by Classic and purchases all notes
or portions thereof validly tendered and not withdrawn under such Change of
Control Offer. Classic will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of notes pursuant to this
covenant.
The definition of Change of Control includes a phrase relating to the sale,
assignment, conveyance, transfer, lease or other disposition of "all or
substantially all" of the assets of Classic and its Subsidiaries. Although there
is a developing body of case law interpreting the phrase "substantially all,"
there is not a precise or established definition of the phrase under applicable
law. Accordingly, the ability of a holder of the notes to require Classic to
repurchase such notes as a result of a sale, assignment, conveyance, transfer,
lease or other disposition of less than all of the assets of Classic and its
Subsidiaries to another Person or group may be uncertain.
If a Change of Control Offer is made, there can be no assurance that
Classic will have available funds sufficient to pay the Change of Control
Purchase Price for all of the notes that might be delivered by holders of the
notes seeking to accept the Change of Control Offer. The Classic Cable Indenture
governing the notes issued by Classic Cable restricts Classic Cable from paying
dividends or making distributions to Classic. See "-- Ranking." The failure of
Classic to make or consummate the Change of Control Offer or pay the Change of
Control Purchase Price when due will give the Trustee and the holders of the
notes the rights described under "Events of Default."
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The existence of a holder's right to require Classic to repurchase such
holder's notes upon a Change of Control may deter a third party from acquiring
Classic in a transaction which constitutes a Change of Control.
The provisions of the Classic Indenture do not afford holders of the notes
the right to require Classic to repurchase the notes in the event of a highly
leveraged transaction or certain transactions with Classic's management or its
Affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of Classic by
management or its affiliates) involving Classic that may adversely affect
holders of the notes, if such transaction is not a transaction defined as a
Change of Control. A transaction involving Classic's management or its
Affiliates, or a transaction involving a recapitalization of Classic, will
result in a Change of Control if it is the type of transaction specified by such
definition.
Asset Sales
The Classic Indenture provides that Classic shall not, and shall not permit
any Restricted Subsidiary to, consummate an Asset Sale unless (i) Classic or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such sale or other disposition at least equal to the fair market value
thereof, as determined in good faith by the Board of Directors of Classic and
evidenced in a board resolution; and (ii) not less than 75% of the consideration
received by Classic or such Restricted Subsidiary, as the case may be, is in the
form of cash or Cash Equivalents.
Within 365 days after the receipt of any Net Available Cash from an Asset
Sale, Classic or the applicable Restricted Subsidiary may apply such Net
Available Cash to: (A) acquire all or substantially all of the assets of a
Related Business; (B) acquire Voting Stock of a Related Business from a Person
that is not a Subsidiary of Classic; provided, that, (x) after giving effect
thereto, Classic or its Restricted Subsidiary owns a majority of such Voting
Stock and (y) such acquisition is otherwise made in accordance with the Classic
Indenture, including, without limitation, the "Limitation on Restricted
Payments" covenant; (C) make a capital expenditure or acquire other long-term
assets that are used or useful in a Related Business; or (D) prepay, repay,
redeem or purchase Indebtedness outstanding under the Senior Credit Agreement.
To the extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B), (C) or (D) ("Excess Proceeds"), Classic shall
make an Offer to holders of the notes to purchase notes and an offer to holders
of Pari Passu Indebtedness to repurchase such indebtedness pursuant to and
subject to the conditions set forth below.
Notwithstanding the foregoing provisions, Classic and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Sales which are not applied in accordance with this covenant exceeds $10
million. Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption by the transferee of Indebtedness of Classic (other than
Indebtedness that is subordinated to the notes and other than any Disqualified
Equity Interest of Classic) or Indebtedness of any Restricted Subsidiary and the
release of Classic or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Sale; (y) securities received by
Classic or any Restricted Subsidiary from the transferee that are converted by
Classic or such Restricted Subsidiary into cash within 20 days of the applicable
Asset Sale (to the extent of the cash received); and (z) any liabilities (as
shown on Classic's or such Restricted Subsidiary's most recent balance sheet) of
Classic or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Classic or any such Restricted
Subsidiary from further liability.
When the aggregate amount of Excess Proceeds exceeds $10 million or more,
Classic will apply the Excess Proceeds to the repayment of the notes and any
other Pari Passu Indebtedness outstanding with similar provisions requiring
Classic to make an offer to purchase such Indebtedness with the proceeds from
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any Asset Sale as follows: (A) Classic will make an offer to purchase (an
"Offer") from all holders of the Discount notes in accordance with the
procedures set forth in the Classic Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of notes that may be purchased out of an
amount ( the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the notes, and the denominator of which is the sum of the outstanding
principal amount of the notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all notes tendered) and (B) to the extent required by such
Pari Passu Indebtedness to permanently reduce the principal amount of such Pari
Passu Indebtedness, Classic will make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount
(the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over
the Note Amount; provided that in no event will Classic be required to make a
Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of
such Pari Passu Indebtedness. The offer price for the notes will be payable in
cash in an amount equal to 100% of the principal amount of the notes plus
accrued and unpaid interest, if any, to the date (the "Offer Date") such Offer
is consummated (the "Offered Price"), in accordance with the procedures set
forth in the Classic Indenture. To the extent that the aggregate Offered Price
of the notes tendered pursuant to the Offer is less than the Note Amount
relating thereto or the aggregate amount of Pari Passu Indebtedness that is
purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, Classic
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of discount notes and Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the notes to be purchased on a pro rata basis. Upon the
completion of the purchase of all the notes tendered pursuant to an Offer and
the completion of a Pari Passu Offer, the amount of Net Available Cash, if any
shall be reset at zero.
If Classic is required to make an Offer, Classic shall mail, within 30 days
following the Reinvestment Date, a notice to the holders of notes stating, among
other things: (1) that such holders have the right to require Classic to apply
the Excess Proceeds to repurchase such notes at a purchase price in cash equal
to 100% of the Accreted Value thereof plus accrued and unpaid interest, if any,
to the date of purchase; (2) the purchase date, which shall be no earlier than
30 days and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by Classic, that each holder must follow in order to
have such notes repurchased; and (4) the calculations used in determining the
amount of Excess Proceeds to be applied to the repurchase of such notes.
Classic will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant.
The Indenture governing the notes issued by the Company restricts the
Company from paying dividends or making any distribution to Classic. If Classic
is unable to obtain dividends or receive distributions from the Company
sufficient to permit repurchase of the notes pursuant to an Offer, Classic will
not have the financial resources to make an Offer.
EVENTS OF DEFAULT
An Event of Default is defined in the Classic Indenture as (i) a default in
any payment of interest on any note when due, continued for 30 days, (ii) a
default in the payment of principal (or premium, if any, on) of any note when
due at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise, (iii) the failure by Classic to comply with its
obligations under "-- Certain Covenants -- Merger or Sales of Assets," (iv) the
failure by Classic to comply for 30 days after notice with any of its
obligations under the covenants described under "-- Repurchase at the Option of
Holders -- Change of Control" or "-- Certain Covenants" (in each case, other
than a failure to purchase notes), (v) the failure by Classic to comply for 60
days after notice with its other agreements contained in the Classic Indenture,
(vi) the failure by Classic or any Restricted Subsidiary of Classic to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid
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or accelerated exceeds $5 million or its foreign currency equivalent (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of Classic or any Restricted Subsidiary of Classic (the
"bankruptcy provisions") or (viii) any judgment or decree for the payment of
money in excess of $5 million is rendered against Classic or any Restricted
Subsidiary of Classic and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed within 10 days of after notice (the
"judgment default provision").
The Classic Indenture provides that if an Event of Default (other than an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, the Trustee or the
holders of not less than 25% in principal amount of the notes then outstanding
may declare the Accreted Value of all the notes to be due and payable
immediately. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, such amount with respect
to all of the notes shall be due and payable immediately without any declaration
or other act on the part of the Trustee or the holders of the notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Discount notes outstanding by written
notice to Classic and the Trustee, may rescind and annul such declaration and
its consequences if (a) Classic has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the Classic
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all notes
then outstanding, (iii) the principal of and premium, if any, on any notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the notes and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the notes; (b) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (c) all Events of
Default, other than the non-declaration of acceleration, have been cured or
waived as provided in the Classic Indenture. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the notes outstanding may on behalf of the holders of all outstanding notes
waive any past default under the Classic Indenture and its consequences, except
a default (i) in the payment of the principal of, premium, if any, or interest
on any note (which may only be waived with the consent of each holder of notes
effected) or (ii) in respect of a covenant or provision which under the Classic
Indenture cannot be modified or amended without the consent of the holder of
each note affected by such modification or amendment.
No holder of any of the notes has any right to institute any proceedings
with respect to the Classic Indenture or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding notes
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee under the notes and the Classic Indenture,
the Trustee has failed to institute such proceeding within 15 days after receipt
of such notice and the Trustee, within such 15-day period, has not received
directions inconsistent with such written request by holders of a majority in
aggregate principal amount of the outstanding notes. Such limitations do not,
however, apply to a suit instituted by a holder of a note for the enforcement of
the payment of the principal of, premium, if any, or interest on such note on or
after the respective due dates expressed in such note.
Classic is required to notify the Trustee within five business days of the
occurrence of any Default. Classic is required to deliver to the Trustee, on or
before a date not more than 60 days after the end of each fiscal quarter and not
more than 120 days after the end of each fiscal year, a written statement as to
compliance with the Classic Indenture, including whether or not any Default has
occurred.
The holders of a majority in principal amount of the notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee subject to certain
limitations specified in the Classic Indenture. Subject to the provisions of the
Classic Indenture relating to the duties of the Trustee, in case an Event of
Default shall occur and be continuing,
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the Trustee will be under no obligation to exercise any of its rights or powers
under the Classic Indenture at the request or direction of any of the holders of
the notes, unless such holders have offered to the Trustee reasonable indemnity.
CERTAIN COVENANTS
Limitation on Restricted Payments
The Classic Indenture provides that, so long as any of the notes remain
outstanding, Classic shall not, and shall not permit any Restricted Subsidiary
to, make any Restricted Payment if (i) immediately before or immediately after
giving effect to such Restricted Payment, a Default or Event of Default shall
have occurred and be continuing or shall occur as a consequence of such
Restricted Payment; (ii) immediately after giving effect to such Restricted
Payment, Classic would not be able to incur $1.00 of additional Indebtedness
under the Debt to Operating Cash Flow Ratio of the first paragraph of
"-- Limitation on Indebtedness" below; or (iii) immediately after giving effect
to any such Restricted Payment, the aggregate of all Restricted Payments which
shall have been made on or after the date of the Classic Indenture (the amount
of any Restricted Payment, if other than cash, to be based upon the fair market
value thereof on the date of such Restricted Payment) would exceed an amount
equal to the difference between (a) the Cumulative Credit and (b) 1.4 times
Cumulative Interest Expense.
"Restricted Payment" means (i) any dividend (whether made in cash, property
or securities) on or with respect to any Equity Interests of Classic or of any
Restricted Subsidiary (other than any dividend made to Classic or another Wholly
Owned Restricted Subsidiary or any dividend payable in Equity Interests of
Classic or any Restricted Subsidiaries); or (ii) any distribution (whether made
in cash, property or securities) on or with respect to any Equity Interests of
Classic or of any Restricted Subsidiary (other than any distribution made to
Classic or another Wholly Owned Subsidiary or any distribution payable in Equity
Interests of Classic or any Restricted Subsidiary); or (iii) any redemption,
repurchase, retirement or other direct or indirect acquisition of any Equity
Interests of Classic or a Restricted Subsidiary, or any warrants, rights or
options to purchase or acquire any such Equity Interests or any securities
exchangeable for or convertible into any such Equity Interests; or (iv) any
redemption, repurchase, retirement or other direct or indirect acquisition for
value or other payment of principal, prior to any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, of any Subordinated
Obligations; or (v) any Investment (other than a Permitted Investment).
The provisions of the first paragraph of this covenant shall not prevent
(i) the retirement of any of Classic's Equity Interests in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Classic or an employee stock ownership plan or to a trust
established by Classic or any Subsidiary of Classic for the benefit of its
employees) of Equity Interests of Classic (other than any Disqualified Equity
Interest), provided that the Net Cash Proceeds from the issuance are excluded
from clause (i) of the definition of Cumulative Credit; (ii) the payment of any
dividend or distribution on, or redemption of Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of such formal notice such payment or redemption would comply with the first
paragraph of this covenant and the other provisions of the Classic Indenture;
(iii) investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant to and in
compliance with the provisions described under "-- Repurchase at the Option of
Holders -- Asset Sales" above; (iv) the redemption, repurchase, retirement,
defeasance or other acquisition of any Subordinated Obligations in exchange for,
or out of Net Cash Proceeds of the substantially concurrent sale (other than to
a Subsidiary of Classic or any employee stock ownership plan or to a trust
established by Classic or any Subsidiary of Classic (for the benefit of its
employees)) of Equity Interests of Classic (other than any Disqualified Equity
Interest); and (v) the making and consummation of (A) an Offer in accordance
with the provisions of the Classic Indenture with any Excess Proceeds or (B) a
Change of Control Offer with respect to the notes in accordance with the
provisions of the Classic Indenture; provided, however, that in the case of
clause (ii), no Default or Event of Default
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shall have occurred and be continuing at the time of such Restricted Payment or
as a result thereof. In determining the aggregate amount of Restricted Payments
made on or after the date of the Classic Indenture, Restricted Payments made
pursuant to clause (ii) shall be included in such calculation.
Limitation on Indebtedness
The Classic Indenture provides that Classic shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) except for Permitted Indebtedness; provided,
however, that Classic or any Restricted Subsidiary which is a Subsidiary
Guarantor may incur Indebtedness if, at the time of and immediately after giving
pro forma effect to such incurrence of Indebtedness and the application of the
proceeds therefrom, the Debt to Operating Cash Flow Ratio would be less than or
equal to 8.0 to 1.0.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the notes and the Classic Indenture;
(b) Indebtedness of Classic and the Restricted Subsidiaries
outstanding on the Issuance Date and listed on a schedule to the Classic
Indenture, other than Indebtedness described in clause (a), (c), (d), (f)
or (j) of this paragraph;
(c) Indebtedness of (x) any Wholly Owned Restricted Subsidiary owed to
or issued to and held by Classic or any Restricted Subsidiary and (y)
Classic owed to and held by any Wholly Owned Restricted Subsidiary which is
unsecured and subordinated in right of payment to the payment and
performance of Classic's obligations under the Classic Indenture and the
notes; provided, however, that an incurrence of Indebtedness that is not
permitted by this clause (c) shall be deemed to have occurred upon (i) any
sale or other disposition of any Indebtedness of Classic or a Restricted
Subsidiary referred to in this clause (c) to any Person (other than Classic
or a Wholly Owned Restricted Subsidiary) such that such Restricted
Subsidiary ceases to be a Restricted Subsidiary or (ii) any designation of
a Restricted Subsidiary which holds Indebtedness of Classic as an
Unrestricted Subsidiary;
(d) Guarantees by any Restricted Subsidiary of Indebtedness of Classic
permitted in accordance with the provisions of the Classic Indenture;
(e) Indebtedness of any Restricted Subsidiary under the Senior Credit
Agreement in the aggregate principal amount at any one time outstanding not
to exceed $125 million;
(f) Indebtedness of Classic or any Restricted Subsidiary to the extent
representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness of Classic or
any Restricted Subsidiary, as the case may be, incurred in compliance with
clause (a), (b), (e), (g) or (j) of this paragraph of this covenant;
provided, however, that (i) Indebtedness of Classic may not be refinanced
under this clause (f) with Indebtedness of any Restricted Subsidiary, (ii)
any such refinancing shall not exceed the sum of the principal amount or
liquidation preference or redemption payment value (or, if such
Indebtedness provides for a lesser amount to be due and payable upon a
declaration of acceleration thereof at the time of such refinancing, an
amount no greater than such lesser amount) of the Indebtedness being
refinanced plus the amount of accrued interest or dividends thereon and
such reasonable fees and expenses incurred in connection therewith, (iii)
Indebtedness representing a refinancing of Indebtedness of Classic shall
not mature prior to the stated maturity of the Indebtedness refinanced and
shall have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iv) Subordinated Obligations of Classic may only be refinanced with
Subordinated Obligations of Classic, and (v) Other Pari Passu Debt which is
unsecured may only be refinanced with unsecured Indebtedness, which is
either Other Pari Passu Debt or Subordinated Obligations;
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(g) Indebtedness of Classic or a Restricted Subsidiary represented by
Capitalized Lease Obligations, mortgage financings, performance bonds,
purchase money obligations or letters of credit, in each case incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Classic or such Restricted Subsidiary in an aggregate principal
amount not to exceed $10 million at any time outstanding;
(h) Indebtedness incurred and outstanding on or prior to the date on
which such Restricted Subsidiary was acquired by Classic (other than
Indebtedness incurred in connection with, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by Classic); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Debt to Operating Cash Flow Ratio would have been less than or
equal to the Debt to Operating Cash Flow Ratio immediately prior thereto;
(i) Indebtedness of Classic and any Restricted Subsidiary under a
Hedging Agreement related to floating interest on Indebtedness under the
Senior Credit Agreement provided that such Hedging Agreement is designed
solely to protect against fluctuations in interest rates and does not
increase the Indebtedness of the obligor outstanding at any time other than
as a result of fluctuations in interest rates;
(j) Indebtedness under the Classic Cable notes and the related
Indenture; and
(k) In addition to any indebtedness described in clauses (a) through
(j) above, Indebtedness of Classic or any of the Restricted Subsidiary so
long as the aggregate principal amount of all such indebtedness incurred
pursuant to this clause (k) does not exceed $5 million at any one time
outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (a) through (i) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
Classic shall classify such item of Indebtedness in any manner that complies
with this covenant and such item of Indebtedness shall be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof.
Limitation on Transactions with Affiliates.
(a) Classic will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or conduct any transaction or series of
transactions (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate, officers or directors of Classic (an "Affiliate Transaction") unless
(i) the terms of such transaction are no less favorable to Classic or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate; (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, the terms of such transaction are
set forth in writing and shall have been approved by a majority of the members
of the Board of Directors having no personal stake in such Affiliate Transaction
(and such majority determines that such Affiliate Transaction satisfies the
criteria in clause (i) above) and (iii) in the event such Affiliate Transaction
involves an aggregate amount in excess of $10 million, Classic has received a
written opinion from a nationally recognized independent investment banking
firm, or nationally recognized accounting or appraisal firm, that such Affiliate
Transaction is fair to Classic and its Restricted Subsidiaries from a financial
point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be made pursuant to the covenant
"-- Limitation on Restricted Payments," (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of
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Directors and otherwise permitted under the Classic Indenture, (iii) the grant
of stock options or similar rights to employees and directors of Classic in the
ordinary course of business pursuant to plans approved by the Board of
Directors, and otherwise permitted under the Classic Indenture, (iv) loans or
advances to employees in the ordinary course of business in accordance with the
past practices of Classic or its Restricted Subsidiaries, but in any event not
to exceed $1.0 million in the aggregate outstanding at any one time, (v) the
payment of reasonable fees to directors of Classic and its Restricted
Subsidiaries who are not employees of Classic or its Restricted Subsidiaries,
(vi) any transaction between Classic and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries or (vii) the payment of Investment Banking Fees.
Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries
Classic (a) will not, and will not permit any Restricted Subsidiary of
Classic to, directly or indirectly, transfer, convey, sell, lease or otherwise
dispose of any Equity Interest of any Restricted Subsidiary to any Person (other
than to Classic or a Wholly Owned Restricted Subsidiary), unless (i) such
transfer, conveyance, sale, lease or other disposition is of all the Equity
Interest of such Restricted Subsidiary and (ii) the Net Cash Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the provision described above under "-- Repurchase at the Option of
Holders -- Asset Sales" and (b) will not permit any Restricted Subsidiary to
issue any of its Equity Interest (other than, if required under applicable law,
shares of its Equity Interest constituting directors' qualifying shares) to any
Person other than to Classic or Wholly Owned Restricted Subsidiary.
Limitation on Sale/Leaseback Transactions
Classic will not, and will not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless (i)
Classic or such Restricted Subsidiary would be entitled to (A) incur
Indebtedness in an amount equal to the Attributable Indebtedness with respect to
such Sale/ Leaseback Transaction pursuant to the covenant described under
"-- Limitation on Indebtedness" and (B) create a Lien on such property securing
such Attributable Indebtedness without equally and ratably securing the notes
pursuant to the covenant described under "-- Limitation on Liens," (ii) the net
cash proceeds received by Classic or any Restricted Subsidiary in connection
with such Sale/Leaseback Transaction are at least equal to the fair value (as
determined in good faith by the Board of Directors of Classic and certified in
an Officers' Certificate to the Trustee) of such property and (iii) the transfer
of such property is permitted by, and Classic or such Restricted Subsidiary
applies the proceeds of such transaction in compliance with, the covenant
described under "-- Repurchase at the Option of Holders -- Asset Sales."
Limitation on Liens
The Classic Indenture provides that Classic shall not, and will not permit
any Restricted Subsidiary to, directly or indirectly incur any Indebtedness
secured by a Lien against or on any of its property or assets now owned or
hereafter acquired by Classic or any Restricted Subsidiary unless
contemporaneously therewith, (a) if such Indebtedness is not subordinated
Indebtedness, effective provision is made to secure the notes equally and
ratably with such secured Indebtedness, and (b) if such Indebtedness is
subordinated Indebtedness, the notes are secured by a lien against such assets
or property that is senior in priority to the liens securing such Subordinated
Indebtedness. This restriction does not, however, apply to Indebtedness secured
by (i) Liens securing the Indebtedness under the Senior Credit Agreement; (ii)
Liens, if any, in effect on the date of the Classic Indenture; (iii) Liens in
favor of governmental bodies to secure progress or advance payments; (iv) Liens
on Equity Interests or Indebtedness existing at the time of the acquisition
thereof (including acquisition through merger or consolidation), provided that
such Liens were not incurred in anticipation of such acquisition; (v) Liens
securing the notes; (vi) Liens securing Indebtedness of Classic in an amount not
to exceed $5 million at any time outstanding; (vii) Other Permitted Liens; and
(viii) any extension, renewal or replacement of any Lien referred to in
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the foregoing clauses (i) through (vii), inclusive, but only to the extent such
Liens do not extend to any other property or assets (other than improvements).
Limitation on Guarantees of Certain Indebtedness
The Classic Indenture provides that Classic shall not (a) permit any
Restricted Subsidiary to guarantee any Indebtedness of Classic other than the
notes (the "Other Indebtedness"), or (b) pledge any intercompany Indebtedness
representing obligations of any of its Restricted Subsidiaries to secure the
payment of Other Indebtedness, in each case unless such Restricted Subsidiary,
Classic and the Trustee execute and deliver a supplemental indenture causing
such Restricted Subsidiary to guarantee Classic's obligations under the Classic
Indenture and the exchange notes to the same extent that such Restricted
Subsidiary guaranteed Classic's obligations under the Other Indebtedness
(including waiver of subrogation, if any, except that (i) such guarantee need
not be secured unless required pursuant to "-- Limitation on Liens" and (ii) if
such Indebtedness is by its terms expressly subordinated to the notes, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated to such Restricted
Subsidiary's guarantee of the notes at least to the same extent as such
Indebtedness is subordinated to the notes).
Notwithstanding the foregoing, any guarantee by a Restricted Subsidiary of
the notes shall provide by its terms that it (and all Liens securing the same)
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of Classic, of all of
Classic's Equity Interest in, or all or substantially all the assets of, such
Restricted Subsidiary, which transaction is in compliance with the terms of the
Classic Indenture and such Restricted Subsidiary is released from all
guarantees, if any, by it of other Indebtedness of Classic or any Restricted
Subsidiaries and (with respect to any guarantees created after the date of the
Classic Indenture) the release by the holders of the Indebtedness of Classic
described in clause (a) above of their security interest or their guarantee by
such Restricted Subsidiary (including any deemed release upon payment in full of
all obligations under such Indebtedness), at such time as (A) no other
Indebtedness of Classic has been secured or guaranteed by such Restricted
Subsidiary, as the case may be, or (B) the holders of all such other
Indebtedness which is secured or guaranteed by such Restricted Subsidiary also
release their security interest in or guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness).
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Classic Indenture provides that Classic shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Restricted Subsidiary to (a) pay dividends in
cash or otherwise or make any other distributions to Classic or any Restricted
Subsidiary on its Equity Interests; (b) pay any Indebtedness owed to Classic or
any Restricted Subsidiary; (c) make loans or advances or guarantee any such
loans or advances, to Classic or any Restricted Subsidiary; (d) transfer any of
its properties or assets to Classic or any Restricted Subsidiary; (e) grant
Liens on the assets of Classic or any Restricted Subsidiary in favor of the
holders of the notes; or (f) guarantee the notes or any renewals or refinancings
thereof (any of the actions described in clauses (a) through (f) above is
referred to herein as a "Specified Action"), except for (i) such encumbrances or
restrictions arising by reason of Acquired Indebtedness of any Restricted
Subsidiary existing at the time such Person became a Restricted Subsidiary,
provided that such encumbrances or restrictions were not created in anticipation
of such Person becoming a Restricted Subsidiary and are not applicable to
Classic or any other Restricted Subsidiary, (ii) such encumbrances or
restrictions arising under refinancing indebtedness permitted by clause (f) of
the second paragraph under "-- Limitation on Indebtedness" above; provided that
the terms and conditions of any such restrictions are not less favorable to the
holders of notes than those under the Indebtedness being refinanced, (iii)
customary provisions restricting the assignment of any contract of Classic or
any Restricted Subsidiary, (iv) with respect to clause (d) above, restrictions
in security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent the restriction
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restricts the transfer of property subject to such security agreement or
mortgage; (v) restrictions pursuant to the senior credit agreement; and (vi)
restrictions pursuant to the notes of Classic Cable and the indenture under
which such notes were issued.
Limitation on Unrestricted Subsidiaries
Classic may designate after the Issuance Date any Subsidiary (other than a
Subsidiary which is a guarantor) as an "Unrestricted Subsidiary" under the
Classic Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) Classic would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the greater of (1) the net book value of Classic's
interest in such Subsidiary calculated in accordance with GAAP or (2) the
Fair Market Value of Classic's interest in such Subsidiary as determined in
good faith by Classic's board of directors;
(c) Classic would be permitted under the Classic Indenture to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the covenant described under "--Limitation on Indebtedness" at
the time of such Designation (assuming the effectiveness of such
Designation);
(d) such Unrestricted Subsidiary does not own any Equity Interest in
any Restricted Subsidiary of Classic which is not simultaneously being
designated an Unrestricted Subsidiary;
(e) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness, provided that an Unrestricted Subsidiary may
provide a guarantee for the notes; and
(f) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with Classic or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Classic or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of Classic or, in the event such condition
is not satisfied, the value of such agreement, contract, arrangement or
understanding to such Unrestricted Subsidiary shall be deemed a Restricted
Payment.
In the event of any such Designation, Classic shall be deemed to have made
an Investment constituting a Restricted Payment pursuant to the covenant
"-- Limitation on Restricted Payments" for all purposes of the Classic Indenture
in the Designation Amount.
The Classic Indenture also provides that Classic shall not and shall not
cause or permit any Restricted Subsidiary to at any time (x) provide credit
support for, or subject any of its property or assets (other than the Equity
Interest of any Unrestricted Subsidiary) to the satisfaction of, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness) (other than permitted
Investments in Unrestricted Subsidiaries) or (y) be directly or indirectly
liable for any Indebtedness of any Unrestricted Subsidiary. For purposes of the
foregoing, the Designation of a Subsidiary of Classic as an Unrestricted
Subsidiary shall be deemed to be the designation of all of the Subsidiaries of
such Subsidiary as Unrestricted Subsidiaries.
Classic may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
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(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Classic Indenture; and
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed Revocation,
and after giving pro forma effect to the incurrence of any such
Indebtedness of such redesignated Subsidiary as if such Indebtedness was
incurred on the date of the Revocation, Classic could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "-- Limitation on Indebtedness."
All Designations and Revocations must be evidenced by a resolution of the
board of directors of Classic delivered to the Trustee certifying compliance
with the foregoing provisions.
Reports
The Classic Indenture provides that, whether or not Classic is subject to
Section 13(a) or 15(d) of the Exchange Act or any successor provision thereto,
Classic shall file with the SEC (if permitted by SEC practice and applicable law
and regulations) so long as the notes are outstanding the annual reports,
quarterly reports and other periodic reports which Classic would have been
required to file with the SEC pursuant to Section 13(a) or 15(d) or any
successor provision thereto if Classic was so subject on or prior to the
respective dates (the "Required Filing Dates") by which Classic would have been
required to file such documents if Classic was so subject. Classic shall also in
any event (a) within 15 days of each Required Filing Date (whether or not
permitted or required to be filed with the SEC) (i) transmit or cause to be
transmitted by mail to all holders of notes, at such holder's address appearing
in the register maintained by the Registrar, without cost to such holders, and
(ii) file with the Trustee, copies of the annual reports, quarterly reports and
other documents which Classic is required to file with the SEC pursuant to the
preceding sentence, or if such filing is not so permitted, information and data
of a similar nature, and (b) if, notwithstanding the preceding sentence, filing
such documents by Classic with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any holder of notes. Classic shall not be obligated to file
any such reports with the SEC if the SEC does not permit such filings for all
companies similarly situated other than due to any action or inaction by
Classic. Classic will also comply with Section 314(a) of the TIA. In addition,
for so long as any of the notes remain outstanding and prior to the later of the
consummation of the Exchange Offer and the effectiveness of the Shelf
Registration Statement, if required, Classic shall furnish to holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Merger or Sales of Assets
The Classic Indenture provides that Classic shall not, in a single
transaction or through a series of related transactions, consolidate or merge
with or into, or sell, assign, convey, lease, transfer or otherwise dispose of,
all or substantially all of its assets to, another Person or a group of Persons,
or permit any Restricted Subsidiary to do so if such transaction would result in
the transfer of all or substantially all of the assets of Classic on a
consolidated basis, unless (i) either (A) Classic shall be the continuing
Person, or (B) the Person formed by or surviving any such consolidation or
merger (if other than Classic), or to which any such transfer shall have been
made, is a corporation, limited liability company or limited partnership
organized and existing under the laws of the United States, any State thereof or
the District of Columbia; (ii) the surviving Person (if other than Classic)
expressly assumes by supplemental indenture all the obligations of Classic under
the notes and the Classic Indenture; (iii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iv) immediately after giving effect to such transaction, the
surviving Person would be able to incur $1.00 of additional Indebtedness under
the Debt to Operating Cash Flow Ratio of the first paragraph of "--Limitation of
Indebtedness" above; and (v) Classic shall have delivered to the Trustee prior
to the
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proposed transaction an Officers' Certificate and an Opinion of Counsel, each
stating that the proposed consolidation, merger or transfer and such
supplemental indenture will comply with the Classic Indenture.
In addition, each Subsidiary Guarantor shall not, and Classic shall not
permit a Subsidiary Guarantor to, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
(other than Classic or any Subsidiary Guarantor) or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets to any Person or group of Persons (other than Classic or
any Subsidiary Guarantor), unless clauses (i)-(v) above are satisfied with
respect to such Subsidiary Guarantor (rather than Classic).
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which Classic is not the Surviving Person and the Surviving Person is to assume
all the obligations of Classic under the notes and the Classic Indenture
pursuant to a supplemental indenture, such Surviving Person shall succeed to,
and be substituted for, and may exercise every right and power of Classic and
Classic would be discharged from its obligations under the Classic Indenture and
the notes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Classic Indenture. Reference is made to the Classic
Indenture for the full definition of all such terms as well as any other
capitalized terms used herein for which no definition is provided.
"Accreted Value" means with respect to any note, as of any specified date
on or prior to August 1, 2003, the amount provided below for each $1,000
principal amount at maturity of notes:
(i) if the specified date occurs on one of the following dates after
the issue date (each a "Semiannual Accrual Date"), the Accreted Value will
equal the amount set forth below for such Semiannual Accrual Date:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRUAL DATE ACCRETED VALUE
----------------------- --------------
<S> <C>
August 1, 1998.............................................. 526.85
February 1, 1999............................................ 561.75
August 1, 1999.............................................. 598.97
February 1, 2000............................................ 638.65
August 1, 2000.............................................. 680.96
February 1, 2001............................................ 726.08
August 1, 2001.............................................. 774.18
February 1, 2002............................................ 825.47
August 1, 2002.............................................. 880.16
February 1, 2003............................................ 938.47
August 1, 2003.............................................. 1,000.00
</TABLE>
(ii) if the specified date occurs between two Semiannual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semiannual Accrual Date immediately preceding such specified date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semiannual Accrual Date less the Accreted Value for
the immediately preceding Semiannual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semiannual Accrual Date to the specified date, using a 360-day
year of 12 30-day months.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition from such Person and not incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition.
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"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, Classic; (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above; (iii) any trust in which any such Persons described in clauses (i)
and (ii) above has a beneficial interest; and (iv) any corporation or other
organization of which any such Persons described above collectively owns 5% or
more of the equity of such entity. For purposes of this definition, "control"
(including, with correlative meaning, the terms "controlling," "controlled by"
and "under common control with") when used with respect to any specified Person
includes the direct or indirect beneficial ownership of more than 5% of the
voting securities of such Person or the power to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"Applicable Premium" means, with respect to a note, the greater of (i) 1.0%
of the then outstanding principal amount of such note and (ii) the excess of (A)
the present value of the required interest and principal payments due on such
note to the first optional redemption date (assuming all outstanding notes were
called for redemption on such date) or to the final maturity date of the notes
at the option of Classic, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over (B) the then outstanding principal amount of
such note.
"Asset Acquisition" means (i) an Investment by Classic or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated or merged with or into Classic or
any Restricted Subsidiary, or (ii) any acquisition by Classic or any Restricted
Subsidiary of the assets of any Person which constitute substantially all of an
operating unit, a division or line of business of such Person or which is
otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale leaseback transaction) to any
Person other than Classic or any Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary, (ii) any material license, franchise or other
authorization of Classic or any Restricted Subsidiary, (iii) any assets of
Classic or any Restricted Subsidiary which constitute substantially all of an
operating unit, a division or a line of business of Classic or any Restricted
Subsidiary or (iv) any other property or asset of Classic or any Restricted
Subsidiary outside of the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any transaction
consummated in compliance with "-- Repurchase at the Option of Holders -- Change
of Control" above and "-- Certain Covenants -- Merger or Sales of Assets" above,
and the creation of any Lien not prohibited under "-- Certain
Covenants -- Limitation on Liens" above, (ii) the sale of property or equipment
that has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of Classic or any Restricted Subsidiary, as the
case may be, (iii) any transaction consummated in compliance with "-- Certain
Covenants -- Limitation on Restricted Payments" above, and (iv) sales, transfers
or other disposition of assets with a fair market value not in excess of $1
million in any transaction or series of transactions.
"Attributable Debt" means in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles consistently applied.
"Cash Equivalents" means (i) United States dollars; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition; (iii) certificates of deposit and
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eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank that is
a member of the Federal Reserve System having capital and surplus in excess of
$500.0 million; (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above; (v) commercial paper having a rating of at
least P-1 from Moody's or a rating of at least A-1 from S&P; and (vi) money
market mutual or similar funds having assets in excess of $100.0 million, at
least 95% of the assets of which are comprised of assets specified in clauses
(i) through (v) above.
"Consolidated Income Tax Expense" means, with respect to Classic for any
period, the provision for federal, state, local and foreign income taxes payable
by Classic and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Interest Expense" means, with respect to Classic and the
Restricted Subsidiaries for any period, without duplication, the sum of (i) the
interest expense of Classic and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation and after taking into account the
effect of elections made under any Hedging Agreements, however denominated, with
respect to such Indebtedness; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by
Classic and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied. For purposes of this definition, interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by Classic to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(loss) of Classic and the Restricted Subsidiaries for such period determined on
a consolidated basis in accordance with generally accepted accounting principles
consistently applied, adjusted, to the extent included in calculating such net
income (loss), by excluding, without duplication, (i) all extraordinary, unusual
or nonrecurring items of income or expense and of gains or losses and all gains
and losses from the sale or other disposition of assets out of the ordinary
course of business (net of taxes, fees and expenses relating to the transaction
giving rise thereto) for such period; (ii) that portion of such net income
(loss) derived from or in respect of investments in Persons other than any
Restricted Subsidiary, except to the extent actually received in cash by Classic
or any Restricted Subsidiary; (iii) the portion of such net income (loss)
allocable to minority interests in unconsolidated Persons for such period,
except to the extent actually received in cash by Classic or any Restricted
Subsidiary; (iv) net income (loss) of any other Person combined with Classic or
any Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination; (v) net income (loss) of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that net income (loss) is not at
the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule of governmental regulation applicable to that Restricted
Subsidiary or the holders of its Equity Interests; (vi) the cumulative effect of
a change in accounting principles after the date of the Classic Indenture; and
(vii) net income (loss) attributable to discontinued operations determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Total Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all outstanding Indebtedness of
Classic and the Restricted Subsidiaries outstanding as of such date of
determination (including the liquidation value of all Disqualified Equity
Interest), less the obligations of Classic or any Restricted Subsidiary under
any Hedging Agreement as of such date of
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determination that would appear as a liability on the balance sheet of such
Person, in each case determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied.
"Continuing Members" means, as of the date of determination, any Person who
(i) was a member of the Board of Directors of Classic on the date of the
Indenture, (ii) was nominated for election or elected to the Board of Directors
of Classic with the affirmative vote of a majority of the Continuing Members who
were members of the Board of Directors of Classic at the time of such nomination
or election of (iii) is a representative of, or was approved by, a Permitted
Holder.
"Cumulative Credit" means the sum of (i) the aggregate Net Cash Proceeds
received by Classic from the issue or sale (other than to a Subsidiary) of
Equity Interests (other than Disqualified Equity Interest) of Classic on or
after the Issuance Date, plus (ii) the principal amount (or, if less, accreted
amount determined in accordance with generally accepted accounting principles)
of any Indebtedness of Classic which has been converted into or exchanged for
Equity Interests of Classic on or after the Issuance Date, plus (iii) cumulative
Operating Cash Flow on or after the Issuance Date, to the end of the fiscal
quarter immediately preceding the date of the proposed Restricted Payment, or,
if cumulative Operating Cash Flow for such period is negative, minus the amount
by which cumulative Operating Cash Flow is less than zero, plus (iv) to the
extent not already included in Operating Cash Flow, if any Investment
constituting a Restricted Payment that was made after the date of the Classic
Indenture is sold or otherwise liquidated or repaid the initial dividend amount
of such Restricted Payment (less the cost of disposition, if any) on the date of
such sale, liquidation or repayment, as determined in good faith by the Board of
Directors.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid or accrued of Classic and the Restricted Subsidiaries on
or after the Issuance Date, to the end of the fiscal quarter immediately
preceding the proposed Restricted Payment.
"Debt to Operating Cash Flow Ratio" means the ratio of (i) the Consolidated
Total Indebtedness as of the date of calculation (the "Determination Date") to
(ii) four times the Operating Cash Flow for the latest three months for which
financial information is available immediately preceding such Determination Date
(the "Measurement Period"). For purposes of calculating Operating Cash Flow for
the Measurement Period immediately prior to the relevant Determination Date, (I)
any Person that is a Restricted Subsidiary on the Determination Date (or would
become a Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Operating Cash Flow) will be
deemed to have been a Restricted Subsidiary at all times during the Measurement
Period; (II) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Operating Cash Flow) will be deemed not to have been a
Restricted Subsidiary at any time during such Measurement Period; and (III) if
Classic or any Restricted Subsidiary shall have in any manner (x) acquired
(including through an Asset Acquisition or the commencement of activities
constituting such operating business) or (y) disposed of (including by way of an
Asset Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with generally
accepted accounting principles consistently applied, as if, in the case of an
Asset Acquisition or the commencement of activities constituting such operating
business, all such transactions had been consummated on the first day of such
Measurement Period, and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period.
"Disqualified Equity Interest" means, with respect to any Person, any
Equity Interest which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in
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whole or in part, or is exchangeable into Indebtedness or Disqualified Equity
Interest, on or prior to the earlier of the maturity date of the notes or the
date on which no notes remain outstanding.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, and
membership interests in such Person, including any Preferred Stock.
"Equity Offering" means an underwritten public offering by Classic for cash
(with gross proceeds to Classic of not less than $25 million) of its common
stock, pursuant to the Securities Act registration statement (not including
Forms S-4 or S-8).
"Hedging Agreement" means any interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement or other similar agreement
providing for the transfer or mitigation of interest rate risks either generally
or under specific contingencies.
"Hedging Obligation" means the obligations of such Person pursuant to any
Hedging Agreement.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capitalized Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions entered into by
such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Equity
Interest or, with respect to any Subsidiary of such Person, the liquidation
preference with respect to, any Preferred Stock (but excluding, in each
case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
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"Investment" in any Person means, directly or indirectly, any advance, loan
or other extension of credit (including by means of a guarantee) or capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others or otherwise) such Person,
the acquisition, by purchase or otherwise, of any stock, bonds, notes,
debentures, partnership, membership or joint venture interests or other
securities or other evidence of beneficial interest of any Person, and shall
include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. If Classic or any Restricted Subsidiary sells or otherwise disposes
of any Voting Equity Interest of any direct or indirect Restricted Subsidiary
such that, after giving effect to such sale or disposition, Classic no longer
owns, directly or indirectly, greater than 50% of the outstanding Voting Equity
Interests of such Restricted Subsidiary, Classic shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Voting Equity Interests of such former Restricted Subsidiary not
sold or disposed of.
"Investment Banking Fee" means pursuant to an agreement between J. Merritt
Belisle and Steven E. Seach, on the one hand, and Classic, on the other hand, a
fee to be paid by Classic to such individuals (i) upon the consummation of the
Financing Plan in the aggregate amount of $550,000 and (ii) thereafter from time
to time in connection with the consummation of acquisitions or financings by
Classic in an amount equal to 1.0% of the purchase price paid for such
acquisitions.
"Lien" means any mortgage, pledge, lien, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof or any agreement to give a security interest).
"Moody's" means Moody's Investors Service, Inc., or any successor rating
agency.
"Net Available Cash" from an Asset Sale means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other non cash form)
therefrom, in each case net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Sale, (ii) all payments
made on any indebtedness which is secured by any assets subject to such Asset
Sale, in accordance with the terms of any Lien upon or other security
arrangement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Sale, or by applicable
law, be repaid out of the proceeds from such Asset Sale, (iii) all distributions
and other payments required to be made to minority interest holders in
Restricted Subsidiaries or joint ventures as a result of such Asset Sale and
(iv) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Sale and retained by Classic or any Restricted
Subsidiary after such Asset Sale.
"Net Cash Proceeds" means, with respect to any issuance or sale of Equity
Interests, the proceeds in the form of cash or Cash Equivalents received by
Classic or any Restricted Subsidiary of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse Indebtedness" means Indebtedness of a Person (i) as to which
neither Classic nor any of the Restricted Subsidiaries (other than such Person
or any Subsidiaries of such Person) (a) provides any guarantee or credit support
of any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor or otherwise); and (ii) the incurrence of which will not
result in any recourse against any of the assets of either of Classic or the
Restricted Subsidiaries (other than to such Person or to any Subsidiaries of
such Person and other than to the Equity Interests in such Restricted Subsidiary
or an Unrestricted Subsidiary).
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"Operating Cash Flow" means, with respect to Classic and the Restricted
Subsidiaries on a consolidated basis, for any period, an amount equal to the
lesser of (a) the amount of cash dividends received by Classic from the Company
and (b) Consolidated Net Income for such period increased (without duplication)
by the sum of (i) Consolidated Income Tax Expense accrued for such period to the
extent deducted in determining Consolidated Net Income for such period; (ii)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; and (iii) depreciation,
amortization and any other non-cash items for such period to the extent deducted
in determining Consolidated Net Income for such period (other than any non-cash
item which requires the accrual of, or a reserve for, cash charges for any
future period) of Classic and the Restricted Subsidiaries, including, without
limitation, amortization of capitalized debt issuance costs for such period, all
of the foregoing determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied, and decreased by non-cash
items to the extent they increased Consolidated Net Income (including the
partial or entire reversal of reserves taken in prior periods) for such period,
provided, that with respect to the definition of Debt to Operating Cash Flow
only, Operating Cash Flow shall always have the meaning ascribed in Section (b)
above. For purposes of this definition, the following items shall, to the extent
expensed in calculating Consolidated Net Income, be added to Consolidated Net
Income: (A) any amounts paid to employees of Classic in respect of investment
banking or transaction fees in connection with acquisitions or financings of, or
advisory services to, Classic, in an amount not to exceed 1.5 percent of the
fair market value of such acquisition or the amount of such financing, and (B)
cancellation of debt to any employee of Classic in an aggregate principal amount
not to exceed $200,000.
"Other Pari Passu Debt" means Indebtedness of Classic that does not
constitute Subordinated Obligations and is not senior in right of payment to the
notes.
"Other Permitted Liens" means (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of obligations that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and for which an appropriate
reserve or provision shall have been made in accordance with generally accepted
accounting principles consistently applied; (ii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which an appropriate reserve or provision shall
have been made in accordance with generally accepted accounting principles
consistently applied; (iii) easements, rights of way, and other restrictions on
use of property or minor imperfections of title that in the aggregate are not
material in amount and do not in any case materially detract from the property
subject thereto or interfere with the ordinary conduct of the business of
Classic or its Subsidiaries; (iv) Liens related to Capitalized Lease
Obligations, mortgage financings or purchase money obligations (including
refinancings thereof), in each case incurred for the purpose of financing all or
any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of Classic or any Restricted
Subsidiary or a Related Business, provided that any such Lien encumbers only the
asset or assets so financed, purchased, constructed or improved; (v) Liens
resulting from the pledge by Classic of Equity Interests in any Subsidiary in
connection with the Senior Credit Agreement; (vi) liens resulting from the
pledge by Classic of Equity Interests in an Unrestricted Subsidiary in any
circumstance where recourse to Classic is limited to the value of the Equity
Interests so pledged; (vii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (viii) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds,
deposits to secure the performance of bids, trade contracts, government
contracts, leases or licenses or other obligations of a like nature incurred in
the ordinary course of business (including without limitation, landlord Liens on
leased properties); (ix) leases or subleases granted to third Persons not
interfering with the ordinary course of business of Classic; (x) deposits made
in the ordinary course of business to secure liability to insurance carriers;
(xi) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xii) Liens on the assets of Classic to
secure hedging agreements
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with respect to Indebtedness permitted by the Classic Indenture to be incurred;
(xiii) attachment or judgment Liens not giving rise to a Default or an Event of
Default; and (xiv) any interest or title of a lessor under any capital lease or
operating lease.
"Permitted Holders" means Austin Ventures, L.P., BT Capital Partners, Inc.,
NationsBank Capital Investors, J. Merritt Belisle and Steven E. Seach.
"Permitted Investments" means (i) Cash Equivalents; (ii) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (iii) the
extension of credit to vendors, suppliers and customers in the ordinary course
of business; (iv) Investments existing as of the date of the Classic Indenture,
and any amendment, modification, extension or renewal thereof to the extent such
amendment, modification, extension or renewal does not require Classic or any
Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (v) Hedging Agreements;
(vi) any Investment for which the sole consideration provided is Equity
Interests of Classic; (vii) any Investment consisting of a guarantee permitted
under clause (e) of the second paragraph of "-- Certain Covenants -- Limitation
on Indebtedness" above; (viii) Investments in Classic, in any Wholly Owned
Restricted Subsidiary or any Person that, as a result of or in connection with
such Investment, becomes a Wholly Owned Restricted Subsidiary or is merged with
or into or consolidated with Classic or a Wholly Owned Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(ix) loans and advances to officers, directors and employees of Classic and the
Restricted Subsidiaries for business-related travel expenses, moving expenses
and other similar expenses in each case incurred in the ordinary course of
business not to exceed $1 million outstanding at any time; (x) any acquisition
of assets solely in exchange for the issuance of Equity Interests of Classic;
and (xi) other Investments made after the date of the Indenture, in addition to
any Permitted Investments described in clauses (i) through (x)above, in an
aggregate amount at any one time outstanding not to exceed $1 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Stock" means, in any Person, an Equity Interest of any class or
classes, however designated, which is preferred as to the payment of dividends
or distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Equity Interests of
any other class in such Person.
"Reinvestment Date" means the date which is 365 days after the receipt of
any Net Available Cash from an Asset Sale.
"Related Business" means a cable television, media and communications,
telecommunications or data transmission business, and businesses ancillary,
complementary or reasonably related thereto.
"Restricted Subsidiary" means any Subsidiary of Classic other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"Semiannual Accrual Date" has the meaning ascribed under the definition of
Accreted Value.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including interest, whether or not allowable, accruing after the filing of a
petition initiating any proceeding under any state, federal or foreign
bankruptcy law) on any Indebtedness of Classic (other than as otherwise provided
in this definition), whether outstanding on the date of the Indenture or
thereafter created, incurred or assumed, and whether at any time owing, actually
or contingent, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the
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notes, (ii) Indebtedness that is subordinate or junior in right of payment to
any Indebtedness of Classic, (iii) Indebtedness which when incurred and without
respect to any election under Section 1111(b) of Title 11 United States Code, is
without recourse to Classic, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) any liability for foreign, federal, state, local
or other taxes owed or owing by Classic to the extent such liability constitutes
Indebtedness, (vi) Indebtedness of Classic to a Subsidiary or any other
Affiliate of Classic or any of such Affiliate's Subsidiaries, (vii) to the
extent it might constitute Indebtedness, amounts owing for goods, materials or
services purchased in the ordinary course of business or consisting of trade
accounts payable owed or owing by Classic, and amounts owed by Classic for
compensation to employees or services rendered to Classic, (viii) that portion
of any Indebtedness which at the time of issuance is issued in violation of the
Indenture and (ix) Indebtedness evidenced by any guarantee of any Subordinated
Indebtedness or Pari Passu Indebtedness.
"S&P" means Standard & Poor's Ratings Group, a division of the McGraw Hill
Company, Inc., or any successor rating agency.
"Strategic Equity Investment" means an investment in Classic by a company
which is primarily engaged in the media and communications industry or the
telecommunications industry and which has a market capitalization (if a public
company) on the date of such investment in Classic of more than $1 billion or,
if not a public company, had total revenues of more than $5 billion during its
previous fiscal year.
"Subordinated Obligations" means, with respect to Classic, any Indebtedness
of Classic which is expressly subordinated in right of payment to the notes.
"Subsidiary" means a Person the majority of whose voting stock, membership
interests or other Voting Equity Interests is or are owned by Classic or a
Subsidiary. Voting stock in a corporation includes Equity Interests having
voting power under ordinary circumstances to elect directors.
"Subsidiary Operating Cash Flow" means, with respect to any Subsidiary for
any period, the "Operating Cash Flow" of such Subsidiary and its Subsidiaries
for such period determined by utilizing all of the elements of the definition of
"Operating Cash Flow" in the Classic Indenture, including the defined terms used
in such definition, consistently applied only to such Subsidiary and its
Subsidiaries on a consolidated basis for such period.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for redemption of the notes following a Change of Control (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Weighted Average
Life to Maturity of the notes; provided, however, that if the Weighted Average
Life to Maturity of the notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest one
twelfth of a year) from the weekly average yields of United States Treasury
securities from which such yields are given, except that if the Weighted Average
Life to Maturity of the notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary of Classic (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "-- Certain Covenants -- Limitation on Unrestricted
Subsidiaries." Any such designation may be revoked by a resolution of the Board
of Directors of Classic delivered to the Trustee, subject to the provisions of
"-- Certain Covenants -- Limitation on Unrestricted Subsidiaries."
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither Classic nor
any Restricted Subsidiary is directly or indirectly liable (by virtue of Classic
or any such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), except guaranteed debt
of Classic
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or any Restricted Subsidiary to any Affiliate, in which case (unless the
incurrence of such guaranteed debt resulted in a Restricted Payment at the time
of incurrence) Classic shall be deemed to have made a Restricted Payment equal
to the principal amount of any such Indebtedness to the extent guaranteed at the
time such Affiliate is designated an Unrestricted Subsidiary and (ii) which,
upon the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Indebtedness of Classic or any Subsidiary to declare, a
default on such Indebtedness of Classic or any Subsidiary or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity; provided that
notwithstanding the foregoing any Unrestricted Subsidiary may guarantee the
notes.
"Voting Equity Interests" means Equity Interests in any Person with voting
power under ordinary circumstances entitling the holders thereof to elect the
board of directors, board of managers or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding aggregate
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary of which
all of the outstanding Equity Interests (other than Equity Interests
constituting directors' qualifying shares to the extent mandated by applicable
law) are owned by Classic or by one or more Wholly Owned Restricted Subsidiaries
or by Classic and one or more Wholly Owned Restricted Subsidiaries.
Notwithstanding the foregoing, so long as Universal Cable Holdings, Inc. holds
at least 75% of the issued and outstanding shares of stock of Universal Cable
Communications, Inc., Universal Cable of Beaver, Oklahoma, Inc. and Universal
Cable Midwest, Inc., each of such entities shall be deemed to be a Wholly Owned
Subsidiary.
NO LIABILITY OF MANAGERS, OFFICERS, EMPLOYEES, OR SHAREHOLDERS
No manager, director, officer, employee, member, shareholder, partner or
incorporator of Classic or any Subsidiary, as such, will have any liability for
any obligations of Classic under the notes or the Classic Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and the SEC is of the view that such a waiver is against
public policy.
DEFEASANCE AND COVENANT DEFEASANCE
The Classic Indenture provides that Classic may elect either (a) to defease
and be discharged from any and all obligations with respect to the notes (except
for the obligations to replace temporary or mutilated, destroyed, lost or stolen
notes, to maintain an office or agency in respect of the notes and to hold
moneys for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to the notes under certain covenants (and related
Events of Default) contained in the Classic Indenture, including but not limited
to those described above under "Certain Covenants' ("covenant defeasance"), upon
the deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money, in
an amount sufficient to pay the principal of, premium, if any, and interest, if
any, on the notes, on the scheduled due dates therefor. Such a trust may only be
established if, among other things, (x) no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to Events
of Default resulting from certain events of bankruptcy, insolvency or
reorganization, would occur at any time in the period ending on the 91st day
after the date of deposit) and (y) Classic has delivered to the Trustee an
opinion of counsel (as specified in the Classic Indenture) to the effect that
(i) defeasance or covenant defeasance, as the case may be, will not require
registration of Classic, the Trustee or the trust fund under the Investment
Company Act of 1940, as amended, or the
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Investment Advisors Act of 1940, as amended, and (ii) the holders of the notes
will recognize income, gain or loss for Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred. Such opinion, in the case of
defeasance under clause (a) above, must refer to and be based upon a private
ruling concerning the notes of the Internal Revenue Service or a ruling of
general effect published by the Internal Revenue Service.
MODIFICATION OF CLASSIC INDENTURE
From time to time, Classic and the Trustee may, without consent of holders
of the notes, enter into one or more supplemental indentures for certain
specified purposes, including providing for a successor or successors to
Classic, adding guarantees, releasing guarantors when permitted by the Classic
Indenture, providing for security for the notes, adding to the covenants of
Classic, surrendering any right or power conferred upon Classic, providing for
uncertificated notes in addition to or in place of certificated notes, making
any change that does not adversely affect the rights of any note holder,
complying with any requirement of the Trust Indenture Act or curing certain
ambiguities, defects or inconsistencies. The Classic Indenture contains
provisions permitting Classic and the Trustee, with the consent of holders of at
least a majority in aggregate principal amount of the notes at the time
outstanding, to modify the Classic Indenture or any supplemental indenture or
the rights of the holders of the notes, except that no such modifications shall,
without the consent of each holder affected thereby (i) change or extend the
fixed maturity of the notes, reduce the rate or extend the time of payment of
interest thereon, reduce the principal amount thereof or premium, if any,
thereon or change the currency in which the notes are payable; (ii) reduce the
premium payable upon any redemption of notes in accordance with the optional
redemption provisions of the notes or change the time before which no such
redemption may be made; (iii) waive a default in the payment of principal or
interest on the notes (except that holders of a majority in aggregate principal
amount of the notes at the time outstanding may (a) rescind an acceleration of
the notes that resulted from a non-payment default and (b) waive the payment
default that resulted from such acceleration) or alter the rights of note
holders to waive defaults; or (iv) reduce the aforesaid percentage of notes, the
consent of the holders of which is required for any such modification. Any
existing Event of Default, other than a default in the payment of principal or
interest on the notes, or compliance with any provision of the notes or the
Classic Indenture, other than any provision related to the payment of principal
or interest on the notes, may be waived with the consent of holders of at least
a majority in aggregate principal amount of the notes at the time outstanding.
COMPLIANCE CERTIFICATE
The Classic Indenture provides that Classic will deliver to the Trustee
within 120 days after the end of each fiscal year of Classic an Officers'
Certificate stating whether or not the signers know of any Event of Default that
has occurred. If they do, the certificate will describe the Event of Default and
its status.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be represented by one or more permanent global
exchange notes in definitive, fully registered form without interest coupons
(each a "Global Note") and will be deposited with the Trustee as custodian for,
and registered in the name of a nominee of, DTC.
Each Global note will be subject to certain restrictions on transfer set
forth therein as described under "Notices to Investors."
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified Institutional Buyers may hold their
interests in a Global note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
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So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the exchange notes represented by such Global Note for
all purposes under the Indenture and the exchange notes. No beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in additional to those provided for
under the Classic Indenture and, if applicable, those of Euroclear and Cedel
Bank.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither Classic, the Trustee nor any Paying Agent will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Classic expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. Classic also expects that payments by participants to owners
of beneficial interests in such Global Note held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
Classic expects that DTC will take any action permitted to be taken by a
holder of notes (including the presentation of notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note are credited and only in respect of such portion
of the aggregate principal amount of notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which may
be legended as set forth under the heading "Notices to Investors."
Classic understands that DTC is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within the
meaning of New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to other such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interest in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither Classic nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by Classic within
90 days, Classic will issue Certificated Notes, which may bear the legend
referred to under "Notices to Investors," in exchange for the Global notes.
Holders of an interest in a Global Note may receive Certificated Notes, which
may bear the legend referred to under "Notices to Investors," in accordance with
the DTC's rules and procedures in addition to those provided for under the
Indenture.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of U.S. federal income tax considerations
relevant to Holders of the notes. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations, administrative pronouncements and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive effect) or
different interpretations, which may affect the tax consequences described
herein. This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to a particular investor and it is not
intended to be wholly applicable to all categories of investors, some of which,
such as dealers in securities, financial institutions, insurance companies,
tax-exempt organizations, or investors who have hedged the risk of owning
exchange notes, may be subject to special rules. In addition, this discussion is
limited to persons that will hold the exchange notes as "capital assets" within
the meaning of section 1221 of the Code.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS THE TAX
CONSEQUENCES TO TAXPAYERS WHO ARE SUBJECT TO SPECIAL RULES (SUCH AS FINANCIAL
INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, S CORPORATIONS,
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, BROKER-DEALERS,
TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX AND PERSONS THAT WILL HOLD THE
EXCHANGE NOTES AS PART OF A POSITION IN A "STRADDLE" OR AS PART OF A
"CONSTRUCTIVE SALE, " "HEDGING" OR "CONVERSION" TRANSACTION) OR ADDRESS ASPECTS
OF FEDERAL TAXATION THAT MIGHT BE RELEVANT TO A PROSPECTIVE INVESTOR BASED UPON
SUCH INVESTOR'S PARTICULAR TAX SITUATION. THIS SUMMARY DOES NOT ADDRESS ANY TAX
CONSEQUENCES ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER
TAXING JURISDICTION. INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING
THE UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF THE
EXCHANGE NOTES (INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES HOLDER OR A
NON-UNITED STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES
Winstead Sechrest & Minick P.C., counsel to Classic ("Counsel"), has
advised Classic that in its opinion, the exchange of the old notes for exchange
notes pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the exchange notes will not be considered to
differ materially in kind or extent from the old notes. Rather, in the opinion
of Counsel, the exchange notes received by a holder will be treated as a
continuation of the old notes in the hands of such holder and consequently, in
the opinion of Counsel, there will be no federal income tax consequences to
holders exchanging old notes for exchange notes pursuant to the Exchange Offer.
Counsel's opinion does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
Classic recommends that each holder of old notes consult such holder's own
tax adviser as to the particular tax consequences of exchanging such holder's
old notes for exchange notes, including the applicability and effect of any
state local or foreign tax laws.
UNITED STATES HOLDERS
General
The following discussion constitutes Counsel's opinion regarding material,
but not all, United States federal income tax consequences of the ownership and
sale or other disposition of the notes by a beneficial owner that, for United
States federal income tax purposes, is a "United States person" (a "United
States Holder"). Prospective Holders of the exchange notes are urged to consult
with their tax advisors concerning their individual tax circumstances and any
prospective investment in the exchange notes. As used herein, a "United States
person" means a citizen or individual resident (as defined in
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Section 7701(b) of the Code) of the United States; a corporation or partnership
(including any entity treated as a corporation or partnership for United States
federal income tax purposes) created or organized under the laws of the United
States, any state thereof or the District of Columbia unless, in the case of a
partnership, otherwise provided by regulation; an estate the income of which is
includible in gross income for United States federal income tax purposes without
regard to its source; or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, certain trusts
in existence on August 20, 1996, and treated as United States persons prior to
such date that elect to continue to be so treated shall also be considered to be
United States persons.
Original Issue Discount
Because the notes were issued at a discount from their "stated redemption
price at maturity," the notes were issued with original issue discount, and each
Holder will be required to include in its gross income original issue discount
("OID") income as described below.
Original issue discount on each note will equal the excess of the stated
redemption price at maturity of the discount note over its issue price. A Holder
of a note must include OID in income as ordinary interest income as it accrues
on the basis of a constant yield to maturity. Generally, OID must be included in
income in advance of the receipt of cash representing such income.
In general, the "issue price" of a note is determined by allocating the
"issue price" between the notes and the Classic common stock issued in
conjunction with the notes at the Classic private offering based on their
relative fair market value. For this purpose, the "issue price" is the initial
offering price to the public (excluding underwriters, brokers, etc.) at which a
substantial amount of the old notes and the shares of Classic common stock
issued in conjunction therewith (the "shares") were first sold. Classic will
allocate a portion of the issue price to the notes and the shares. Classic's
allocation reflects its best judgment as to the relative values of each of those
instruments at the time of issuance, but will not be binding on the Internal
Revenue Service (the "Service"). Classic's allocation will be binding on each
Holder of an old note and shares that does not explicitly disclose that its
allocation of the issue price of the old note and shares is different than
Classic's allocation. Such disclosure must be made on a statement attached to
such Holder's timely filed federal income tax return for its taxable year that
includes the acquisition date of the old note and shares.
The stated redemption price at maturity of a note will equal the sum of all
payments other than any "qualified stated interest" payments. Qualified stated
interest is stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate. Because interest on the notes will not be paid prior to
February 1, 2004, none of the payments on the notes will constitute qualified
stated interest. Accordingly, all payments on the notes will be treated as part
of their stated redemption price at maturity and the notes will have significant
original issue discount.
A United States Holder will be required to include OID in income
periodically over the term of a note before receipt of the cash or other payment
attributable to such income, regardless of such Holder's method of tax
accounting. The amount of OID required to be included in a United States
Holder's gross income for any taxable year is the sum of the "daily portions" of
OID with respect to the note for each day during the taxable year or portion of
a taxable year during which such Holder holds the note. The daily portion is
determined by allocating to each day of any "accrual period" within a taxable
year a pro rata portion of an amount equal to the "adjusted issue price" of the
note at the beginning of the accrual period multiplied by the "yield to
maturity" of the note. For purposes of computing OID, Classic will use six-month
accrual periods that end on the days in the calendar year corresponding to the
maturity date of the notes and the date six months prior to such maturity date,
with the exception of an initial short accrual period. A United States Holder is
permitted to use different accrual periods, provided that each accrual period is
no longer than one year, and each scheduled payment of interest or principal
occurs on either the
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first or last day of an accrual period. The adjusted issue price of a note at
the beginning of any accrual period is the issue price of the note increased by
the amount of OID previously includible in the gross income of the Holder and
decreased by any payments previously made on the note. The yield to maturity is
the discount rate that, when used in computing the present value of all payments
of principal and interest to be made on a note, produces an amount equal to the
issue price of the note. Under these rules, United States Holders of notes will
be required to include in gross income increasingly greater amounts of OID in
each successive accrual period. Payments of stated interest on a note will not
be separately included in income, but rather will be treated first as payments
of previously accrued OID and then as payments of principal and, consequently,
will reduce a United States Holder's basis in a note as described below under
"-- United States Holders -- Sale, Exchange or Redemption of the Discount
Notes."
If Classic fails to register the exchange notes or the exchange offer is
not consummated within the required period of time (and in certain other
circumstances), Classic may be required to pay certain amounts to Holders as
liquidated damages. See "The Exchange Offer -- Purpose and Effect." The payment
of the liquidated damages (calculated as an increase in interest rate) should
not result in a deemed taxable exchange of the notes. Although the
characterization of these amounts is uncertain, such liquidated damages probably
constitute contingent interest, which is generally not includible in income
before fixed or paid.
Election to Treat All Interest as Original Issue Discount
A Holder, subject to certain limitations, may elect to treat all "interest"
on any note as original issue discount and calculate the amount includible in
gross income under the method described above. For this purpose, "interest"
includes stated and unstated interest, OID, acquisition discount, market
discount and de minimis market discount, as adjusted by any acquisition premium
or amortizable bond premium. Such election, if made with respect to a market
discount obligation, will constitute an election to include market discount in
income currently on all market discount obligations acquired by such Holder on
or after the first taxable year to which the election applies. See "-- United
States Holders -- Market Discount." The election is to be made for the taxable
year in which the Holder acquired the note and may not be revoked without the
consent of the Service.
Acquisition Premium
A United States Holder that purchases a note for an amount that is greater
than its adjusted issue price as of the purchase date will be considered to have
purchased such note at an "acquisition premium." The amount of OID that such
Holder must include in its gross income with respect to such note for any
taxable year is generally reduced by the portion of such acquisition premium
properly allocable to such year. The information reported by Classic to the
record Holders of the notes on an annual basis will not account for an offset
against OID for any portion of the acquisition premium. Accordingly, each United
States Holder should consult its own tax advisor as to the determination of the
acquisition premium amount and the resulting adjustments to the amount of
reportable OID.
Amortizable Bond Premium
A United States Holder that purchases an exchange note for an amount in
excess of its principal amount will be considered to have purchased the exchange
note at a premium and may elect to amortize such premium, using a constant yield
method, over the remaining term of the exchange note (or, if a smaller
amortization allowance would result, by computing such allowance with reference
to the amount payable on an earlier call date and amortizing such allowance over
the shorter period to such call date). The amount amortized in any year will be
treated as a reduction of the United States Holder's interest income from the
exchange note. Bond premium on an exchange note held by a United States Holder
that does not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the exchange note. The election to
amortize bond premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing United States Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the Service.
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Market Discount
If a United States Holder purchases, subsequent to its original issuance,
an exchange note for an amount that is less than its "revised issue price" as of
the purchase date, the amount of the difference generally will be treated as
"market discount," unless such difference is less than a specified de minimis
amount. The Code provides that the revised issue price of a note equals its
issue price plus the amount of OID includable in the income of all holders for
periods prior to the purchase date (disregarding any deduction for acquisition
premium) reduced by the amount of all prior cash payments on the note. Subject
to a de minimis exception, a United States Holder will be required to treat any
gain recognized on the sale, exchange, redemption, retirement or other
disposition of the exchange note as ordinary income to the extent of the accrued
market discount that has not previously been included in income. Unless a Holder
elects to accrue under a constant-interest method, accrued market discount is
the total market discount multiplied by a fraction, the numerator of which is
the number of days the Holder has held the obligation and the denominator of
which is the number of days from the date the Holder acquired the obligation
until its maturity. A Holder may be required to defer a portion of its interest
deductions for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry an exchange note purchased with market discount.
Any such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a deduction not
later than the year in which such market discount is includible in income. If
the Holder elects to include market discount in income currently as it accrues
on all market discount instruments acquired by the Holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
Sale, Exchange or Redemption of Discount Notes
Generally, a sale, exchange or redemption of the notes will result in
taxable gain or loss equal to the difference between the amount of cash or other
property received and the United States Holder's adjusted tax basis in the note.
A United States Holder's adjusted tax basis for determining gain or loss on the
sale or other disposition of a note will initially equal the cost of the note to
such Holder and will be increased by any (i) amounts included in income as OID,
and (ii) any market discount previously included in income by such United States
Holder, and decreased by (a) any principal and stated interest payments received
by the United States Holder, and (b) any amortized premium previously deducted
from income by the United States Holder. Except as described above with respect
to market discount, such gain or loss will be capital gain or loss. Capital gain
or loss will be long-term gain or loss if the note is held by the United States
Holder for more than one year, otherwise such gain or loss will be short-term.
United States Holders that are corporations will generally be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States Holders that
are individuals will generally be taxed on net capital gains at a maximum rate
of (i) 28% for property held for 18 months or less but more than one year, and
(ii) 20% for property held more than 18 months. Recent legislative proposals
would reduce the holding period for the property to qualify for the maximum 20%
rate to 12 months or more. There can be no assurance that such proposals will be
enacted into law in their present form, if at all. Special rules (and generally
lower maximum rates) apply for individuals in lower tax brackets. Any capital
losses realized by a United States Holder that is a corporation generally may be
used only to offset capital gains. Any capital losses realized by a United
States Holder that is an individual generally may be used only to offset capital
gains plus $3,000 of other income per year.
The AHYDO Rule
The notes will constitute "applicable high yield discount obligations"
("AHYDOs") because the yield to maturity of such notes is equal to or greater
than the sum of the relevant applicable federal rate (the "AFR") for July, plus
five percentage points, and the notes bear "significant" OID. The notes bear
significant OID for this purpose because, as of the close of any accrual period
ending more than five years after issuance, the total amount of income
includible by a Holder with respect to a note will exceed the sum of (i) the
total amount of stated interest paid under the note before the close of such
accrual period, and (ii) the product of the issue price of the debt note and its
yield to maturity.
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Under Sections 163(e) and 163(i) of the Code, a C corporation that is an
issuer of discount notes that are subject to the AHYDO rules is not entitled to
deduct OID that accrues with respect to such discount notes until amounts
attributable to such OID are paid in cash. In addition, to the extent that the
yield to maturity of the notes exceeds 11.8% (the sum of the relevant AFR plus
six percentage points) (the "Excess Yield"), the "disqualified portion" of the
OID accruing on the notes will be permanently disallowed, and the disqualified
portion will be characterized as a nondeductible dividend with respect to the
issuer and also will be treated as a dividend distribution (to the extent of
available current and accumulated earnings and profits) solely for purposes of
the dividends received deductions of Sections 243, 246 and 246A of the Code with
respect to Holders that are U.S. corporations. The disqualified portion of OID
for any accrual period will equal the product of (i) a percentage determined by
dividing the Excess Yield by the yield to maturity, and (ii) the OID for the
accrual period. Subject to otherwise applicable limitations, such a corporate
Holder will be entitled to a dividend received deduction with respect to the
disqualified portion of the accrued OID if the issuer has sufficient current or
accumulated "earnings and profits." To the extent that the issuer's earnings and
profits are insufficient, any portion of the OID that otherwise would have been
recharacterized as a dividend for purposes of the dividends received deduction
will continue to be treated as ordinary OID income in accordance with the rules
described above in "Original Issue Discount." Treatment of the notes as AHYDOs
will not disqualify interest or OID with respect to notes from the portfolio
interest exception described below under "-- Foreign Holders -- Interest;"
provided that all applicable requirements for the exception are otherwise
satisfied.
FOREIGN HOLDERS
The following discussion constitutes Counsel's opinion regarding material,
but not all, United States federal income tax consequences of the ownership and
sale or other disposition of the exchange notes by any beneficial owner of a
exchange note that is not a United States Holder (a "Non-United States Holder").
Resident alien individuals will be subject to United States federal income tax
with respect to the exchange notes as if they were United States Holders.
TAXATION OF STATED INTEREST
Under current United States federal income tax law, and subject to the
discussion of backup withholding below, interest (including OID) paid on the
exchange notes to a Non-United States Holder will not be subject to the normal
30% United States federal withholding tax, provided that (i) the interest is
"effectively connected with the conduct of a trade or business in the United
States" by the Non-United States Holder and the Non-United States Holder timely
furnishes Classic with two duly executed copies of Internal Revenue Service Form
4224 (or any successor form), or (ii) all of the following conditions of the
portfolio interest exception (the "Portfolio Interest Exception") are met: (A)
the Non-United States Holder does not, actually or constructively, own 10% or
more of the total combined voting power of all classes of stock of a corporate
Issuer entitled to vote, (B) the Non-United States Holder is not a controlled
foreign corporation that is related, directly or indirectly, to the Issuer
through stock ownership, (C) the Non-United States Holder is not a bank
receiving interest (including OID) pursuant to a loan agreement entered into in
the ordinary course of its trade or business, and (D) either (1) the Non-United
States Holder certifies to Classic or its agent, under penalties of perjury,
that it is a Non-United States Holder and provides its name and address, or (2)
a securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business (a
"Financial Institution"), and holds the exchange notes in such capacity,
certifies to Classic or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner of the exchange notes by
it or by a Financial Institution between it and the beneficial owner and
furnishes Classic or its agent with a copy thereof. The foregoing certification
may be provided by the Non-United States Holder on Internal Revenue Service Form
W-8 (or any successor form). Such certificate is effective with respect to
payments of interest (including OID) made after the issuance of the certificate
in the calendar year of its issuance and the two immediately succeeding calendar
years.
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On October 14, 1997, final regulations were published in the Federal
Register (the "1997 Final Regulations") that affect the United States federal
income taxation of Non-United States Holders. The 1997 Final Regulations are
effective for payments after December 31, 1999, regardless of the issue date of
the instrument with respect to which such payments are made, subject to certain
transition rules discussed below. While the discussion under this heading and
under "-- Backup Withholding Tax and Information Reporting," below, sets forth
the material provisions of the 1997 Final Regulations affecting prospective
Non-United States Holders, prospective Holders of the exchange notes are urged
to consult their tax advisors concerning their individual tax circumstances and
any prospective investment in light of the 1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. Qualified intermediaries include: (i) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization), or
(ii) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (i) and (ii), have entered into withholding agreements with the Service.
In addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised Service Form W-8 (discussed below),
from each beneficial owner. Under another option, an authorized foreign agent of
a United States withholding agent will be permitted to act on behalf of the
United States withholding agent (including the receipt of withholding
certificates, the payment of amounts of income subject to withholding and the
deposit of tax withheld), provided that certain conditions are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat as the beneficial owners of payments on an exchange note those
persons that, under United States federal income tax principles, are the
taxpayers with respect to such payments, rather than persons such as nominees or
agents legally entitled to such payments. In the case of payments to an entity
classified as a foreign partnership under United States tax principles, the
partners, rather than the partnership, generally must provide the required
certifications to qualify for the withholding tax exemption described above
(unless the partnership has entered into a special agreement with the Service).
A payment to a United States partnership, however, is treated for these purposes
as payment to a United States payee, even if the partnership has one or more
foreign partners. The 1997 Final Regulations provide certain presumptions with
respect to withholding for Holders not furnishing the required certifications to
qualify for the withholding tax exemption described above. In addition, the 1997
Final Regulations will replace a number of current tax certification forms
(including Internal Revenue Service Form W-8) with a single, revised Service
Form W-8 (which, in certain circumstances, requires information in addition to
that previously required). Under the 1997 Final Regulations, this revised Form
W-8 will remain valid until the last day of the third calendar year following
the year in which the certificate is signed.
The 1997 Final Regulations provide transition rules concerning existing
certificates, such as Service Form W-8. Valid withholding certificates that are
held on December 31, 1999 will generally remain valid until the earlier of
December 31, 2000 or the date of their expiration. Existing certificates that
expire in 1999 will not be effective after their expiration. Certificates dated
prior to January 1, 1998 will generally remain valid until the end of 1998,
irrespective of the fact that their validity expires during 1998.
In the event that the interest (including OID) paid on the exchange notes
is effectively connected with the conduct of a trade or business within the
United States of the Non-United States Holder, the Non-United States Holder will
generally be taxed on a net income basis (that is, after allowance for
applicable deductions) at the graduated rates that are applicable to United
States persons in essentially the same manner as if the exchange notes were held
by a United States person, as discussed above. In the case of a Non-United
States Holder that is a corporation, such income may also be subject to the
United States federal branch profits tax (which is generally imposed on a
foreign corporation upon the deemed
114
<PAGE> 118
repatriation from the United States of effectively connected earnings and
profits) at a 30% rate, unless the rate is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder is a qualified
resident of the treaty country.
If the interest on the exchange notes is not "effectively connected" and
does not qualify for the Portfolio Interest Exception, then the interest will be
subject to United States federal withholding tax at a flat rate of 30% (or a
lower applicable income tax treaty rate upon delivery of the appropriate
certification of eligibility for treaty benefits).
Gain on Sale or Other Disposition
Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to regular United States
federal income or withholding tax on gain recognized on a sale or other
disposition of the exchange notes, unless the gain is effectively connected with
the conduct of a trade or business within the United States of the Non-United
States Holder or of a partnership, trust or estate in which such Non-United
States Holder is a partner or beneficiary.
Gains realized by a Non-United States Holder that are effectively connected
with the conduct of a trade or business within the United States of the
Non-United States Holder will generally be taxed on a net income basis (that is,
after allowance for applicable deductions) at the graduated rates that are
applicable to United States persons, as described above, unless exempt by an
applicable income tax treaty. In the case of a Non-United States Holder that is
a corporation, such income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation upon the
deemed repatriation from the United States of effectively connected earnings and
profits) at a 30% rate, unless the rate is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder is a qualified
resident of the treaty country.
In addition to being subject to the rules described above, an individual
Non-United States Holder who holds the exchange notes as a capital asset will
generally be subject to tax at a 30% rate on any gain recognized on the sale or
other disposition of such exchange notes if (i) such gain is not effectively
connected with the conduct of a trade or business within the United States of
the Non-United States Holder, and (ii) such individual is present in the United
States for 183 days or more in the taxable year of the sale or other disposition
and either (A) has a "tax home" in the United States (as specially defined for
purposes of the United States federal income tax), or (B) maintains an office or
other fixed place of business in the United States and the gain from the sale or
other disposition of the exchange notes is attributable to such office or other
fixed place of business. Individual Non-United States Holders may also be
subject to tax pursuant to provisions of United States federal income tax law
applicable to certain United States expatriates (including certain former
long-term residents of the United States).
Under the 1997 Final Regulations, withholding of United States federal
income tax may apply to payments on a taxable sale or other disposition of the
exchange notes by a Non-United States Holder who does not provide appropriate
certification to the withholding agent with respect to such transaction.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest (including OID) paid to, and to the proceeds of
sales or other dispositions before maturity by, certain non-corporate persons.
In addition, a 31% backup withholding tax applies if a non-corporate person (i)
fails to furnish such person's Taxpayer Identification Number ("TIN") (which,
for an individual, is his or her Social Security Number) to the payor in the
manner required, (ii) furnishes an incorrect TIN and the payor is so notified by
the Service, (iii) is notified by the Service that such person has failed
properly to report payments of interest and dividends, or (iv) in certain
circumstances, fails to certify, under penalties of perjury, that such person
has not been notified by the Service that such person is subject to backup
withholding for failure properly to report interest and dividend payments.
Backup withholding does not apply to payments made to certain exempt recipients,
such as corporations and tax-exempt organizations.
115
<PAGE> 119
In the case of a Non-United States Holder, under current United States
federal income tax law, backup withholding and information reporting do not
apply to payments of interest (including OID) with respect to an exchange note,
or to payments on the sale or other disposition of an exchange note, if such
Holder has provided to Classic or its paying agent the certification described
in clause (ii)(D) of "--Foreign Holders -- Interest" or has otherwise
established an exemption.
Under current United States federal income tax law, (i) interest payments
(including OID) with respect to an exchange note collected outside the United
States by a foreign office of a custodian, nominee or broker acting on behalf of
a beneficial owner of an exchange note, and (ii) payments on the sale or other
disposition of an exchange note to or through a foreign office of a broker are
not generally subject to backup withholding or information reporting. However,
if such custodian, nominee or broker is a United States person, a controlled
foreign corporation for United States tax purposes or a foreign person 50% or
more of whose gross income is effectively connected with the conduct of a United
States trade or business for a specified three-year period (a "U.S. Related
Person"), such custodian, nominee or broker may be subject to certain
information reporting (but not backup withholding) requirements with respect to
such payments, unless such custodian, nominee or broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain conditions are met or the beneficial owner otherwise establishes an
exemption. Backup withholding may apply to any payment that such custodian,
nominee or broker is required to report if such person has actual knowledge that
the payee is a United States person. Payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the Holder certifies, under penalties of perjury, that it is
not a United States person or otherwise establishes an exemption.
The 1997 Final Regulations modify certain of the certification requirements
for backup withholding and expand the group of U.S. Related Persons. It is
possible that Classic or its paying agent may request new withholding exemption
forms from Holders in order to qualify for continued exemption from backup
withholding when the 1997 Final Regulations become effective.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
116
<PAGE> 120
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued
to third parties, Classic believes that exchange notes issued pursuant to the
exchange offer in exchange for the old notes may be offered for resale, resold
and otherwise transferred by holders thereof, other than any holder which is (A)
an "affiliate" of Classic within the meaning of Rule 405 under the Securities
Act, (B) a broker-dealer who acquired notes directly from Classic, or (C)
broker-dealers who acquired notes as a result of market-making or other trading
activities, without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such exchange notes are acquired
in the ordinary course of such holders' business, and such holders are not
engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such exchange
notes. However, broker-dealers receiving exchange notes in the exchange offer
will be subject to a prospectus delivery requirement with respect to resales of
such exchange notes. To date, the SEC has taken the position that these
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
pursuant to the exchange offer, other than a resale of an unsold allotment from
the sale of the old notes to the initial purchasers, with the prospectus
contained in the exchange offer registration statement. Pursuant to the exchange
and registration rights agreement, Classic has agreed to permit these
broker-dealers to use this prospectus in connection with the resale of such
exchange notes. Classic has agreed that, for a period of 120 days after the
expiration date, it will make this prospectus, and any amendment or supplement
to this prospectus, available to any broker-dealer that requests such documents
in the letter of transmittal.
Each holder of the old notes who wishes to exchange its old notes for
exchange notes in the exchange offer will be required to make certain
representations to Classic as set forth in "The Exchange Offer -- Purpose and
Effect."
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. Classic has agreed that,
for a period of 120 days after the consummation of the exchange offer, it will
use its commercially reasonable efforts to make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1999, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
Classic will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 120 days after the consummation of the exchange offer,
Classic will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. Classic has agreed to pay all
expenses
117
<PAGE> 121
incident to the exchange offer, including the expenses of one counsel for the
holders of the notes, other than commissions or concessions of any
broker-dealers and will indemnify the holders of the Securities, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon by Winstead Sechrest
& Minick P.C., Austin, Texas.
EXPERTS
The consolidated financial statements of Classic Communications, Inc. at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
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.
118
<PAGE> 122
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CLASSIC COMMUNICATION, INC.
Audited Annual Financial Statements
Report of Independent Auditors......................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-3
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997, and 1996............... F-4
Consolidated Statements of Stockholders' Deficit for
the years ended December 31, 1998, 1997, and 1996..... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996............... F-6
Notes to Consolidated Financial Statements............. F-7
Unaudited Interim Financial Statements
Unaudited Consolidated Balance Sheet as of March 31,
1999.................................................. F-18
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998............ F-19
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998............ F-20
Notes to Unaudited Consolidated Financial Statements... F-21
BUFORD GROUP, INC.
Audited Annual Financial Statements
Independent Auditors' Report........................... F-22
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-23
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997, and 1996............... F-24
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997, and 1996......... F-25
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996............... F-26
Notes to Consolidated Financial Statements............. F-27
Unaudited Interim Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of
March 31, 1999........................................ F-35
Unaudited Condensed Consolidated Statements of
Operations for the three months ended March 31, 1999
and 1998.............................................. F-36
Unaudited Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 1999 and
1998.................................................. F-37
Notes to Unaudited Condensed Consolidated Financial
Statements............................................ F-38
</TABLE>
F-1
<PAGE> 123
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Classic Communications, Inc.
We have audited the accompanying consolidated balance sheets of Classic
Communications, Inc. and its subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the Index at
Item 21(b). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Classic
Communications, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Austin, Texas
March 30, 1999
F-2
<PAGE> 124
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 2,779 $ 616
Accounts receivable, net.................................... 5,474 4,519
Prepaid expenses............................................ 424 607
Property, plant and equipment............................... 127,169 96,850
Less accumulated depreciation............................... (39,977) (28,211)
-------- --------
87,192 68,639
Deferred financing costs, net............................... 8,919 4,494
Intangible assets:
Subscriber relationships.................................. 95,180 82,364
Franchise rights.......................................... 71,464 59,149
Noncompete agreements..................................... 8,425 12,104
Goodwill.................................................. 40,435 39,695
Other..................................................... 140 228
-------- --------
215,644 193,540
Less accumulated amortization............................. (65,828) (52,253)
-------- --------
149,816 141,287
-------- --------
Total assets........................................ $254,604 $220,162
-------- --------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable.......................................... $ 647 $ 772
Subscriber deposits and unearned income................... 4,846 3,507
Other accrued expenses.................................... 6,106 5,922
Accrued interest.......................................... 5,883 1,534
Long-term debt............................................ 282,842 187,967
Subordinated debt......................................... -- 4,023
Deferred taxes, net....................................... 1,068 2,918
-------- --------
Total liabilities................................... 301,392 206,643
15% PIK Redeemable Senior Preferred Stock: $.01 par value;
redemption price -- $1,000 per share plus accrued and
unpaid dividends (1998 -- none; 1997 -- $1,880,159);
1998 -- 20,000 shares authorized, none issued and
outstanding; 1997 -- 20,000 shares authorized, 5,000
issued and outstanding at net issue price plus accrued PIK
stock dividends of 1,880 shares........................... -- 5,978
15% PIK Redeemable Junior Preferred Stock: $.01 par value;
redemption price -- $1,000 per share plus accrued and
unpaid dividends (1998 -- none; 1997 -- $5,585,969);
1998 -- 35,000 shares authorized, none issued and
outstanding; 1997 -- 35,000 shares authorized, 14,815
issued and outstanding at net issue price plus accrued PIK
stock dividends of 5,586 shares........................... -- 19,435
8% PIK Cumulative Redeemable Preferred Stock, Series A of
Television Enterprises, Inc. (a subsidiary): no par value;
redemption price -- $100 per share plus accrued and unpaid
dividends (1998 -- none; 1997 -- $25,548); 1998 -- 12,670
shares authorized, none issued and outstanding;
1997 -- 12,670 shares authorized, issued and outstanding
at net issue price........................................ -- 1,292
Stockholders' deficit:
Common Stock, Voting, convertible to Nonvoting Common
Stock: $.01 par value; 1998 -- 5,442,000 shares
authorized, 1,720,608 issued and outstanding;
1997 -- 3,142,922 authorized, 621,532 issued and
outstanding............................................. 17 6
Common Stock, Nonvoting, convertible to Voting Common
Stock: $.01 par value; 1998 -- 4,503,000 shares
authorized, 1,528,261 issued and outstanding;
1997 -- 2,600,108 authorized, 2,185,532 issued and
outstanding............................................. 15 22
Additional paid-in capital................................ 28,544 31,287
Accumulated deficit....................................... (75,364) (44,501)
-------- --------
Total stockholders' deficit......................... (46,788) (13,186)
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' deficit............................... $254,604 $220,162
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 125
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $ 69,802 $ 60,995 $ 59,821
Operating expenses:
Programming............................................... 17,840 14,916 15,106
Plant and operating....................................... 8,437 7,622 7,308
General and administrative................................ 11,295 9,257 8,688
Marketing and advertising................................. 850 438 238
Corporate overhead........................................ 3,648 4,322 2,213
Depreciation and amortization............................. 30,531 27,832 27,510
-------- -------- --------
Total operating expenses.......................... 72,601 64,387 61,063
-------- -------- --------
Loss from operations........................................ (2,799) (3,392) (1,242)
Interest expense............................................ (24,442) (21,299) (20,633)
Gain on sale of cable system................................ -- 3,644 4,901
Write-off of abandoned telephone operations and accrual of
related costs............................................. (220) (500) (2,994)
Other income................................................ 192 71 --
-------- -------- --------
Loss before income taxes and extraordinary item
(27,269) (21,476) (19,968)
Income tax benefit.......................................... 1,930 7,347 6,802
-------- -------- --------
Loss before extraordinary item.............................. (25,339) (14,129) (13,166)
Extraordinary loss on extinguishment of debt................ (5,524) -- --
-------- -------- --------
Net loss.......................................... $(30,863) $(14,129) $(13,166)
======== ======== ========
Loss applicable to common stockholders...................... $(35,274) $(18,209) $(16,734)
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 126
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
VOTING NONVOTING COMMON STOCK
COMMON STOCK COMMON STOCK CLASS A TOTAL
------------------ ------------------ ---------------- ADDITIONAL STOCKHOLDERS'
SHARES SHARES SHARES PAID-IN ACCUMULATED EQUITY
ISSUED AMOUNT ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT (DEFICIT)
--------- ------ --------- ------ ------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... 646,901 $ 6 1,642,537 $17 10,075 $ -- $36,909 $(17,206) $ 19,726
Conversion of common
stock.................. (542,995) (5) 542,995 5 -- -- -- -- --
Restricted stock
awards................. 258,813 3 -- -- -- -- (3) -- --
Stock exchange........... 258,813 2 -- -- (10,075) -- (2) -- --
Compensation on
restricted stock....... 1,058 1,058
Expenses related to
equity transactions.... -- -- -- -- -- -- (85) -- (85)
Accretion of discount on
preferred stock........ -- -- -- -- -- -- (237) -- (237)
Dividends on preferred
stock.................. -- -- -- -- -- -- (3,331) -- (3,331)
Net loss................. -- -- -- -- -- -- -- (13,166) (13,166)
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1996..................... 621,532 6 2,185,532 22 -- -- 34,309 (30,372) 3,965
Compensation on
restricted stock....... 1,058 1,058
Accretion of discount on
preferred stock........ -- -- -- -- -- -- (237) -- (237)
Dividends on preferred
stock.................. -- -- -- -- -- -- (3,843) -- (3,843)
Net loss................. -- -- -- -- -- -- -- (14,129) (14,129)
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1997..................... 621,532 6 2,185,532 22 -- -- 31,287 (44,501) (13,186)
Issuance of common
stock.................. 355,258 4 -- -- -- -- 1,336 -- 1,340
Conversion of common
stock.................. 657,271 6 (657,271) (6) -- -- -- -- --
Compensation on
restricted stock....... -- -- -- -- -- -- 1,108 -- 1,108
Exchange of restricted
common stock........... 188,085 2 -- -- -- -- (2) -- --
Repurchase of treasury
stock.................. (101,538) (1) -- -- -- -- (773) -- (774)
Accretion of discount on
preferred stock........ -- -- -- -- -- -- (1,869) -- (1,869)
Dividends on preferred
stock.................. -- -- -- -- -- -- (2,542) -- (2,542)
Net loss................. -- -- -- -- -- -- -- (30,863) (30,863)
Other.................... -- -- -- (1) -- -- (1) -- (2)
--------- --- --------- --- ------- ---- ------- -------- --------
Balance at December 31,
1998..................... 1,720,608 $17 1,528,261 $15 -- $ -- $28,544 $(75,364) $(46,788)
========= === ========= === ======= ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 127
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-6
<PAGE> 128
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 $5.2 million.
PRO FORMA INFORMATION
The following summarized unaudited pro forma financial information assumes
the Cable One acquisition had occurred on January 1, 1998 and 1997,
respectively. The following pro forma information is not necessarily indicative
of the results that would have occurred had the transaction been completed at
the beginning of the period indicated, nor is it indicative of future operating
results (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $ 76,418 $ 72,177
Net loss before extraordinary item.......................... $(23,916) $(10,072)
Net loss.................................................... $(29,440) $(10,072)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F-7
<PAGE> 129
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Service income includes subscriber service revenues and charges for
installations and connections and is recognized in the period in which the
services are provided to the customers. Subscriber services paid for in advance
are recorded as income when earned.
Initial installation revenue is recognized as revenue when the service is
performed, to the extent of direct selling costs, with any balance deferred and
taken into income over the estimated average period that subscribers are
expected to remain connected to the system.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives of the
assets:
<TABLE>
<S> <C>
Buildings............................................... 30 years
Cable television distribution systems................... 7-12 years
Office furniture and equipment.......................... 3-7 years
Vehicles................................................ 5 years
</TABLE>
Leasehold improvements are amortized over the shorter of their estimated
life or the period of the related leases.
Initial subscriber connection costs are capitalized as part of cable
television distribution systems. Costs related to disconnects and reconnects of
customers are expensed as incurred.
Deferred Financing Costs
Deferred financing costs are being amortized to interest expense using the
interest method over the terms of the related debt.
Intangible Assets
The useful lives of the specific intangible assets are as follows:
<TABLE>
<S> <C>
Subscriber relationships................................ 5-15 years
Franchise rights........................................ 7-10 years
Noncompete agreements................................... 5 years
Goodwill................................................ 5-40 years
</TABLE>
Intangible assets are being amortized using the straight-line method over
their estimated useful lives.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying amounts of property, plant
and equipment, identifiable intangible assets and goodwill both purchased in the
normal course of business and acquired through acquisition to determine whether
current events or circumstances, as defined in Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, warrant adjustments to such carrying
amounts by considering, among other things, the future cash inflows expected to
result from the use of the asset and its eventual disposition less the future
cash outflows expected to be necessary to obtain those inflows. An impairment
loss would be measured by comparing the fair value of the asset with its
carrying amount. Any write-down is treated as a permanent reduction in the
carrying amount of the assets. Management reviews the
F-8
<PAGE> 130
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the tax rates that are expected to be in
effect when the differences are expected to reverse, based upon current laws and
regulations.
Cash and Cash Equivalents
For financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, cash equivalents and accounts
receivable. Excess cash is invested in high quality short-term liquid money
instruments issued by highly-rated financial institutions. Concentrations of
credit risk with respect to the Company's receivables are limited due to the
large number of customers, individually small balances, short payment terms and
required deposits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities, approximate fair value because of their short
maturities. All bank debt agreements carry variable interest rates and their
carrying value is considered to approximate fair value. The estimated fair value
of the Company's bonds is based on quoted market prices. The carrying amount of
the Company's bonds was $186.5 million and the fair value was $198.4 million at
December 31, 1998.
The Company utilizes interest rate cap and interest rate swap agreements to
manage interest rate exposures. The principal objective of such agreements is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize financial instruments for trading or other speculative
purposes. The counterparties to these contractual arrangements are major
financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties, and no material loss would be expected from
their nonperformance.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after
F-9
<PAGE> 131
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 15, 1999. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Accounts receivable, trade.................................. $5,211 $4,570
Accounts receivable, other.................................. 588 211
Less allowance for doubtful accounts........................ (325) (262)
------ ------
Accounts receivables, net of allowance...................... $5,474 $4,519
====== ======
</TABLE>
The activity in the Company's allowance for doubtful accounts for the
periods ending December 31, 1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
FOR THE PERIOD ENDED OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- -------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998.......................... $262 $ 971 $ (908) $325
December 31, 1997.......................... $513 $1,248 $(1,499) $262
December 31, 1996.......................... $249 $1,491 $(1,227) $513
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 1,152 $ 1,021
Buildings and improvements.................................. 3,262 2,107
Vehicles.................................................... 6,061 4,088
Cable television distribution systems....................... 106,373 83,499
Office furniture, tools and equipment....................... 3,858 2,499
Construction in progress.................................... 6,463 3,636
-------- --------
127,169 96,850
Less accumulated depreciation............................... (39,977) (28,211)
======== ========
$ 87,192 $ 68,639
======== ========
</TABLE>
F-10
<PAGE> 132
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Balances of amounts outstanding under the Company's various debt agreements
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
13.25% Senior Discount Notes................................ $114,000 $ --
Unamortized discount...................................... (51,963) --
9.875% Senior Subordinated Notes............................ 125,000 --
Unamortized discount...................................... (563) --
1998 Credit Agreement
Term loans................................................ 75,000 --
Revolving loans........................................... 20,800 --
1995 Senior Credit Agreement
Term A loan............................................... -- 18,324
Term B loan............................................... -- 58,184
Line of credit notes...................................... -- 112,717
Unamortized discount...................................... (1,892)
Other....................................................... 568 634
-------- --------
$282,842 $187,967
======== ========
</TABLE>
In July 1998, the Company issued $114.0 million of 13.25% Senior Discount
Notes due 2009 and its wholly owned subsidiary, Classic Cable, issued $125.0
million of 9.875% Senior Subordinated Notes due 2008. Net of the applicable
discounts and the fair value of the common stock sold along with the Senior
Discount Notes, proceeds from these issues were $60.0 million and $124.4
million, respectively. Interest payments on the Senior Discount Notes do not
commence until 2004. Interest payments on the Senior Subordinated Notes begin in
1999. Concurrent with the offering, Classic Cable entered into the 1998 Credit
Agreement. The 1998 Credit Agreement consists of a $50.0 million Reducing
Revolving Credit Facility which matures in 2006 and a $75.0 million Term Loan
Facility which matures in 2007. Mandatory payments commence in 2000. The Company
may be subject to mandatory prepayments based upon operating results, sales of
assets, equity or debt offerings or other events. Interest is based upon either
a LIBOR rate plus an applicable margin or, at the option of the Company, a base
rate plus an applicable margin. Proceeds from the 1998 Credit Agreement totaled
$95.8 million.
In connection with the early extinguishment of the Senior Credit Agreement,
an extraordinary loss of $5.5 million was recorded related to the write-off of
unamortized deferred financing costs and discount.
The Senior Discount Notes were sold in units that consisted of a $1,000
note and three shares of common stock of the Company. Shares issued in
connection with the offering totaled 342,000. Proceeds of $3.77 per share were
allocated to the sale of the shares. A discount of $1.3 million was recorded in
connection with common stock issued. This per share amount represents the fair
value of the stock as of the date of the offering.
The 1998 Credit Agreement is collateralized by a security interest in
essentially all the assets of Classic Cable. The Company has no operations of
its own. Consequently, it will rely on dividends and cash flow of Classic Cable
to meet its debt service obligations. The terms of the Credit Agreement restrict
certain activities of Classic Cable, including the incurrence of additional
indebtedness and the payment of certain dividends. Accordingly, substantially
all the assets and operations of Classic Cable are restricted as to transfer to
the Company and may not be available for dividends and/or debt service of the
Company.
F-11
<PAGE> 133
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the 1998 Credit Agreement, the Company is required to
pay a quarterly commitment fee that can range from 0.375% to 0.500% per annum on
the unused portion of the revolving loan commitment.
The 1995 Senior Credit Agreement consisted of a $20,000,000 Term A Loan, a
$65,000,000 Term B Loan and Line of Credit Notes not to exceed $130,000,000.
Interest was based upon either a LIBOR rate plus an applicable margin or, at the
option of the Company, a base rate plus an applicable margin. The 1995 Senior
Credit Agreement was amended in 1997. A fee of approximately $1 million was paid
to the bank equal to 0.5% of the outstanding Term Loans and Line of Credit
Notes. This amount is included as a component of interest expense in 1997.
The Company utilizes interest rate cap and interest rate swap agreements to
limit the impact of increases in interest rates on its floating rate debt. The
agreements require premium payments to counterparties based upon a notional
principal amount. No such agreements were outstanding at December 31, 1998 or
1997. Interest rate cap agreements entitle the Company to receive from the
counterparties the amounts, if any, by which the selected market interest rates
exceed the strike rates stated in the agreements. Interest rate swap agreements
are used by the Company to change the interest rate of their debt from variable
rate to fixed rate. The swap is a contractual agreement between the Company and
another party to exchange payments periodically over the life of the agreement
based upon the interest rates of the underlying debt over the period of the
agreement. The differential to be paid or received is accrued and recognized as
an adjustment of interest expense related to the debt (the accrual accounting
method). The premium paid for both types of agreements is amortized to interest
expense over the life of the agreement.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999..................................................... $ 118
2000..................................................... 1,200
2001..................................................... 750
2002..................................................... 750
2003..................................................... 750
Thereafter............................................... 331,800
--------
$335,368
========
</TABLE>
7. SUBORDINATED DEBT
Subordinated debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1998 1997
---- ------
<S> <C> <C>
7.5% Junior Subordinated Promissory Notes(A)................ $-- $ 295
15% Senior Subordinated Promissory Note(B).................. -- 3,728
--- ------
$-- $4,023
=== ======
</TABLE>
- ---------------
(A) The Junior Subordinated Promissory Notes (the "Interest Notes") bore
interest at 7.5% per annum. The Interest Notes had no required principal
payments other than upon maturity on July 7, 2002. The interest on the
Interest Notes was deferred until maturity. The Interest Notes and accrued
interest were paid in full in July 1998.
(B) The Senior Subordinated Promissory Note (the "Senior Note") bore interest
at 15% per annum, payable quarterly in arrears unless paid in kind ("PIK")
through the issuance of new Senior Notes (the "PIK Notes") incorporating
the same terms as the Senior Note. All principal and deferred
F-12
<PAGE> 134
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 is
recorded as compensation expense 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 is recorded as compensation expense ratably over the vesting period. The
fair value was determined by an independent valuation.
The following table summarizes the activity of the Company's restricted
stock:
<TABLE>
<CAPTION>
DISTRIBUTION THRESHOLDS
--------------------------------------
$29.78 $19.06 $9.93 $3.77 TOTAL
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995....... -- -- -- -- --
Class A Common Stock Exchange.... -- -- 258,813 -- 258,813
1996 Restricted Stock Award
Plan.......................... 129,407 129,406 -- -- 258,813
------- ------- -------- ------- --------
Balance at December 31, 1996....... 129,407 129,406 258,813 -- 517,626
No activity in 1997.............. -- -- -- -- --
------- ------- -------- ------- --------
Balance at December 31, 1997....... 129,407 129,406 258,813 -- 517,626
Repurchase of stock.............. -- -- (76,350) -- (76,350)
1998 Restricted Stock Award Plan:
Shares exchanged.............. (93,171) (93,171) (109,991) -- (296,333)
Shares awarded................ -- -- -- 484,418 484,418
Other......................... (2) (1) -- -- (3)
------- ------- -------- ------- --------
Balance at December 31, 1998....... 36,234 36,234 72,472 484,418 629,358
======= ======= ======== ======= ========
Shares vested at December 31,
1998............................. 27,176 27,176 54,354 67,280 175,986
======= ======= ======== ======= ========
</TABLE>
Upon certain events, the Company has repurchase rights for unvested shares.
The Company also has the right of first refusal for any proposed disposition of
shares issued under the Plans. The restrictions on the shares are transferable.
F-13
<PAGE> 135
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock
In July 1998, the Company redeemed the outstanding shares of TVE Preferred
Stock at a redemption price per share of $100 plus accrued and unpaid dividends.
In July 1998, the Company redeemed the outstanding shares of Senior and
Junior Preferred Stock at a redemption price per share of $1,000 plus accrued
and unpaid dividends.
Stock Purchase Warrants
At December 31, 1998 and 1997, there were warrants outstanding to acquire
335,853 common shares at $.001 per share which expire beginning 2004 through
2006. No warrants have been exercised as of December 31, 1998. Under the terms
of the warrant agreements, the exercise price and exercise rate shall be subject
to adjustment in the event of a change in the number of shares outstanding or
valuation of the Company's Common Stock.
Voting Rights
At December 31, 1998, all general voting power was vested in the holders of
Voting Common Stock. The holders of Preferred Stock have no voting rights with
regard to matters submitted to a vote of the stockholders. However, the
affirmative consent or vote of at least 80% of the outstanding shares of
Preferred Stock, voting as a class, shall be required with respect to any action
affecting the power, preferences and rights of the holders of shares of
Preferred Stock.
Holders of Nonvoting Common Stock are entitled at any time and from time to
time to convert any and all of the shares held into the same number of shares of
Voting Common Stock provided that such conversion would be in accordance with
all laws, regulations, rules or other requirements of any governmental authority
applicable to such conversion.
Dividends
The holders of Junior and Senior Preferred Stock are entitled to a
cumulative dividend equal to $150.00 per share per annum, due and payable at the
end of each calendar quarter. Dividends are payable solely in the form of
additional shares of such class of Preferred Stock.
The holders of TVE Preferred Stock are entitled to a cumulative cash
dividend equal to $8.00 per share per annum, due and payable on June 30 of each
year.
Dividends on Common Stock shall be paid at such times as may be declared by
the Board of Directors. Through December 31, 1998, no such dividends had been
declared.
F-14
<PAGE> 136
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Significant components of income tax benefit from continuing operations are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ (80) $ 246 $ --
State................................................. -- -- 2
------- ------- -------
Total Current................................. (80) 246 2
Deferred:
Federal............................................... (1,536) (6,304) (5,649)
State................................................. (314) (1,289) (1,155)
------- ------- -------
Total Deferred................................ (1,850) (7,593) (6,804)
------- ------- -------
Income tax benefit............................ $(1,930) $(7,347) $(6,802)
======= ======= =======
</TABLE>
The Company's provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory federal income tax
rate of 34% to income before income taxes and extraordinary items as a result of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rate................................ (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit....................... (3.9) (3.8) (3.9)
Increase in valuation allowance........................... 27.8 -- --
Nondeductible items....................................... 3.0 3.6 3.8
----- ----- -----
(7.1)% (34.2)% (34.1)%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Book over tax basis of depreciable assets................. $ 698 $ 2,091
Book over tax basis of assets that are amortizable for
tax.................................................... 3,144 5,414
-------- -------
Total deferred tax liabilities.................... 3,842 7,505
Deferred tax assets:
Net operating loss carryforwards:
Acquired............................................... 4,880 4,880
Other.................................................. 13,411 6,807
Other....................................................... 1,847 561
-------- -------
Total deferred tax assets......................... 20,138 12,248
Less valuation allowance.................................... (17,364) (7,661)
-------- -------
Net deferred tax assets........................... 2,774 4,587
-------- -------
Net deferred tax liabilities...................... $ 1,068 $ 2,918
======== =======
</TABLE>
F-15
<PAGE> 137
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Company had net operating loss carryforwards of
$47,771,000 for federal income tax purposes, which begin to expire in 2002 if
not utilized. Utilization of some of the loss carryforwards are subject to
various limitations under the Internal Revenue Code, which could result in
expiration of the loss carryforward before utilization.
Approximately $7.6 million of the total valuation allowance as of December
31, 1998 was previously recorded for certain acquisition net operating loss
carryforwards and other acquisition deferred tax assets due to restrictions on
their utilization under the tax law and other uncertainties regarding their
realization. When, and if, realized, the tax benefit associated with these
deferred tax assets will be applied to reduce goodwill and other noncurrent
intangibles related to the acquisitions.
During 1997, a subsidiary of the Company filed an amended income tax return
for a period prior to its acquisition. This resulted in an additional net
operating loss carryforward of $1,525,000 available to the Company. The Company
has recorded a deferred tax asset of $584,000 for this item and a corresponding
reduction to goodwill related to the subsidiary's acquisition.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution pension plan, a 401(k) plan.
Participation in this plan is available to substantially all employees.
Employees may contribute up to 15% of their pay. The Company will match employee
contributions for an amount up to 3% of each employee's base salary. Costs of
the plan, including the Company's matching contributions, were $149,000,
$114,000 and $89,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
11. ABANDONMENT OF TELEPHONE OPERATIONS
At December 31, 1995 the Company was negotiating an agreement to purchase
four telephone exchanges in Kansas. For various reasons, the Company did not
complete the acquisitions and hence, did not enter the telephone business. Net
assets of the telephone business, when abandoned in 1996, consisted primarily of
property, plant and equipment. In connection therewith, the Company recorded a
$2,994,000 charge in 1996 related to the termination of the purchase agreement
and operations associated with the proposed acquisition. Items included in the
charge were the write-off of certain costs capitalized in connection with the
proposed acquisition, legal and consulting fees and estimated severance for
personnel reductions. The Company revised their estimate of costs associated
with the abandonment and took an additional charge of $500,000 in 1997.
In November 1998, the Company settled certain litigation related to these
transactions. Terms of the settlement included the sale of certain cable
television systems in Kansas, the granting of a five year right of first refusal
for the sale of certain other cable television systems in Kansas, and a five
year non-competition agreement. In addition, the Company received cash
consideration of $348,000 in 1999 in connection with the settlement. The
settlement resulted in a loss of approximately $220,000.
12. SETTLEMENT OF CLAIMS
In February 1998, the Company settled claims that arose in conjunction with
divorce proceedings of an officer of the Company. The Company purchased certain
stock of the Company in which the officer's wife held a community property
interest and provided monetary consideration for the release of the claims. The
Company acquired and canceled 101,538 shares of the Company's Common Stock
(76,350 of which were restricted stock). The related expenses, including legal,
consultant and other fees of approximately $1,411,000 are included in corporate
overhead expenses in 1997.
F-16
<PAGE> 138
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-17
<PAGE> 139
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 3,472
Accounts receivable, net.................................... 5,061
Prepaid expenses............................................ 872
Property, plant, and equipment.............................. 130,399
Less accumulated depreciation............................... (43,641)
--------
86,758
Deferred financing costs, net............................... 9,061
Intangible assets:
Subscriber relationships.................................. 95,367
Franchise rights.......................................... 71,486
Noncompete agreements..................................... 8,425
Goodwill.................................................. 40,506
--------
215,784
Less accumulated amortization............................... (71,120)
--------
144,664
--------
Total assets......................................... $249,888
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 593
Subscriber deposits and unearned income................... 5,011
Accrued expenses.......................................... 4,779
Accrued interest.......................................... 2,787
Long-term debt............................................ 290,428
Deferred taxes, net....................................... 1,068
--------
Total liabilities.................................... 304,666
Stockholders' equity:
Common Stock, voting...................................... 17
Common Stock, nonvoting................................... 15
Additional paid-in capital................................ 28,876
Accumulated deficit....................................... (83,686)
--------
Total stockholders' equity........................... (54,778)
--------
Total liabilities and stockholders' equity........... $249,888
========
</TABLE>
See accompanying notes.
F-18
<PAGE> 140
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1999 1998
-------- -------
<S> <C> <C>
Revenues.................................................... $19,576 $16,072
Operating expenses:
Programming............................................... 5,231 4,118
Plant and operating....................................... 2,306 1,959
General and administrative................................ 2,948 2,699
Marketing and advertising................................. 173 208
Corporate overhead........................................ 856 629
Depreciation and amortization............................. 8,955 7,006
------- -------
Total operating expenses............................... 20,469 16,619
------- -------
Loss from operations........................................ (893) (547)
Interest expense............................................ (7,446) (5,014)
Other income (expense)...................................... 17 30
------- -------
Loss before taxes........................................... (8,322) (5,531)
Income tax benefit.......................................... -- 684
------- -------
Net loss.................................................... $(8,322) $(4,847)
======= =======
Loss applicable to common stockholders...................... $(8,322) $(6,165)
======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE> 141
CLASSIC COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(8,322) $(4,847)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for bad debt................................. 319 264
Depreciation........................................... 3,664 2,723
Amortization of intangibles............................ 5,292 4,284
Amortization of deferred financing costs............... 210 329
Discount accretion on long-term debt................... 2,111 110
Non-cash compensation.................................. 332 237
Change in operating assets and liabilities:
Accounts receivable.................................. 94 (77)
Prepaid expenses..................................... (448) 54
Accounts payable..................................... (54) (115)
Subscriber deposits and unearned income.............. 165 107
Accrued expenses..................................... (1,327) (1,728)
Accrued interest..................................... (3,096) 88
Deferred taxes....................................... -- (655)
------- -------
Net cash provided by (used in) operating activities....... (1,060) 887
INVESTING ACTIVITIES
Payments for other intangibles............................ (140) (18)
Purchase of property, plant and equipment................. (3,230) (2,122)
------- -------
Net cash used in investing activities..................... (3,370) (2,140)
FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 5,500 1,000
Repayments of long-term debt.............................. (25) (21)
Financing costs........................................... (352) --
Cash dividends paid on preferred stock.................... -- (25)
Repurchase of common stock................................ -- (125)
------- -------
Net cash provided by financing activities................. 5,123 829
------- -------
Change in cash and cash equivalents....................... 693 (424)
Cash and cash equivalents at beginning of period.......... 2,779 616
------- -------
Cash and cash equivalents at end of period................ $ 3,472 $ 192
======= =======
</TABLE>
See accompanying notes.
F-20
<PAGE> 142
CLASSIC COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 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
three-month period ended March 31, 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 three months
ending March 31, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
FOR THE THREE MONTHS ENDED OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
March 31, 1999......................... $325 $319 $287 $357
March 31, 1998......................... 262 264 266 260
</TABLE>
3. INCOME TAXES
CCI did not record an income tax benefit for the three months ended March
31, 1999. The effective tax rates for the three months ended March 31, 1999 and
March 31, 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. SUBSEQUENT EVENT
Classic Cable, Inc., a wholly-owned subsidiary of CCI, has reached an
agreement with Buford Group, Inc. to acquire the cable television business of
Buford. The agreement is subject to completing definitive documentation.
Buford's systems serve approximately 170,000 customers in Texas, Missouri,
Arkansas and Louisiana.
F-21
<PAGE> 143
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-22
<PAGE> 144
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
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-23
<PAGE> 145
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-24
<PAGE> 146
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-25
<PAGE> 147
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-26
<PAGE> 148
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 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-27
<PAGE> 149
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 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
F-28
<PAGE> 150
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 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>
F-29
<PAGE> 151
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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 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
F-30
<PAGE> 152
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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>
(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>
F-31
<PAGE> 153
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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 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.
F-32
<PAGE> 154
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(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.
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.
F-33
<PAGE> 155
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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-34
<PAGE> 156
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 9,049
Accounts receivable, net of allowance for doubtful accounts
of $416................................................... 2,516
Prepaid expenses............................................ 241
Property, plant and equipment............................... 203,848
Less accumulated depreciation and amortization.............. (91,905)
--------
111,943
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............................... (17,242)
--------
47,812
Other assets................................................ 2,519
--------
$174,080
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 416
Deposits and unearned revenues.............................. 2,351
Accrued expenses............................................ 8,003
Long-term obligations....................................... 118,000
Deferred federal income taxes............................... 1,099
--------
Total liabilities................................. 129,869
--------
Stockholders' equity:
Common stock, $1 par value. Authorized 2,000 shares;
issued and outstanding 1,000 shares................... 1
Additional capital..................................... 14,833
Retained earnings...................................... 29,377
--------
Total stockholders' equity........................ 44,211
Commitments and contingencies...............................
--------
$174,080
========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-35
<PAGE> 157
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Cable television revenues................................... $18,861 $15,263
------- -------
Operating expenses:
Programming............................................... 5,217 4,105
Plant and operating....................................... 1,694 1,657
General and administrative................................ 4,160 3,697
Marketing and advertising................................. 109 93
Corporate overhead........................................ 358 2,104
Depreciation and amortization............................. 5,727 4,870
------- -------
17,265 16,526
------- -------
Operating income (loss)................................ 1,596 (1,263)
------- -------
Other income (expense):
Interest expense.......................................... (2,094) (1,592)
Interest income........................................... 92 82
Other, net................................................ (69) (22)
------- -------
(2,071) (1,532)
------- -------
Loss before income taxes and cumulative effect of
change in accounting principle........................ (475) (2,795)
Income tax benefit (expense)................................ 87 (156)
------- -------
Loss before cumulative effect of change in accounting
principle............................................. (388) (2,951)
Cumulative effect of change in accounting principle, net of
income tax benefit of $52................................. (207) --
------- -------
Net loss............................................... $ (595) $(2,951)
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-36
<PAGE> 158
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (595) $(2,951)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................ 5,727 4,870
Non-cash interest expense............................ -- 42
Employee stock appreciation expense.................. -- 1,676
Deferred federal income tax benefit.................. (87) (143)
Cumulative effect of change in accounting
principle........................................... 207 --
Changes in assets and liabilities:
Accounts receivable............................... 362 73
Prepaid expenses.................................. (75) (264)
Accounts payable and accrued expenses............. (1,256) 68
Deposits and unearned revenues.................... 117 107
Other............................................. (133) 44
------- -------
Net cash provided by operating activities......... 4,267 3,522
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment................ (3,121) (4,496)
Other..................................................... -- 163
------- -------
Net cash used in investing activities............. (3,121) (4,333)
------- -------
Net increase (decrease) in cash and cash equivalents........ 1,146 (811)
Cash and cash equivalents at beginning of period............ 7,903 7,890
------- -------
Cash and cash equivalents at end of period.................. $ 9,049 $ 7,079
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-37
<PAGE> 159
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 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-38
<PAGE> 160
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(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. for approximately
$302.3 million. In connection with the Buford Television Partnership Agreement
(the "Agreement"), which granted 12% ownership of future appreciation in the
market value of the Company's common stock, and in which the key employees were
100% vested, management of the Company estimates that the key employees covered
by the Agreement will receive approximately $14.8 million upon consummation of
the sale to Classic Cable, Inc. under the current terms of the sale agreement.
The Company has recognized compensation expense of approximately $14.8 million
through December 31, 1998.
Additionally, in the event that the sale is consummated under the current
terms, management estimates that the Company will pay out approximately $2.4
million to certain employees under separate agreements that provide for payments
in the event of the sale of certain cable systems' assets. The Company has not
recognized expense related to these agreements as such amounts are payable only
upon consummation of a sale of cable system assets.
On June 28, 1999, the Company reduced the amount of the commitment in its
bank credit agreement to $112.0 million.
F-39
<PAGE> 161
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CLASSIC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CLASSIC SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THE UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 15
Use of Proceeds....................... 22
Unaudited Pro Forma Consolidated
Financial Information............... 23
Selected Historical Consolidated
Financial Data -- Classic
Communications, Inc. ............... 32
Selected Historical Consolidated
Financial Data -- Buford Group,
Inc................................. 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 34
Business.............................. 44
Legislation and Regulation............ 57
Management............................ 67
Certain Relationships and Related
Transactions........................ 72
Principal Stockholders................ 74
Description of Other Indebtedness..... 75
The Exchange Offer.................... 76
Description of the Exchange Notes..... 83
United States Federal Income Tax
Considerations...................... 109
Plan of Distribution.................. 117
Legal Matters......................... 118
Experts............................... 118
Index to Historical Financial
Statements.......................... F-1
</TABLE>
================================================================================
================================================================================
OFFER TO EXCHANGE
ALL OUTSTANDING
13 1/4% SENIOR DISCOUNT NOTES
DUE 2009
FOR
13 1/4% SENIOR DISCOUNT NOTES
DUE 2009
[CLASSIC CABLE LOGO]
CLASSIC COMMUNICATIONS, INC.
------------------------
PROSPECTUS
------------------------
, 1999
================================================================================
<PAGE> 162
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Registrant,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Section 102(b)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the Registrant, eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit. Article Eighth of the Registrant's Certificate of
Incorporation has eliminated the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Article 10 of the Registrant's Certificate of Incorporation provides as
follows: The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(whether or not by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer, employee, or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), liability, loss,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
permitted by either (i) any applicable law in effect on the date of
incorporation of the Corporation, or (ii) any law which becomes effective during
the existence of the Corporation and which is applicable to it.
Article 8 of the Registrant's By-Laws provides as follows: To the extent
permitted by law, the Corporation shall indemnify any person against any and all
judgments, fines, amounts paid in settling or otherwise disposing of actions or
threatened actions, and expenses in connection therewith, incurred by reason of
the fact that he, his testator or intestate is or was a director or officer of
the Corporation or of any other corporation of any type or kind, domestic or
foreign, which he served in any capacity at the request of the Corporation. To
the extent permitted by law, expenses so incurred by any such person in
defending a civil or criminal action or proceeding shall at his request be paid
by the Corporation in advance of the final disposition of such action or
proceeding.
The foregoing statements are subject to the detailed provisions of Section
102(b)(7) of the DGCL, Article 10 of the Certificate of Incorporation of the
Registrant and Article 8 of the By-Laws of the Registrant, as applicable.
The foregoing discussion is qualified in its entirety by reference to the
DGCL and the Registrant's Certificate of Incorporation and By-Laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
*2.1 -- Securities Purchase Agreement among Classic Cable, Inc.
and Buford Group, Inc. dated as of May 11, 1999.
3.1 -- Amended and Restated Certificate of Incorporation of
Classic Communications, Inc., dated as of October 30,
1995.
</TABLE>
II-1
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.1(b) -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Classic Communications,
Inc. dated July 21, 1998.
3.2 -- Bylaws of Classic Communications, Inc., as amended.
4.1 -- Indenture dated as of July 29, 1998, for Units consisting
of $114,000,000 in Aggregate Principal Amount at
Maturity, 13 1/4% Senior Discount Notes due 2009, by and
among Classic Communications, Inc., as Issuer, and Bank
One, N.A., as Trustee.
4.2 -- Form of Global Securities.
4.3A -- Registration Rights Agreement dated as of July 29, 1998,
by and between Classic Communications, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
4.3B -- Shareholder and Registration Rights Agreement, dated as
of July 29, 1998, by and among Classic Communications,
Inc. and Certain Stockholders and Merrill, Lynch, Pierce,
Fenner & Smith Incorporated.
4.3C -- Amended and Restated Registration Rights Agreement dated
as of October 31, 1995, modified by Amendment No. 1
(dated as of October 31, 1995) and Amendment No. 2 (dated
as of December 27, 1995).
4.3D -- Amended and Restated Shareholders Agreement dated as of
October 31, 1995, modified by Amendment No. 1 (dated as
of October 31, 1995), Amendment No. 2 (dated as of
December 27, 1995) and Amendment No. 3 (dated as of
December 19, 1997).
5.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding the enforceability and
issuance of the securities, including consent.
5.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding the enforceability and issuance of the
securities, including consent.
8.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding federal income tax matters,
including consent.
8.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding federal income tax matters, including
consent.
10.1 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.2 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.3 -- Credit Agreement among Classic Cable, Inc., As Borrower,
the Lenders Parties thereto, Union Bank of California,
N.A. and Goldman Sachs Credit Partners L.P. as
Co-Arrangers, Goldman Sachs Credit Partners L.P., as
Syndication Agent and Union Bank of California, N.A., as
Administrative and Documentation Agent, dated as of July
29, 1998.
10.4 -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.4(b) -- Assignment of Asset Purchase Agreement dated June 19,
1998.
10.4(c) -- Amendment No. 1 to Asset Purchase Agreement dated July
15, 1998.
10.5 -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6 -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6(a) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.6(b) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
*10.7 -- Investment Agreement dated as of May 24, 1999 between
Brera Classic, LLC and Classic Communications, Inc.
</TABLE>
II-2
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
*10.8 -- Management and Advisory Fee Agreement dated May 24, 1999.
*10.9 -- Stockholder Voting Agreements dated effective May 24,
1999, among Brera Classic, L.L.C. and Austin Ventures,
L.P., BT Capital Partners, Inc., The Texas Growth Fund,
BA SBIC Management, L.L.C., as the successor in interest
to NationsBanc Capital Corp., J. Merritt Belisle, Steven
E. Seach, and Bryan Noteboom.
*12.1 -- Statement of Earnings to Fixed Charges.
21.1 -- Subsidiaries of Classic Communications, Inc.
*23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibits 5.1 and 8.1 of this Registration Statement).
*23.3 -- Consent of KPMG LLP.
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
25.1 -- Statement of Eligibility on Form T-1 of Bank One, N.A.,
as Trustee, including consent.
*27.1 -- Financial Data Schedule.
99.1 -- Form of Transmittal Letter with respect to the Exchange
Offer.
99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
b. Financial Statement Schedules.
The following appear after the signature page of this Registration
Statement:
Report of Independent Public Accountants on Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE
SCHEDULE DESCRIPTION NO.
- -------- ----------- ----
<C> <S> <C>
S-1 Condensed Financial Information of Classic Communications,
Inc. stand alone. S-1
</TABLE>
All other schedules are omitted because the required information is
included in the Consolidated Financial Statements or the Notes thereto or is
otherwise inapplicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-3
<PAGE> 165
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to this request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement.
(d) The undersigned Registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(e) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act is used in
connection with an offering of securities subject to Rule 415 (sec. 230.415 of
this chapter), will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 166
(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-5
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 6 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Austin,
State of Texas, on the 8th day of July 1999.
CLASSIC COMMUNICATIONS, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and Chief July 8, 1999
- ----------------------------------------------------- Executive Officer and a
J. Merritt Belisle Director (Principal Executive
Officer)
/s/ STEVEN E. SEACH President and Chief Financial July 8, 1999
- ----------------------------------------------------- Officer and a Director
Steven E. Seach (Principal Financial Officer
and Principal Accounting
Officer)
* Director July 8, 1999
- -----------------------------------------------------
Jeffery C. Garvey
* Director July 8, 1999
- -----------------------------------------------------
James J. Kozlowski
* Director July 8, 1999
- -----------------------------------------------------
Robert H. Sheridan, III
* Director July 8, 1999
- -----------------------------------------------------
Robert Marakovits
*By: /s/ STEVEN E. SEACH
------------------------------------------------
Steven E. Seach
</TABLE>
Steven E. Seach, by signing his name
hereto, does sign this document on
behalf of the persons named above,
pursuant to a power of attorney duly
executed by such persons and
previously filed.
II-6
<PAGE> 168
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CLASSIC COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ -- $ --
Investment in and advances to affiliates.................... 13,142,000 16,339,000
Deferred financing costs, net............................... 2,465,000 --
------------ ------------
Total assets...................................... $ 15,607,000 $ 16,339,000
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Liabilities:
Accrued interest.......................................... $ -- $ 90,000
Subordinated debt......................................... -- 4,023,000
Long-term debt............................................ 62,038,000 --
Deferred taxes, net....................................... 51,000 --
Amounts due to parent..................................... 306,000 --
------------ ------------
Total liabilities................................. 62,395,000 4,113,000
15% PIK Redeemable Senior Preferred Stock................. -- 5,978,000
15% PIK Redeemable Junior Preferred Stock................. -- 19,434,000
Common stock, Voting...................................... 17,000 6,000
Common stock, Nonvoting................................... 15,000 22,000
Paid in capital........................................... 28,544,000 31,287,000
Accumulated deficit....................................... (75,364,000) (44,501,000)
------------ ------------
Total stockholders' deficit....................... (46,788,000) (13,186,000)
------------ ------------
Total liabilities, redeemable preferred stock and
stockholders' deficit........................... $ 15,607,000 $ 16,339,000
============ ============
</TABLE>
S-1
<PAGE> 169
CLASSIC COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense................................. $ (3,754,000) $ (539,000) $ (469,000)
Interest in loss of subsidiary................... (26,700,000) (13,787,000) (12,866,000)
------------ ------------ ------------
Loss before taxes................................ (30,454,000) (14,326,000) (13,335,000)
Income tax benefit (expense)..................... (409,000) 198,000 169,000
------------ ------------ ------------
Net loss......................................... $(30,863,000) $(14,128,000) $(13,166,000)
============ ============ ============
</TABLE>
S-2
<PAGE> 170
CLASSIC COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1998 1997 1996
----------- -------- ------------
<S> <C> <C> <C>
Cash from operations................................. $ 265,000 $ -- $ 85,000
Investing activities
Capital contribution to subsidiary................. (22,764,000) -- --
----------- -------- ------------
Net cash used in investing activities................ (22,764,000) -- --
Financing activities
Expenses related to equity financings.............. -- -- (85,000)
Proceeds from long-term debt....................... 59,981,000 -- --
Repayments of long-term debt....................... (16,000) -- --
Repayment of subordinated indebtedness............. (4,458,000) -- --
Repayment of promissory notes...................... (650,000) -- --
Redemption of preferred stock...................... (29,756,000) -- --
Financing costs.................................... (2,527,000) -- --
Sale of common stock............................... 50,000 -- --
Repurchase of common stock......................... (125,000) -- --
----------- -------- ------------
Net cash provided by (used in) financing
activities......................................... 22,499,000 -- (85,000)
Net change in cash................................... -- -- --
----------- -------- ------------
Cash and cash equivalents at beginning of year....... -- -- --
----------- -------- ------------
Cash and cash equivalents at end of year............. $ -- $ -- $ --
=========== ======== ============
All 1997 activity related to non cash items.
</TABLE>
S-3
<PAGE> 171
CLASSIC COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
In the parent company-only financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in undistributed earnings (losses)
of subsidiaries since the date of acquisition, plus advances to, and less
payments from, subsidiaries. The parent company-only financial statements should
be read in conjunction with the Company's consolidated financial statements.
2. LONG-TERM DEBT
Balance of amounts outstanding under the Company's debt agreement is as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
13.25% Senior Discount Notes................................ $114,000 $ --
Unamortized discount...................................... (51,962) --
-------- --------
$ 62,038 $ --
======== ========
</TABLE>
In July 1998, the Company issued $114.0 million of 13.25% Senior Discount
Notes due 2009. Net of the applicable discounts and the fair value of the common
stock sold along with the Senior Discount Notes, proceeds from this issue were
$60.0 million. Interest payments on the Senior Discount Notes do not commence
until 2004.
The Senior Discount Notes were sold in units that consisted of a $1,000
note and three shares of common stock of the Company. Shares issued in
connection with the offering totaled 342,000. Proceeds of $3.77 per share were
allocated to the sale of the shares. A discount of $1.3 million was recorded in
connection with common stock issued. This per share amount represents the fair
value of the stock as of the date of the offering.
3. SUBORDINATED DEBT
Subordinated debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1998 1997
------ ------
<S> <C> <C>
7.5% Junior Subordinated Promissory Notes(A)................ $ -- $ 295
15% Senior Subordinated Promissory Note (B)................. -- 3,727
------ ------
$ -- $4,023
====== ======
</TABLE>
- ---------------
(A) The Junior Subordinated Promissory Notes (the "Interest Notes") bore
interest at 7.5% per annum. The Interest Notes had no required principal
payments other than upon maturity on July 7, 2002. The interest on the
Interest Notes was deferred until maturity. The Interest Notes and
accrued interest were paid in full in July 1998.
(B) The Senior Subordinated Promissory Note (the "Senior Note") bore interest
at 15% per annum, payable quarterly in arrears unless paid in kind
("PIK") through the issuance of new Senior Notes (the "PIK Notes")
incorporating the same terms as the Senior Note. All principal and
deferred interest under the Senior and PIK Notes was due on December 31,
2007. The Senior Note, the PIK Notes and accrued interest was paid in
full in July 1998.
S-4
<PAGE> 172
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
*2.1 -- Securities Purchase Agreement among Classic Cable, Inc.
and Buford Group, Inc. dated as of May 11, 1999.
3.1 -- Amended and Restated Certificate of Incorporation of
Classic Communications, Inc., dated as of October 30,
1995, as amended on July 21, 1998.
3.1(b) -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Classic Communications,
Inc. dated July 21, 1998.
3.2 -- Bylaws of Classic Communications, Inc., as amended.
4.1 -- Indenture dated as of July 29, 1998, for Units consisting
of $114,000,000 in Aggregate Principal Amount at
Maturity, 13 1/4% Senior Discount Notes due 2009, by and
among Classic Communications, Inc., as Issuer, and Bank
One, N.A., as Trustee.
4.2 -- Form of Global Securities.
4.3A -- Registration Rights Agreement dated as of July 29, 1998,
by and between Classic Communications, Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
4.3B -- Shareholder and Registration Rights Agreement, dated as
of July 29, 1998, by and among Classic Communications,
Inc. and Certain Stockholders and Merrill, Lynch, Pierce,
Fenner & Smith Incorporated.
4.3C -- Amended and Restated Registration Rights Agreement dated
as of October 31, 1995, modified by Amendment No. 1
(dated as of October 31, 1995) and Amendment No. 2 (dated
as of December 27, 1995).
4.3D -- Amended and Restated Shareholders Agreement dated as of
October 31, 1995, modified by Amendment No. 1 (dated as
of October 31, 1995), Amendment No. 2 (dated as of
December 27, 1995) and Amendment No. 3 (dated as of
December 19, 1997).
5.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding the enforceability and
issuance of the securities, including consent.
5.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding the enforceability and issuance of the
securities, including consent.
8.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding federal income tax matters,
including consent.
8.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding federal income tax matters including
consent.
10.1 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.2 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.3 -- Credit Agreement among Classic Cable, Inc., As Borrower,
the Lenders Parties thereto, Union Bank of California,
N.A. and Goldman Sachs Credit Partners L.P. as
Co-Arrangers, Goldman Sachs Credit Partners L.P., as
Syndication Agent and Union Bank of California, N.A., as
Administrative and Documentation Agent, dated as of July
29, 1998.
10.4 -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.4(b) -- Assignment of Asset Purchase Agreement dated June 19,
1998.
10.4(c) -- Amendment No. 1 to Asset Purchase Agreement dated July
15, 1998.
10.5 -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6 -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
10.6(a) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
10.6(b) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
*10.7 -- Investment Agreement dated as of May 24, 1999 between
Brera Classic, LLC and Classic Communications, Inc.
*10.8 -- Management and Advisory Fee Agreement dated May 24, 1999.
*10.9 -- Stockholder Voting Agreements dated effective May 24,
1999, among Brera Classic, L.L.C. and Austin Ventures,
L.P., BT Capital Partners, Inc., The Texas Growth Fund,
BA SBIC Management, L.L.C., as the successor in interest
to NationsBanc Capital Corp., J. Merritt Belisle, Steven
E. Seach, and Bryan Noteboom.
*12.1 -- Statement of Earnings to Fixed Charges.
21.1 -- Subsidiaries of Classic Communications, Inc.
*23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included in
Exhibits 5.1 and 8.1 of this Registration Statement).
*23.3 -- Consent of KPMG LLP.
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
25.1 -- Statement of Eligibility on Form T-1 of Bank One, N.A.,
as Trustee, including consent.
*27.1 -- Financial Data Schedule.
99.1 -- Form of Transmittal Letter with respect to the Exchange
Offer.
99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 2.1
================================================================================
SECURITIES PURCHASE AGREEMENT
AMONG
CLASSIC CABLE, INC.
BUFORD GROUP, INC.
AND
THE SELLERS NAMED HEREIN
DATED AS OF MAY 11, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1 Definitions....................................................... 2
ARTICLE II
SALE OF SECURITIES AND CLOSING
2.1 Purchase and Sale of Securities................................... 2
2.2 Purchase Price.................................................... 3
2.3 Adjustment to Aggregate Purchase Price............................ 3
2.4 Closing........................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
3.1 Organization...................................................... 7
3.2 Authority, Execution and Validity................................. 8
3.3 No Conflicts or Violations........................................ 8
3.4 Consents.......................................................... 9
3.5 Title to Securities............................................... 9
3.6 Litigation........................................................ 9
3.7 Partnership....................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization of the Buford Companies.............................. 12
4.2 Authority, Execution and Validity................................. 12
4.3 Capital Stock..................................................... 13
4.4 No Conflicts or Violations........................................ 14
4.5 Consents.......................................................... 14
4.6 Company Financial Statements...................................... 14
4.7 Absence of Certain Changes........................................ 15
4.8 No Undisclosed Liabilities........................................ 16
4.9 Litigation........................................................ 16
4.10 System Franchises................................................. 17
4.11 Pole Attachment Agreements........................................ 18
4.12 Real Property..................................................... 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.13 Other Material Contracts.......................................... 20
4.14 Compliance with Laws.............................................. 21
4.15 Assets............................................................ 22
4.16 Restoration....................................................... 22
4.17 Patents, Trademarks and Copyrights................................ 23
4.18 Year 2000......................................................... 23
4.19 Systems Information............................................... 23
4.20 Environmental Matters............................................. 24
4.21 Employee Benefits................................................. 25
4.22 Employee Matters.................................................. 28
4.23 Taxes............................................................. 28
4.24 Insurance......................................................... 30
4.25 Bonds............................................................. 30
4.26 Organic Documents................................................. 30
4.27 Brokers........................................................... 30
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
5.1 Organization...................................................... 31
5.2 Authority......................................................... 31
5.3 No Conflicts or Violations........................................ 32
5.4 Consents.......................................................... 32
5.5 Litigation........................................................ 32
5.6 Purchase for Investment........................................... 32
5.7 Sufficient Funds.................................................. 33
5.8 Brokers........................................................... 33
ARTICLE VI
COVENANTS OF THE SELLERS AND THE COMPANY
6.1 Consents.......................................................... 34
6.2 HSR Act Filings................................................... 34
6.3 Licenses.......................................................... 34
6.4 Access by Purchaser............................................... 35
6.5 Conduct of Business............................................... 35
6.6 Monthly Financial Statements...................................... 37
6.7 Bank Accounts..................................................... 37
6.8 Employee Listing.................................................. 37
6.9 Lien and Judgment Searches........................................ 37
6.10 No Amendments..................................................... 38
6.11 No Issuance of Securities......................................... 38
6.12 No Dividends...................................................... 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.13 Notification and Supplements to Schedules......................... 38
ARTICLE VII
COVENANTS OF PURCHASER
7.1 Deposit........................................................... 39
7.2 Consents.......................................................... 39
7.3 HSR Act Filings................................................... 39
7.4 Licenses.......................................................... 40
7.5 WARN Act.......................................................... 40
7.6 Financing......................................................... 40
7.7 Assistance and Information........................................ 40
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PURCHASER
8.1 Representations and Warranties.................................... 41
8.2 Performance....................................................... 41
8.3 Officer's Certificates............................................ 41
8.4 No Injunction..................................................... 41
8.5 HSR Act and Required Consents..................................... 42
8.6 Legal Opinion..................................................... 42
8.7 FCC Legal Opinion................................................. 42
8.8 Indemnity Escrow Agreement........................................ 42
8.9 Noncompete Agreement.............................................. 42
8.10 Resignations...................................................... 42
8.11 Financial Performance............................................. 43
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE SELLERS
9.1 Representations and Warranties.................................... 43
9.2 Performance....................................................... 43
9.3 Officer's Certificates............................................ 43
9.4 No Injunction..................................................... 43
9.5 HSR Act and Required Consents..................................... 44
9.6 Legal Opinion..................................................... 44
9.7 Indemnity Escrow Agreement........................................ 44
9.8 Company Financing................................................. 44
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE X
INDEMNIFICATION AND SURVIVAL OF PROVISIONS
10.1 Indemnification by Sellers........................................ 44
10.2 Indemnification by Purchaser...................................... 45
10.3 Notice and Resolution of Claims................................... 46
10.4 Limits on Indemnification......................................... 47
10.5 Indemnity Payments................................................ 48
10.6 Payment........................................................... 48
10.7 Other Indemnitees................................................. 49
10.8 Survival.......................................................... 49
ARTICLE XI
TERMINATION
11.1 Termination....................................................... 49
11.2 Effect of Termination............................................. 50
ARTICLE XII
MISCELLANEOUS
12.1 Tax............................................................... 51
12.2 Sellers Committee................................................. 52
12.3 Notices........................................................... 53
12.4 Entire Agreement.................................................. 55
12.5 Expenses.......................................................... 55
12.6 Public Announcements.............................................. 55
12.7 Confidentiality................................................... 56
12.8 No Negotiation.................................................... 57
12.9 Amendments........................................................ 57
12.10 Assignment........................................................ 57
12.11 Further Assurances................................................ 57
12.12 Governing Law..................................................... 57
12.13 Counterparts...................................................... 58
12.14 Dispute Resolution................................................ 58
</TABLE>
iv
<PAGE> 6
EXHIBITS
A - Definitions
B - Form of Indemnity Escrow Agreement
C - Form of Deposit Escrow Agreement
D - Form of Noncompete Agreement
E - Company Special Counsel Legal Opinions
F - Company FCC Counsel Legal Opinions
G - Purchaser Counsel Legal Opinions
SELLERS AND COMPANY SCHEDULES
2.2 - Sellers' Pro Rata Shares
2.3 - Life Insurance Policies
3.4 - Sellers' Consents
3.5 - Title to Securities
4.1 - Organization of Buford Companies
4.3(a) - Capital Stock
4.3(b) - Equity Interests
4.5 - Governmental Consents
4.7 - Certain Material Changes
4.8 - Undisclosed Liabilities
4.9 - Litigation
4.10 - System Franchises
4.11 - Pole Attachment Agreements
4.12 - Real Property
4.13 - Other Material Contracts
4.14 - FCC Licenses
4.15 - Assets and Asset Dispositions
4.17 - Trade Names and Trademarks
4.19(a) - Systems Information
4.19(c) - Overbuilds
4.20 - Environmental Matters
4.21(a) - Employee Benefit Plans
4.21(b) - Extension of Coverage
4.23(a) - Exceptions to Tax Returns
4.23(b) - Tax Return Extensions
4.23(c) - Audits
4.24 - Insurance
4.25 - Bonds
6.5(c) - 1999 Capital Expenditure Budget
8.5 - Required Consents
v
<PAGE> 7
PURCHASER SCHEDULES
5.4 - Purchaser Consents
5.7 - Financing Commitments
5.8 - Brokers and Advisors
vi
<PAGE> 8
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement is made and entered into as of this
11th day of May, 1999 by and among Classic Cable, Inc., a Delaware corporation
("Purchaser"), Buford Group, Inc., a Delaware corporation (the "Company"),
Geoffrey R. Buford, a resident of the State of Texas ("G. Buford"), Robert P.
Buford, a resident of the State of Texas ("R. Buford"), Communities Foundation
of Texas, Inc., a Texas not for profit corporation ("Communities Foundation"),
Leadership Network, Inc., a Texas not for profit corporation ("Leadership
Network"), Buford Foundation, Inc., a Texas not for profit corporation ("Buford
Foundation"), Bennett W. Hooks, Jr., a resident of the State of Texas ("Hooks"),
Ronald W. Martin, a resident of the State of Texas ("Martin"), Thomas M. Seale,
III, a resident of the State of Texas ("Seale"), and Elizabeth Kay Monigold, a
resident of the State of Texas ("Monigold"). Each of G. Buford, R. Buford,
Communities Foundation, Leadership Network, Buford Foundation, Hooks, Martin,
Seale and Monigold are individually referred to as a "Seller" and collectively
referred to as the "Sellers."
PRELIMINARY STATEMENTS
WHEREAS, the Company, through its subsidiaries, owns and operates cable
television systems (the "Systems") which provide cable television services to
subscribers in suburban markets and rural markets in the States of Texas,
Arkansas, Louisiana and Missouri and to correctional facilities throughout the
United States;
WHEREAS, G. Buford, R. Buford, Communities Foundation, Leadership
Network, Buford Foundation and Buford Television Partnership, a Texas general
partnership (the "Partnership"), collectively own all the issued and outstanding
shares of the Company's common stock, $1.00 par value (the "Company Common
Stock");
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WHEREAS, G. Buford, R. Buford, Hooks, Martin, Seale and Monigold
collectively own all the issued and outstanding partnership interests of the
Partnership (collectively, the "Partnership Interests");
WHEREAS, upon the terms and subject to the conditions set forth herein,
G. Buford, R. Buford, Communities Foundation, Leadership Network and Buford
Foundation severally desire to sell, assign, transfer and convey to Purchaser,
and Purchaser desires to purchase and acquire from such Sellers, all of the
shares of Company Common Stock owned directly by such Sellers (collectively, the
"Shares");
WHEREAS, upon the terms and subject to the conditions set forth herein,
G. Buford, R. Buford, Hooks, Martin, Seal and Monigold severally desire to sell,
assign, transfer and convey to Purchaser, and Purchaser desires to purchase and
acquire from such Sellers, all of the Partnership Interests owned directly by
such Sellers;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The capitalized terms used in this Agreement will have
the meanings ascribed to them in Exhibit A hereto.
ARTICLE II
SALE OF SECURITIES AND CLOSING
2.1 Purchase and Sale of Securities. Subject to the terms and
conditions, and in reliance upon the representations and warranties set forth in
this Agreement, on the Closing Date,
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the Sellers agree to sell to Purchaser, and Purchaser agrees to purchase from
the Sellers, the Shares and the Partnership Interests (collectively, the
"Securities").
2.2 Purchase Price. The aggregate purchase price payable by Purchaser
for the Securities (the "Aggregate Purchase Price") shall be an amount equal to
the difference of $300,000,000 minus the amount of Senior Debt (as such purchase
price may be adjusted by the Purchase Price Adjustment Amount in accordance with
Section 2.3), $15,000,000 of which shall be deposited into an escrow account
pursuant to the Indemnity Escrow Agreement, and the balance of which shall be
payable to the Sellers in immediately available funds in accordance with each
Seller's Pro Rata Share. Each Seller's Pro Rata Share is set forth on Schedule
2.2.
2.3 Adjustment to Aggregate Purchase Price.
(a) The Aggregate Purchase Price will be increased or
decreased, as the case may be, by each of the following:
(i) the Aggregate Purchase Price will be increased on
a dollar for dollar basis by an amount equal to the sum of
cash and cash equivalent balances and the net cash surrender
value of the life insurance policies set forth on Schedule 2.3
(to the extent realizable immediately following the Closing)
as of the Closing Date;
(ii) if Working Capital as of the Closing Date is
greater than zero (0), the Aggregate Purchase Price will be
increased on a dollar for dollar basis by an amount equal to
such excess;
(iii) if Working Capital as of the Closing Date is
less than zero (0), the Aggregate Purchase Price will be
decreased on a dollar for dollar basis by an amount equal to
such difference; and
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(iv) if the number of Basic Subscribers as of the
Closing Date is less than 171,000, the Aggregate Purchase
Price will be decreased on a dollar for dollar basis by an
amount equal to the product of (A) $1,754, times (B) the
difference of 171,000 minus the actual number of Basic
Subscribers as of the Closing Date.
Any adjustment to the Aggregate Purchase Price determined under this
Section 2.3(a) is herein referred to as the "Purchase Price Adjustment
Amount."
(b) The amount of Senior Debt, Working Capital and the cash
balances and cash surrender value of life insurance policies of the
Buford Companies and any Purchase Price Adjustment Amount resulting
therefrom will be determined from the consolidated balance sheet of the
Buford Companies as of the Closing Date (the "Closing Balance Sheet").
The Closing Balance Sheet will be prepared by Purchaser in accordance
with GAAP on a consistent basis with the March Balance Sheet. The
number of Basic Subscribers as of the Closing Date and any Purchase
Price Adjustment Amount resulting therefrom will be determined from the
books and records of the Buford Companies and will be prepared on a
consistent basis with past practice.
(c) At least five (5) Business Days prior to the Closing, the
Sellers and the Company will furnish Purchaser with an estimated
Closing Balance Sheet, the amount of Senior Debt, the number of Basic
Subscribers and a good faith estimated calculation of the Purchase
Price Adjustment Amount (the "Preliminary Purchase Price Adjustment
Amount"), each of which will be in reasonable detail and accompanied by
such other financial information and methods of calculation as may be
reasonably necessary for Purchaser to evaluate the accuracy thereof.
The Aggregate Purchase Price payable to the Sellers at Closing will be
adjusted by the Preliminary Purchase Price Adjustment Amount.
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(d) Within forty-five (45) days after the Closing, Purchaser
and the Company will furnish the Sellers with the Closing Balance
Sheet, the number of Basic Subscribers as of the Closing Date and the
calculation of the Purchase Price Adjustment Amount, each of which will
be in reasonable detail and accompanied by such other financial
information and methods of calculation as may be reasonably necessary
for the Sellers to evaluate the accuracy thereof. The Sellers shall
have a period of ten (10) Business Days after receipt of Purchaser's
calculation of the Purchase Price Adjustment Amount to notify Purchaser
of their election to accept or reject (and in the case of a rejection,
there shall be included in such notice the reasons for such rejection
in reasonable detail) the calculation of the Purchase Price Adjustment
Amount. In the event no notice is received by Purchaser during such ten
(10) Business Day period, the calculation of the Purchase Price
Adjustment Amount shall be deemed accepted by the Sellers and final and
binding on the parties hereto.
(e) In the event the Sellers shall timely reject the
calculation of the Purchase Price Adjustment Amount, Purchaser and the
Sellers will promptly (and in any event within twenty (20) days
following the date upon which the Sellers shall reject the calculation
of the Purchase Price Adjustment Amount) attempt to make a joint
determination of the Purchase Price Adjustment Amount. If the Sellers
and Purchaser are able to jointly determine the Purchase Price
Adjustment Amount, any required adjustment to the Aggregate Purchase
Price resulting therefrom will be made immediately after such
determination and will be final and binding on the parties hereto. In
the event the Sellers and Purchaser are unable to agree upon the final
determination of the calculation of the Purchase Price Adjustment
Amount as herein provided within such twenty (20) day period,
resolution of the issues in dispute shall be made within fifteen (15)
days thereafter by one of the five largest national accounting firms,
which accounting firm shall be jointly selected by the parties, or if
the parties are unable to agree upon an accounting firm, selected by
lot (the "Independent Firm") and such determination of the disputed
issues by the Independent Firm shall be final and binding on all the
parties hereto. The Independent Firm will allocate its costs and
expenses in
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reviewing the issues in dispute to the Sellers and Purchaser based on
the percentage determined by dividing (A) that portion of the contested
amount not awarded to such party, by (B) the amount actually contested
by the parties. For example, if Purchaser claims that the Working
Capital should be $1,000 lower, and the Sellers contest only $500 of
the amount claimed by Purchaser, and if the dispute is ultimately
resolved by the Independent Firm by lowering the Working Capital by
$300, the costs and expenses of the Independent Firm will be allocated
60% (i.e., 300/500) to the Sellers and 40% (i.e., 200/500) to
Purchaser.
(f) If the Aggregate Purchase Price calculated based on the
Purchase Price Adjustment Amount is greater than the Aggregate Purchase
Price calculated based on the Preliminary Purchase Price Adjustment
Amount, Purchaser will pay the Sellers their Pro Rata Share of such
difference. If the Aggregate Purchase Price calculated based on the
Purchase Price Adjustment Amount is less than the Aggregate Purchase
Price calculated based on the Preliminary Purchase Price Adjustment
Amount, the Sellers will pay their Pro Rata Share of such difference to
Purchaser. If any payment is required by this clause (f), such payment
will be paid by wire transfer of immediately available funds within
three (3) Business Days after resolution of the amount due to such
account as is specified by the party receiving payment.
2.4 Closing.
(a) The Closing will take place at the offices of Hughes &
Luce, L.L.P., 1717 Main Street, Dallas, Texas 75201 (or such other
location as the Parties may agree), at 10:00 a.m. local time, on the
Closing Date.
(b) At the Closing, Purchaser will (i) pay each Seller its Pro
Rata Share of the Aggregate Purchase Price payable to the Sellers on
the Closing Date (as determined in accordance with Section 2.3(c)) by
wire transfer of immediately available funds to such accounts as the
Sellers specify to Purchaser pursuant to a letter of direction
delivered to
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Purchaser not less than two (2) Business Days prior to the Closing
Date, (ii) pay, or cause to be paid, in full all Senior Bank Debt by
wire transfer of immediately available funds pursuant to a payoff and
release letter delivered to Purchaser not less than two (2) Business
Days prior to the Closing Date, (iii) pay $15,000,000 by wire transfer
of immediately available funds into an escrow account pursuant to the
Indemnity Escrow Agreement, and (iii) deliver to each of the Sellers
and the Company the documents and instruments required to be delivered
by Purchaser on the Closing Date under the terms of this Agreement and
such other documents as any Seller or the Company reasonably requests
for the consummation of the transactions contemplated by this
Agreement.
(c) At the Closing, (i) the Sellers will deliver, or cause to
be delivered, to Purchaser (A) certificates representing all the shares
of Company Common Stock issued and outstanding on the Closing Date
(including the Shares) duly endorsed or accompanied by duly executed
blank stock powers, (B) assignments of general partnership interests
for the transfer of the Partnership Interests to Purchaser, and (C)
such other documents and instruments required to be delivered by the
Sellers on the Closing Date under the terms of this Agreement or as
otherwise reasonably requested by Purchaser for the consummation of the
transactions contemplated by this Agreement, and (ii) the Company will
deliver to Purchaser the documents and instruments required to be
delivered by the Company on the Closing Date under the terms of this
Agreement and such other documents as Purchaser reasonably requests for
the consummation of the transactions contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Except as set forth in the Schedules to this Agreement delivered by the
Sellers and the Company to Purchaser concurrently with the execution and
delivery of this Agreement, the Sellers, severally as to such Seller alone and
not jointly, hereby represent and warrant to Purchaser as follows:
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3.1 Organization. Each Corporate Seller is a corporation duly
organized, validly existing and in good standing under the Laws of its state of
incorporation and has full power and authority to enter into this Agreement and
the other Company Documents to which it is a party, and to perform its
obligations hereunder and thereunder. Each Individual Seller has full power and
authority to enter into this Agreement and the other Company Documents to which
he or she, as applicable, is a party, and to perform his or her, as applicable,
obligations hereunder and thereunder.
3.2 Authority, Execution and Validity. The execution and delivery of
this Agreement and the other Company Documents to which it is a party by each
Corporate Seller and the performance by such Seller of its obligations hereunder
and thereunder have been duly and validly authorized by all necessary action on
the part of such Seller. This Agreement has been duly executed and delivered by
each Seller and (assuming that this Agreement is a legal, valid, and binding
obligation of each other Party hereto) constitutes a legal, valid, and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms, and upon execution and delivery, the other Company Documents to which
it is a party (assuming that such Company Documents are legal, valid and binding
obligations of each other party thereto) will constitute legal, valid and
binding obligations of such Seller, enforceable against such Seller in
accordance with their terms, except, in each of the foregoing instances, to the
extent that (a) enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally, and (b) the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefor may be brought.
3.3 No Conflicts or Violations. Subject to obtaining the Consents
contemplated by Section 3.4, the execution and delivery of this Agreement and
the other Company Documents to which it is a party by each Seller do not, and
the performance by such Seller of its obligations hereunder and thereunder will
not: (a) conflict with or violate in any material respect any term or
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<PAGE> 16
provision of any material Law or any material writ, judgment, decree, or
injunction applicable to such Seller or by which any of its properties is bound
or subject; (b) conflict with or result in a violation or breach of any of the
provisions of any partnership agreement, charter, bylaws or other organizational
documents of such Seller; or (c) result in a material breach of, or constitute a
material default under, any material Contract to which such Seller is a party or
by which any of its properties is bound or subject.
3.4 Consents. The execution and delivery by each Seller of this
Agreement and the other Company Documents to which it is a party do not, and
consummation of the transactions contemplated hereby and thereby will not,
require such Seller to obtain any Consent from any Person except for (a) the
Consents set forth on Schedule 3.4 and (b) such Consents the failure of which to
be made or obtained could not reasonably be expected to (i) materially and
adversely effect the validity or enforceability of this Agreement or any other
Company Document, (ii) materially and adversely effect the ability of such
Seller to perform its obligations under this Agreement or under any other
Company Document, or (iii) have a Company Material Adverse Effect.
3.5 Title to Securities. Except as set forth on Schedule 3.5, each
Seller owns, beneficially and of record and free and clear of any Lien, all of
the Shares and Partnership Interests set forth opposite such Seller's name on
Schedule 3.5. All of the shares of capital stock of the Company and partnership
interests of the Partnership directly or indirectly owned, beneficially and of
record, by such Seller is identified on Schedule 3.5. Upon the sale of the
Securities to Purchaser at the Closing, Purchaser will acquire the legal and
beneficial interest in all of the Securities owned by such Seller free and clear
of any Lien, except for any Liens created by Purchaser.
3.6 Litigation. There is no Action pending, or to the Knowledge of such
Seller, threatened, against such Seller at law or in equity, in, before, or by
any Person, except such Actions that, if adversely determined, could not
reasonably be expected to have a material adverse effect on the validity or
enforceability of this Agreement or any other Company
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Document or on the ability of such Seller to perform its obligations under this
Agreement or any other Company Document.
3.7 Partnership. The Individual Sellers, jointly hereby represent and
warrant to Purchaser as follows:
(a) The Partnership is a general partnership duly organized
and validly existing under the Laws of its jurisdiction of
organization. The Partnership Interests have been duly authorized and
validly issued and have not been issued in violation of any securities
laws, preemptive or similar rights created by statute or the general
partnership agreement of the Partnership. The Partnership Interests are
the only issued and outstanding partnership interests of the
Partnership. There are no outstanding securities, rights (preemptive or
other), subscriptions, calls, warrants, options, commitments or other
agreements (except for this Agreement) that give any Person the right
to purchase or otherwise receive or be issued any partnership interests
in the Partnership or any security convertible into or exchangeable for
any such partnership interests. Except for the Partnership's general
partnership agreement, there are no voting trusts, proxies or other
agreements or understandings to which any Individual Seller is a party
or by which any Individual Seller is bound with respect to the voting
of any Partnership Interests.
(b) The Partnership has no assets or properties of any kind,
nature, character or description, whether tangible, intangible,
personal, real or mixed, other than the shares of Company Common Stock
owned directly by the Partnership as set forth on Schedule 4.3(a). The
Partnership owns, beneficially and of record, such shares of Company
Common Stock free and clear of any Lien. Except as set forth in the
general partnership agreement of the Partnership, the Partnership has
no liabilities or obligations of any nature (whether accrued,
unaccrued, absolute, fixed, contingent or otherwise) and is not a party
to any contract or other agreement. The Partnership has been operated
in compliance with all Laws. The execution and delivery by the
Individual Sellers of this Agreement and the other Company Documents to
which they are a party do not, and the
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performance of the Individual Sellers' obligations hereunder and
thereunder will not, conflict or violate the partnership agreement of
the Partnership or conflict with or violate any Law applicable to the
Partnership. The Individual Sellers have made available to Purchaser a
true, correct and complete copy of the partnership agreement of the
Partnership.
(c) There are no Actions (including Actions with respect to
Taxes) pending, or to the Knowledge of the Individual Sellers,
threatened, against the Partnership or any of its shares of Company
Common Stock, at Law or in equity, in, before, or by any Person,
including Governmental Authorities. The Partnership is not subject to
any order of, consent decree, settlement agreement or other similar
agreement with, or to the Knowledge of the Individual Sellers,
continuing investigation by, any Governmental Authority, or any
judgment, order, writ, injunction, decree or award of any Governmental
Authority or arbitrator, including, without limitation,
cease-and-desist or other orders.
(d) Any Tax Returns of or with respect to any Tax which is
required to be filed on or before the Closing Date by or with respect
to the Partnership have been or will be duly and timely filed, and all
items of income, gain, loss, deduction and credit or other items
required to be included in any such Tax Return have been or will be so
included and all information provided in each such Tax Return is or
will be true, correct and complete. Any Taxes which have become or will
become due and payable under any such Tax Return have been or will be
timely paid in full. Any final Tax Return of the Partnership required
to be filed as a result of the sale of the Partnership Interests to
Purchaser will be made by the Individual Sellers.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedules to this Agreement delivered by the
Sellers and the Company to Purchaser concurrently with the execution of this
Agreement, the Company hereby represents and warrants to Purchaser as follows:
4.1 Organization of the Buford Companies. Each of the Buford Companies
is a corporation duly organized, validly existing, and in good standing under
the Laws of the jurisdiction set forth opposite such entity's name in Schedule
4.1. Each of the Buford Companies is duly qualified or admitted to do business
and is in good standing in all jurisdictions in which the ownership, use, or
leasing of its Assets or the conduct or nature of its business makes such
qualification or admission necessary, except where the failure to be so
qualified or admitted and in good standing does not and will not have a Company
Material Adverse Effect.
4.2 Authority, Execution and Validity. The execution and delivery of
this Agreement and the other Company Documents to which it is a party by the
Company and the performance by the Company of its obligations hereunder and
thereunder have been duly and validly authorized by all necessary action on the
part of the Company. This Agreement has been duly and validly executed and
delivered by the Company and (assuming that this Agreement is a legal, valid,
and binding obligation of each other Party hereto) constitutes a legal, valid,
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, and upon execution and delivery, the other Company
Documents to which it is a party (assuming that such Company Documents are
legal, valid and binding obligations of each other party thereto) will
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except, in each of the
foregoing instances, to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium, or similar
Laws now or hereafter in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable
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relief are subject to certain equitable defenses and to the discretion of the
court or other similar Person before which any proceeding therefor may be
brought.
4.3 Capital Stock.
(a) Schedule 4.3(a) contains a true and complete list of the
authorized, issued, and outstanding capital stock of each of the Buford
Companies. The issued and outstanding shares of capital stock of each
Buford Company have been duly authorized and validly issued, are fully
paid and nonassessable, and have not been issued in violation of any
securities laws, preemptive or similar rights created by statute, the
charter or bylaws of any Buford Company or any agreement to which any
Buford Company is a party or bound. The issued and outstanding capital
stock of the Buford Companies are owned beneficially and of record as
disclosed in Schedule 4.3(a), and except as set forth in Schedule
4.3(a), are not subject to any Liens. There are no outstanding
securities, rights (preemptive or other), subscriptions, calls,
warrants, options, commitments or other agreements (except for this
Agreement) that give any Person the right to purchase or otherwise
receive or be issued any shares of capital stock of any Buford Company
or any security convertible into or exchangeable for any shares of
capital stock of any Buford Company. Except as set forth in Schedule
4.3(a), there are no voting trusts, proxies or other agreements or
understandings to which any Buford Company is a party or by which any
Buford Company is bound with respect to the voting of any shares of
capital stock of any Buford Company.
(b) Except as described on Schedule 4.3(b), there are no
obligations, contingent or otherwise, of any Buford Company to (i)
repurchase, redeem or otherwise acquire any of its shares of capital
stock or (ii) provide material funds to, or make any material
investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations
of, any other person, other than advances to subsidiaries in the normal
course of business. Except as described in Schedule 4.3(b), no Buford
Company (x) directly or indirectly owns, (y) has agreed to
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purchase or otherwise acquire or (z) holds any interest convertible
into or exchangeable or exercisable for, any capital stock (or
equivalent equity interest) of any corporation, partnership, joint
venture or other business association or entity.
4.4 No Conflicts or Violations. Subject to obtaining the Consents
contemplated by Section 4.5, the execution and delivery by the Company of this
Agreement and the other Company Documents to which it is a party do not, and the
performance of the Company's obligations hereunder and thereunder will not: (a)
conflict with or violate in any material respect any term or provision of any
material Law or any material writ, judgment, decree, or injunction applicable to
any of the Buford Companies or by which any of their properties are bound or
subject; (b) conflict with or result in a violation or breach of any of the
provisions of the charter or bylaws of any of the Buford Companies; (c) result
in the creation of any Lien upon any of the Assets, except for any Liens created
by Purchase; or (d) result in a material breach of, or constitute a material
default under, any System Franchise, Pole Attachment Agreement, Material Real
Property Lease or Material Contract to which any Buford Company is a party.
4.5 Consents. The execution and delivery of this Agreement and the
other Company Documents by the Buford Companies do not, and consummation of the
transactions contemplated hereby and thereby will not, require any Buford
Company to obtain any Consent from any Person, except for (a) the filing of a
premerger notification and report form under the HSR Act; (b) the Consents set
forth on Schedule 4.5; and (c) such Consents the failure of which to be made or
obtained could not reasonably be expected to (i) materially and adversely effect
the validity or enforceability of this Agreement or any other Company Document,
(ii) materially and adversely effect the ability of any Buford Company to
perform its obligations under this Agreement or under any other Company
Document, or (iii) have a Company Material Adverse Effect.
4.6 Company Financial Statements.
(a) The Company has previously delivered or made available to
Purchaser true and complete copies of the following: (i) the audited
consolidated balance sheets of
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the Company and its consolidated Subsidiaries as of December 31, 1994,
December 31, 1995, December 31, 1996, December 31, 1997 and December
31, 1998, and the related audited statements of operations,
stockholders' equity, and cash flows of the Company and its
consolidated Subsidiaries for each of the years then ended, together
with the notes related thereto and the reports thereon of KPMG Peat
Marwick LLP; and (ii) the Company prepared unaudited consolidated
balance sheets of the Company and its consolidated Subsidiaries as of
March 31, 1998 and March 31, 1999, and the related unaudited statements
of operation, stockholders' equity, and cash flows of the Company and
its consolidated Subsidiaries for the three (3) month periods then
ended.
(b) Except as otherwise noted therein and subject to year-end
and audit adjustments in the case of the unaudited financial
statements, the Company Financial Statements were prepared in
accordance with GAAP applied on a consistent basis throughout the
periods involved (except to the extent required by changes in GAAP and
as may be indicated in the notes thereto) and present fairly in all
material respects the financial position of the Company and its
consolidated Subsidiaries as of the respective dates thereof and the
related results of operations, stockholders' equity, and cash flows of
the Company and its consolidated Subsidiaries as of and for the
respective dates and periods covered thereby. Except as otherwise noted
therein and subject to year-end and audit adjustments, the Monthly
Financial Statements will be prepared in accordance with GAAP applied
on a basis consistent with the Company Financial Statements and will
present fairly in all material respects the financial position of the
Company and its consolidated Subsidiaries as of the respective dates
thereof and the results of operations of the Company and its
consolidated Subsidiaries as of and for the respective dates and
periods covered thereby. The Company Financial Statements have been,
and the Monthly Financials will be, prepared from the books, records
and accounts of the Company, which accurately and fairly reflect in all
material respects the transactions therein described.
4.7 Absence of Certain Changes. Except (a) as disclosed in the Company
Financial Statements, (b) as set forth on Schedule 4.7 or (c) for changes
resulting from events or conditions
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which effect the cable industry generally, since December 31, 1998 the Buford
Companies have conducted their business only in the ordinary course and since
such date there has not been (i) any material damage, destruction or loss
(whether or not covered by insurance) with respect to any material Assets of any
Buford Company; (ii) any change by any Buford Company in its accounting methods,
principles or practices; (iii) any declaration, setting aside or payment of any
dividends or distributions in respect of shares of the capital stock of any
Buford Company, or any redemption, purchase or other acquisition by any Buford
Company of any of its securities; (iv) any increase in the benefits under, or
the establishment or amendment of, any Employee Benefit Plans; (v) any increase
in the compensation payable or to become payable to directors, officers or key
employees of any Buford Company, except for annual increases in salaries or
wages and bonuses in the ordinary course of business; (vi) any revaluation by
any Buford Company of any of its Assets, including the writing down or off of
Assets, other than in the ordinary course of business; (vii) any entry by any
Buford Company into any commitment or transaction material to the Buford
Companies, taken as a whole; (viii) any material increase in the amount of
Senior Debt; (ix) any amendment to the charter or bylaws of any Buford Company;
or (x) any event or circumstance that has had or could reasonably be expected to
have a Company Material Adverse Effect.
4.8 No Undisclosed Liabilities. Except (a) as reflected in the March
Balance Sheet, (b) as contemplated by this Agreement, (c) for current
liabilities and obligations incurred since March 31, 1999 in the ordinary course
of business, and (d) as set forth on Schedule 4.8, no Buford Company has any
material liabilities or obligations of any nature (whether accrued, unaccrued,
absolute, fixed, contingent or otherwise).
4.9 Litigation. Except as set forth on Schedule 4.9, there are no
material Actions pending, or to the Knowledge of the Company, threatened,
against any Buford Company, or any of their respective Assets, at Law or in
equity, in, before, or by any Person, including any Governmental Authorities.
Except as set forth on Schedule 4.9 or on the other Schedules attached hereto,
no Buford Company is subject to any material continuing order of, consent
decree, settlement agreement or other similar written agreement with, or, to the
Knowledge of the
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Company, continuing investigation by, any Governmental Authority, or any
judgment, order, writ, injunction, decree or award of any Governmental Authority
or arbitrator, including, without limitation, cease-and-desist or other orders.
4.10 System Franchises.
(a) Set forth on Schedule 4.10 is a list of all of the
existing governmental authorizations for franchises to operate the
Systems (collectively, the "System Franchises") presently held by any
Buford Company, and the Governmental Authority which has granted each
System Franchise. Each of the System Franchises expires on the dates
set forth on Schedule 4.10. True, complete and correct copies of the
System Franchises have been made available by the Company to Purchaser.
(b) Each Buford Company (i) has complied in all material
respects with the terms and conditions of the System Franchises to
which it is a party and the applicable requirements of Governmental
Authorities relating to the System Franchises (including any
requirements for notifications, filing, reporting, posting and
maintenance of logs and records), and (ii) has not done or performed
any act which would invalidate or impair in any material respect its
rights under, or give to the granting authority the right to terminate
any System Franchise. Except as set forth on Schedule 4.10, there is no
pending, or to the Knowledge of the Company, threatened assertion or
claim that operations by any Buford Company pursuant to any System
Franchise have been improperly conducted or maintained in any material
respect. Except as set forth on Schedule 4.10, there is no Action
pending, or to the Knowledge of the Company, threatened, to terminate,
suspend or modify in any material respect any System Franchise. Except
as set forth on Schedule 4.10, all construction of distribution plant
or other capital improvements required by any of the System Franchises
has been completed in all material respects in accordance with the
terms of such System Franchise.
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4.11 Pole Attachment Agreements.
(a) Set forth on Schedule 4.11 is a list of all of the pole
attachment authorizations and agreements (collectively, the "Pole
Attachment Agreements") presently held by any Buford Company and the
public utility, municipality or other authority which has granted each
Pole Attachment Agreement. True, complete and correct copies of each
Pole Attachment Agreement have been made available by the Company to
Purchaser.
(b) Each Buford Company (i) has complied in all material
respects with the terms and conditions of the Pole Attachment
Agreements to which it is a party and the applicable requirements of
Governmental Authorities relating to the Pole Attachment Agreements
(including any requirements for notifications, filing, reporting,
posting and maintenance of logs and records), and (ii) has not done or
performed any act which would invalidate or impair in any material
respect its rights under the Pole Attachment Agreements. Except as set
forth on Schedule 4.11, there is no pending assertion or claim that
operations by any Buford Company pursuant to any Pole Attachment
Agreement have been improperly conducted or maintained in any material
respect, and no Buford Company has received written notice threatening
any such assertion or claim. Except as set forth on Schedule 4.11,
there is no Action pending to terminate, suspend or modify in any
material respect any Pole Attachment Agreement, and no Buford Company
has received written notice threatening any such Action.
4.12 Real Property.
(a) Set forth on Schedule 4.12 is a list of (i) all of the
head-end site agreements, Material Leases for real property and all
material rights-of-way presently held by any Buford Company
(collectively, the "Material Real Property Leases "), and (ii) all real
property owned by the Buford Companies (collectively, the "Real
Property"). The number of towers located on the Real Property with
heights (x) equal to or less than
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100 feet, (y) more than 100 feet but equal to or less than 200 feet and
(z) more than 200 feet are also listed on Schedule 4.12. True, correct
and complete copies of all Material Real Property Leases and to the
extent in the possession of any Buford Company, Real Property deeds,
title policies, title commitments, abstracts and surveys, have been
made available by the Company to Purchaser.
(b) Each Buford Company has good leasehold interests in and
rights-of-way in the real property subject to the Material Real
Property Leases, subject to the terms of such leases. Each Buford
Company (i) has complied in all material respects with the terms and
conditions of the Material Real Property Leases to which it is a party
and the applicable requirements of Governmental Authorities relating to
the Material Real Property Leases (including any requirements for
notifications, filing, reporting, posting and maintenance of logs and
records) and has not done or performed any act which would invalidate
or impair in any material respect its rights under the Material Real
Property Leases. Except as set forth on Schedule 4.12, there is no
pending assertion or claim that operations pursuant to any Material
Real Property Lease have been improperly conducted or maintained in any
material respect, and no Buford Company has received written notice
threatening any such assertion or claim. Except as set forth on
Schedule 4.12, there is no Action pending to terminate, suspend or
modify in any material respect any Material Lease Agreement, and no
Buford Company has received written notice threatening any such Action.
(c) Except to the extent any failure to conform would not
constitute or cause a material adverse effect on any Buford Company,
each parcel of Real Property, any improvements constructed thereon and
the Buford Companies' current use of such Real Property conform with
(i) applicable Laws, including zoning and the Americans with
Disabilities Act, and (ii) restrictive covenants (if any) or other
Liens affecting all or part of such parcel.
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4.13 Other Material Contracts.
(a) Except for the System Franchises, the Pole Attachment
Agreements and the Material Real Property Leases, Schedule 4.13 sets
forth all of the Contracts to which any Buford Company is a party or by
which any of its Assets are bound that are material to such Buford
Company (collectively, the "Material Contracts"), including, but not
limited to, (i) programming agreements; (ii) Contracts pertaining to
the borrowing of money; (iii) Contracts creating guaranties; (iv)
Contracts relating to any single capital expenditure in excess of
$50,000; (v) Contracts for the purchase or sale of real property, any
business or line of business or for any merger or consolidation; (vi)
joint venture or partnership agreements; (vii) Material Leases; (viii)
employment agreements; (ix) contracts (whether written or oral) with
Affiliates (which contracts are identified on Schedule 4.13); and (x)
Contracts that individually require by their respective terms after the
date hereof the payment or receipt of more than $25,000 during any
12-month period or $50,000 in the aggregate. True, correct and complete
copies of all Material Contracts have been made available by the
Company to Purchaser.
(b) Each Buford Company has complied in all material respects
with all of the terms and conditions of the Material Contracts to which
it is a party and has not done or performed any act which would
invalidate or impair in any material respect its rights under any
Material Contract. Except as set forth on Schedule 4.13, there is no
pending assertion or claim that any Buford Company has breached,
violated or defaulted under any Material Contract, and no Buford
Company has received written notice threatening any such assertion or
claim. Except as set forth on Schedule 4.13, there is no Action pending
to terminate, suspend or modify in any material respect any Material
Contract, and no Buford Company has received written notice threatening
any such Action. All employment agreements and stock options (if any)
of any Buford Company will be terminated on or before the Closing.
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4.14 Compliance With Laws.
(a) The Cable Business is being conducted and the Systems are
being operated in compliance with all Laws, including under the
Communications Act, the Copyright Act and all rules and regulations of
the FAA and the FCC, except to the extent that a failure to so comply
could not reasonably be expected to have a material adverse effect on
any Buford Company. The Buford Companies hold all material Licenses
necessary for the operation of the Systems as currently operated, each
of which is listed on Schedule 4.14. True, correct and complete copies
of all Licenses listed on Schedule 4.14 have been made available by the
Company to Purchaser.
(b) Each Buford Company has complied in all material respects
with all of the terms and conditions of its Licenses and has not done
or performed any act which would invalidate or impair in any material
respect its rights under such Licenses. Except as set forth on Schedule
4.14, there is no pending, or to the Knowledge of the Company,
threatened, assertion or claim that operations pursuant to any License
have been improperly conducted or maintained in any material respect.
Except as set forth on Schedule 4.14, there is no Action pending to
terminate suspend or modify in any material respect any License, and no
Buford Company has received written notice threatening any such Action.
(c) Without limiting the generality of the foregoing, except
as set forth on Schedule 4.14, (a) the Buford Companies have made all
material filings required to be made with the FCC (including cable
television registration statements, annual reports and aeronautical
frequency usage notices); (b) the Buford Companies have provided all
material notices to System subscribers and have maintained in all
material respects all public files required by federal law and the
rules and regulations of the FCC; (c) the Buford Companies are, and
since 1996 have been, certified as in compliance with the FCC's equal
employment opportunity rules; (d) each System is in compliance in all
material respects with all must carry requirements and has received all
necessary
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retransmission Consents; (e) no System subscriber rates are regulated
by any Governmental Authority; (f) each System is in compliance in all
material respects with all customer service standards; and (g) each
System is in compliance in all material respects with all signal
leakage criteria prescribed by the FCC. The Company has made available
to Purchaser all reports and filings made or filed by any Buford
Company pursuant to federal law or FCC rules and regulations during
the past 24 months and all written notices received by any Buford
Company during the last 24 months alleging non-compliance by any Buford
Company with the Communications Act, the rules and regulations of the
FCC, or local franchise requirements. A request for renewal has been
timely filed under Section 626(a) of the Cable Communications Policy
Act of 1984 with the proper Governmental Authority with respect to all
System Franchises expiring within 36 months after the date of this
Agreement.
4.15 Assets. Except as set forth on Schedule 4.15 and Assets disposed
of in the ordinary course of business after March 31, 1999 (which are not
material individually or in the aggregate), each of the Buford Companies has
good and indefeasible title to, or an adequate leasehold interest in, its Assets
(including the Real Property) reflected on the March Balance Sheet. Such Assets
are in reasonable operating condition and repair, ordinary wear and tear
excepted, and are sufficient to conduct the Cable Business and operate the
Systems as currently conducted and operated. Except as set forth on Schedule
4.15, the Assets that are owned by the Buford Companies are owned free of Liens
other than Permitted Liens. Set forth on Schedule 4.15 is a list of all vehicles
(including vehicle registration numbers) and material equipment at the head-end
sites and a description of the line equipment owned by the Buford Companies as
of February 28, 1999.
4.16 Restoration. No material restoration, repaving, repair or other
work (outside of ordinary maintenance) is required to be made by any Buford
Company to any street, sidewalk or abutting or adjacent area pursuant to the
requirements of any ordinance, code, permit, easement or Contract relating to
the installation, construction or operation of the Systems.
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4.17 Patents, Trademarks and Copyrights. There are no registered
patents, trademarks, service marks, trade names or copyrights, or applications
for or licenses (to or from any Buford Company) with respect to any of the
foregoing, that (a) is owned by any Buford Company, or with respect to which any
Buford Company has any rights, or (b) is used, whether directly or indirectly,
by any Buford Company, except for the trade names and trademarks set forth on
Schedule 4.17 and licenses respecting program material and obligations under the
Copyright Act applicable to cable television systems generally. There is no
pending assertion or claim that any Buford Company is violating or infringing
upon the rights of any Person in any copyright, trademark, service mark, patent,
license, trade secret or the like, and no Buford Company has received written
notice threatening any such assertion or claim. The Company has made available
to Purchaser true and complete copies of all reports and filings made or filed
pursuant to copyright rules and regulations with respect to the Cable Business
for the most current applicable period.
4.18 Year 2000. The Buford Companies have (a) completed a review and
assessment of all areas within the Cable 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 Cable 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 Purchaser, and (c) to date, implemented that plan. All of the
Buford Companies' computer applications that are material to the Cable Business
and the Systems will on a timely basis be able to perform properly
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
Company Material Adverse Effect.
4.19 Systems Information.
(a) Schedule 4.19(a) sets forth a description of the following
information relating to the Cable Business as of March 31, 1999: (i)
the number of Basic Subscribers
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served by the Systems; (ii) the channel capacity for each System
(including breakdown of channels utilized and channels available);
(iii) a description of basic, optional or tier services available from
the Systems and the rates charged for each; (iv) the channel line-up
for each System; (v) the cities, town, townships, villages, boroughs
and counties served by each System, (vi) basic penetration, (vii) pay
penetration and (viii) the date and amount of the last rate increase
for System service.
(b) There are no obligations or liabilities to subscribers or
to other users of the Systems which are material to the Cable Business,
except (i) with respect to deposits made by such subscribers or such
users; and (ii) the obligation to supply services to subscribers in the
ordinary course of business.
(c) Except as set forth on Schedule 4.19(c), as of the date
hereof there is no overbuild (including "wireless cable") of the
Systems nor to the Knowledge of the Company, any overbuild pending.
(d) As of the Closing Date, based solely on the Company's
review of its existing records, the Systems (i) will pass no fewer than
315,000 homes, and (ii) will consist of no less than 10,300 miles of
coaxial cable plant.
4.20 Environmental Matters.
(a) Except as described in Schedule 4.20, (i) the Buford
Companies are in compliance in all material respects with all
applicable Environmental Laws; (ii) no Buford Company has received any
written notices, demand letters or requests for information from any
Governmental Authority or other Person indicating that it may be in
violation of, or liable under, any Environmental Law; (iii) no reports
have been filed by any Buford Company with any Governmental Authority
concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law; (iv) no material amount of
any Hazardous Substance has been disposed of, released or
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transported by any Buford Company in violation of any applicable
Environmental Law; (v) no Buford Company is subject to any material
liabilities or expenditures relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim
asserted or arising under any Environmental Law, (vi) no underground
storage tanks are currently or to the Knowledge of the Company, have
been located on any Real Property, (vii) to the Knowledge of the
Company, 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; and
(viii) there are no incinerators, septic tanks or cesspools on any Real
Property and all waste from the Real Property is discharged into a
public sanitary sewer system.
(b) The Company has made available to Purchaser true, complete
and correct copies of (i) all studies, reports, surveys or other
materials in the Company's possession relating to the presence or
alleged presence of Hazardous Substances at, on or affecting the Real
Property, (ii) all notices or other materials in the Company's
possession 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 (iii) all materials in the
Company's possession relating to any claim, allegation or action by any
private third party under any Environmental Law.
4.21 Employee Benefits.
(a) Set forth in Schedule 4.21(a) is a list of all Employee
Benefit Plans. With respect to each Employee Benefit Plan, the Company
has made available to Purchaser true, correct and complete copies of
(i) the plan documents and summary plan description; (ii) the most
recent determination letter received from the Internal Revenue Service;
(iii) the annual reports required to be filed for the two most recent
plan years of each such Employee Benefit Plan; (iv) all related trust
agreements, insurance contracts or other funding agreements which
implement such Employee Benefit Plan; (v) all
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summaries of any Employee Benefit Plans for which a summary plan
description is not required furnished or made available generally to
employees; and (vi) all other material documents, records or other
materials related thereto reasonably requested by Purchaser in writing.
(b) Except as set forth on Schedule 4.21(b) and to the extent
of coverage required under Code section 4980B, no representations have
been made to any current or former employee or officer of any Buford
Company promising or guaranteeing any coverage under any employee
welfare plan for any period of time beyond the end of the current plan
year. Neither the sale of the Securities to Purchaser nor the
consummation of the transactions contemplated by this Agreement will
accelerate the time of payment or vesting, or increase the amount of
compensation payable by any Buford Company (including amounts due under
any Employee Benefit Plans) due to any current or former employee,
officer, consultant, stockholder or director of any Buford Company.
(c) There are no agreements which will or may provide payments
to any officer, employee, director, stockholder, consultant or highly
compensated individual which will be "parachute payments" under Code
section 280G that are nondeductible to any Buford Company or subject to
tax under Code section 4999 for which any Buford Company would have
withholding liability.
(d) Each Employee Benefit Plan which purports to satisfy the
requirements of Code section 401(a) is qualified in form and operation
under Code section 401(a) and each trust agreement, annuity contract or
other funding arrangement for each such Employee Benefit Plan is exempt
from federal income tax under Code section 501(a). No event has
occurred or circumstances exist that will or could give rise to
disqualification or loss of tax-exempt status of any such Employee
Benefit Plan or related trust agreement, annuity contract or other
funding arrangement. Each such Employee Benefit Plan has received a
favorable determination letter from the Internal Revenue Service, and
all such determination letters remain in effect and have not been
revoked.
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(e) (i) No Employee Benefit Plan is a single employer plan
that is subject to Part 3 of Title I of ERISA or Title IV of ERISA;
(ii) each Employee Benefit Plan has been operated in all material
respects in compliance with its terms, ERISA, the Code and all other
applicable Laws; (iii) none of the Employee Benefit Plans is a
"multiple employer plan" or "multi-employer plan" (as described or
defined in ERISA or the Code), and no Buford Company has ever
contributed or been required to contribute to any such plan; and (iv)
there are no material unfunded liabilities existing under any Employee
Benefit Plans, and each Employee Benefit Plan could be terminated as of
the Closing Date without any liability to any Buford Company.
(f) Other than routine claims for benefits, there are no
Actions or claims pending or, to the Knowledge of the Company,
threatened against, or with respect to, any of the Employee Benefit
Plans or their assets. The Buford Companies have made, or will make,
all required contributions that are due and payable under each Employee
Benefit Plan for all periods prior to the Closing Date.
(g) An estimate of the liabilities of the Buford Companies for
providing retiree life and medical benefits coverage to active and
retired employees of the Buford Companies has been made and is
reflected on the appropriate balance sheet and books and records of the
Buford Companies according to Statement of Financial Accounting
Standards No. 106. No welfare plans are self-insured multiple employer
welfare arrangements as such term is defined in ERISA section 3(40).
(h) None of the Buford Companies has any material liability
with respect to any transaction which relates to any Employee Benefit
Plan and which is in violation of ERISA sections 404 or 406 or
constitutes a "prohibited transaction," as defined in Code section
4975(c)(1), and for which no exemption exists under ERISA section 408
or Code section 4975(c)(2) or (d). None of the Buford Companies has
participated in a material
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violation of Part 4 of Title I, Subtitle B of ERISA by any plan
fiduciary of any Employee Benefit Plan or has any unpaid civil penalty
under ERISA section 502(1).
4.22 Employee Matters. There are no material labor strikes, disputes,
slow downs, work stoppages or other labor troubles or grievances pending or to
the Knowledge of the Company, threatened against any Buford Company. No Buford
Company is a party to any collective bargaining agreement or other labor union
contract and to the Knowledge of the Company, there is no organizing effort or
representation question pending. The Buford Companies are in compliance in all
material respects with all applicable Laws respecting employment, employment
practices, wages and hours.
4.23 Taxes.
(a) Except as set forth on Schedule 4.23(a), (i) all Tax
Returns of or with respect to any Tax which is required to be filed on
or before the Closing Date by or with respect to any Buford Company
have been or will be duly and timely filed, (ii) all items of income,
gain, loss, deduction and credit or other items required to be included
in each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete in all material respects, (iii) all Taxes which have become or
will become due and payable prior to Closing with respect to the period
covered by each such Tax Return have been or will be timely paid in
full, and (iv) all withholding Tax requirements imposed on or with
respect to any Buford Company have been or will be satisfied in all
material respects.
(b) Except as set forth on Schedule 4.23(b), there is not in
force any extension of time with respect to the due date for the filing
of any Tax Return of or with respect to any Buford Company or any
waiver or agreement for any extension of time for the assessment,
collection or payment of any Tax of or with respect to any Buford
Company.
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(c) There are no pending audits, actions, proceedings,
investigations, disputes or claims with respect to or against any
Buford Company for or with respect to any Taxes, and no assessment,
deficiency or adjustment has been assessed or proposed with respect to
any Tax Return of or with respect to any Buford Company, other than
those set forth on Schedule 4.23(c).
(d) There is no written Tax allocation or sharing agreement
with any Buford Company.
(e) Except for statutory Liens for current Taxes not yet due,
no Liens for Taxes exist upon the Assets of any Buford Company.
(f) None of the property of any Buford Company is held in an
arrangement for which partnership Tax Returns are being filed, and no
Buford Company owns any interest in any controlled foreign corporation
(as defined in section 957 of the Code), passive foreign investment
company (as defined in section 1296 of the Code) or other entity the
income of which is required to be included in the income of any Buford
Company.
(g) No Buford Company has made an election under section
341(f) of the Code.
(h) No Buford Company has ever been a member of an affiliated
group of corporations (as defined in Section 1504(a) of the Code),
other than an affiliated group of which the Company is the parent.
(i) No Buford Company is or has ever been subject to Taxes in
any jurisdiction outside the United States.
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(j) True, correct and complete copies of all federal and state
Tax Returns for the Buford Companies for the last five years have been
made available to Purchaser.
4.24 Insurance. Set forth on Schedule 4.24 is a list of all liability,
property, workers compensation, directors and officers liability, and other
similar insurance Contracts that insure the Cable Business or the affairs of the
Buford Companies or affect or relate to the ownership, use, or operations of any
of the Systems. All such Contracts are in full force and effect as of the date
of this Agreement. No notice of cancellation or termination by the issuer of any
current insurance policy prior to the date of expiration of the policy has been
received by the Company.
4.25 Bonds. Set forth on Schedule 4.25 is a list for each Buford
Company of all bonds, bond amounts and Contracts for which each bond was issued.
4.26 Organic Documents. The Company has delivered or made available to
Purchaser true and complete copies of the charter and bylaws of each Buford
Company, in each case as in effect on the date hereof. No Buford Company is in
violation of any provisions of its charter or bylaws.
4.27 Brokers. Except for Daniels & Associates, L.P. and Donaldson,
Lufkin & Jenrette Securities Corporation, no investment banker, broker, finder
or other Person is entitled to any brokerage, finder's, financial advisory or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or the
Sellers. The fees and commissions of Daniels & Associates, L.P. and Donaldson,
Lufkin & Jenrette Securities Corporation will be paid on or about the Closing
Date by the Sellers from the proceeds of the Aggregate Purchase Price.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the Schedules to this Agreement delivered by
Purchaser to the Sellers and the Company concurrently with the execution of this
Agreement, Purchaser hereby represents and warrants to the Sellers and the
Company as follows:
5.1 Organization. Purchaser is a corporation duly organized, validly
existing, and in good standing under the Laws of Delaware and has full corporate
power and authority to enter into this Agreement and the other Purchaser
Documents and to perform its obligations hereunder and thereunder.
5.2 Authority. The execution and delivery of this Agreement and the
other Purchaser Documents by Purchaser and the performance by Purchaser of its
obligations hereunder and thereunder have been duly and validly authorized by
all necessary corporate action on the part of Purchaser. This Agreement has been
duly executed and delivered by Purchaser and (assuming that this Agreement
constitutes a legal, valid, and binding obligation of the other Parties hereto)
constitutes a legal, valid, and binding obligation of Purchaser, enforceable
against Purchaser in accordance with its terms, and upon execution and delivery,
the other Purchaser Documents (assuming that such Purchaser Documents are legal,
valid and binding obligations of each other party thereto) will constitute
legal, valid and binding obligations of Purchaser, enforceable against Purchaser
in accordance with their terms, except, in each of the foregoing instances, to
the extent that (a) enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court or
other similar Person before which any proceeding therefor may be brought.
5.3 No Conflicts or Violations. Subject to obtaining the Consents
contemplated by Section 5.4, the execution and delivery of this Agreement and
the other Purchaser Documents by
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Purchaser do not, and the performance by Purchaser of its obligations hereunder
and thereunder will not: (a) conflict with or violate in any material respect
any term or provision of any material Law or any material writ, judgment,
decree, or injunction applicable to Purchaser or by which any of its properties
are bound or subject; (b) conflict with or result in a violation or breach of
any of the provisions of the charter or bylaws of Purchaser; or (c) result in a
material breach of, or constitute a material default under, any material
Contract to which Purchaser is a party or by which any of its properties is
bound or subject.
5.4 Consents. The execution and delivery of this Agreement and the
other Purchaser Documents by the Purchaser do not, and consummation of the
transactions contemplated hereby and thereby will not, require Purchaser to
obtain any Consent except for: (a) the filing of a notification and report form
under the HSR Act; (b) the Consents set forth on Schedule 5.4 and (c) such
Consents the failure of which to be made or obtained could not reasonably be
expected to (i) materially and adversely effect the validity or enforceability
of this Agreement or any other Purchaser Document, (ii) materially and adversely
effect the ability of Purchaser to perform its obligations under this Agreement
or under any other Purchaser Document or (iii) have a Company Material Adverse
Effect.
5.5 Litigation. There is no Action pending, or, to the Knowledge of
Purchaser, threatened in writing, against Purchaser or any of its Affiliates, at
law or in equity, in, before, or by any Person, except such Actions that, if
adversely determined, could not reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement or any other
Purchaser Document or on the ability of Purchaser to perform its obligations
under this Agreement or any other Purchaser Document.
5.6 Purchase for Investment. The Securities will be acquired by
Purchaser for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof within the meaning of
the Securities Act of 1933, as amended. Purchaser will refrain from transferring
or otherwise disposing of any of the Securities, or any interest
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therein, in such manner as to violate any registration provision of applicable
federal and state securities Laws.
5.7 Sufficient Funds. As of the date of this Agreement, Purchaser (a)
has access to sufficient funds, or has obtained commitment letters or "highly
confident" letters from responsible investors or financial institutions to
enable it to obtain such funds, as are needed to pay the Aggregate Purchase
Price, refinance the Senior Bank Debt and otherwise discharge its obligations
under this Agreement (collectively, the "Financing"), and (b) has no reason to
believe that any conditions to the Financing will not be satisfied or that the
Financing will not be available on a timely basis for the transactions
contemplated by this Agreement. Purchaser will maintain the Financing until the
Closing. Fully executed copies of all commitment letters and "highly confident"
letters relating to the Financing are attached as Schedule 5.7.
5.8 Brokers. Except as set forth on Schedule 5.8, no Person is or will
become entitled to receive any brokerage or finder's fee, financial advisory fee
or other similar payment for the transactions contemplated by this Agreement by
virtue of having been engaged by or acted on behalf of Purchaser. The fees and
commissions owed to any Person set forth on Schedule 5.8 will be paid by
Purchaser.
ARTICLE VI
COVENANTS OF THE SELLERS AND THE COMPANY
Each Seller and the Company covenants and agrees with Purchaser that,
at all times from the date hereof until the earlier of the Closing or the
termination of this Agreement in accordance with Article XI, it will comply, and
the Company will cause the other Buford Companies to comply, with all covenants
and provisions of this Article VI, except to the extent (i) Purchaser may
otherwise consent in writing (which consent will not be unreasonably withheld or
delayed), (ii) otherwise required by applicable Law, or (iii) otherwise required
or permitted by this Agreement.
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6.1 Consents. The Sellers and the Company will take, and the Company
will cause each of the other Buford Companies to take, all commercially
reasonable steps necessary or desirable, and proceed diligently and in good
faith and use commercially reasonable efforts, to obtain, as promptly as
practicable, all Consents required of the Sellers or the Buford Companies to
consummate the transactions contemplated hereby, which required Consents will be
in form and substance reasonably satisfactory to Purchaser; provided, however,
no Seller or Buford Company will have any obligation to amend, or cause to be
amended any System Franchise, Pole Attachment Agreement, Material Real Property
Lease or Material Contract, or to make, or cause to be made, any payment to
obtain any such required Consent. The Sellers and the Company will, and the
Company will cause the other Buford Companies to, (a) provide such information
and communications to such Persons providing such Consents as such Persons may
reasonably request and (b) upon request, cooperate with Purchaser in obtaining,
as promptly as practicable, all Consents required of Purchaser to consummate the
transactions contemplated hereby. Upon the request of Purchaser, the Sellers and
the Company will, and the Company will cause the other Buford Companies to,
cooperate with Purchaser and its consultants and advisors (at Purchaser's cost
and expense) in obtaining accountant's comfort letters, reviewing the Company
Financial Statements and Monthly Financial Statements and consummating the
Financing.
6.2 HSR Act Filings. The Company will (a) take all actions necessary to
make the filings required of it or its Affiliates under the HSR Act with respect
to the transactions contemplated by this Agreement within ten (10) Business Days
from the date of this Agreement, (b) comply with any request for additional
information received by the Company or its Affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the HSR Act, (c) cooperate with Purchaser in connection with Purchaser's filings
under the HSR Act, and (d) request early termination of the applicable waiting
period.
6.3 Licenses. The Company and the Sellers will take commercially
reasonable steps necessary or desirable, and proceed diligently and in good
faith, to complete and submit any application that may be required for the
consent and approval of the appropriate Governmental Authority to the transfer
of the ownership and operation of any Licenses to Purchaser.
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6.4 Access by Purchaser. The Company will provide, and will cause the
other Buford Companies to provide, Purchaser and its representatives and agents
with reasonable access, upon reasonable prior notice and during normal business
hours, to all facilities, officers, employees, agents, Assets, and books and
records of the Buford Companies as Purchaser or such representatives and agents
may reasonably request; provided, however, that Purchaser and its
representatives and agents will take all action deemed reasonably necessary by
the Company to schedule Purchaser's access through an officer of the Company
designated by the Company and in such a manner as to avoid disrupting the normal
business and operations of the Buford Companies.
6.5 Conduct of Business. Except as otherwise expressly permitted in
this Agreement, the Company will, and will cause the other Buford Companies to:
(a) conduct the Cable Business and operate the Systems only in
the ordinary course;
(b) use good faith efforts to preserve the Cable Business and
the Systems intact and to preserve the goodwill of the Cable Business
and Persons having material business relations with the Cable Business;
(c) continue to construct line extensions required by the
System Franchises in the ordinary course of business and make capital
expenditures to the Systems substantially in accordance with past
practice and the 1999 capital expenditure budget set forth on Schedule
6.5(c);
(d) keep all of its books, records and files in the ordinary
course of business consistent with past practice, and pay, consistent
with past practice, all of its accounts payable and other debts,
liabilities and obligations relating to the Cable Business and the
Systems;
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(e) continue to implement its procedures for connection,
disconnection and discontinuance of service of subscribers of the
Systems whose accounts are delinquent in accordance with past practice;
(f) not implement any extraordinary promotions or discounts
the terms of which are materially inconsistent with past practice;
(g) use good faith efforts not to permit a material amendment
or cancellation of any System Franchise, Pole Attachment Agreement,
Material Real Property Lease, Material Contract or License which would
be materially adverse to any Buford Company;
(h) report and write off accounts receivable of the Cable
Business in accordance with past practice;
(i) use good faith efforts to maintain the service quality of
the Cable Business at a level materially consistent with past practice;
(j) file with the FCC all reports with respect to the Cable
Business required to be filed under applicable FCC rules and
regulations and otherwise comply in all material respects with the FCC
Licenses and all other Laws;
(k) other than in the ordinary course of business, not enter
into any Contract the performance of which will not be completed by the
Closing Date and involving an expenditure in excess of $50,000; or
(l) knowingly take or omit to take any action that would cause
the Company to be in breach of any of its representations, warranties
or covenants in this Agreement.
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6.6 Monthly Financial Statements. Within thirty (30) days of the date
thereof, the Company will deliver to Purchaser true and complete copies of the
Company prepared unaudited consolidating and consolidated balance sheets of the
Company and its consolidated Subsidiaries as of the last day of each month
(beginning with April 30, 1999) and the related unaudited statements of
operation of the Company and its consolidated Subsidiaries for each month then
ended.
6.7 Bank Accounts. Within five (5) Business Days from the date of this
Agreement, the Company will provide Purchaser with a complete list of all names
and locations of all banks, trust companies, savings and loan associations and
other financial institutions at which any Buford Company maintains safe deposit
boxes, lock boxes or bank accounts, and the names of all persons authorized to
draw thereon, make withdrawals therefrom, or have access thereto.
6.8 Employee Listing. Within five (5) Business Days from the date of
this Agreement, the Company will provide Purchaser with a complete list of all
employees of the Buford Companies, including date of employment, current title
and compensation.
6.9 Lien and Judgment Searches. The Company will order, not more than
ten (10) Business Days after the date hereof, (a) lien searches 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 exists
tangible Assets, and in the state and county where the Company's principal
office is located, and (b) searches of the dockets of the clerk of each federal
and state court sitting in the city, county or other applicable political
subdivision where the principal office of each Buford Company is located, with
respect to judgments, orders, writs or decrees against or affecting any Buford
Company or any of the Assets. Promptly after receipt, the Company will deliver
the results of such searches, including copies of all financing statements or
similar notices or filings (and any continuation statements) discovered by such
search company, to Purchaser.
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6.10 No Amendments. The Sellers and the Company will cause each of the
Buford Companies to refrain from amending its charter or bylaws and from taking
any action with respect to any such amendment.
6.11 No Issuance of Securities. The Company will, and will cause each
of the other Buford Companies to, refrain from authorizing or issuing any shares
of such entity's capital stock or other equity securities or granting any
option, warrant, or right calling for the authorization or issuance of any such
shares.
6.12 No Dividends. The Company will, and will cause each of the other
Buford Companies to, refrain from declaring or paying any dividend or other
distribution in respect of its capital stock and from directly or indirectly
redeeming or purchasing any of its capital stock or any interest in or right to
acquire any such stock.
6.13 Notification and Supplements to Schedules. The Company will notify
Purchaser in writing, if after the date hereof the Company becomes aware of any
fact, event, condition or circumstance that causes any of the Sellers' or the
Company's representations or warranties in this Agreement to be inaccurate. The
Company may supplement the Schedules to this Agreement to account for any such
event or change. If the Company gives written notice to Purchaser of any
proposed supplement to the Schedules to this Agreement and Purchaser fails to
deliver a written objection to such proposed supplement within five (5) Business
Days of the Company's notice, Purchaser will be deemed to have consented to such
proposed supplement.
ARTICLE VII
COVENANTS OF PURCHASER
Purchaser covenants and agrees with the Company and the Sellers that,
at all times before the earlier of the Closing or the termination of this
Agreement in accordance with Article XI hereof, Purchaser will comply with all
covenants and provisions of this Article VII, except to the extent (i) the
Company may otherwise consent in writing (which consent will not be
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unreasonably withheld or delayed), (ii) otherwise required by applicable Law, or
(iii) otherwise required or permitted by this Agreement.
7.1 Deposit. To secure Purchaser's obligations under this Agreement,
within three (3) Business Days from the date of this Agreement, Purchaser will
deposit either (a) an irrevocable letter of credit payable for the amount of
$5,000,000 or (b) the amount of $5,000,000 in immediately available funds (the
"Deposit") into an escrow account pursuant to the Deposit Escrow Agreement.
7.2 Consents. Purchaser will take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith, to obtain, as
promptly as practicable, all Consents required of Purchaser to consummate the
transactions contemplated hereby, which required Consents will be in form and
substance reasonably satisfactory to the Company. Purchaser will (a) provide
such information and communications to such Persons providing such Consents as
such Persons may reasonably request, and (b) upon request, cooperate with the
Company in obtaining, as promptly as practicable, all Consents required of the
Company to consummate the transactions contemplated hereby, including, without
limitation, any required Consents related to the System Franchises; provided,
however, Purchaser will have no obligation to agree to any material and adverse
amendment to any System Franchise, Pole Attachment Agreement, Material Real
Property Lease or Material Contract, or to make any payment to obtain any such
required Consent.
7.3 HSR Act Filings. Purchaser will (a) take all actions necessary to
make the filings required of Purchaser or its Affiliates under the HSR Act with
respect to the transactions contemplated by this Agreement within ten (10)
Business Days from the date of this Agreement, (b) comply with any request for
additional information received by Purchaser or its Affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act, (c) cooperate with the Company in connection with the Company's
filings under the HSR Act, and (d) request early termination of the applicable
waiting period.
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7.4 Licenses. Purchaser will take commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith, to cooperate
with the Company and the Sellers, as they may request, to complete and submit
any application that may be required for the consent and approval of the
appropriate Governmental Authority to the transfer of the ownership and
operation of any License to Purchaser.
7.5 WARN Act. From and after the Closing Date, Purchaser may, but will
have no obligation to, cause the Buford Companies to maintain employment of
their current employees; provided, however, Purchaser will, and will cause the
Buford Companies to, comply with all applicable provisions of the WARN Act and
any similar state or local Law. Prior to the Closing Date, no Buford Company
will have any obligation or responsibility to comply with any such provisions,
and Purchaser will indemnify and hold the Sellers harmless with respect to any
claims incurred or arising under the WARN Act or similar state or local Laws
with respect to the Buford Companies or any of their employees.
7.6 Financing. Purchaser will, and will cause its Affiliates to, timely
and faithfully perform all obligations on their part to be performed under the
Financing and will restrain, and will cause its Affiliates to restrain, from
taking any action, or omitting to take any action, which would constitute or
result in a breach thereunder or otherwise result in termination thereof.
Purchaser will promptly deliver written notice to the Company of the occurrence
of any of the following: (a) the Financing is terminated, or any condition
precedent to the continued effectiveness thereof is not timely satisfied, or (b)
if Purchaser learns of facts or circumstances that would make it more likely
than not the Financing will be terminated, or a condition precedent to the
continued effectiveness thereof will not be timely satisfied.
7.7 Assistance and Information. After the Closing, and without further
consideration, Purchaser will, and will cause the Buford Companies to, make
available to the Sellers and their representatives all data and information
reasonably requested by the Sellers to assist the Sellers in their review of the
Closing Balance Sheet, the number of Basic Subscribers as of the Closing
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and the Purchase Price Adjustment Amount and Purchaser will, and will cause the
Buford Companies to, assist and cooperate fully with the Sellers in connection
therewith.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Purchaser).
8.1 Representations and Warranties. The representations and warranties
made by the Company and the Sellers in this Agreement and in the certificates
delivered by the Company and the Sellers pursuant to this Agreement shall be
true in all material respects as of the date hereof and shall be true in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date (except as to any representation or warranty that specifically
relates to an earlier date, in which case such representation or warranty shall
be true in all material respects as of such earlier date).
8.2 Performance. The Company and the Sellers shall have performed and
complied in all material respects with all agreements, covenants, obligations,
and conditions required by this Agreement to be so performed or complied with by
the Company and the Sellers at or before the Closing.
8.3 Officer's Certificates. Each of the Company and the Sellers shall
have delivered to Purchaser a certificate, dated the Closing Date, certifying as
to the fulfillment by such Person of the conditions (or portions thereof)
applicable to it set forth in Sections 8.1, 8.2, and 8.5.
8.4 No Injunction. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree, or similar order of any Governmental
Authority restraining,
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enjoining, or otherwise preventing consummation of any of the transactions
contemplated by this Agreement.
8.5 HSR Act and Required Consents. All waiting periods applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated, and all material required Consents set forth on
Schedule 8.5 shall have been obtained.
8.6 Legal Opinion. Purchaser shall have received an opinion from Hughes
& Luce, L.L.P., special counsel to the Sellers and the Company, in form and
substance reasonably satisfactory to Purchaser and its counsel, covering the
matters set forth in Exhibit E. Such opinion may be based upon certificates of
officers of the Buford Companies, the Sellers and Governmental Authorities and
upon opinions of local counsel to the extent customary.
8.7 FCC Legal Opinion. Purchaser shall have received an opinion from
Cole, Raywid & Braverman, FCC counsel to the Company, in form and substance
reasonably satisfactory to Purchaser and its counsel, covering the matters set
forth in Exhibit F. Such opinion may be based upon certificates of officers of
the Buford Companies, the Sellers and Governmental Authorities and upon opinions
of local counsel to the extent customary.
8.8 Indemnity Escrow Agreement. The Sellers and the escrow agent named
therein shall have executed and delivered to Purchaser the Indemnity Escrow
Agreement.
8.9 Noncompete Agreement. Each of G. Buford, R. Buford and Hooks shall
have executed and delivered to Purchaser the Noncompete Agreement.
8.10 Resignations. The Company will deliver signed resignations,
effective as of the Closing, from all officers and members of the Board of
Directors of each Buford Company as may be specified by Buyer in writing within
five (5) Business Days after the date of this Agreement.
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8.11 Financial Performance. As of the Closing Date, the Buford
Companies on a consolidated basis will have (a) no less than 169,000 Basic
Subscribers, (b) Annualized EBITDA of no less than $30,500,000, and (c)
Annualized Revenue of no less than $77,000,000.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE SELLERS
The obligations of the Sellers under this Agreement are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by the Company and the
Sellers).
9.1 Representations and Warranties. The representations and warranties
made by Purchaser in this Agreement and in the certificates delivered by
Purchaser pursuant to this Agreement shall be true in all material respects as
of the date hereof and shall be true in all material respects on and as of the
Closing Date as if made on and as of the Closing Date (except as to any
representation or warranty that specifically relates to an earlier date, in
which case such representation or warranty shall be true in all material
respects as of such earlier date).
9.2 Performance. Purchaser shall have performed and complied in all
material respects with all agreements, covenants, obligations, and conditions
required by this Agreement to be so performed or complied with by Purchaser at
or before the Closing.
9.3 Officer's Certificates. Purchaser shall have delivered to the
Sellers a certificate, dated the Closing Date, certifying as to the fulfillment
by Purchaser of the conditions set forth in Sections 9.1, 9.2 and 9.5 hereof.
9.4 No Injunction. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree, or similar order of any Governmental
Authority restraining,
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enjoining, or otherwise preventing consummation of any of the transactions
contemplated by this Agreement.
9.5 HSR Act and Required Consents. All waiting periods applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated, and all material required Consents set forth on
Schedule 8.5 shall have been obtained.
9.6 Legal Opinion. The Sellers and the Company shall have received an
opinion from Winstead, Sechrest & Minick, P.C., in form and substance reasonably
satisfactory to the Sellers and the Company and their counsel, covering the
matters set forth in Exhibit G. Such opinion may be based on certificates of
officers of Purchaser and Governmental Authorities and upon opinions of local
counsel to the extent customary.
9.7 Indemnity Escrow Agreement. Purchaser and the escrow agent named
therein shall have executed and delivered to the Sellers the Indemnity Escrow
Agreement.
9.8 Company Financing. At the Closing, Purchaser shall pay, or cause to
be paid, in full all of the Senior Bank Debt and shall obtain releases of the
security interest on the Shares held by the holders of the Senior Bank Debt.
ARTICLE X
INDEMNIFICATION AND SURVIVAL OF PROVISIONS
10.1 Indemnification by Sellers. Subject to the other provisions of
this Article X from and after the Closing, the Sellers, severally as to such
Seller alone and not jointly, will indemnify and hold Purchaser, its Affiliates
and its respective employees, representatives, officers, directors and agents
(the "Purchaser Parties") harmless from and against any and all Damages suffered
by any Purchaser Party arising out of:
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(a) the breach of any representation or warranty made by such
Seller in this Agreement or in any other Company Document required to
be executed and delivered by such Seller at the Closing pursuant to
this Agreement;
(b) the breach of any representation or warranty made by the
Company in this Agreement or in any other Company Document required to
be executed and delivered by the Company at the Closing pursuant to
this Agreement;
(c) the failure of such Seller to perform any covenant,
agreement or obligation by such Seller contained in this Agreement or
in any other Company Document at or prior to the Closing; and
(d) the failure of the Company to perform any covenant,
agreement or obligation by the Company contained in this Agreement or
in any other Company Document at or prior to the Closing.
10.2 Indemnification by Purchaser. Subject to the other provisions of
this Article X from and after the Closing, Purchaser will indemnify and hold the
Sellers and their respective employees, representatives, officers, directors and
agents (the "Seller Parties") harmless from and against any Damages suffered by
any Seller Party arising out of:
(a) the breach of any representation or warranty made by
Purchaser in this Agreement or in any other Purchaser Document required
to be executed and delivered by Purchaser at the Closing pursuant to
this Agreement; and
(b) the failure of Purchaser to perform any covenant,
agreement or obligation by Purchaser contained in this Agreement or in
any other Purchaser Document at or prior to Closing.
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10.3 Notice and Resolution of Claims.
(a) After obtaining knowledge of any claim that it may have
pursuant to this Article X, any Purchaser Party entitled to
indemnification pursuant to this Article X will promptly give written
notice to the Sellers, and any Seller Party entitled to indemnification
pursuant to this Article X will promptly give written notice to
Purchaser. Such notice will set forth in reasonable detail the claim
and the basis for indemnification.
(b) If such claim for indemnity arises from a claim or Action
involving a third party (a "Third-Party Claim"), the Indemnified Party
will permit the Indemnifying Party to assume its defense. If the
Indemnifying Party assumes the defense of such Third-Party Claim, it
will take all steps necessary to investigate, defend or settle such
Action and will, subject to Section 10.4, hold the Indemnified Party
harmless from and against any and all Damages caused by or arising out
of any settlement approved by the Indemnifying Party or any judgment in
connection with such Third-Party Claim. Without the written consent of
the Indemnified Party, the Indemnifying Party will not consent to entry
of any judgment or enter into any settlement that does not include an
unconditional and complete release of the Indemnified Party by the
claimant or plaintiff making the Third-Party Claim. The Indemnified
Party may participate in such defense or settlement through its own
counsel, but at its own expense. Failure by the Indemnifying Party to
notify the Indemnified Party of its election to assume the defense of
any Third-Party Claim within thirty (30) days after its receipt of
notice thereof pursuant to Section 10.3(a) will be deemed a waiver by
the Indemnifying Party of its right to assume the defense of such
Third-Party Claim. In such event, the Indemnified Party may defend, at
the expense of the Indemnifying Party, against such Third-Party Claim
in any manner it deems appropriate and may settle such Third-Party
Claim or consent to the entry of any judgment with respect thereto,
provided that it acts reasonably and in good faith.
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10.4 Limits on Indemnification. Notwithstanding any other provisions in
this Agreement to the contrary:
(a) The Sellers will be liable to the Purchaser Parties for
Damages that are indemnifiable pursuant to Section 10.1 only to the
extent and in the amount that the aggregate amount of Damages that are
indemnifiable pursuant to Section 10.1 to all Purchaser Parties exceeds
$500,000, except for Damages otherwise covered by Section 10.4(d). The
Purchaser and as applicable, the Company, will be liable to the Seller
Parties for Damages that are indemnifiable pursuant to Section 10.2
only to the extent and in the amount that the aggregate amount of
Damages that are indemnifiable pursuant to Section 10.2 to all Seller
Parties exceeds $500,000.
(b) The total aggregate liability of the Sellers for all
claims for Damages that may arise under Section 10.1, excluding Damages
otherwise covered by Section 10.4(d), will not exceed $15,000,000. The
total aggregate liability of Purchaser for all claims for Damages that
may arise under Section 10.2 will not exceed $15,000,000.
(c) No Seller will have any liability for Damages under any
circumstances for any claim with respect to this Agreement in an
aggregate amount in excess of the portion of the Aggregate Purchase
Price received by such Seller in cash, except for Damages otherwise
covered by Section 10.4(d).
(d) The Individual Sellers (but not the Corporate Sellers)
will be liable to the Purchaser Parties for all Damages that arise from
a breach of Section 3.7, and the limitations set forth in Section
10.4(a), Section 10.4(b) and Section 10.4(c) will not be applicable to
any such claim against the Individual Sellers for Damages arising from
a breach of Section 3.7.
(e) Each Seller will have liability only for Damages for any
claim arising under Section 10.1(b) or 10.1(d) equal to its Pro Rata
Share of such Damages. Each
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Seller will have liability only for Damages for any claim arising under
Section 10.1(a) or 10.1(c) resulting from the breach or failure
committed either directly or indirectly by such Seller.
(f) No Party will have any obligation to indemnify any Seller
Party or Purchaser Party for (a) any Consequential Damages or (b) any
other Damages that are (i) recovered by the Indemnified Party from any
third party (including insurers, but net of premium increases) or (ii)
offset by Tax savings realized on account of such Damages by the
Indemnified Party or any of its Affiliates.
(g) Except for claims arising as a result of fraud or other
intentional misconduct, the indemnification provisions of this Article
X sets forth the exclusive remedy under this Agreement for Damages
owing from Sellers to the Purchaser Parties and from Purchaser to the
Seller Parties. Each of the Parties hereby waives, to the fullest
extent it may lawfully do so, any other rights, causes of action, or
remedies or Damages that it might assert against the other in
connection with this Agreement and the transaction contemplated hereby,
whether under statutory or common Law, any Environmental Law, or
securities, trade regulation, or other Law.
10.5 Indemnity Payments. All payments made pursuant to this Article X
(other than interest payments) will be treated by the Parties on all Tax Returns
as an adjustment to the Aggregate Purchase Price.
10.6 Payment.
(a) Upon final determination by the Parties, an arbitrator or
a court of competent jurisdiction that a Party is entitled to
indemnification under this Article X, subject to clause (b) below, the
Indemnifying Party will promptly pay or reimburse, as appropriate, the
Indemnified Party for any Damages to which it is entitled to be
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indemnified hereunder. Neither Party will permit any exercise of any
right of set-off against the other Party until such final determination
is made.
(b) Any payment owing by the Sellers to any Purchaser Party
for Damages may be made from the funds held in escrow pursuant to the
Indemnity Escrow Agreement in accordance with the terms and conditions
thereof. On the sixth month anniversary of the Closing Date, an amount
equal to fifty percent (50%) of the balance of the funds held in escrow
on such date pursuant to the Indemnity Escrow Agreement shall be
distributed to the Sellers (each receiving its Pro Rata Share of such
distribution), and on the Release Date, the remaining portion of such
escrowed funds shall be distributed to the Sellers (each receiving its
Pro Rata Share of such distribution). Notwithstanding the foregoing, in
the event there is one or more claims for indemnification against the
Sellers pursuant to this Article X which is outstanding or has not been
finally settled or resolved (each such claim an "Unresolved Claim") on
the sixth month anniversary of the Closing Date or the Release Date, as
applicable, an amount equal to the amount of such Unresolved Claims
shall remain in escrow pursuant to the Indemnity Escrow Agreement;
provided, however, that any amounts withheld with respect to Unresolved
Claims that are not applied to such Unresolved Claims shall immediately
upon resolution thereof, be disbursed to the Sellers.
10.7 Other Indemnitees. Purchaser will cause the Purchaser Parties, and
the Sellers will cause the Seller Parties, to comply with the provisions and to
abide by the limitations set forth in this Article X.
10.8 Survival. The covenants and agreements of the Parties set forth in
this Agreement that require performance after the Closing will survive the
Closing and will remain in effect until performed or expressly waived in
writing. All representations and warranties made herein or in any certificates
provided for herein will expire and be of no further force and effect after the
Release Date; provided, however, the foregoing survival limitation will not
apply to the representations and warranties set forth in Sections 4.20 and 4.23
which will survive until sixty (60) days after the expiration of the applicable
statute of limitations (including any extensions).
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The Parties acknowledge that this contractual term of limitations is reasonable
and necessary to provide conclusion to the Parties' obligations under this
Agreement.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) by mutual written consent of the Sellers and Purchaser;
(b) by Purchaser if (i) the conditions to Purchaser's
obligation to close set forth in Article VIII have not been met by the
Company and the Sellers, or waived by Purchaser, on or before July 31,
1999, and (ii) the failure of such conditions to be met is not the
result of a material breach of any provision of this Agreement by
Purchaser; provided, that, in such instance, Purchaser may, in its sole
and absolute discretion, extend such date to a later date, but in no
event later than September 30, 1999;
(c) by the Sellers if (i) the conditions to the Sellers'
obligation to close set forth in Article IX have not been met by
Purchaser, or waived by the Sellers, on or before July 31, 1999, and
(ii) the failure of such conditions to be met is not the result of a
material breach of any provision of this Agreement by the Company or
the Sellers; provided, that, in such instance, the Sellers may, in
their sole and absolute discretion, extend such date to a later date
but in no event later than September 30, 1999;
(d) by the Sellers at any time after Purchaser breaches its
covenant set forth in Section 7.1; or
(e) by either Purchaser or the Sellers if the Closing has not
occurred before October 1, 1999.
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11.2 Effect of Termination.
(a) If this Agreement is validly terminated pursuant to
Section 11.1 by Purchaser or the Sellers, as applicable, giving notice
thereof to the other Parties, this Agreement will forthwith become null
and void, except that the provisions of this Section 11.2 and Sections
12.2, 12.5, 12.6, 12.7 and 12.14 will continue to apply following any
such termination and except as provided in Section 11.2(b), no Party
will be relieved of any liability for Damages that such Party may have
to any other Party hereto by reason of such Party's breach of this
Agreement (or any representation, warranty, covenant, or agreement
included in this Agreement).
(b) If this Agreement is validly terminated by the Sellers in
accordance with Section 11.1(c) or Section 11.1(d), the Sellers shall
be entitled to the Deposit as liquidated Damages and their sole and
exclusive remedy for breach of this Agreement by Purchaser, other than
for any willful breach by Purchaser. Purchaser shall be entitled to the
Deposit if this Agreement is validly terminated in accordance with
Section 11.1(a), 11.1(b) or 11.1(e).
ARTICLE XII
MISCELLANEOUS
12.1 Tax. The Company and the Sellers will properly prepare, or cause
to be properly prepared, and file or cause to be filed, all Tax Returns of or
which include the Partnership, the Company or any other Buford Company required
to be filed on or prior to the Closing Date (determined with regard to
extensions). Purchaser will be responsible for preparing and filing all Tax
Returns required to be filed by or on behalf of the Company and the other Buford
Companies after the Closing Date.
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12.2 Sellers Committee.
(a) The Sellers Committee will become effective as of the
Closing Date and will continue in existence until all of its duties
under this Agreement are discharged. The Sellers Committee will have
full and irrevocable power and authority to act for and in the name of
and as agent for the Sellers after the Closing to do the following: (a)
accept and give notices and other communications relating to this
Agreement and the other Company Documents; (b) execute any instrument
or document that the Sellers Committee determines is necessary or
desirable in the exercise of its authority under this Agreement; (c)
act on behalf of the Sellers in connection with all matters relating to
this Agreement and the other Company Documents and the transactions
contemplated hereby and thereby; and (d) make claims for indemnity on
behalf of any Sellers and make any determinations and exercise any
powers of an Indemnifying Party or Indemnified Party on behalf of the
Sellers.
(b) The Sellers Committee may rely on any document believed by
it to be genuine and to have been signed or presented by the proper
Person. The Sellers Committee need not investigate any fact or matter
stated in such document. The Sellers Committee may act through its
attorneys and agents and will not be responsible for the misconduct or
negligence of any agent appointed with due care. The Sellers Committee
and its members will not be liable for any action they take or omit to
take in good faith that they believe to be authorized or within their
rights or powers. The Sellers Committee may consult with counsel and
the advice or opinion of such counsel as to matters of law will be sole
and complete authorization and protection in respect of any action
taken, omitted, or suffered by it under this Agreement or under any
other Company Documents in good faith and in accordance with the advice
or opinion of such counsel.
(c) At any meetings of the Sellers Committee, two members will
constitute a quorum. Any action to be taken by the Sellers Committee
may be taken by a majority of its members present at a meeting of the
Sellers Committee (a quorum being present)
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including any meeting held by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other, or by written consents of all members
of the Sellers Committee.
(d) If a member of the Sellers Committee resigns, dies or
becomes incapacitated, the remaining members of the Sellers Committee
will appoint a successor member, notwithstanding the absence of a
quorum.
12.3 Notices. Any notice or other communication given pursuant to this
Agreement must be in writing and delivered personally, sent by telefacsimile or
other similar facsimile transmission, delivered by overnight express, or sent by
registered or certified mail, postage prepaid, as follows:
(a) If to the Company:
Buford Group, Inc.
6125 Paluxy Road
Building B
Tyler, Texas 75703
Attention: Kay Monigold
Facsimile number: (903) 561-4031
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
Facsimile number: (214) 939-6100
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(b) If to the Sellers or the Sellers Committee:
6125 Paluxy Road
Building B
Tyler, Texas 75703
Attention: Kay Monigold
Facsimile number: (903) 561-4031
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Alan J. Bogdanow
Facsimile number: (214) 939-6100
(c) If to Purchaser:
Classic Cable, Inc.
515 Congress Avenue
Austin, Texas 78701
Attention: J. Merritt Belisle
Facsimile number: (512) 476-5204
with a copy to:
Winstead Sechrest & Minick, P.C.
100 Congress Avenue, 8th Floor
Austin, Texas 78701
Attention: Timothy E. Young, Esquire
Facsimile number: (512) 370-2850
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 12.3 will (i) if delivered
personally or by overnight express, be deemed given upon delivery; (ii) if
delivered by telefacsimile or similar facsimile transmission, be deemed given
when electronically confirmed; and (iii) if sent by registered or certified
mail, be deemed given when received. Any party from time to time may change its
address for the purpose of notices to that party by giving a similar notice
specifying a new address, but no such notice will be deemed to have been given
until it is actually received by the party sought to be charged with the
contents thereof.
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12.4 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
12.5 Expenses. Purchaser, on one hand, and the Sellers, on the other
hand, will each be responsible for and pay one-half of (i) all sales, transfer,
deed, duties, stamp, notary public and other similar Taxes and fees applicable
to the transactions contemplated by this Agreement, (ii) the filing fee required
by the HSR Act, and (iii) the cost and expense of the lien and judgment searches
described in Section 6.8. Except as otherwise expressly provided in this
Agreement, the Sellers will pay their own costs and expenses and the Company's
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, and Purchaser will pay its own costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
12.6 Public Announcements. At all times at or before the Closing, the
Company and the Sellers, on one hand, and Purchaser, on the other hand, will
each consult with the other before issuing or making any reports, statements, or
releases to the public with respect to this Agreement or the transactions
contemplated hereby and will use good faith efforts to agree on the text of a
joint public report, statement, or release and will obtain the other Party's
approval of the text of any public report, statement or release to be made
solely on behalf of a Party, which approval will not be unreasonably withheld or
delayed. If the Company and Purchaser are unable to agree on or approve any such
public report, statement, or release and such report, statement, or release is,
in the opinion of legal counsel to a Party, required by Law to discharge such
Party's disclosure obligations, then such Party may make or issue the legally
required report, statement, or release, to the required recipient.
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12.7 Confidentiality.
(a) From the date hereof until the third anniversary of the
later to occur of the Closing Date or the termination of this Agreement
pursuant to Article XI hereof, each of Purchaser, the Company, and the
Sellers will refrain, and will cause its respective officers,
directors, employees, agents, and other representatives to refrain,
from disclosing to any other Person any confidential documents or
confidential information concerning any other party hereto acquired by
it in connection with this Agreement or concerning the transactions
contemplated hereby unless (i) such disclosure is compelled by judicial
or administrative process or by other requirements of Law (including,
without limitation, in connection with obtaining necessary insurance
regulatory approvals) and notice of such disclosure is furnished to
such other party hereto; (ii) any party hereto deems it advisable (upon
advice of such party's legal counsel) to disclose any such documents or
information in connection with the requirements of any securities Law;
or (iii) such documents or information can be shown to have been (A)
previously available to the party hereto receiving such documents or
information on a non-confidential basis, provided that the source of
such information was not known by such party, after reasonable
investigation, to be bound by any obligation of confidentiality to the
Company with respect to such material, (B) generally available to the
public through no fault of such receiving party, or (C) later acquired
by such receiving party on a non-confidential basis, provided that the
source of such information was not known by such party, after
reasonable investigation, to be bound by any obligation of
confidentiality to the Company with respect to such material.
(b) The parties hereto acknowledge and agree that (i) a breach
of any of the terms or provisions of this Section 12.7 would cause
irreparable damage to the non-breaching party for which adequate remedy
at Law is not available; and (ii) the non-breaching party will be
entitled as a matter of right to obtain, without posting any bond
whatsoever, an injunction, restraining order, or other equitable relief
to restrain any threatened or further breach of this Section 12.7,
which right will not be exclusive but
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will be cumulative and in addition to any other rights and remedies
available at Law or in equity.
12.8 No Negotiation. Until such time, if any, that this Agreement is
terminated in accordance with Section 11.1, the Sellers and the Company will not
directly or indirectly solicit, initiate or encourage proposals or conduct
negotiations relating to any transaction concerning the sale of the Securities
or any similar transaction.
12.9 Amendments. This Agreement hall not be modified except by written
instrument signed by duly authorized representatives of each Party.
12.10 Assignment. No Party may assign any of its rights under this
Agreement without the prior consent of the other Parties, which consent will not
be unreasonably withheld or delayed. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respect upon, and inure to the
benefit of the successors and permitted assigns of the Parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the Parties any legal or equitable right, remedy, or claim under or
with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the Parties and their successors and assigns.
12.11 Further Assurances. Each Party agrees that upon the reasonable
request of any other Party it will use good faith efforts (a) to furnish such
further information, (b) to execute and deliver such other documents, and (c) to
perform such other acts, for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
12.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY
CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REQUIRE THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION.
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12.13 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
12.14 Dispute Resolution.
(a) In the event that a Party believes a controversy, claim or
dispute has arisen out of or relates to this Agreement, or the
performance, breach, validity, interpretation or enforcement of this
Agreement (other than pursuant to Section 2.3(e)), it will notify the
other Parties in accordance with Section 12.3 and provide reasonable
detail as to the reasons for such determination. After such notice has
been given, the appropriate Parties will meet and negotiate in good
faith to resolve the dispute. No arbitration for the resolution of the
dispute may be commenced until the earlier of (i) twenty (20) days
following the date upon which such notice has been given, and (ii) the
appropriate Parties conclude in good faith that amicable resolution of
the dispute through continued negotiation does not appear likely.
(b) To the extent that the Parties are unable to resolve their
disputes or controversies arising out of or relating to this Agreement,
or the performance, breach, validity, interpretation or enforcement of
this Agreement, through discussion and negotiation, all such disputes
and controversies will be resolved by binding arbitration in accordance
with Title 9 of the United States Code (the Federal Arbitration Act)
and the Commercial Arbitration Rules of the America Arbitration
Association (the "AAA"), and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
After such time that arbitration may be commenced in accordance with
clause (a) above, a Party may initiate arbitration by sending written
notice of its intention to arbitrate to the other Parties and to the
AAA office located in Dallas, Texas. Such written notice will contain a
description of the dispute and the remedy sought. The
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<PAGE> 66
arbitration will be conducted at the offices of the AAA in Dallas,
Texas before a panel of three (3) arbitrators, with each Party
selecting one (1) arbitrator and the third arbitrator being jointly
selected by the Parties. In the event the Parties have not mutually
agreed on an acceptable third arbitrator within thirty (30) days after
the demand for arbitration is filed, the third arbitrator shall be
appointed in the manner provided by Section 13 of the Commercial
Arbitration Rules of the AAA. The decision of the arbitrators will be
final and binding on the Parties and their successors and assignees.
The Parties intend that this agreement to arbitrate be irrevocable.
(c) The Parties shall use their commercially reasonable
efforts to cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable, including
but not limited to, providing such documents and making available such
of their personnel as the arbitrators may request, so that the decision
may be reached timely. The arbitrators shall take into account the
Parties' stated goal of expedited proceedings in determining whether to
authorize discovery and, if so, the scope of permissible discovery and
other hearing and pre-hearing procedures. Each of the Parties agrees to
submit to the jurisdiction of the arbitrators.
(d) Notwithstanding the foregoing, in advance of the
institution of any arbitration proceeding, but in aid thereof, an
application may be filed for order or orders to be entered by any court
of competent jurisdiction (i) invoking the jurisdiction of the court
over the controversy in rem, by attachment, garnishment, sequestration,
or (ii) seeking to restrain or enjoin the destruction of the subject
matter of the controversy or any essential part thereof, or the
destruction or alteration of books, records, documents, or evidence
needed for the arbitration proceeding. No such judicial proceeding by a
Party shall be deemed a waiver of the Party's right to arbitrate.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
PURCHASER:
CLASSIC CABLE, INC.
By: /s/ J. Merritt Belisle
------------------------------
Name: J. Merritt Belisle
Title: Chief Executive Officer
COMPANY:
BUFORD GROUP, INC.
By: /s/ Robert P. Buford
------------------------------
Name: Robert P. Buford
Title: President
SELLERS:
/s/ Geoffrey R. Buford
---------------------------------
Geoffrey R. Buford
/s/ Robert P. Buford
---------------------------------
Robert P. Buford
/s/ Bennett W. Hooks, Jr.
---------------------------------
Bennett W. Hooks, Jr.
/s/ Ronald W. Martin
---------------------------------
Ronald W. Martin
/s/ Thomas M. Seale, III
---------------------------------
Thomas M. Seale, III
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/s/ Elizabeth Kay Monigold
---------------------------------
Elizabeth Kay Monigold
COMMUNITIES FOUNDATION
OF TEXAS, INC.
By: /s/ Edward M. Fjordbak
------------------------------
Name: Edward M. Fjordbak
Title: President
LEADERSHIP NETWORK, INC.
By: /s/ Robert P. Buford
------------------------------
Name: Robert P. Buford
Title: President
BUFORD FOUNDATION, INC.
By: /s/ Robert P. Buford
------------------------------
Name: Robert P. Buford
Title: President
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SPOUSES' CONSENT
Linda Buford, the spouse of Robert P. Buford has reviewed this
Agreement and agrees that her community interest, if any, in the Shares and the
Partnership Interests held by Robert P. Buford shall be bound by the terms
hereof.
/s/ Linda Buford
---------------------------------
Linda Buford
Pamela G. Martin, the spouse of Ronald W. Martin has reviewed this
Agreement and agrees that her community interest, if any, in the Partnership
Interests held by Ronald W. Martin shall be bound by the terms hereof.
/s/ Pamela G. Martin
---------------------------------
Pamela G. Martin
Connie C. Seale, the spouse of Thomas M. Seale, III has reviewed this
Agreement and agrees that her community interest, if any, in the Partnership
Interests held by Thomas M. Seale, III shall be bound by the terms hereof.
/s/ Connie C. Seale
---------------------------------
Connie C. Seale
Phillip B. Monigold, the spouse of Elizabeth Kay Monigold has reviewed
this Agreement and agrees that his community interest, if any, in the
Partnership Interests held by Elizabeth Kay Monigold shall be bound by the terms
hereof.
/s/ Phillip B. Monigold
---------------------------------
Phillip B. Monigold
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EXHIBIT A
DEFINITIONS
The capitalized terms used in this Agreement will have the following
meanings:
"Action" shall mean any action, suit, arbitration, inquiry, proceeding
or investigation by or before any Governmental Authority or arbitrator.
"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with the Person specified.
"Aggregate Purchase Price" shall have the meaning given such term in
Section 2.2 of this Agreement.
"Agreement" shall mean this Securities Purchase Agreement, together
with the Exhibits and Schedules attached hereto.
"Annualized EBITDA" shall mean at any date of determination, the sum of
(a) net income derived from Annualized Revenue, plus (b) interest expense
deducted in arriving at such net income, plus (c) federal, state and local
income taxes deducted in arriving at such net income, plus (d) depreciation,
amortization and other non-cash charges deducted in arriving at such net income,
plus (e) transaction expenses associated with the sale of the Buford Companies,
as computed and calculated in accordance with GAAP and on a basis consistent
with the Company Financial Statements.
"Annualized Revenue" shall mean at any date of determination, the
product of (a) all income of the Buford Companies on a consolidated basis for
the three (3) most recent consecutive completed months derived from: (i) the
delivery of analog and digital video programming to subscribers and other end
users, including basic, premium, pay-per-view and audio services; (ii) the
installation and connection of service; (iii) the assessment of late fees
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and other administrative charges; (iv) the sale of advertising and leased
access; (v) the rental of tower space; (vi) the provision of Internet access and
other data services; (vii) shopping and other programming network commissions,
but excluding programming network launch and other marketing support; (viii) the
sale, rental or lease of equipment, and (ix) franchise fees and guides, times
(b) four (4).
"Assets" shall mean all assets or properties of every kind, nature,
character, and description, including all tangible, intangible, personal, real
or mixed, of the Buford Companies.
"Basic Subscriber" shall mean as of any date of determination, without
duplication, the sum of all of the following which are receiving basic cable
television service provided by the Systems: (a) private residential customer
accounts that are billed by individual unit, regardless of whether such accounts
are in single family homes or in individually billed units in apartment houses
and other multi-unit buildings, (excluding Nonstandard Charges) each of which
shall be counted as one "Basic Subscriber"; and (b) all commercial, bulk-billed
and other accounts not billed by individual unit, such as correctional
facilities, hotels, motels, apartment houses and multi-family homes; provided,
that, the number of "Basic Subscribers" serviced by each such account shall be
deemed to be an amount equal to the quotient of (x) the aggregate monthly basic
cable television service revenue and expanded basic cable television service
revenue (without duplication) derived by the Systems from such accounts
(excluding any Nonstandard Charges), in each case for the last calendar month
preceding the date of such determination, divided by (y) the sum of the Basic
Subscriber Rate and the Expanded Basic Rate (without duplication) in each case
in effect on the date of such determination. Notwithstanding the foregoing, the
term "Basic Subscriber" will not include any commercial, residential or other
subscriber (i) who has not paid all billed deposit and installation charges (due
in connection with such subscriber's obtaining basic television services from a
System) and the full non-discounted Basic Subscriber Rate for such System for at
least one (1) full month, (ii) whose account as of the Closing Date is more than
two (2) months past due from the date on which any part of such account was
first due (unless, if more than two (2) months past due, the excess amount so
past due is no more than $10.00 (excluding late charges)), (iii) whose service
is pending disconnection for any reason, or
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(iv) who comes within the definition of Basic Subscriber because its account (or
any part thereof) has been compromised or written off other than in the ordinary
course of business consistent with past practices for reasons such as service
interruptions and waiver of late charges.
"Basic Subscriber Rate" shall mean the aggregate monthly fees and
charges for the provision of basic cable television services provided by the
Systems and excluding any Nonstandard Charges, copyright fees, franchise fees
and regulatory fees charged to customers served by the Systems, as of the end of
the last full month prior to the date of determination.
"Buford Companies" shall mean collectively, the Company, Friendship
Cable of Texas, Inc., Buford Television, Inc., Correctional Cable TV, Inc.,
Friendship Cable of Arkansas, Inc. and Callcom 24, Inc., each a Texas
corporation, and Buford Television, Inc. of Ft. Smith, an Arkansas corporation.
"Buford Foundation" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which banking institutions in New York, New York or Tyler, Texas
shall be permitted or required by Law or executive order to be closed.
"Cable Business" shall mean the cable television business and other
income-generating business conducted by the Buford Companies through the
Systems.
"Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 2.3 hereof.
"Closing Balance Sheet" shall have the meaning given such term in
Section 2.3(b).
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"Closing Date" shall mean July 31, 1999, or such later date as extended
by Purchaser or the Stockholders in accordance with Section 11.1, but in no
event later than September 30, 1999, unless the Parties otherwise agree in
writing.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Communications Act" shall mean the Communications Act of 1934, as
amended, including, but not limited to, by the Cable Communications Policy Act
of 1984, the Cable Television Consumer Protection and Competition Act of 1992
and the Telecommunications Act of 1996, and the rules and regulations of the FCC
promulgated thereunder.
"Communities Foundation" shall have the meaning given such term in the
introductory paragraph to this Agreement.
"Company" shall have the meaning given such term in the introductory
paragraph to this Agreement.
"Company Common Stock" shall mean the meaning given such term in the
Preliminary Statements to this Agreement.
"Company Documents" shall mean this Agreement, the Indemnity Escrow
Agreement, the Noncompete Agreement and any other agreement, document or
instrument executed and delivered by the Company or any Seller on the Closing
Date in connection with the consummation of the transactions contemplated by
this Agreement.
"Company Financial Statements" shall mean the financial statements and
related documents described in subsections (a) of Section 4.6.
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"Company Material Adverse Effect" shall mean any change or effect that
could reasonably be expected to be materially adverse to the conduct of the
Cable Business, the operation of the Systems, or the financial condition of the
Buford Companies taken, as a whole.
"Consent" shall mean a consent, approval, authorization, waiver,
clearance from or notification to any Person, including any Governmental
Authority.
"Consequential Damages" shall mean Damages arising out of any
interruption of business, loss of profits, loss of use of facilities, claims of
customers, loss of goodwill or other indirect Damages.
"Contract" shall mean any written agreement, lease, sublease,
promissory note, evidence of indebtedness, or other contract.
"Copyright Act" shall mean Section III of Title 17 of U.S. Code, as
amended, and all rules and regulations promulgated thereunder, as amended.
"Corporate Seller" shall mean each Seller that is a corporation.
"Damages" shall mean any and all monetary damages, liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses, costs, and expenses
(including, without limitation, reasonable fees and expenses of attorneys,
accountants, actuaries, and other experts).
"Deposit" shall have the meaning given such term in Section 7.1.
"Deposit Escrow Agreement" shall mean the Deposit Escrow Agreement
substantially in the form of Exhibit C to this Agreement.
"Employee Benefit Plans" shall mean "employee benefit plans" as defined
in Section 3(3) of ERISA, stock bonus, stock ownership, stock option, stock
purchase, stock appreciation rights,
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phantom stock, and other stock plans (whether qualified or nonqualified), and
all other pension, welfare, severance, retirement, deferred compensation, group
insurance, profit sharing, life, health, disability, accident (including,
without limitation, any "voluntary employees' beneficiary association" as
defined in Code section 501(c)(9) providing for the same or other benefits),
thrift, day care, legal services, leave of absence, layoff, and supplemental or
excess benefit plans, in each case existing on or before the Closing Date which
any of the Buford Companies maintains or sponsors and which cover some or all of
the present or former officers, directors, employees, agents, consultants, or
other similar representatives providing services to or for any of the Buford
Companies; provided, however, that such term shall not include (a) routine
employment policies and procedures developed and applied in the ordinary course
of business, including without limitation sick leave, vacation, and holiday
policies, and (b) directors and officers liability insurance.
"Environmental Law" shall mean the Federal Water Pollution Control Act,
the Clean Air Act, the Toxic Substances Control Act, the Solid Waste Disposal
Act, the Comprehensive Environmental Response Compensation and Liability Act of
1980, the Emergency Planning and Community Right-To-Know Act and the Safe
Drinking Water Act, and the rules and regulations thereunder promulgated in
final form prior to the date hereof as interpreted in accordance with public
announcements made prior to the date hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended (including, without limitation, any successor act), and the rules and
regulations promulgated thereunder.
"Expanded Basic Rate" shall mean as of any date of determination, the
monthly fees and charges for the provision of "expanded basic service" (as such
term is customarily used in the cable television industry) and excluding any
Nonstandard Charges, copyright fees, franchise fees and regulatory fees charged
to customers served by the Systems, as of the end of the last full month.
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"FCC" shall mean the Federal Communications Commission, or any
successor agency.
"Financing" shall have the meaning given such term in Section 5.7.
"G. Buford" shall have the meaning given such term in the introductory
paragraph to this Agreement.
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"Governmental Authority" shall mean any federal, state or local
government, any of its subdivisions, agencies, authorities, commissions, boards
or bureaus, any federal, state or local court or tribunal and any arbitrator.
"Hazardous Substance" shall mean any substance listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law. Hazardous Substance includes
any substance to which exposure is regulated by any Governmental Authority or
any Environmental Law, including without limitation any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or petroleum or any derivative or by-product
thereof, radon, radioactive material, asbestos or asbestos containing material.
"Hooks" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"HSR Act" shall mean Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Acts of 1976), as amended (including,
without limitation, any successor act), and the rules and regulations
promulgated thereunder.
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"Indemnified Party" means each Person entitled to indemnification
pursuant to Article X.
"Indemnifying Party" means each Person who has a duty of
indemnification pursuant to Article X.
"Indemnity Escrow Agreement" shall mean the Indemnity Escrow Agreement
substantially in the form of Exhibit B to this Agreement.
"Individual Seller" shall mean each Seller who is a natural person.
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" shall mean, with respect to any entity, actual knowledge of
any of the executive officers or directors of the entity specified.
"Law" shall mean all laws, statutes, ordinances, codes, regulations,
orders, technical or other written standard, writs, rulings, judgments,
directives, injunctions and decrees of any executive office, legislature or
Governmental Authority.
"Leadership Network" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"Licenses" shall mean any license, sublicense, permit, authorization or
registration obtained from any Governmental Authority in connection with the
operation of a Person's business, excluding authorizations for franchises.
"Lien" shall mean any mortgage, pledge, assessment, security interest,
lien, levy, charge, or other encumbrance of any kind, or any conditional sales
Contract, title retention Contract, or other Contract to give any of the
foregoing.
G-8
<PAGE> 78
"March Balance Sheet" shall mean the balance sheet of the Buford
Companies dated as of March 31, 1999 that is included in the Company Financial
Statements.
"Martin" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"Material Contracts" shall have the meaning given such term in Section
4.13(a).
"Material Leases" shall mean any lease or sublease of real or personal
property of any Buford Company involving a term of more than 12 months and
rental obligations exceeding $12,000 per year.
"Material Real Property Leases" shall have the meaning given such term
in Section 4.12(a).
"Monigold" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"Monthly Financial Statements" shall mean the financial statements
described in Section 6.6.
"Noncompete Agreement" shall mean the Noncompete Agreement
substantially in the form of Exhibit D to this Agreement.
"Nonstandard Charges" shall mean any charges for Taxes, second
connects, additional outlets, installation fees, deposits and other
non-recurring items and any charges for the rental of converters, remote control
devices and other live charges for equipment.
"Partnership" shall have the meaning given such term in the Preliminary
Statements.
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<PAGE> 79
"Partnership Interests" shall have the meaning given such term in the
Preliminary Statements.
"Party" shall mean each of Purchaser, the Company and each Seller.
"Permitted Lien" shall mean any (a) mechanic's carrier's, workmen's,
repairmen's, or other similar Lien arising or incurred in the ordinary course of
business, (b) Liens for Taxes, assessments, and other governmental charges that
are not due and payable or that may hereafter be paid without penalty or that
are being contested in good faith, (c) zoning laws and ordinances and similar
legal requirements, (d) rights reserved to any Governmental Authority to
regulate the affected property and (e) easements, rights-of-way, and other
imperfections of title or other encumbrances that do not individually or in the
aggregate have a Company Material Adverse Effect.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, trust, union, association,
court, tribunal, agency, government, department, commission, self-regulatory
organization arbitrator, board, bureau, instrumentality, or other entity,
enterprise, authority, or business organization.
"Pole Attachment Agreements" shall have the meaning given such term in
Section 4.11(a).
"Preliminary Purchase Price Adjustment Amount" shall have the meaning
given such term in Section 2.3(c).
"Pro Rata Share" shall mean with respect to any Seller, the portion of
the Aggregate Purchase Price to which such Seller is entitled expressed as a
percentage of the total Aggregate Purchase Price.
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<PAGE> 80
"Purchase Price Adjustment Amount" shall have the meaning given such
term in Section 2.3(a).
"Purchaser" shall have the meaning given such term in the introductory
paragraph to this Agreement.
"Purchaser Documents" shall mean this Agreement, the Indemnity Escrow
Agreement, the Noncompete Agreement and any other agreement, document or
instrument executed and delivered by Purchaser on the Closing Date in connection
with the consummation of the transactions contemplated by this Agreement.
"Purchaser Parties" shall have the meaning given such term in Section
10.1.
"R. Buford" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"Real Property" shall have the meaning given such term in Section
4.12(a).
"Release Date" shall mean the date that is eighteen (18) months from
the Closing Date.
"Seale" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"Securities" shall have the meaning given such term in Section 2.1.
"Seller" shall have the meaning given such term in the introductory
paragraph to this Agreement.
"Seller Parties" shall have the meaning given such term in Section
10.2.
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"Sellers Committee" shall mean a committee comprised of three (3)
individuals appointed by the Sellers on or before the Closing Date.
"Senior Bank Debt" shall mean the aggregate of the outstanding
principal, accrued interest, fees and expenses payable by the Company under that
certain Credit Agreement, dated as of September 30, 1994, as amended, among the
Company, the First National Bank of Chicago, as Agent and the other lending
institutions party thereto.
"Senior Debt" shall mean collectively, the Senior Bank Debt, any
capitalized lease obligations of the Buford Companies and any other long term
indebtedness for borrowed money evidenced by bonds, debentures, notes or similar
instruments of the Buford Companies.
"Shares" shall have the meaning given such term in the Preliminary
Statements to this Agreement.
"Subsidiary" shall mean, with respect to any Person, any entity in
which such Person owns (directly or indirectly) more than 50% of such entity's
voting securities.
"System Franchises" shall have the meaning given such term in Section
4.10(a).
"Systems" shall have the meaning set forth in the Preliminary
Statements.
"Taxes" shall mean all taxes, charges, levies, or other similar
assessments or liabilities, including (a) income, phase III, gross receipts, ad
valorem, premium, excise, real property, personal property, sales, use,
transfer, withholding, employment, payroll, and franchise taxes imposed by the
United States of America, or by any state, local, or foreign government, or any
subdivision, agency, or other similar Person of the United States or any such
government; and (b) any interest, fines, penalties, assessments, or additions to
taxes resulting from, attributable to, or incurred in connection with any Tax or
any contest, dispute, or refund thereof.
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"Tax Returns" shall mean any report, return, or statement required to
be supplied to a taxing authority in connection with Taxes, including without
limitation any information return.
"Third Party Claim" shall have the meaning given such terms in Section
10.3(b).
"Unresolved Claim" shall have the meaning given such term in Section
10.6(b).
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act of 1988.
"Working Capital" shall mean an amount equal to the difference of (a)
the consolidated current assets (excluding cash and cash equivalents) of the
Buford Companies, less (b) the consolidated current liabilities (excluding the
current portion of Senior Debt) of the Buford Companies, all as set forth on the
Closing Balance Sheet.
Unless the context of this Agreement otherwise requires, (a) words of
any gender are deemed to include the other gender; (b) words using the singular
or plural number also include the plural or singular number, respectively; (c)
the terms "hereof," "herein," "hereby," "hereto," and derivative or similar
words refer to this entire Agreement; (d) the terms "Article" or "Section" refer
to the specified Article or Section of this Agreement; (e) the term "including"
and other forms of such term, with respect to any matter or thing, means
"including but not limited to" such matter or thing; and (f) all references to
"dollars" or "$" refer to currency of the United States of America.
G-13
<PAGE> 1
EXHIBIT 10.7
INVESTMENT AGREEMENT
dated as of May 24, 1999
between
BRERA CLASSIC, LLC
and
CLASSIC COMMUNICATIONS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions............................................1
Section 1.2 General Interpretive Principles.......................12
ARTICLE II
ISSUANCE AND SALE OF COMMON STOCK
Section 2.1 Issuance and Sale of Common Stock.....................12
Section 2.2 Closing...............................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Corporate Organization and Qualification..............13
Section 3.2 Authorization of Agreements...........................13
Section 3.3 Consents; No Conflicts................................14
Section 3.4 Capitalization; Securities............................14
Section 3.5 Subsidiaries..........................................15
Section 3.6 Company Reports; Financial Statements; Books
and Records...........................................16
Section 3.7 Undisclosed Liabilities...............................17
Section 3.8 Absence of Certain Changes............................17
Section 3.9 Commitments...........................................19
Section 3.10 Property.............................................20
Section 3.11 Real Property........................................21
Section 3.12 Year 2000............................................22
Section 3.13 Litigation...........................................22
Section 3.14 Systems Information..................................23
Section 3.15 No Other Operators...................................24
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Section 3.16 Compliance with Laws; Regulatory Approvals...........24
Section 3.17 Taxes................................................27
Section 3.18 ERISA and Other Employment Matters...................28
Section 3.19 Contracts............................................30
Section 3.20 Financial Advisors and Brokers.......................31
Section 3.21 Exemption from Registration..........................32
Section 3.22 Insurance............................................32
Section 3.23 Environmental Protection.............................32
Section 3.24 Insider Interests and Affiliate Transactions.........34
Section 3.25 Bonds................................................35
Section 3.26 Disclosure...........................................35
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Section 4.1 Organization and Qualification........................35
Section 4.2 Authorization of Agreements...........................35
Section 4.3 Consents; No Conflicts................................36
Section 4.4 Financial Advisors and Brokers........................36
Section 4.5 Ownership of Company Equity Securities;
Purpose of Investment.................................36
Section 4.6 No Prior Activities...................................37
ARTICLE V
PRE-CLOSING COVENANTS
Section 5.1 Consents; HSR Act.....................................37
Section 5.2 Conduct of Business...................................38
Section 5.3 Access................................................39
Section 5.4 Non-Solicitation......................................40
Section 5.5 Supplements to Disclosure Schedule;
Notice and Cure.......................................40
Section 5.6 Financing.............................................41
Section 5.7 Stock Incentive Plan..................................41
Section 5.8 Fairness Opinion......................................41
</TABLE>
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<TABLE>
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ARTICLE VI
ADDITIONAL COVENANTS
<S> <C> <C>
Section 6.1 Publicity.............................................41
Section 6.2 Director and Officer Indemnification..................42
Section 6.3 Legend................................................42
Section 6.4 Further Assurances....................................43
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Investor's Obligations..................43
Section 7.2 Conditions of the Company's Obligations...............45
ARTICLE VIII
TERMINATION
Section 8.1 Termination of Agreement..............................46
Section 8.2 Effect of Termination.................................47
ARTICLE IX
REMEDIES
Section 9.1 Indemnification.......................................47
Section 9.2 Survival of Representations and Warranties............50
</TABLE>
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<TABLE>
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ARTICLE X
MISCELLANEOUS
<S> <C> <C>
Section 10.1 Fees and Expenses....................................51
Section 10.2 Notices..............................................52
Section 10.3 Remedies Cumulative..................................53
Section 10.4 Entire Agreement; Amendment; Waiver..................53
Section 10.5 Counterparts.........................................54
Section 10.6 Governing Law........................................54
Section 10.7 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process..........54
Section 10.8 Waiver of Jury Trial.................................55
Section 10.9 Successors and Assigns...............................56
Section 10.10 No Third-Party Beneficiaries........................56
Section 10.11 Brera Capital Partners Limited Partners.............56
</TABLE>
iv
<PAGE> 6
EXHIBITS
EXHIBIT A FORM OF OPINION OF WINSTEAD SECHREST & MINICK
EXHIBIT B FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER
AND FLOM (ILLINOIS)
EXHIBIT C FORM OF STOCKHOLDERS' AGREEMENT
EXHIBIT D FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E FORM OF OPINION OF COLE, RAYWID & BRAVERMAN
EXHIBIT F FORM OF VCOC LETTER
EXHIBIT G BELISLE (EMPLOYMENT) AGREEMENT
EXHIBIT H SEACH (EMPLOYMENT) AGREEMENT
EXHIBIT I STOCKHOLDER VOTING AGREEMENT
DISCLOSURE SCHEDULES
SECTION DESCRIPTION
3.3 Consents
3.4(a) Capitalization
3.4(b) Restriction on Dividends
3.5 Subsidiaries
3.7 Liabilities
3.8 Absence of Certain Changes
3.9 Commitments
3.10(a) Property
3.10(b) Proprietary Software
3.11(a) Real Property
3.11(b) Claims Under Real Property Leases
3.13 Litigation
3.14 Systems Information
3.15 No Other Operations
3.16(a) No Violation of Law
3.16(b) Licensing
3.16(c) Pole Attachments
3.16(d) Programming Agreements
3.16(e) Cable Act
3.16(f) CLI
3.16(g) FAA Rules and Regulations
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<PAGE> 7
3.16(h) Copyright
3.17 Taxes
3.18(a) ERISA and Other Employment Matters
3.18(d) ERISA; Contributions
3.18(e) ERISA; Acceleration
3.18(h) ERISA; Limitations
3.19(a) Contracts - Cable Data
3.19(b) Contracts - Severance
3.22 Insurance
3.23 Environmental Protection
3.23(a) Environmental Licenses
3.24 Insider Interests and Affiliate Transactions
3.25 Bonds
4.3 Investor Consents
5.2(b) 1999 Capital Expenditure Plan
5.6 Financing Plan
vi
<PAGE> 8
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "Agreement"), dated as of May
24, 1999, is by and between Brera Classic, LLC, a Delaware limited liability
company (the "Investor") and Classic Communications, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Classic Companies own and operate cable
television systems operating in the states of Arkansas, Colorado, Kansas,
Missouri, Nebraska, New Mexico, Oklahoma and Texas (the "Systems");
WHEREAS, on the terms set forth in this Agreement, the
Investor has agreed to purchase from the Company, and the Company has agreed to
issue and sell to the Investor, (i) 5,490,734 shares of newly issued voting
Common Stock at a price of $14.57 per share and (ii) 1,000,000 shares of newly
issued voting Common Stock at a price of $20.00 per share, for an aggregate
purchase price of $100,000,000 for 6,490,734 shares of Common Stock (the
"Securities");
WHEREAS, Classic Cable has entered into the Acquisition
Agreement, pursuant to which it will purchase, directly or indirectly, all of
the capital stock of the Buford Group, Inc., a Delaware corporation (the
"Acquisition"); and
WHEREAS, the Company and the Investor desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated herein.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the
following terms will have the meanings set forth below:
<PAGE> 9
"Acquisition" has the meaning set forth in the recitals.
"Acquisition Agreement" means the acquisition agreement, dated
as of May 11, 1999, among Buford Group, Inc., Classic Cable and the sellers
named therein.
"Affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act.
"Agreement" means this Agreement, including the Schedules and
Exhibits hereto.
"Alternate Transaction" means any (A) direct or indirect
acquisition or purchase of any Equity Securities of, or other indirect equity
interest in, the Company or any of its Subsidiaries (other than ordinary
issuances of Equity Securities pursuant to any existing employee benefit plans
and issuances of securities among the Company and its Wholly-Owned
Subsidiaries), or (B) merger, combination, recapitalization, liquidation, sale
of all or substantially all of the Assets, dissolution or similar transaction
involving the Company or any of its Subsidiaries.
"Assets" means all assets or properties of every kind, nature,
character, and description, including all tangible, intangible, personal, real
or mixed, used, owned or leased by the Classic Companies.
"Basic Subscriber" means as of any date of determination,
without duplication, the sum of all of the following which are receiving basic
cable television service provided by the Systems: (a) private residential
customer accounts that are billed by individual unit, regardless of whether such
accounts are in single family homes or in individually billed units in apartment
houses and other multi-unit buildings (excluding Nonstandard Charges), each of
which shall be counted as one "Basic Subscriber", and (b) all commercial,
bulk-billed and other accounts not billed by individual unit, such as
correctional facilities, hotels, motels, apartment houses and multi-family
homes; provided that the number of "Basic Subscribers" serviced by each such
account shall be deemed to be an amount equal to the quotient of (x) the
aggregate monthly basic cable television service revenue and expanded basic
cable television service revenue (without duplication) derived by the Systems
from such accounts (excluding any Nonstandard Charges and amounts received from
DirectTV), in each case for the last calendar month preceding the date of such
determination, divided by (y) the sum of the Basic Subscriber Rate and the
Expanded Basic Rate (without duplication) in each case in effect on the date of
such determination. Notwithstanding the foregoing, the term "Basic Subscriber"
will not include any commercial, residential or other subscriber (i) who has
not paid for basic television services from a System at the full non-discounted
Basic Subscriber Rate for such System for at least one (1) full month, (ii)
whose account as of the Closing Date is more than sixty (60) days or more past
due from the date on which any part of such account was first due (unless, if
more than sixty (60) days past due, the
2
<PAGE> 10
excess amount so past due is no more than $10.00 (excluding late charges)),
(iii) who has requested, or whose service is pending, disconnection for any
reason, (iv) who comes within the definition of Basic Subscriber because its
account (or any part thereof) has been compromised or written off other than in
the ordinary course of business consistent with past practices for reasons such
as service interruptions and waiver of late charges (v) any seasonal subscriber
who receives a discounted service, or (vi) who is a subscriber as a result of
extraordinary marketing or promotional efforts or marketing or promotional
efforts not consistent with the past practices of the business.
"Basic Subscriber Rate" means the aggregate monthly fees and
charges for the provision of basic cable television services provided by the
Systems and excluding any Nonstandard Charges, copyright fees, franchise fees
and regulatory fees charged to customers served by the Systems, as of the end of
the last full month prior to the date of determination.
"Belisle" means J. Merritt Belisle.
"Belisle Agreement" means the employment agreement between the
Company and Belisle, substantially in the form of Exhibit G.
"beneficially own" with respect to any securities, means
having "beneficial ownership" of such securities (as determined pursuant to Rule
13d-3 under the Exchange Act in effect on the date hereof, except that a Person
will be deemed to beneficially own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "beneficial ownership," "beneficial owner," and
"owned beneficially" have correlative meanings.
"Board of Directors" means the board of directors of the
Company.
"Business Day" means any day, other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Cable Act" means Title VI of the Communications Act of 1934,
as amended, 47 U.S.C. Section 151 et seq, 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.
3
<PAGE> 11
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company, as such may be amended from time to
time.
"Classic Cable" means Classic Cable, Inc., a Delaware
corporation and Wholly- Owned Subsidiary of the Company.
"Classic Companies" means the Company, Classic Cable, Classic
Cable Holding, Inc., a Delaware corporation, Ponca Holdings, Inc., a Delaware
corporation, Classic Telephone, Inc., a Delaware corporation, Universal Cable
Holding, Inc., a Delaware corporation, Universal Cable Communications Inc., a
Delaware corporation, Universal Cable of Beaver, Oklahoma, Inc., a Delaware
corporation, Universal Cable Midwest, Inc., a Delaware corporation, WT
Acquisition Corporation, a Delaware corporation, W.K. Communications, Inc., a
Kansas corporation, Television Enterprises, Inc., a Texas corporation, Black
Creek Communications, L.P., a Delaware limited partnership, and Black Creek
Management, LLC, a Delaware limited liability company.
"Cleanup" means all actions required under Environmental Laws
to (1) cleanup, remove, treat or remediate Hazardous Material in the outdoor
environment; (2) prevent the Release of Hazardous Materials so that they do not
migrate, endanger or threaten to endanger public health or welfare or the
outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; (4) respond to any requests from a
Governmental Entity for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential clean up, removal, treatment or
remediation of Hazardous Materials in the outdoor environment; or (5) any legal
or administrative proceedings related to items (1) through (4), including
actions brought by third-parties to recover costs incurred with respect to
Cleanup.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended,
and all regulations promulgated thereunder, as in effect from time to time.
"Commission" means the U.S. Securities and Exchange
Commission.
"Common Stock" means the voting and non-voting common stock of
the Company, par value $.01 per share.
"Company" has the meaning set forth in the preamble.
4
<PAGE> 12
"Communications Act" means the Communications Act of 1934, as
amended, 47 U.S.C. Section 151 et. seq. and the rules and regulations
promulgated thereunder.
"Consents" means all of the consents, permits or approvals of,
or notice to, or declaration, filing or registration with, any Governmental
Entity or any other Person under the Franchises, Licenses, Contracts or other
agreement involving any Classic Company or its Assets or under any Law or
otherwise.
"Contract" means any contract, commitment, undertaking,
policy, indenture, mortgage, note, lease, security agreement, deed or other
agreement of any nature, whether oral or written to which any Classic Company is
a party or by which any Classic Company or any of its Assets or operations may
be bound or subject.
"Deal Fee" means $3 million in cash.
"Derivative Securities" means any subscriptions, options,
conversion rights, warrants, or other agreements, securities or commitments of
any kind obligating the Classic Companies to issue, grant, deliver or sell, or
cause to be issued, granted, delivered or sold, any Equity Securities, or
securities convertible into or exchangeable for Equity Securities, of any of the
Classic Companies.
"DGCL" means the Delaware General Corporation Law.
"EBITDA" means, on an annualized basis, at any date of
determination, the product of (a) the sum of (i) net income (excluding any
interest income or Tax benefits or Tax refunds) of the Classic Companies on a
consolidated basis for the three (3) most recent consecutive completed months,
plus (ii) interest expense deducted in arriving at such net income, plus (iii)
federal, state and local income taxes deducted in arriving at such net income,
plus (iv) depreciation, amortization and other non-cash charges deducted in
arriving at such net income, plus (v) transaction expenses associated with (A)
the purchase of the Buford Group, Inc. and (B) the consummation of the
transactions contemplated by this Agreement, as computed, and calculated in
accordance with GAAP and on a basis consistent with the Classic Companies
financial statements, less (vi) non-cash income, times (b) four (4).
"Environmental Laws" means all foreign, federal, state and
local Laws, regulations, rules and ordinances relating to pollution or
protection of the environment, including, without limitation, Laws relating to
Releases or threatened Releases of Hazardous Materials into the indoor or
outdoor environment (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating to the
processing, distribution, use, treatment, storage, Release, transport or
handling of Hazardous Materials, and
5
<PAGE> 13
all Laws and regulations with regard to record keeping, notification, disclosure
and reporting requirements respecting Hazardous Materials, and all Laws relating
to endangered or threatened species of fish, wildlife and plants and the
management or use of natural resources.
"Environmental Liabilities" means any Proceeding or notice
(written or oral) by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
Cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (i) the presence or Release of any Hazardous Materials at any location,
whether or not owned or operated by the Company or (ii) circumstances forming
the basis of any violation, or alleged violation, of any Environmental Law.
"Equity Securities" of any Person means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company interests of such Person or any other
similar interests of any Person that is not a corporation, partnership or
limited liability company.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all regulations promulgated thereunder, as in effect from
time to time.
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Existing Registration Rights Agreements" means (i) the
Shareholders and Registration Rights Agreement, dated as of July 29, 1998, among
the Company, certain stockholders, and Merrill, Lynch, Pierce, Fenner & Smith,
Incorporated and (ii) the Registration Rights Agreement dated as of October 31,
1995, among the Company and certain stockholders.
"Existing Stockholder Agreements" means (i) the Shareholders
and Registration Rights Agreement, dated as of July 29, 1998, among the Company,
certain stockholders, and Merrill, Lynch, Pierce, Fenner & Smith, Incorporated
and (ii) the Amended and Restated Stockholders Agreement, dated as of October
31, 1995, among the Company, certain members of management and certain
investors.
"Expanded Basic Rate" means, as of any date of determination,
the monthly fees and charges for the provision of "expanded basic service" (as
such term is customarily used in the cable television industry) and excluding
any Nonstandard Charges, amounts received from DirectTV, copyright fees,
franchise fees and regulatory fees charged to customers served by the Systems,
as of the end of the last full month prior to the date of determination.
6
<PAGE> 14
"FCC" means the Federal Communications Commission.
"Fee Letter" means the management fee letter, dated as of the
date hereof, between the Investor and the Company.
"Franchises" means any franchises, new or renewal franchise
applications (if any), authorizations, ordinances, permits and agreements
relating to the Systems issued or granted by any municipal, county, state or any
other quasi-governmental authority.
"GAAP" means U.S. generally accepted accounting principles as
in effect at the relevant time or for the relevant period.
"Governmental Entity" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"Hazardous Materials" means all substances defined as such in
the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
Section 300.5, or defined as such by, or regulated as such under, any
Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, and whether or not
contingent, (i) any obligation of such Person for money borrowed, (ii) any
obligation of such Person evidenced by bonds, debentures, notes, guarantees or
other similar instruments, (iii) any reimbursement obligation of such Person
with respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person, (iv) any obligation of such Person issued
or assumed as the deferred purchase price of property, assets or services (but
excluding trade accounts payable and other accrued liabilities arising in the
ordinary course of business), (v) any interest rate or currency swap or similar
hedging agreement, and (vi) any capital lease obligation of such Person.
"Initial Public Offering" has the meaning set forth in the
Stockholders' Agreement.
"Intellectual Property" means all trademarks, service marks,
trade names, Internet domain names, designs, logos, slogans and general
intangibles of like nature, together with goodwill, registrations and
applications relating to the foregoing; registered and unregistered
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patents, copyrights (including registrations and applications for any of the
foregoing); Software; confidential information, technology, know-how,
inventions, processes, formulae, algorithms, models and methodologies held for
use or used in the business of any Classic Company as conducted as of the
Closing Date or as presently contemplated to be conducted and any licenses to
use any of the foregoing.
"Investor" has the meaning set forth in the preamble.
"Investor Consents" means all of the consents, permits or
approvals of, or notice to, or declaration, filing or registration with, any
Governmental Entity or any other Person under any agreements involving the
Investor or its assets or under any Law or otherwise.
"Investor Nominee" has the meaning set forth in Section
6.2(a).
"IRS" means the United States Internal Revenue Service or any
successor agency.
"Law" means any law, treaty, statute, ordinance, code, rule or
regulation of a Governmental Entity or judgment, decree, order, writ, award,
injunction or determination of an arbitrator or court or other Governmental
Entity.
"Liability" means any liability or obligation, whether known
or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, due or to become due.
"License" means any license, sublicense, permit, consent,
order, approval, application, grant, concession, franchise, authorization,
registration, filing, waiver, variance or clearage under any Law or with any
Governmental Authority (including the U.S. EPA, U.S. EEOC, OSHA, FTC, DOJ, U.S.
Department of Commerce, FAA, FCC and municipal franchise authorities) including,
without limitation, all domestic satellite, business radio, CARS band and other
microwave licenses, and all authorizations and permits relating to the System.
"Lien" means any mortgage, pledge, lien, security interest,
claim, voting agreement, conditional sale agreement, title retention agreement,
restriction, option or encumbrance of any kind, character or description
whatsoever.
"Losses" has the meaning set forth in Section 9.1(a).
"March Balance Sheet" means the consolidated balance sheet of
the Company as of March 31, 1999.
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"Material Adverse Effect" means an individual or cumulative
change in, or effect on, the business, customers, prospects, operations, working
capital condition (financial or otherwise), Assets, or Liabilities of the
Classic Companies, taken as a whole, that is reasonably expected to materially
and adversely affect (i) the business, customers, prospects, operations,
condition (financial or otherwise), Assets, or Liabilities of the Classic
Companies, taken as a whole, or (ii) the validity or enforceability of any
Transaction Agreement or the Company's ability to perform its obligations
thereunder.
"Nonstandard Charges" means any charges for Taxes, second
connects, additional outlets, installation fees, deposits and other
non-recurring items and any charges for the rental of converters, remote control
devices, channel guides, internet service or other non-cable television service
and other line charges for equipment.
"Person" means any individual, corporation, company,
association, partnership, joint venture, trust, unincorporated organization, or
Governmental Entity.
"Proceeding" has the meaning set forth in Section 3.13.
"Purchase Price" has the meaning set forth in Section 2.1.
"Real Property" means all fee estates, and all buildings,
fixtures, and all other improvements located thereon (including, without
limitation, towers), leasehold interests in real estate, private easements,
private rights to access, private rights-of-way, and other real property
interests including, without limitation, head-end sites which are owned, leased
or used by the Classic Companies in the conduct of their business or operation
of the Systems, plus such additions thereto and deletions therefrom arising in
the ordinary course of business and permitted by this Agreement between the date
of this Agreement and the Closing Date.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Investor in the form attached hereto as
Exhibit D.
"Release" means 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
Materials through or in the air, soil, surface water, groundwater or property.
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"Representatives" means, with respect to any Person, any of
such Person's officers, directors, employees, agents, attorneys, accountants,
actuaries, consultants, equity financing partners or financial advisors or other
Person associated with, or acting on behalf of, such Person.
"Restricted Stock Plan" means the Company's 1998 Restricted
Stock Award Plan, effective July 29, 1998.
"Return" means any return, report, information return, form or
other document (including any amendments and attachments thereto) filed or
required to be filed with any United States or foreign Taxing Authority.
"Seach" means Steven E. Seach.
"Seach Agreement" means the employment agreement between Seach
and the Company, substantially in the form of Exhibit H.
"SEC Reports" has the meaning set forth in Section 3.6(a).
"Securities" has the meaning set forth in the preamble.
"Securities Act" means the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Software" means computer programs, including any and all
software implementations of algorithms, models and methodologies whether in
source code or object code form, databases and compilations, including any and
all data and collections of data, all documentation, including user manuals and
training materials, related to any of the foregoing and the content and
information contained on any Web site.
"Signals" has the meaning set forth in Section 3.16(b).
"Stock Incentive Plan" has the meaning set forth in Section
5.7.
"Stockholders' Agreement" means the Stockholders' Agreement
among the Company, the Investor and the current investors in the form attached
hereto as Exhibit C.
"Stockholder Voting Agreements" mean the Stockholder Voting
Agreements, dated as of May 24, 1999, between the Investor and each of Belisle,
Seach, Austin, Austin III-A,
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Austin III-B, BT Capital, the Growth Fund, NationsBanc (each as defined in the
Registration Rights Agreement) and Union Bancal Venture Corporation, a
California Corporation, and the Chase Manhattan Bank, N.A., substantially in the
form of Exhibit I hereto.
"Subsidiary" means, as to any Person, any other Person of
which more than 30% of the shares of the voting stock or other voting interests
are owned or controlled, or the ability to select or elect 30% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person or one or more of its Subsidiaries or by such first Person and one or
more of its Subsidiaries.
"Systems" has the meaning set forth in the recitals.
"Tax" or "Taxes" means all taxes, including any interest,
liabilities, fines, penalties, collection fees, sanction amounts, assessments or
additions to tax that may become payable in respect thereof, imposed by any
Governmental Entity, which taxes will include, without limiting the generality
of the foregoing, all net and gross income, gross receipts, ad valorem, payroll,
employee, withholding (on amounts paid by or to the relevant party), employment,
unemployment, disability, windfall profit, custom, duty, impact, hospital,
health, profits, paid up capital, transfer, severance, environmental (including
taxes under Section 59A of the Code), greenmail, license, value added, estimated
capital, insurance, social security, sales and use, leasing, occupation, excise,
franchise, add-on minimum, net worth, service, real and personal property,
stamp, premium and workers' compensation taxes and other obligations of the same
or of a similar nature whether arising before, on or after the Closing Date.
"Taxing Authority" means any governmental or regulatory
authority, body or instrumentality exercising any authority to impose, regulate
or administer the imposition of Taxes.
"Transaction Agreements" means this Agreement, the VCOC
Letter, the Stock holders' Agreement, the Registration Rights Agreement, and the
Belisle Employment Agreement, and Seach Employment Agreement.
"VCOC Letter" means the venture capital operating company
letter between the Company and the Investor in the form attached hereto as
Exhibit F.
"Wholly-Owned Subsidiary" means, as to any Person, a
Subsidiary of such Person of which 100% of the Equity Securities (other than
directors' qualifying shares or similar shares) is owned, directly or
indirectly, by such Person.
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Section 1.2 General Interpretive Principles. Whenever used in
this Agreement, except as otherwise expressly provided or unless the context
otherwise requires, any noun or pronoun will be deemed to include the plural as
well as the singular and will cover all genders. The name assigned this
Agreement and the section captions used herein are for convenience of reference
only and will not be construed to affect the meaning, construction or effect
hereof. Unless otherwise specified, the terms "hereof," "herein" and similar
terms refer to this Agreement as a whole (including the exhibits and schedules
hereto), and references herein to Articles or Sections refer to Articles or
Sections of this Agreement.
ARTICLE II
ISSUANCE AND SALE OF COMMON STOCK
Section 2.1 Issuance and Sale of Common Stock. Upon the terms
and subject to the conditions set forth in this Agreement, and in reliance upon
the representations and warranties set forth herein, at the Closing, the
Company will issue, sell and deliver to the Investor, and the Investor will
purchase from the Company, 6,490,734 shares of voting Common Stock, for an
aggregate purchase price of $100,000,000 (the "Purchase Price").
Section 2.2 Closing. (a) Subject to the satisfaction or, if
permissible, waiver, of the conditions set forth in Sections 7.1 and 7.2, the
closing of the transactions contemplated hereby (the "Closing") will take place
at the offices of Hughes & Luce, L.L.P., 1717 Main Street, Dallas, Texas 75201,
simultaneously with the closing of the Acquisition (as determined by the
Acquisition Agreement), or at such other time and place as the parties may agree
(the date on which the Closing occurs, the "Closing Date").
(b) At the Closing, (i) the Company will deliver to
the Investor certificates representing the Securities to be purchased by, and
sold to, the Investor pursuant to Section 2.1, registered in the names and in
the denominations designated by the Investor at least two Business Days prior to
the Closing Date, together with the other documents, certificates and opinions
to be delivered pursuant to Section 7.1, and (ii) the Investor, in full payment
for the Securities, will deliver to the Company an amount equal to the Purchase
Price less any amounts due to the Investor for fees and expenses pursuant to
Section 10.1 and the Fee Letter; provided that the Investor will be entitled to
reimbursement after the Closing for other expenses that are properly
reimbursable pursuant to Section 10.1(a), in immediately available funds by wire
transfer to the account designated by the Company at least two Business Days
prior to the Closing Date, or by such other means as may be agreed upon by the
parties, together with the other documents, certificates and opinions to be
delivered pursuant to Section 7.2.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investor as
follows:
Section 3.1 Corporate Organization and Qualification. Each
Classic Company is a corporation, a limited liability company, or a limited
partnership, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has all requisite power and
authority to own or lease and operate its properties and to conduct its business
as it is currently being conducted and is proposed to be conducted. Each Classic
Company is duly licensed, authorized or qualified for the transaction of
business and is in good standing under the laws of each other jurisdiction in
which its ownership, lease or operation of property or conduct of business
requires such qualification, except where the failure to be so licensed,
authorized or qualified and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect. The Company has delivered to the
Investor a complete and correct copy of the charter, bylaws and other
organizational documents of each Classic Company, each as amended to date and
each of which is in full force and effect. No Classic Company is in violation of
any provisions of its charter or bylaws or other organizational documents. The
minute books of each Classic Company include minutes of the meetings of, and
resolutions adopted by, the board of directors or other governing body of such
entity and the committees thereof to date.
Section 3.2 Authorization of Agreements. (a) Except for
stockholder approval of an amendment to the Certificate of Incorporation to
increase the number of shares of Common Stock, the Company has all the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Transaction Agreements. The execution, delivery and performance of the
Transaction Agreements have been, or will be before the Closing, duly authorized
by all necessary corporate action on the part of the Company. The Board of
Directors has approved the entry by the Company into the Transaction Agreements
and the consummation of the transactions contemplated thereby (including the
issuance to the Investor of the voting Common Stock) for purposes of paragraph
(a)(1) of Section 203 of the DGCL and the Company's Certificate of
Incorporation.
(b) This Agreement, the Stockholders' Agreement and
the Registration Rights Agreement have been, and the other Transaction
Agreements will be before the Closing, duly executed and delivered by the
Company, and each such agreement constitutes or will constitute a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles of
equity.
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(c) Except for stockholder approval of an amendment
to the Certificate of Incorporation to increase the number of shares of Common
Stock, no consent or approval of the stockholders of any Classic Company is
required by Law or the charter, bylaws or similar organizational documents of
any Classic Company, for the execution and delivery by the Company of the
Transaction Agreements and the consummation of the transactions contemplated
thereby.
Section 3.3 Consents; No Conflicts. Except for the Consents
listed in Schedule 3.3 and the stockholder approval described in Section 3.2(c),
the execution and delivery by the Company of this Agreement, the Stockholders'
Agreement and the Registration Rights Agreement do not, and of the other
Transaction Agreements will not, and the performance of the obligations set
forth herein and therein will not: (i) violate any provision of the charter,
bylaws, or the comparable governing instruments of any Classic Company; (ii)
give rise to any preemptive rights, rights of first refusal, put rights or
other similar rights on behalf of any Person under any applicable Law or any
provision of the charter or bylaws of any Classic Company or any agreement or
instrument applicable to any Classic Company; (iii) conflict with, contravene or
result in a breach or violation of any of the terms or provisions of, or
constitute a default (with or without notice or the passage of time) under, or
result in or give rise to a right of termination, cancellation, acceleration or
modification of any right or obligation under, or give rise to a right to put or
to compel a tender offer for outstanding securities of any Classic Company under
any Contract or require any Consent; (iv) result in the creation or imposition
of any Lien upon any Assets; or (v) violate any Law, other than in the case of
clauses (iii) through (v) above, exceptions that would not have, individually
or in the aggregate, a Material Adverse Effect.
Section 3.4 Capitalization; Securities. (a) Schedule 3.4(a)
contains a complete and correct list of the authorized, issued and outstanding
Equity Securities and Derivative Securities of each Classic Company as of the
date hereof. The issued and outstanding Equity Securities of each Classic
Company have been duly authorized and validly issued, are fully paid and
nonassessable, and have not been issued in violation of any securities Laws,
preemptive or similar rights created by statute, the charter, bylaws or similar
organizational documents of any Classic Company, or any agreement to which any
Classic Company is a party to or by which its property is bound. The Equity
Securities and Derivative Securities of each Classic Company are owned
beneficially and of record as disclosed on Schedule 3.4(a) (including the number
and percentage of shares of each class of such securities), and are not subject
to any Lien.
(b) Except as disclosed on Schedule 3.4(b), there are
no contractual or other restrictions or limitations on the ability of any
Classic Company to pay any dividends or make any other distributions on, or to
purchase, redeem or otherwise acquire, any of its Equity Securities. Except as
shown in Schedule 3.4(a), there are no authorized or outstanding (or any
obligations to authorize or issue) Derivative Securities.
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(c) The Company has delivered to the Investor
complete and correct copies of the credit agreements, indentures and similar
documents with respect to all material Indebtedness, including the exhibits and
schedules thereto, and any other documents executed in connection therewith.
(d) As of the date hereof, there are no shares of
Common Stock reserved for issuance including, without limitation, under the
Restricted Stock Plan or the Stock Incentive Plan, other than 335,860 shares
that are reserved for issuance upon exercise of the outstanding warrants. By the
Closing, the Securities will have been validly authorized and issued, fully paid
and nonassessable, and except as provided in the Stockholders' Agreement or as
required by law, free of transfer restrictions and Liens. Other than pursuant to
(i) the Registration Rights Agreement and (ii) the Existing Registration Rights
Agreements, no Person has any right to require the Company to register
securities of the Company under the Securities Act, and there are no securities
that the Company is required to register.
(e) Except for the Existing Stockholder Agreements,
the Existing Registration Rights Agreements, the Company's 1996 Restricted Stock
Award Plan effective May 1, 1996, as amended, and the Restricted Stock Plan,
there is no agreement, arrangement or understanding involving the Company or its
stockholders concerning the Common Stock.
Section 3.5 Subsidiaries. Schedule 3.5 is a complete, and
correct list of each Subsidiary of the Company. Except for the Equity Securities
listed in Schedule 3.5, no Classic Company (x) directly or indirectly owns, (y)
has agreed to purchase or otherwise acquire or (z) holds any interest
convertible into or exchangeable or exercisable for, any Equity Securities of
any corporation, partnership, joint venture or other business association or
entity. Except as set forth in Schedule 3.5, the financial results of each
Subsidiary are fully reflected as a consolidated Subsidiary in the Financial
Statements. Except as set forth on Schedule 3.5, no Classic Company is
obligated, pursuant to any agreement or instrument applicable to the Company or
such Subsidiary, to repurchase, redeem or otherwise acquire any Equity
Securities of, or make any other equity investment in, any other Person.
Section 3.6 Company Reports; Financial Statements; Books and
Records. (a) The Company has delivered to the Investor a complete copy of each
registration statement, proxy statement, information statement and other
material filed by each Classic Company with the Commission, in each case in the
form (including exhibits and any amendments thereto) filed with the Commission
(collectively, the "SEC Reports"). As of their respective dates, the SEC Reports
and any registration statement, report, proxy statement, information statement
or other statement filed by the Company with the Commission before the Closing
Date ("Subsequent Reports"): (i) was, or will be, as the case may be, timely
filed with the Commission; (ii)
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complied, or will comply, as the case may be, with the applicable requirements
of the Exchange Act and the Securities Act, and (iii) did not, or will not, as
the case may be, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The Company has delivered to the Investor
complete and correct copies of the following: (i) the audited consolidated
balance sheets of the Company at December 31, 1996, 1997 and 1998 and the
related, audited consolidated statements of operations, stockholders' equity and
cash flows of the Company and its consolidated Subsidiaries for each of the
years ended December 31, 1996, 1997 and 1998, together with the notes thereto,
and the reports thereon of Ernst & Young LLP (collectively, the "Annual
Financial Statements"), and (ii) the unaudited consolidated balance sheets of
the Company and its consolidated Subsidiaries as of March 31, 1997, 1998, and
1999 and the related consolidated statements of operations, stockholders' equity
and cash flows of the Company and its consolidated Subsidiaries for the
three-month period 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, results of
operations, retained earnings and cash flows of the Company and its consolidated
Subsidiaries for the periods or as of the dates set forth therein, in each case
in accordance with GAAP applied on a consistent basis throughout 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.
(c) The unaudited consolidated balance sheets of the
Company and its consolidated Subsidiaries and the related, unaudited,
consolidated statements of operations, retained earnings and cash flow of the
Company and its consolidated Subsidiaries which are to be delivered to the
Investor pursuant to Section 5.2(c), will, when so delivered, fairly present, in
all material respects, the financial position, results of operations, retained
earnings and cash flows, as the case may be, of the Company and its consolidated
Subsidiaries for the periods or as of the dates set forth therein, in each case
in accordance with GAAP applied on a consistent basis throughout the periods
covered except for normal year-end adjustments consistent with past practice.
(d) All of the books, records, and accounts of each
Classic Company are true and complete and correct in all material respects, are
maintained in accordance with good business practice, accurately present and
reflect in all material respects all of the transactions therein described, and
are reflected accurately in the financial statements provided to the Investor.
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Section 3.7 Undisclosed Liabilities. No Classic Company has
any Liabilities and the Company knows of no valid basis for the assertion of any
such Liabilities, and no existing condition, situation or set of circumstances
exists which could reasonably be expected to result in a Liability, other than
Liabilities:
(a) adequately reflected or reserved against the
balance sheet for the year ended December 31, 1998 (excluding the notes
thereto);
(b) incurred in the ordinary course of business
consistent with past practice since December 31, 1998; or
(c) as set forth in Schedule 3.7.
Section 3.8 Absence of Certain Changes. Except as described on
Schedule 3.8, since December 31, 1998, the Classic Companies have conducted
their respective businesses in the ordinary and usual course, and there has not
been any of the following:
(a) any change or amendment to the charter, bylaws or
other organizational documents of any Classic Company other than amending the
Certificate of Incorporation to increase the number of shares of Company Common
Stock, and amending the bylaws to increase the number of directors of the
Company;
(b) any issuance or sale or purchase or redemption of
any shares of their respective Equity Securities or Derivative Securities;
(c) any dividend or other distribution declared, set
aside, paid or made with respect to the Equity Securities of any Classic Company
or any direct or indirect redemption, purchase or other acquisition of such
Equity Securities by any Classic Company, except dividends or other
distributions made to the Company or to any Wholly-Owned Subsidiary of the
Company;
(d) any acquisition or disposition of assets by any
Classic Company other than acquisitions or dispositions made in the ordinary
course of business and acquisitions or dispositions between the Company and its
Wholly-Owned Subsidiaries or between such Wholly-Owned Subsidiaries;
(e) any revaluation by any Classic Company of any
Assets, including the writing down or off of Assets, other than in the ordinary
course of business;
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(f) any increase in the Indebtedness of the Classic
Companies, taken as a whole, other than any change in inter-Company Indebtedness
among the Company and its Wholly-Owned Subsidiaries or among such Wholly-Owned
Subsidiaries or borrowings under the Company's revolving credit facility in the
ordinary course of business;
(g) any material amendment of any instrument of
Indebtedness, or any Lien, material lease or Consent;
(h) 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 any Classic Company of any credit,
financing or other agreement or instrument relating to any material
Indebtedness;
(i) any material damage, destruction, theft or other
casualty loss (whether or not covered by insurance) or incurrence of any
material Liability;
(j) 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 any Classic Company (including any agreement with
respect to any ongoing or threatened litigation), other than in the ordinary
course of business;
(k) 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 to become payable or the establishment or amendment of any Plans by any
Classic Company to any employee of a Classic Company (other than agreements
terminable without penalty or similar payment by the Classic Company on not more
than 30 days' notice and any other increases in compensation payable or to
become payable to employees (other than directors or officers) in the ordinary
course of business);
(l) 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 its officers or directors or any affiliate or associate
of any of its 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;
(m) any change in the financial accounting methods,
principles or practices of the Classic Companies, taken as a whole, except as
required by GAAP or applicable Law;
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(n) any adoption of a plan of or any agreement or
arrangement with respect to or resolutions providing for the liquidation,
dissolution, merger, consolidation or other reorganization of any Classic
Company;
(o) any settlement or compromise of any Proceeding
other than those in which the amount paid does not exceed $25,000 individually
or in the aggregate;
(p) 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
(q) any commitment or agreement to do any of the
foregoing, except as otherwise required or expressly permitted by this
Agreement.
Section 3.9 Commitments. Except as described in Schedule 3.9,
there are no unfulfilled binding commitments for capital improvements which any
of the Classic Companies are obligated to make in connection with the Systems.
There are no Liabilities to subscribers or to other users of services of the
Classic Companies, which services are material to the business or the Systems,
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 the Franchises. There are no complaints by subscribers
or other users of the services of the Classic Companies that, individually or in
the aggregate, could materially and adversely affect the financial condition,
Assets, Liabilities, operations or prospects of the Systems. Except with respect
to the persons listed on Schedule 3.9, there is no free or discounted service
liability (other than as a result of bulk service commitments) to subscribers
existing with respect to the Systems. Except with respect to deposits for
converters, encoders, decoders and related equipment, the Classic Companies have
no obligation or liability for the refund of monies or for the provision of
rebates to their subscribers. Except as set forth in the Franchises, with
respect to the Systems, no Classic Company has made a commitment to any
franchising entity to maintain a local office in any location. The Classic
Companies have not made any commitment to any of the municipalities served by
the Systems to pay franchise fees to any such municipality in excess of the
amounts set forth in the Franchises. No material restoration, repaving, repair
or other work (outside of ordinary maintenance) is required to be made by the
Classic Companies to any street, sidewalk or abutting or adjacent area pursuant
to the requirements of any Law, Franchise, License, Contract or other
understanding relating to the installation, construction and operation of the
Systems.
Section 3.10 Property. (a) Except as set forth on Schedule
3.10(a) and except for Assets disposed of in the ordinary course of business
after March 31, 1999 which are not material, individually or in the aggregate,
the Classic Companies have good and marketable title
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to, or valid leasehold interests in, and possession of, all of the Assets
reflected on the March Balance Sheet, free and clear of all Liens, except for
Liens and title or leasehold defects that do not materially and adversely affect
the value of such Assets and do not interfere with the use made or proposed to
be made of such Assets by the Classic Company. The tangible Assets, taken as a
whole, are in good operating condition and repair, ordinary wear and tear
excepted, and will permit the Classic Companies to comply with the material
terms of their Franchises and Contracts. The Assets constitute all property and
rights, real and personal, tangible and intangible, necessary or required to
operate the Systems as currently operated and conduct the business of the
Systems as currently conducted.
(b) Except as is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect:
(i) the Classic Companies own or have the
right to use all Intellectual Property, free and clear of all Liens or
other encumbrances;
(ii) any Intellectual Property owned or used
by the Classic Companies has been duly maintained, is valid and
subsisting, in full force and effect and has not been cancelled,
expired or abandoned;
(iii) no Classic Company has received
written notice from any third party regarding any actual or potential
infringement by such Classic Company of any intellectual property of
such third party, and no Classic Company has knowledge of any basis
for such a claim against a Classic Company;
(iv) no Classic Company has received written
notice from any third party regarding any assertion or claim
challenging the validity of any Intellectual Property owned or used by
any Classic Company and no Classic Company has knowledge of any basis
for such a claim;
(v) no third party is misappropriating,
infringing, diluting or violating any Intellectual Property owned by
any Classic Company;
(vi) the consummation of the transactions
contemplated hereby will not result in the loss or impairment of any
Classic Company's rights to own or use any of the Intellectual
Property, nor will such consummation require the consent of any third
party in respect of any Intellectual Property; and
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(vii) all proprietary Software, which is set
forth in Schedule 3.10(b), was either developed (A) by employees of
the applicable Classic Company within the scope of their employment; or
(B) by independent contractors who have assigned all of their rights
to such Classic Company pursuant to written agreement.
Section 3.11 Real Property. (a) Schedule 3.11(a) contains
descriptions of all the leasehold and fee simple interests in Real Property that
the Classic Companies use which is material to the operation of their businesses
as now conducted, including, without limitation, all head-end sites. The Classic
Companies have good and marketable title to all of the fee estates (including
improvements thereon) included in the Real Property, and, in the case of
leasehold interests included in the Real Property, valid leasehold interests,
and, in the case of easements, rights of access, rights-of-way, licenses and
other interests included in the Real Property, such title or other interest as
is necessary to permit the use and enjoyment of such properties substantially
in the manner such properties are used, except where the failure to have such
title, or other interest, would not have a Material Adverse Effect. The Real
Property is free and clear of all Liens, except for Liens which are described in
Schedule 3.11(a) and Liens for Taxes not yet due and payable. No third party has
any options or rights of first refusal to purchase any of the Real Property. The
Real Property includes all real property interests necessary to operate the
Systems in all material respects as the Systems are presently operated. The
Company has a valid and subsisting leasehold estate in and the right to quiet
enjoyment of each lease of Real Property listed on Schedule 3.11(a). Each such
lease listed is a legal, valid and binding agreement, enforceable in accordance
with its terms, of a Classic Company and of each other Person that is a party
thereto. All material improvements to be constructed or alterations required by
the Classic Companies under such real property leases have been completed and
are fully paid for.
(b) The Real Property is in compliance with all Laws,
including, without limitation, local zoning and subdivision ordinances, except
where the failure to be in compliance would not have, individually or in the
aggregate, a Material Adverse Effect. Each Classic Company has complied in all
material respects with the terms and conditions of its material Real Property
leases and Laws and Licenses applicable thereto (including any requirements for
filing, reporting posting and maintaining logs and records) and has not done or
performed any act that would invalidate or impair in any material respect its
rights under any of its material Real Property leases. Except as set forth in
Schedule 3.11(b), there is no pending assertion or claim that the operations
under any material Real Property lease have been improperly conducted or
maintained in any material respect, and no Classic Company has received notice
threatening any such assertion or claim. To the knowledge of the Classic
Companies, neither the whole nor any portion of the Real Property is subject to
any decree or order of any Governmental Entity to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Entity.
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Section 3.12 Year 2000. All Software and systems used by the
Classic Companies are Year 2000 Compliant. As used herein, "Year 2000
Compliant" and "Year 2000 Compliance" mean for all dates and times, including,
without limitation, dates and times after December 31, 1999 and in the
multi-century scenario, when used on a stand-alone system or in combination with
other software or systems: (i) the application system functions and receives and
processes dates and times correctly without abnormal results; (ii) all date
related calculations are correct (including, without limitation, age
calculations, duration calculations and scheduling calculations); (iii) all
manipulations and comparisons of date-related data produce correct results for
all valid date values within the scope of the application; (iv) there is no
century ambiguity; (v) all reports and displays are sorted correctly; and (vi)
leap years are accounted for and correctly identified (including, without
limitation, that 2000 is recognized as a leap year). To the extent material to
the operation of any Classic Company, the Company has obtained representations
or assurances from each entity that (x) provides data of any type that includes
date information or which is otherwise derived from, dependent on or related to
date information ("Date Data") to any Classic Company, (y) processes in any way
Date Data for any Classic Company or (z) otherwise provides any material product
or service to any Classic Company that is dependent on Year 2000 Compliance,
that all of such entity's Date Data and related software and systems that are
used for, or on behalf of, the Classic Companies are Year 2000 Compliant.
Section 3.13 Litigation. Except as set forth on Schedule 3.13,
there are no claims, suits, actions, proceedings, arbitrations or investigations
(each, a "Proceeding") pending or, to the knowledge of the Company, threatened,
against or affecting any Classic Company that (a) involve a claim against any
Classic Company exceeding $10,000, (b) individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect or (c) involve claims that
are not or are reasonably likely not to be insured in full. No demands have been
made by any Governmental Entity, utility, pole lessor, or other party, which
seek or could reasonably be expected to result in the termination, modification,
suspension or limitation to the rights or obligations of a Classic Company with
respect to the Franchises, Licenses or Contracts. Except as set forth on
Schedule 3.13, there are no judgments, decrees, injunctions, rules, writs,
settlement agreements, stipulations or orders outstanding against or applicable
to any Classic Company or against or applicable to its property or business.
Prior to the execution of this Agreement, the Company has delivered to the
Investor all responses of counsel to auditors' requests for information
delivered in connection with the audited financial statements (together with any
updates provided by such counsel) regarding Proceedings pending or threatened
against, relating to or affecting the conduct of their businesses.
Section 3.14 Systems Information. Schedule 3.14 sets forth a
complete and correct description of the following information with respect to
each cable television system
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operated by the Classic Companies as of March 31, 1999 (unless a different date
is specified below) with paragraph references corresponding to those set forth
below:
(a) for each of the years ended December 31, 1997 and
1998, as well as the quarter ended March 31, 1999, a description of the services
offered by each System, including, without limitation: any lifeline basic,
expanded basic or other tiers (including the number of signals on each tier and
whether such service is analog or digital), cable modem or other services
offered by, or available from the Systems; the rates charged by the Classic
Companies for each, together with the number of subscribers receiving each of
the services and the number of homes passed; an explanation of how subscribers
are counted (e.g., does a subscriber with an HBO multiplex count as one
subscriber or multiple subscribers?); a description of any memoranda of
understanding or other agreements regarding rates; and any other charges by the
Classic Companies for services to subscribers;
(b) the channel and bandwidth capacity of the
Systems;
(c) the number of off-air signals available in the
community in which each System operates;
(d) the date and amount of the last rate increase for
System service and a description of marketing programs, policies and practices;
(e) a description of any proposed rate increases;
(f) the estimated number of miles of plant (plus any
extensions and additions) by System as determined from the records of the
Company;
(g) all channel additions in the immediately
preceding 12 months, subscribers affected and carriage payments (such as launch
revenues or equipment support) received in the immediately preceding 12 months;
and
(h) the cities, towns, townships, villages, and
boroughs served by each System.
Section 3.15 No Other Operators. Except as described on
Schedule 3.15, each System is the only multiple video service provider, whether
by wireline (telephone or cable) or, to the best of the Company's knowledge,
after inquiry, wireless (SMATV, MATV, MMDS, ITFS or other), presently serving
the communities which it serves, (ii) to the knowledge of the Company, the entry
of no other multiple channel video service provider is presently contemplated
by any Person in the communities now served by the Systems, (iii) no franchises
or other
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authorizations other than the Franchises have been issued with respect to the
communities served by the Systems, and (iv) no Person has any right to acquire
any interest in any cable or pay television system or assets of the Classic
Companies (including any right of first refusal or similar right) upon an
assignment or transfer of control of a Franchise, other than rights of
condemnation or eminent domain afforded by Law.
Section 3.16 Compliance with Laws; Regulatory Approvals.
(a) No Violation of Law. Schedule 3.16(a) lists (i)
all Franchises and material Licenses used or necessary to operate the Systems as
currently operated, (ii) the Governmental Entity which has granted each
Franchise or material License and (iii) the expiration date of the Franchises
and material Licenses. The Classic Companies hold all Franchises and material
Licenses necessary for the lawful conduct of the business and operations of the
Systems as the Systems are currently operated. The operation of the Systems does
not violate any Law. Each Classic Company (i) has complied in all material
respects with the terms and conditions of the Franchises and Licenses to which
it is a party and the applicable requirements of Governmental Entities relating
to the Franchises and Licenses (including any requirements for notifications,
filing, reporting, posting and maintaining logs and records) and (ii) has not
done or performed any act that would invalidate or impair, in any material
respect, its rights under, or give to the granting authority the right or
legality to terminate or diminish any franchise or license. No Classic Company
has received notice of any violation by any Classic Company or any System of any
Law applicable to the operation of the Systems and to the knowledge of the
Classic Companies, there is no basis for the allegation of any such violation.
The Classic Companies are not, nor have they at any time within the last three
(3) years been, nor have they received any notice that they are or have at any
time within the last three (3) years been, in violation of or in default under
any Law applicable to the business and operations of the Systems. There is no
Proceeding pending, or to the knowledge of the Company, threatened, to
terminate, suspect or modify in any material respect any Franchise or License.
No Governmental Entity has advised any Classic Company of its intention to deny
the renewal of an existing Franchise or material License.
(b) Licensing. The Classic Companies are permitted
under all applicable Franchises, Licenses and FCC rules, regulations and orders
to distribute the transmissions (whether television, satellite, radio or
otherwise) of video programming or other information that they make available to
subscribers of the Systems (the "Signals") and to use all carrier frequencies
generated by the operations of the Systems. The Classic Companies are licensed
to operate all the facilities required by law to be licensed, including, without
limitation, any business radio and any cable television relay service system
being operated as part of the Systems. Other than requests for network
non-duplication and syndicated exclusivity, and sports black-out protection
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and as listed on Schedule 3.16(b), no Classic Company has received any written
requests during the three (3) years preceding the date of this Agreement from
the FCC, the United States Copyright Office or any other Person challenging or
questioning the right of operation of the Systems and of any FCC-licensed or
registered facility used in conjunction with the Classic Companies' operation of
the Systems. To the knowledge of the Classic Companies, they have not violated
any Laws or any duty or obligation with regard to protecting the privacy rights
of any past or present subscribers to the Systems. Except as set forth on
Schedule 3.16(b), no Classic Company has made or is bound by any material
commitments to any state, municipal, local or other governmental commission,
agency or body with respect to the operation and construction of their
respective systems which are not fully reflected in the Franchises, Licenses or
Contracts.
(c) Pole Attachment Agreements. Each Classic Company
(i) has complied in all material respects with the terms and conditions of all
pole attachment agreements to which it is a party (including any requirements
for notifications, filing, reporting, posting and maintaining logs and records)
and (ii) has not done or performed any act that would invalidate or impair in
any material respect its rights under the pole attachment agreements. Except as
set forth on Schedule 3.16(c), there is no pending claim that operations by any
Classic Company pursuant to any pole attachment agreement have been improperly
conducted or maintained in any material respect. There is no Proceeding pending,
or to the knowledge of the Company, threatened, to terminate, suspect or modify
in any material respect any pole attachment agreement.
(d) Programming Agreements. Each Classic Company (i)
has complied in all material respects with the terms and conditions of the
programming agreements to which it is a party (including any requirements for
notifications, filing, reporting, posting and maintaining logs and records) and
(ii) has not done or performed any act that would invalidate or impair in any
material respect its rights under the programming agreements. Except as set
forth on Schedule 3.16(d), no Consent is required in connection with the
execution, delivery or performance of any programming agreement. Except as set
forth on Schedule 3.16(d), no material programming agreement expires or requires
renewal or other material modification within two years of the date of this
Agreement. Except as set forth on Schedule 3.16(d), there is no pending claim
that operations by any Classic Company pursuant to any programming agreement
have been improperly conducted or maintained in any material respect. There is
no Proceeding pending, or to the knowledge of the Company, threatened, to
terminate, suspend or modify in any material respect any programming agreement.
(e) Cable Act. The Systems are in material compliance
with the provisions of the Communications Act as such Law applies to the
Systems. Except as listed on Schedule 3.16(e), the Classic Companies are in
compliance with the must-carry and retransmission consent provisions of the
Cable Act. No written notice or demands, and to the knowledge of
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the Classic Companies, no oral notice or demands, have been received from any
television station or from any other Person claiming to have a right, or
objecting to or challenging the right of the Systems, to carry or deliver any
signal, or challenging the channel position on which any television station is
carried. The Classic Companies have used reasonable good faith efforts to
establish rates charged to subscribers, effective since September 1, 1993, that
are or were allowable under the Cable Act and any authoritative interpretation
thereof now or then in effect, whether or not such rates are or were subject to
regulation at that date by any Governmental Entity, including any local
franchising authority and/or the FCC, unless such rates were not subject to
regulation pursuant to a specific exemption from rate regulation contained in
the Cable Act other than the failure of any franchising authority to have been
certified to regulate rates. The Classic Companies have filed complete and
correct reports and filings during the past three years required to be filed
pursuant to the Cable Act or FCC rules or regulations with respect to the
Systems. No System is rate-regulated under any Law. A request for renewal has
been timely filed under Section 626(a) of the Cable Act with the proper
Governmental Entity with respect to each franchise of the Systems expiring
within 36 months of the date of this Agreement.
(f) CLI. The Classic Companies have conducted all
system and microwave performance tests required by any applicable Law,
including all Cumulative Leakage Index ("CLI") related tests applicable to the
Systems. Except as described on Schedule 3.16(f), the Classic Companies have (i)
maintained appropriate log books and other record keeping which accurately and
completely reflect in all material respects all results required to be shown
thereon, (ii) to the extent required by the rules and regulations of the FCC,
corrected any radiation leakage of the Systems required to be corrected in
connection with monitoring obligations of the Classic Companies under the rules
and regulations of the FCC and (iii) otherwise complied in all material respects
with all applicable CLI rules and regulations in connection with the operation
of the Systems. The Investor may, with reasonable notice, review all tests and
filings at offices of the Company. No Classic Company is using any frequency
whose use is prohibited by the FAA, Department of Defense or any other
Government Entity.
(g) FAA Rules and Regulations. The Systems are being
operated in all material respects in compliance with the rules and regulations
of the Federal Aviation Administration ("FAA"). Schedule 3.16(g) lists all the
existing towers utilized in conjunction with the Systems. Without limiting the
generality of the foregoing, the existing towers of the Systems are
obstruction-marked and lighted in all material respects in accordance with the
rule and regulations of the FAA and FCC if so required. All required
authorizations, including, without limitation, hazard to air navigation
determinations, for such towers have been issued by and pursuant to the rules
and regulations of the FAA. Except as set forth in Schedule 3.16(g), no Classic
Company leases space on such towers to any third party.
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(h) Copyright. The Company has deposited with the
United States Copyright Office the most recent statements of account and other
documents and instruments, and paid all royalties, supplemental royalties, fees
and other sums to the United States Copyright Office required under the
Copyright Act with respect to the business and operations of the Systems as are
required to obtain, hold and maintain the compulsory copyright license for cable
television systems prescribed in Section 111 of the Copyright Act. Except as set
forth in Schedule 3.16(h), the Classic Companies are in compliance in all
material respects with the Copyright Act and the rules and regulations of the
Copyright Office with respect to the operation of the Systems. The Classic
Companies are entitled to hold and do hold the compulsory copyright license
described in Section 111 of the Copyright Act, which compulsory copyright
license is in full force and effect and has not been revoked, canceled,
encumbered or adversely affected in any manner.
Section 3.17 Taxes. Except as disclosed on Schedule 3.17:
(a) All material Returns required to be filed on or
before the Closing Date (taking into account applicable extensions) with respect
to the Classic Companies or the affiliated, combined, consolidated or unitary
group of which the Classic Companies is or was a member, have been duly and
timely filed, and all such Returns are or, in the case of Returns not yet due as
of the date hereof, will be true, correct and complete in all material respects
when filed. The Classic Companies have duly and timely paid all Taxes and other
charges that are due with respect to the periods covered by such Returns
(whether or not shown as due on any Return) and have made all required estimated
payments of Taxes. There are no Liens with respect to Taxes (except for Liens
with respect to current Taxes not yet due) upon any of the Assets.
(b) No audit or other proceeding by any Taxing
Authority is pending or threatened in writing with respect any Taxes due from
any of the Classic Companies, or with respect to any Return filed or required to
be filed by or relating to such companies. No assessment or deficiency for any
Tax is proposed or, based on existing facts and circumstances, is threatened in
writing against any of the Classic Companies. Schedule 3.17 lists the audit
status of each of the Classic Companies' Returns relating to income Taxes.
(c) There are no agreements or applications by the
Classic Companies for the extension of the time for filing any Return or paying
any Tax, nor have there been any waivers of any statutes of limitation for the
assessment of any Taxes.
(d) No Classic Company is a party to, is bound by, or
has any obligation under, any Tax sharing agreement or arrangement of any kind,
whether written or oral, or any similar contract.
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(e) There is no power of attorney given by or binding
upon any of the Classic Companies with respect to Taxes for any period for which
the statute of limitations (including any waivers or extensions) has not yet
expired.
(f) As of December 31, 1998, for U.S. federal income
tax purposes, the Company had no net operating loss carryforwards. There has not
been an ownership change of the Company within the meaning of Section 382 of the
Code during the five years preceding the date of this Agreement.
(g) With respect to any Taxes not yet due or owing,
each Classic Company has established due and sufficient reserves for such Taxes
in their books and records and in accordance with GAAP.
(h) No Classic Company has been or is in violation
(or with notice or lapse of time or both, would be in violation) of any
applicable Law relating to the payment or withholding of Taxes. Each Classic
Company has duly and timely withheld from employee salaries, wages and other
compensation, and paid over to the appropriate Taxing Authorities all amounts
required to be so withheld and paid over for all periods under all applicable
Laws.
Section 3.18 ERISA and Other Employment Matters. (a) Except
for the Restricted Stock Plan and the 1996 Restricted Stock Award Plan, or Stock
Incentive Plan or as set forth on Schedule 3.18(a), no Classic Company maintains
or contributes to or has any obligation to contribute to, or has any liability
(whether such liability is contingent or otherwise) with respect to, any plan,
program, arrangement, agreement or commitment which is an employment, consulting
or deferred compensation agreement, or an executive compensation, incentive
bonus or other bonus, employee pension, profit-sharing, savings, retirement,
stock option, stock purchase, severance pay, life, health, disability or
accident insurance plan, or vacation, or other employee benefit plan, program,
arrangement, agreement or commitment, including, without limitation, any
"employee benefit plan" as defined in Section 3(3) of ERISA (individually, a
"Plan", and collectively, the "Plans").
(b) No Classic Company maintains or otherwise has any
liability with respect to any employee benefit plan (including, without
limitation, the Plans) that is subject to the provisions of Title IV of ERISA.
(c) No event has occurred with respect to any Plan in
connection with which any Classic Company or any Plan, directly or indirectly,
could be subject to any material liability under ERISA, the Code or any other
Law, applicable to any Plan, including, without limitation, Section 406, 409,
502(i), 502(l) or 4069 of ERISA, or Section 4971, 4975 (assuming
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for the purpose of such Section that the "taxable period" of any "prohibited
transaction" (as such terms are defined in such Section) had expired three years
from the date hereof) or 4976 of the Code, or under any agreement or instrument
pursuant to or under which the Classic Companies has agreed to indemnify any
Person against liability incurred under, or for a violation or failure to
satisfy the requirement of, any such Law.
(d) Other than as set forth in Schedule 3.18(d), with
respect to each Plan (i) all payments due from each Classic Company to date have
been made when due and all amounts properly accrued to date or as of the Closing
Date as liabilities of any Classic Company which have not been paid have been
properly recorded on the books of the Classic Company; (ii) each Classic Company
has complied with, and each such Plan conforms in form and operation to, all
applicable laws and regulations, including, but not limited to, ERISA and the
Code, in all material respects; (iii) except as described in Schedule 3.18(d),
each such Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and intended to qualify under Section 401 of the Code has
received a favorable determination letter from the IRS with respect to such
qualification, its related trust has been determined to be exempt from taxation
under Section 501(a) of the Code, and nothing has occurred since the date of
such letter that has or is likely to adversely affect such qualification or
exemption; and (iv) there are no Proceedings pending (other than routine claims
for benefits) or, to the knowledge of the Classic Companies, threatened with
respect to such Plan or against the assets of such Plan.
(e) Except as described on Schedule 3.18(e), neither
the execution and delivery of the Transaction Agreements nor the consummation of
the transactions contemplated thereby will (i) accelerate the time of the
payment, vesting or funding of, or increase the amount of, compensation due to
any employee or former employee or (ii) constitute a "Change of Control" within
the meaning of any employment agreement any Plan or give rise to severance
payments. Except as described on Schedule 3.18(e), during the one year preceding
the date hereof, neither the Board of Directors nor any committee thereof has
taken any action that would, in connection with the execution and delivery of
the Transaction Agreements or the consummation of the transactions contemplated
thereby, result in an acceleration of the time of the payment, vesting or
funding of, or increase the amount of, compensation due to any employee or
former employee, including any determination to contribute assets to any trust
established to set aside assets to provide for the payment of obligations to
current or former employees.
(f) There has been made available to the Investor,
with respect to each Plan, a copy of all material employee communications
relating to such Plan since January 1, 1995 and a copy of (or description of)
any communication (other than routine forms required to be filed by the Company)
between the Company and the IRS, the U.S. Department of Labor or the PBGC since
January 1, 1995 concerning the Plan.
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(g) No Classic Company has any announced plan or
commitment (whether or not legally binding) to create any additional Plans or to
amend or modify any existing Plan, or to increase benefits payable pursuant to
any Plan.
(h) Except as set forth on Schedule 3.18(h), there
exists no limitation on the ability of any Classic Company to modify or
terminate any Plan providing medical or life insurance benefits to current or
former employees of any Classic Company.
(i) No Classic Company is a party to any collective
bargaining agreements and there are no labor unions or other organizations
representing, purporting to represent, or attempting to represent, any employee
of any Classic Company.
(j) No Classic Company has violated any provision of
Law regarding the terms and conditions of employment of employees, former
employees or prospective employees or other labor related matters, including,
without limitation, Laws relating to discrimination, fair labor standards and
occupational health and safety, wrongful discharge or violation of the personal
rights of employees, former employees or prospective employees which is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.
Section 3.19 Contracts. (a) Schedule 3.19 (a) lists all
material Contracts other than Franchises. The Company has delivered to the
Investor each written Contract set forth in Schedule 3.19(a). Each such Contract
is valid and binding and in full force and effect, and there is no existing
default or event of default that would (with or without notice, lapse of time or
the happening or occurrence of any other event) constitute a default by the
Classic Company thereunder or, to the knowledge of the Classic Company, any
other party thereto. The Company has not waived its rights under the
non-competition agreements with James A. Queen, Rodney A. Weary and F.G. Weary,
dated as of June 30, 1995, as listed in Schedule 3.19(a).
(b) Except as identified in Schedule 3.19(b), no Classic
Company is party to or is bound by or subject to: (i) any Contract that contains
any severance, parachute, extraordinary bonus tied to transactions, or similar
payment liabilities or obligations; (ii) any employment, consultation or similar
Contract; (iii) any Contract relating to the disposition or acquisition of the
stock or assets of, or any interest in, any business enterprise; (iv) any
Contract relating to capital expenditures by the Company and involving future
payments which, together with future payments under all other Contracts relating
to the same capital project, exceeds $100,000 or more and is not cancellable by
the Company without penalty within 30 days; (v) any other Contract which
involves payments by the Company of $100,000 and is not cancellable without
penalty within 30 days; (vi) any lease, sublease, installment purchase or
similar Contract for personal property calling for annualized payments with
respect to such personal property
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exceeding $100,000, (vii) any Indebtedness of whatsoever nature to any
shareholder or any Affiliate of any shareholder of the Company (other than the
Company), or any Contract with any shareholder or any Affiliate of any
shareholder of the Company (other than the Company); (viii) any Contract
containing any covenant limiting the freedom of any Classic Company to engage in
any line of business or compete with any Person or in any geographic area; (ix)
any Contract limiting the right of any Classic Company to pay dividends or make
distributions; (x) any Contract relating to the purchase, licensing or
development of any computer software, hardware or data bases (other than sales
of inventory in the normal course) used or to be used by the Classic Company;
(xii) any Contract to sell any products or services which is presently expected
to result in a loss upon completion or performance thereof in an amount
exceeding $100,000; (xiii) any Contract which includes provisions regarding
minimum volumes or volume discounts or pursuant to which a rebate, discount,
bonus, commission or other payment with respect to the sale of any product of
any Classic Company will be payable or required after the Closing; (xiv) any
consignment, distributor, dealer, manufacturer's representative, sales agency,
advertising representative or advertising or public relations Contract; or (xv)
any other Contract that involves payments by a Classic Company of $100,000 or
more in any calendar year.
Section 3.20 Financial Advisors and Brokers. Except for
Goldman, Sachs & Co., and as otherwise contemplated by the Transaction
Agreements, no Person has acted, directly or indirectly, as a broker, finder or
financial advisor of the Company in connection with the Transaction Agreements
or the transactions contemplated thereby, and no Person is entitled to receive
any broker's, finder's or similar fee or commission in respect thereof based in
any way on any agreement, arrangement or understanding made by or on behalf of
the Classic Companies or any of their respective directors, officers or
employees. The Company has delivered to the Investor complete and correct copies
of all agreements between the Company and Goldman, Sachs & Co. (or any of its
Affiliates).
Section 3.21 Exemption from Registration. Assuming the
representations and warranties of the Investor set forth in Article IV are
complete and correct in all material respects, the offer and sale of the
Securities made pursuant to this Agreement will be in compliance with the
Securities Act and any applicable state securities laws and will be exempt from
the registration requirements of the Securities Act and such state securities
laws.
Section 3.22 Insurance. Schedule 3.22 sets forth a description
that is correct and complete, in all material respects, (specifying the insurer,
the policy number or covering note number with respect to binders and amount of
coverage), of insurance policies, binders, contracts or instruments
(collectively, the "Policies") to which any Classic Company is a party or by
which any of their assets or any of their employees, officers or directors (in
such capacity) are covered by property, fire, professional liability, fiduciary
and other insurance. Correct and complete
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copies of all such Policies have been delivered to the Investor. Except as set
forth on Schedule 3.22, all such Policies are in full force and effect in
accordance with their respective terms and will remain in full force and effect
after the Closing. Except as set forth on Schedule 3.22, no Classic Company has
received any notice of default with respect to any provision of any such
Policies. With respect to its directors' and officers' liability insurance
policies, no Classic Company has failed to give any notice or present any claim
thereunder in due and timely fashion or as required by any such policies so as
to jeopardize full recovery under such Policies.
Section 3.23 Environmental Protection. Except as set forth in
Schedule 3.23:
(a) Each Classic Company has obtained all material Licenses
which are required under the Environmental Laws for the use and operation of all
Real Property it owns, leases or operates. All such Licenses are in effect, no
appeal nor any other action is pending to revoke any such License. Each Classic
Company is in full material compliance with all terms and conditions of all such
Licenses. The Classic Companies have listed all such Licenses, including the
expiration dates thereof, on Schedule 3.23(a).
(b) Each Classic Company and all Real Property are in
compliance in all material respects with all Environmental Laws, including,
without limitation, all restrictions, conditions, standards, limitations,
prohibitions, requirements, obligations, schedules and timetables contained in
the Environmental Laws or contained in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(c) The Company has delivered to the Investor complete and
correct copies of all environmental studies made by, or at the request of, the
Company or any Classic Company in the last five years relating to all real
property currently or previously owned, leased or operated by any Classic
Company.
(d) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter existing or pending, or to the Company's knowledge,
threatened, relating to any Classic Company or any Real Property currently or
previously owned, leased or operated by any Classic Company relating in any way
to the Environmental Laws or any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder.
(e) The Company has not and, to the Company's knowledge, no
other Person has, released, placed, stored, buried or dumped, in excess of the
levels permitted under Environmental Laws, any material amounts of Hazardous
Materials or any material amounts of other wastes produced by, or resulting
from, any business, commercial or industrial activities,
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operations or processes, on, beneath or adjacent to real property owned, leased
or operated by any Classic Company or any property formerly owned, operated or
leased by any Classic Company where such Hazardous Materials or other wastes
would have a material adverse impact on such real property, except for
inventories of such substances to be used, and wastes generated therefrom, in
the ordinary course of business of the Classic Companies (which inventories and
wastes, if any, were and are stored or disposed of in accordance with applicable
laws and regulations and in a manner such that there has been no Release of any
such substances into the environment in excess of the levels permitted under
Environmental Laws).
(f) No material Release in excess of the levels permitted
under Environmental Laws or Cleanup has occurred at Real Property owned, leased
or operated by any Classic Company or any other properties formerly owned,
leased or used by any Classic Company which could result in the assertion or
creation of a Lien on real property owned, leased or operated by any Classic
Company by any Governmental Entity, nor has any such assertion of a Lien been
made by any Governmental Entity with respect thereto.
(g) No employee of any Classic Company in the course of his
or her employment with any Classic Company has been exposed to any Hazardous
Materials or other substance, generated, produced or used by any Classic Company
in excess of the levels permitted under Environmental Laws which could give rise
to any claim against any Classic Company.
(h) No Classic Company has received any notice or order
from any Governmental Entity or private entity advising it that it is
responsible or potentially responsible for Cleanup or paying for the cost of
Cleanup of any Hazardous Materials or any other waste or substance regulated
under Environmental Laws. No Classic Company has entered into any agreements
concerning such Cleanup, nor is the Company aware of any facts which might
reasonably give rise to such notice, order or agreement.
(i) No Real Property owned, leased or operated by any
Classic Company contains any of the following that are not in material
compliance with Environmental Laws: (A) underground storage tanks; (B) asbestos;
(C) equipment using PCBs; (D) underground injection wells; or (E) septic tanks
in which process waste water or any Hazardous Materials have been disposed.
(j) No Classic Company has entered into any agreement that
may require it to pay to, reimburse, guarantee, pledge, defend, indemnify or
hold harmless any person for or against, any failure to comply with
Environmental Laws.
(k) With regard to the Classic Companies and any Real
Property, there are no events, conditions, circumstances, activities, practices,
incidents, actions or plans which may
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prevent compliance or continued compliance with the Environmental Laws as in
effect on the date hereof or with any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder, or to the best of Company's knowledge, which may give rise
to any common law or legal liability under the Environmental Laws, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, notice
of violation, study or investigation, based on or related to the manufacture,
generation, processing, distribution, use, treatment, storage, place of
disposal, transport or handling, or the Release or threatened Release into the
indoor or outdoor environment by any of the Classic Companies or any of their
facilities, of any Hazardous Materials which would make any Classic Company fail
to comply with Environmental Laws.
Section 3.24 Insider Interests and Affiliate Transactions.
Except as disclosed on Schedule 3.24, there are no (i) transactions involving
undisclosed ownership interests, (ii) Affiliate transactions that are material
to the Classic Companies taken as a whole, (iii) intercompany liabilities or
obligations between the Classic Companies that are not eliminated in the
Company's consolidated financial reporting or (iv) other material business
relation ships between any Classic Company, on the one hand, and any current or
former stockholder, director, officer or employee, on the other hand, other than
in such Person's capacity as a stockholder, director, officer or employee in the
ordinary course of business (excluding transactions that are at arm's length
and are not unfair to the Classic Company).
Section 3.25 Bonds. Schedule 3.25 contains an accurate and
complete list of all bonds (franchise, construction, fidelity, or performance)
of any Classic Company which are required to be obtained by any Classic Company
and which relate in any way to the ownership or use of the Assets or the
operation of the Systems.
Section 3.26 Disclosure. To the best knowledge of the Company,
the representations and warranties made by the Company in this Agreement, and
the exhibits, documents, statements, certificates or schedules furnished or to
be furnished to the Investor pursuant to the terms hereof or expressly
referenced herein or therein, taken as a whole, do not contain any untrue
statement of a material fact.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company as
follows:
Section 4.1 Organization and Qualification. The Investor is a
limited liability company duly formed, validly existing and in good standing
under the laws of the jurisdiction of its formation and has all requisite power
and authority to own or lease and operate its properties and to conduct its
business as it is currently being conducted.
Section 4.2 Authorization of Agreements. (a) The Investor has
all the requisite power and authority to execute, deliver and perform its
obligations under the Transaction Agreements to which it is a party. The
execution, delivery and performance of the Transaction Agreements have been, or
will be before the Closing, duly authorized by all necessary action on the part
of the Investor. The board of managers of the Investor has approved the entry by
the Investor into the Transaction Agreements to which it is a party and the
consummation of the transactions contemplated thereby.
(b) The Transaction Agreements to which the Investor is a
party have been, or will be by Closing, duly executed and delivered by it, and
each such agreements constitute or will constitute a legal, valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general principles of equity.
Section 4.3 Consents; No Conflicts. (a) The execution and
delivery by the Investor of this Agreement, the Stockholders' Agreement and the
Registration Rights Agreement do not, and of the other Transaction Agreements to
which it is a party will not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) violate any provision of the
certificate of formation or the comparable governing instruments of the
Investor; (ii) give rise to any preemptive rights, rights of first refusal or
other similar rights on behalf of any Person under any applicable Law or any
provision of the certificate of formation of the Investor or any agreement or
instrument applicable to the Investor; (iii) conflict with, contravene or result
in a breach or violation of any of the terms or provisions of, or constitute a
default (with or without notice or the passage of time) under, or result in or
give rise to a right of termination, cancellation, acceleration or modification
of any right or obligation under, or require any Investor Consent under, any
note, bond, debt instrument, indenture, mortgage, deed of trust, lease, loan
agreement, joint venture agreement, regulatory approval, contract or any other
agreement, instrument or obligation to which the Investor is a party or by which
the Investor or its property is bound; (iv) result in the creation or imposition
of any Lien upon any assets or properties of the Investor; or (v) violate any
Law applicable to the Investor, other than in the case of clauses (iii)
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through (v) above, exceptions that would not have, individually or in the
aggregate, a Material Adverse Effect.
Section 4.4 Financial Advisors and Brokers. Except for Merrill
Lynch, Pierce, Fenner & Smith, Incorporated, no Person has acted, directly or
indirectly, as a broker, finder or financial advisor of the Investor in
connection with the Transaction Agreements or the transactions contemplated
thereby, and no Person is entitled to receive any broker's, finder's or similar
fee or commission in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of the Investor or any of
their respective members, managers, officers or employees.
Section 4.5 Ownership of Company Equity Securities; Purpose of
Investment. The Investor does not own more than 1% of the outstanding voting
stock of the Company (each of "own" and "voting stock" as defined for purposes
of Section 203 of the DGCL). The Investor is acquiring the Securities 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 Securities Act. The Investor acknowledges that the Securities have 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. The Investor and each of its members is an
accredited investor as defined in Rule 501 of Regulation D.
Section 4.6 No Prior Activities. The Investor was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any business activities, conducted any operations, incurred
any obligation or liability or entered into any agreements other than in
connection with its organization or the matters contemplated hereby.
ARTICLE V
PRE-CLOSING COVENANTS
Section 5.1 Consents; HSR Act. (a) The Company shall, at its
cost and expense, use commercially reasonable efforts to obtain as promptly as
possible, all Consents required to consummate the transactions contemplated by
the Transaction Agreements, including those listed on Schedule 3.3. The Investor
will reasonably cooperate in obtaining the Consents, but the Investor will not
be required (i) to make any payment to any Person from whom such consent is
sought or (ii) to accept any material changes in, or the imposition of any
materially adverse condition to any Contract, Franchise, or License as a
condition to obtaining any Consent. All Consents to be obtained by the Classic
Companies shall be in a form reasonably acceptable to the Investor. Subsequent
to the Closing, the Classic Companies shall continue to use commercially
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reasonable efforts to obtain in writing any Consent required to be obtained by
it that was not obtained on or before Closing, and deliver copies of such to the
Investors, in a form reasonably satisfactory to the Investor. The obligations
set forth in this subsection shall survive Closing and shall not be merged in
the consummation of the transactions contemplated hereby.
(b) Without limiting the generality of the foregoing, the
Company will (i) take all actions necessary to make the filings required of it
or its Affiliates under the HSR Act with respect to the transactions
contemplated by this Agreement within ten (10) Business Days from the date of
this Agreement, (ii) comply with any request for additional information received
by the Company or its Affiliates from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act, (iii)
cooperate with the Investor in connection with the Investor's filings under the
HSR Act, and (iv) request early termination of the applicable waiting period.
Section 5.2 Conduct of Business. (a) From the date hereof
until the Closing, the Company will conduct its business and will cause its
Subsidiaries to conduct their respective businesses only in the ordinary course
and will use, and will cause its Subsidiaries to use, their best efforts (i) to
preserve their respective present business organizations, Assets, operations,
goodwill and relationships with third parties, (ii) to keep available the
services of the present directors, officers and employees except as may be
otherwise agreed to by the parties, (iii) maintain in full force and effect all
Franchises, Licenses and material Contracts; and (iv) preserve the present
relationships of the Classic Companies with Persons having business dealings
with it.
(b) Without limiting the generality of the foregoing,
except as required pursuant to outstanding agreements or obligations of any
Classic Company that have been disclosed to the Investor and set forth in the
Schedules hereto, from the date hereof until the Closing, without the prior
written consent of the Investor (except as expressly permitted or required by
this Agreement), the Company will not, and will not allow its Subsidiaries to,
(i) issue or sell, or commit to issue or sell, any Equity Securities of any
Classic Company, or any options, warrants or commitments or rights of any kind
with respect thereto or any convertible or exchangeable securities; (ii)
directly or indirectly purchase, redeem or otherwise acquire or dispose of any
Equity Securities of any Classic Company, (iii) declare, set aside or pay, or
commit to pay, any dividend or other distribution on any of the Equity
Securities of the Company; (iv) borrow or agree to borrow any funds or incur,
whether directly or by way of guarantee, any obligation for borrowed money,
other than in the ordinary course of business consistent with past practice; (v)
permit any Assets to be subjected to any Lien or otherwise permit or allow the
sale, transfer or disposition of any Assets of the Classic Companies, other than
in the ordinary course of business consistent with past practice; (vi) make any
capital expenditure or execute any lease, lease renewal or lease amendment or
incur any commitment or liability therefor, except as contemplated by the
Company's 1999 capital expenditure plan attached hereto as Schedule
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5.2(b); (vii) pay, discharge or satisfy any Liability other than in the ordinary
course of business and consistent with past practice; (viii) increase the
compensation of any officer or employee; (ix) make or permit to be made any
amendment to its charter, bylaws or other organizational documents or to the
Acquisition Agreement; (x) make any change in financial reporting or tax or
accounting methods or practices of the Company (including any change with
respect to establishment of reserves, losses or any change in depreciation or
amortization policies or rates adopted by it), except as required by law or U.S.
GAAP and as set forth in Schedule 5.2(b) or change accounting firms; (xi) amend,
modify, waive or compromise, or commit to waive or compromise, any provision of
the Acquisition Agreement (including, without limitation, the closing conditions
in Article VII of the Acquisition Agreement); (xii) effect any amendment,
termination, waiver, disposal or lapse of, or other failure to preserve, any
material License; (xiii) change customer rates for any tier of service or
charges for remote or installations, or implement any re-tiering or repackaging
of cable television programming offered by the Systems, or change billing,
collection, installation, disconnect, marketing or promotional practices other
than those changes described in Schedule 5.2(b); (xiv) seek amendments or
modifications to existing Franchises or Contracts or accept or agree to accede
to any modification or amendment to, or any condition to the transfer of, any of
the Franchises, Contracts or owned Real Property that will adversely affect the
Investor; (xv) agree with any Governmental Entity to extend or to toll the time
limits applicable to such Governmental Entity's consideration of the FCC Form
394; or (xvi) agree to do any of the foregoing.
(c) From the date hereof until the Closing, the Company
will, and will cause its Subsidiaries and Affiliates to, (i) maintain the
tangible Assets in good condition and repair, ordinary wear and tear excepted;
(ii) perform all of its obligations under all of the Franchises, Licenses and
Contracts without material breach or default; (iii) at the Investor's request,
enforce and/or assign to the Investor its rights under the Acquisition
Agreement; and (iv) operate each System in substantial compliance with
applicable Laws, and, in each case, unless the Investor otherwise requests in
writing, use its commercially reasonable efforts to (A) continue normal
marketing, advertising, and promotional expenditures and practices with respect
to each System, (B) maintain inventories of equipment and supplies at historical
levels, (C) promptly deliver to the Investor copies of monthly unaudited balance
sheets and statements of operations, cash flow and stockholders' equity and
other reports with respect to the operation of the regularly prepared by the
Company from the date hereof until the Closing within 25 days after each month
end and (D) promptly inform the Investor in writing of any material adverse
change in the financial condition or business operations of the Classic
Companies or the Systems.
Section 5.3 Access. From the date hereof, the Company will,
and will cause its Subsidiaries and Affiliates to, give to the Investor and its
counsel, accountants, financial advisors, and other representatives, full access
upon reasonable prior notice during normal business hours to (a) the cable
systems, the real property, the assets, the management and the
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books and records (including tax books and records) of the Classic Companies and
the Buford Companies (as defined in the Acquisition Agreement) and (b) the
officers and employees of the Classic Companies and the Buford Companies, to
furnish to the Investor financial and operating data and other information with
respect to their respective assets and conduct of their respective businesses;
provided, however, that such access will not disrupt normal business operations,
and the Investor will use commercially reasonable efforts to limit the number of
access requests; provided further that any such access to the Buford Companies
will be pursuant to the terms of the Acquisition Agreement. Any investigation
conducted by or on behalf of the Investor pursuant to this Section or otherwise
will not affect the Investor's right to rely on the representations and
warranties of the Company set forth herein.
Section 5.4 Non-Solicitation. From the date hereof until the
earlier of the Closing or the termination of this Agreement (the "Exclusivity
Period"), the Company will not, and will not authorize or permit any of its
Subsidiaries or Affiliates or any of their Representatives to, directly or
indirectly, (i) solicit or initiate, or encourage the submission of, any
inquiry, proposal or offer (a "Proposal") from any Person relating to an
Alternate Transaction, (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Proposal or Alternate
Transaction, other than a transaction with the Investor, or (iii) authorize,
engage in, or enter into any agreement or understanding with respect to, any
Alternate Transaction. The Company will promptly advise the Investor of any oral
proposal and provide a copy to the Investor of any Proposal that the Company,
any of its Subsidiaries or Affiliates or any of their Representatives may
receive during the Exclusivity Period.
Section 5.5 Supplements to Disclosure Schedule; Notice and
Cure. (a) Prior to the Closing, the parties will promptly supplement or amend
the sections of the Schedules to this Agreement relating to their respective
representations and warranties in this Agreement with respect to any matter,
condition or occurrence hereafter arising which, if existing or occurring at the
date of this Agreement, would have been required to be set forth or described in
their respective sections of the Schedules or would otherwise have been
inconsistent with their representations set forth in this Agreement. No
supplement or amendment by either party will be deemed to cure (or affect the
rights of any party with respect to) any breach of any representation or
warranty made in this Agreement or have any effect for the purpose of
determining satisfaction of the conditions set forth in Article VII.
(b) The parties will promptly notify the other in writing of,
and contemporaneously with such notices will provide to the other true and
complete copies of all information and documents relating to, any event,
transaction or circumstance occurring after the date hereof that
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causes or is reasonably likely to cause any of its covenants or agreements in
this Agreement to be breached or that renders or is reasonably likely to render
untrue any of its representations or warranties contained in this Agreement. The
Company or the Investor, as the case may be, will use all reasonable efforts to
cure before the Closing, (i) any such breach or misrepresentation by it and (ii)
any violation or breach of any of its representations, warranties, covenants or
agreements in this Agreement, whether occurring or arising before or after the
date hereof.
(c) The parties agree to use all reasonable efforts to ensure
that the conditions to the other party's obligations hereunder set forth in
Article VII are satisfied, insofar as such matters are within the control of
such party. At all times prior to the Closing Date, the Investor will promptly
notify the Company, and the Company will promptly notify the Investor, in
writing of any fact, change, condition, circumstance or occurrence or
nonoccurrence of any event which will or is reasonably likely to result in the
failure to satisfy the conditions to be complied with or satisfied by it
hereunder, provided, however, that the delivery of any notice pursuant to this
Section 5.5 will not limit or otherwise affect the remedies available hereunder
to any party receiving such notice. The Company agrees to take all reasonable
actions necessary to cause the Stockholder Agreement and the Registration Rights
Agreement to be executed by a sufficient number of current stockholders in order
to terminate that certain existing amended and restated stockholders agreement,
dated as of October 31, 1995 and as amended, by and among the Company and
certain investors named therein and that certain existing amended registration
rights agreement, dated as of October 31, 1995 and as amended, by and among the
Company and certain investors named therein.
Section 5.6 Financing. The Company will use all reasonable
efforts to obtain the debt financing described in Schedule 5.6, all on terms
reasonably satisfactory to the Investor. In addition, the Company agrees to
consult with the Investor and obtain the Investor's prior approval (which
approval will not be unreasonably withheld) in connection with all aspects of
the financing of the Acquisition, including without limitation, (x)
participation in bank meetings, due diligence sessions and road shows, (y)
offering memoranda, private placement memoranda, prospectuses and similar
documents, and (z) any commitment letters, consent letters, underwriting or
placement agreements, pledge and security documents, other definitive financing
documents, or other requested certificates or documents. The Company will not
take any action with respect to its current Form S-4 on file with the SEC which
could affect the financing contemplated under Section 5.6 without the Investor's
prior consent, which will not be unreason ably withheld.
Section 5.7 Stock Incentive Plan. At the Closing, the Company
will adopt a stock incentive plan ("Stock Incentive Plan") for management which
will provide for the issuance of Common Stock to the key employees of the
Company. Grants of restricted stock or options
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under the Stock Incentive Plan will be determined by the Board of Directors,
taking into account individual and Company performance as well as extraordinary
transactions. The Stock Incentive Plan will be in a form and contain such
additional terms that are mutually agreeable to the Investor and the Company.
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.1 Publicity. Except as required by Law or by
obligations pursuant to any listing agreement with or requirement of any
national securities exchange or national quotation system on which the Equity
Securities of any Classic Company may be listed, admitted to trading or quoted,
neither the Company (or any of its Affiliates) nor the Investor (or any of its
Affiliates) will, without the prior written consent of the other, which consent
will not be unreasonably withheld or delayed, make any public announcement or
issue any press release with respect to the transactions contemplated by this
Agreement.
Section 6.2 Director and Officer Indemnification. (a) So long
as any nominee of the Investor ("Investor Nominee") or any of the current
directors serves as a member of the Board of Directors or as an officer of the
Company, the Company will provide to each such individual indemnification and
directors' and officers' insurance having terms and provisions no less favorable
to such individuals than the indemnification and directors' and officers'
insurance provided to other directors and officers of the Company (including,
without limitation, coverage for matters based in whole or in part on, or
arising in whole or in part out of, any matter existing or occurring while such
Investor Nominee was a director, even though such Investor Nominee may no longer
be a director at the time any claim for indemnification or coverage under
insurance is made).
(b) So long as any Investor Nominee or any of the current
directors serves as a member of the Board of Directors or as an officer of the
Company, the Company will not amend the Certificate of Incorporation or Bylaws
so as to adversely affect the rights of any such person with respect to
indemnification by the Company for any losses incurred by such person in such
person's capacity as an officer or director of the Company.
(c) So long as any Investor Nominee or any of the current
directors serves as a member of the Board of Directors or as an officer of the
Company, the Company will maintain in full force and effect, to the extent
available, directors' and officers' liability insurance with respect to such
person, which insurance will be in an amount, and will cover such risks, as is
customary for a corporation in the same business as, or in a similar business
to, that engaged in by the Company.
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Section 6.3 Legend. The Investor agrees to the placement on
(i) certificates representing Securities purchased by the Investor pursuant to
the terms hereof, 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:
"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 EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS."
This legend will be removed from a certificate representing Securities if such
securities represented thereby are sold pursuant to an effective registration
statement under the Securities Act or there is delivered to the Company such
satisfactory evidence, which may include an opinion of independent counsel, as
may reasonably be requested by the Company, to confirm that neither such legend
nor the restrictions on transfer set forth therein are required to ensure that
transfers of such shares will not violate the registration and prospectus
delivery requirements of the Securities Act.
Section 6.4 Further Assurances. After the Closing, each party
will from time to time, at the request of the other party and at its cost or
expense, execute and deliver such other instruments and take such other actions
as such other party may reasonably request to more effectively consummate the
transactions contemplated hereby (including satisfaction but not waiver of the
closing conditions set forth in Article VII).
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Investor's Obligations. The
obligation of the Investor to consummate the transactions contemplated by this
Agreement is subject to satisfaction or waiver, at or before the Closing, of
each of the following conditions, unless waived in writing by the Investor:
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(a) Representations and Warranties. The representations and
warranties of the Company set forth in Article III will have been true and
correct on and as of the date hereof and will be true and complete as of the
Closing as if made on the Closing Date (except where such representation and
warranty speaks by its terms as of a different date, in which case it will be
true and correct as of such date).
(b) Performance. The Company will have performed in all
material respects all obligations and complied with all agreements, undertakings
and covenants required to be performed by it hereunder at or prior to the
Closing.
(c) Compliance with Laws; No Adverse Action or Decision.
Since the date hereof, (i) no Law will have been promulgated, enacted or entered
that restrains, enjoins, prevents, materially delays, prohibits or otherwise
makes illegal the performance by the Company of any Transaction Agreement, and
(ii) no Governmental Entity will have instituted any Proceeding that seeks to,
or issued a preliminary or permanent injunction or other order that remains in
effect that will, restrain, enjoin, prevent, delay, prohibit or otherwise make
illegal the performance by the Company of any Transaction Agreement.
(d) Officers' Certificate. The Company will have delivered
to the Investor at the Closing a certificate in form and substance reasonably
satisfactory to the Investor dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the Company to the effect
that the conditions set forth in Sections 7.1(a)-(c) have been satisfied.
(e) Opinions of Counsel. The Investor will have received at
the Closing (i) from Winstead Sechrest & Minick P.C., special counsel to the
Company, a written opinion, dated the Closing Date, substantially as set forth
in Exhibit A, and (ii) from Cole, Raywid & Braverman, special counsel to the
Company, a written opinion, dated the Closing Date, substantially as set forth
in Exhibit E.
(f) Employment Agreements. Belisle and Seach will have
entered into the Belisle Agreement and Seach Agreement, respectively.
(g) The Acquisition. The Acquisition will close
simultaneously with or before the Closing and all of the closing conditions set
forth in Article VIII of the Acquisition Agreement will have been fulfilled to
the reasonable satisfaction of the Investor.
(h) Financing. The Company will have obtained the debt
financing described in Schedule 5.6, or such other financing that is reasonably
satisfactory to the Investor.
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(i) Amendment of Bylaws. The Bylaws will have been duly and
validly amended by all necessary action of the Board of Directors to permit the
Company to comply with its obligations under the Transaction Agreements.
(j) Amendment of Certificate of Incorporation. The Company
will have amended the Certificate of Incorporation by filing with the Secretary
of State of the State of Delaware a certificate of amendment which includes all
changes necessary to authorize and issue the Securities and otherwise comply
with the Transaction Agreements. A copy of the Certificate of Incorporation,
certified by the State of Delaware, will have been delivered to the Investor.
(k) Consents. All Consents required for or in connection
with the execution and delivery of the Transaction Agreements and the
consummation of the transactions contemplated thereby, including those listed
in Schedule 3.3, will have been obtained and all waiting periods specified under
applicable Law (including, without limitation, the waiting period under the HSR
Act), the expiration of which is necessary for such consummation, will have
expired or been terminated.
(l) Documents. The Investor will have received all signed
counterpart originals from each other party to, the Transaction Agreements to
which the Investor is a party, each of the Stockholder Voting Agreements, and
such other documents as it may reasonably request. Without limiting the
generality of the foregoing, the Investor will have received counterparts to the
Stockholders Agreement and Registration Rights Agreement executed by the Company
and each Stockholder (as defined in such agreements).
(m) Board Representation. Directors' and officers'
liability insurance will be available on customary terms to each Investor
Nominee in an amount of coverage at least equal to $5,000,000.
(n) Subscribers; EBITDA. At the Closing, the Company will
have not fewer than 184,500 Basic Subscribers and EBITDA of not less than
$34,473,000.
(o) No Material Adverse Effect. Since the date of this
Agreement, no event will have occurred which has had or is reasonably likely to
have, a Material Adverse Effect.
Section 7.2 Conditions of the Company's Obligations. The
obligation of the Company to consummate the transactions contemplated by this
Agreement is subject to satisfaction or waiver, at or before the Closing, of
each of the following conditions, unless waived in writing by the Company:
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(a) Representations and Warranties; Covenants. The
representations and warranties of the Investor set forth in Article IV will have
been true and correct on and as of the date hereof and will be true and correct
as of the Closing as if made on the Closing Date (except where such
representation and warranty speaks by its terms as of a different date, in which
case it will be true and correct as of such date).
(b) Performance. The Investor will have performed in all
material respects all obligations and complied with all agreements, undertakings
and covenants required to be performed by it hereunder at or prior to the
Closing.
(c) Compliance with Laws; No Adverse Action or Decision.
Since the date hereof, (i) no Law will have been promulgated, enacted or entered
that restrains, enjoins, prevents, materially delays, prohibits or otherwise
makes illegal the performance by the Investor of any Transaction Agreement to
which the Investor is a party, and (ii) no Governmental Entity will have
instituted any Proceeding that seeks to, or issued a preliminary or permanent
injunction or other order that remains in effect that will, restrain, enjoin,
prevent, delay, prohibit or otherwise make illegal the performance by the
Investor of any Transaction Agreement, to which the Investor is a party.
(d) Officer's Certificate. The Investor will have delivered
to the Company at the Closing a certificate in form and substance reasonably
satisfactory to the Company dated the Closing Date and signed an authorized
signatory to the effect that the conditions set forth in Sections 7.2(a)-(c)
have been satisfied.
(e) Opinion of Counsel. The Company will have received at
the Closing from Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the
Investor, a written opinion, dated the Closing Date, substantially as set forth
in Exhibit B.
(f) Consents. All Investor Consents required for or in
connection with the execution and delivery of the Transaction Agreements to
which the Investor is a party and the consummation of the transactions
contemplated thereby, including those listed in Schedule 4.3, will have been
obtained and all waiting periods specified under applicable Law (including,
without limitation, the waiting period under the HSR Act), the expiration of
which is necessary for such consummation, will have expired or been terminated.
(g) Documents. The Company will receive all such
counterpart originals or certified or other copies of the Transaction Agreements
and such other documents as it may reasonably request.
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ARTICLE VIII
TERMINATION
Section 8.1 Termination of Agreement. This Agreement may be
terminated by notice in writing at any time prior to the Closing by the Investor
or the Company if:
(a) the Closing will not have occurred on or before
September 30, 1999, provided, however, that the right to terminate this
Agreement under this Section 8.1 will not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date;
(b) any Governmental Entity of competent jurisdiction will
have issued any judgment, injunction, order, ruling or decree or taken any other
action restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the Transaction Agreements, and such judgment,
injunction, order, ruling, decree or other action becomes final and
nonappealable; provided that the party seeking to terminate this Agreement
pursuant to this paragraph (b) will have used its best efforts to have such
judgment, injunction, order, ruling or decree lifted, vacated or denied; or
(c) the Company and the Investor so mutually agree in
writing.
Section 8.2 Effect of Termination. If this Agreement is
terminated in accordance with Section 8.1, the terminating party will promptly
give notice thereof to the other party, and this Agreement will become null and
void and of no further force and effect except that (i) the terms and provisions
of this Section 8.2, Section 6.1 and Articles IX and X will remain in full force
and effect, (ii) any termination of this Agreement will not relieve any party
hereto from any liability for any willful breach of its obligations hereunder
and (iii) if (A) the Company or any Affiliate thereof completes any transaction
involving the direct or indirect acquisition of the Buford Group, Inc., and (B)
this Agreement has not been terminated as a result of a willful breach of the
terms of this Agreement by the Investor, the Company will pay to the Investor
upon the closing of any such transaction the Deal Fee in immediately available
funds by wire transfer to an account designated by the Investor at least two (2)
Business Days before the transfer.
ARTICLE IX
REMEDIES
Section 9.1 Indemnification. (a) The Company agrees to
indemnify and hold harmless (i) the Investor, each member thereof, each member
or limited or general partner of each such member, each member or limited or
general partner of each such limited or general
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partner and each of the Affiliates and Representatives of each of the foregoing
(collectively, the "Indemnified Investor Parties") from and against any and all
losses, penalties, judgments, suits, costs, claims, liabilities, damages and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements (collectively, "Losses"), incurred by, imposed upon or asserted
against any of the Indemnified Investor Parties as a result of, relating to or
arising out of, the breach of any representation, warranty, agreement or
covenant made by the Company in any Transaction Agreement to which the Investor
is a party or in any certificate delivered by the Company pursuant to any
Transaction Agreement to which the Investor is a party (each of which will be
deemed to have been made for the benefit of all members of the Investor Group,
as defined in Section 13d-5 of the Exchange Act) and (ii) the Investor, each
member thereof, each limited or general partner of each such member, each
limited or general partner of each such limited or general partner and each of
the Affiliates and Representatives of each of the foregoing, to the fullest
extent permitted by law, against any and all Losses incurred by, imposed upon or
asserted against any such Indemnified Investor Party as a result of, relating to
or arising out of any Proceedings to which such Indemnified Investor Party is
made a party (other than as a plaintiff) or any penalties, costs, claims,
liabilities, damages or expenses suffered by such Indemnified Investor Party, in
each case in its capacity as a direct or indirect holder or owner of Securities
or as a result of being a party to this Agreement or the letter of intent dated
April 26, 1999 between the Investor and the Company, or otherwise related to the
Acquisition Agreement or the transactions contemplated thereby; provided that
unless and until a final and non-appealable judicial determination is made that
such Indemnified Investor Party is not entitled to indemnification under clause
(ii) above, each such Indemnified Investor Party will be reimbursed for all
indemnified Losses under clause (ii) above as they are incurred; provided
further, that if a final and non-appealable judicial determination is made that
such Indemnified Investor Party is not entitled to be indemnified for Losses
under clause (ii) above, such Indemnified Investor Party will repay to the
Company the amount of such Losses for which the Company will have reimbursed
such Indemnified Investor Party. No indemnification will be provided for any
Losses arising as a result of the bad faith, gross negligence or wilful
misfeasance of the Indemnified Investor Party.
(b) The Investor agrees to indemnify and hold harmless the
Company and Representatives (collectively, the "Indemnified Company Parties")
from and against any and all Losses incurred by any of the Indemnified Company
Parties as a result of, or arising out of, the breach of any representation,
warranty, agreement or covenant made by the Investor in the Transaction
Agreements or in any certificate delivered by the Investor pursuant to the
Transaction Agreements. No indemnification will be provided for any Losses
arising as a result of the bad faith, gross negligence or wilful misfeasance of
the Indemnified Company Party.
(c) The following provisions will apply to claims for
Losses from claims by a third party ("Claim"). The indemnifying party will have
the absolute right, in its sole discretion
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and at its sole expense, to elect to defend, contest or otherwise protect
against any such Claim with legal counsel of its own selection. The Indemnified
Investor Parties or the Indemnified Company Parties, as the case may be, will
have the right, but not the obligation, to participate, at their own expense, in
the defense thereof through counsel of their own choice and will have the right,
but not the obligation, to assert any and all crossclaims or counterclaims they
may have. The Indemnified Investor Parties or the Indemnified Company Parties,
as the case may be, will, and will cause their Affiliates to, at all times
cooperate in all reasonable ways with, make their relevant files and records
available for inspection and copying by, and make their employees available or
otherwise render reasonable assistance to, the indemnifying party (i) in its
defense of any action for which indemnity is sought hereunder and (ii) its
prosecution under the last sentence of this Section 9.1(c) of any related claim,
cross-complaint, counterclaim or right of subrogation. If the indemnifying party
fails timely to defend, contest or otherwise protect against any such suit,
action, investigation, claim or proceeding, the Indemnified Investor Parties or
the Indemnified Company Parties, as the case may be, will have the right, but
not the obligation, to defend, contest, assert cross-claims or counterclaims or
otherwise protect against the same. No claim or action subject hereto may be
settled unless the Indemnified Investor Parties or the Indemnified Company
Parties, as the case may be, and the indemnifying party consent thereto, such
consent not to be unreasonably withheld. The indemnifying party will be
subrogated to the claims or rights of the Indemnified Investor Parties or the
Indemnified Company Parties, as the case may be, as against any other persons
with respect to any Loss paid by the indemnifying party under this Section
9.1(c).
(d) The Indemnified Investor Parties and the Company
Indemnified Parties intend that all indemnification claims be made as promptly
as practicable by the party seeking indemnification. Whenever any claim will
arise for indemnification, the Indemnified Party will promptly notify the party
from whom indemnification is sought (the "Indemnifying Party") of the claim, and
the facts constituting the basis for such claim. The failure to so notify the
Indemnifying Party will not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party, except to the extent the
Indemnifying Party demonstrates that the defense of such action is materially
prejudiced thereby.
(e) An Indemnifying Party, upon acknowledgment of its
liability for the Claim, will be entitled to assume control of the defense of
such Claim with counsel reasonably satisfactory to the Indemnified Party,
provided, however, that:
(i) the Indemnified Party will be entitled to
participate in the defense of such Claim and to employ counsel at its
own expense to assist in the handling of such Claim;
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(ii) no Indemnifying Party will consent to the entry
of any judgment or enter into any settlement without the consent of
the Indemnified Party (A) if such judgment or settlement does not
include as an unconditional term thereof the giving by each claimant or
plaintiff to each Indemnified Party of a release from all liability in
respect to such Claim, (B) if such judgment or settlement would result
in the finding or admission of any violation of Law or (C) if as a
result of such consent or settlement injunctive or other equitable
relief would be imposed against the Indemnified Party or such judgment
or settlement could interfere with or adversely affect the business,
operations or assets of the Indemnified Party; and
(iii) if the Indemnifying Party does not assume
control of the defense of such Claim in accordance with the foregoing
provisions within ten days after receipt of notice of the Claim or, if
having taken over such defense does not in the reasonable opinion of
the Indemnified Party proceed diligently to defend such Claim, then the
Indemnified Party will have the right to defend such Claim in such
manner as it may deem appropriate at the cost and expense of the
Indemnifying Party pursuant to the terms of this Agreement. The
Indemnifying Party will be bound by any defense or settlement that the
Indemnified Party will make in good faith with respect to such Claim,
and the Indemnifying Party will promptly reimburse the Indemnified
Party therefor in accordance with this Section 9.1. No indemnification
will be provided for any Losses arising as a result of the bad faith,
gross negligence or wilful misfeasance of the Indemnified Party.
(f) The remedies provided herein will be cumulative and
will not preclude assertion by any party of any rights or the seeking of any
other remedies against any other party.
(g) No action by an Indemnified Party to determine the
extent of indemnified liability, including, but not limited to, voluntary
disclosure to authorities or potential claimants, will in any way affect such
Indemnified Party's right to indemnification from the Indemnifying Party.
(h) Each party will be liable to others pursuant to Section
9.1(a) or 9.1(b) only to the extent and in the amount that aggregate Losses
indemnifiable under those Sections exceed $500,000.
Section 9.2 Survival of Representations and Warranties.
Notwithstanding any investigation conducted or notice or knowledge obtained by
or on behalf of any party, each representation or warranty in this Agreement or
certificates delivered pursuant to this Agreement will survive the Closing for a
period of 18 months, except that the representations and warranties
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set forth in Sections 3.17, 3.18 and 3.23 will survive until ninety (90) days
after the expiration of all applicable statutes of limitations (and extensions
thereof). The covenants and agreements contained herein will survive the Closing
without limitation as to time unless the covenant or agreement specifies a term,
in which case such covenant or agreement will survive for such specified term.
The right to indemnification or any other remedy based on representations,
warranties, covenants and obligations in this Agreement will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification or any
other remedy based on such representations, warranties, covenants and
obligations. Any claim for indemnification under this Article IX arising out of
the inaccuracy or breach of any representation, warranty, covenant or obligation
must be made prior to the expiration of 18 months after the Closing, except that
claims for inaccuracies or breaches of Sections 3.17, 3.18 or 3.23 can be made
until ninety (90) days after the expiration of all applicable statutes of
limitations (and extensions thereof).
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. The Company will be
responsible for the payment of all expenses incurred by the Company in
connection with the Transaction Agreements and the transactions contemplated
thereby, regardless of whether such transactions are consummated, including,
without limitation, all fees and expenses of the Company's legal counsel and all
third-party consultants engaged by the Company to assist in such transactions.
The Company will reimburse the Investor (a) regardless of whether the
transactions contemplated hereby are consummated, in an amount up to $750,000
for all reasonable out-of-pocket costs and expenses incurred by the Investor in
connection with the Transaction Agreements and the transactions contemplated
thereby, including, without limitation, all fees and expenses of the Investor's
legal counsel, financial advisors, accountants, and all third-party consultants
engaged by the Investor to assist in such transactions, provided that the
$750,000 cap cannot be waived or increased without the approval of an Investor
Majority (as defined in the Stockholders' Agreement), (b) in the event of
Closing, for the fees payable to the Investor's financial advisors in connection
with the Closing (including, fees of Merrill Lynch & Co.), and (c) all fees and
expenses incurred in connection with enforcing the provisions of, and collecting
amounts payable pursuant to, this Section 10.1 and Section 8.2, including fees
and expenses of legal counsel; provided that, the Investor will not be entitled
to reimbursement pursuant to this Section 10.1 if the transactions contemplated
hereby are not consummated as a result of a willful breach of the terms of this
Agreement by the Investor. Such reimbursements will be due to the Investor
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promptly following any termination of this Agreement for any reason or, in the
case of fees and expenses incurred thereafter, promptly upon demand therefor.
All amounts payable under this Agreement will be paid in immediately available
funds by wire transfer to an account or accounts designated by the recipient of
such amounts.
Section 10.2 Notices. All notices and other communications
hereunder will be in writing and will be deemed to have been duly given, if
delivered personally, by telecopier or sent by first class mail, postage
prepaid, as follows:
(a) If to the Company, to:
Classic Communications, Inc.
515 Congress Ave.
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
With a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
And a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, TX 78746
Fax: (512) 327-7272
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(b) If to the Investor, to:
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attention: Lisa Hook
Fax: (212) 835-1399
With a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive, Suite 2300
Chicago, IL 60606
Attention: Peter C. Krupp, Esq.
Fax: (312) 407-0411
(c) If to any other holder of Common Stock, addressed to
such holder at the address of such holder in the record books of the Company, or
to such other address or addresses as will be designated in writing. All notices
will be effective when received.
Section 10.3 Remedies Cumulative. The remedies provided herein
will be cumulative and will not preclude an indemnified party from asserting any
of the rights or seeking any other remedies against the indemnifying party or
its successor assigns.
Section 10.4 Entire Agreement; Amendment; Waiver. (a) This
Agreement and the documents described herein and the exhibits and schedules
attached or delivered pursuant hereto (including, without limitation, the
Schedules, the Registration Rights Agreement, and the Stockholders' Agreement)
set forth the entire agreement between the parties with respect to the
transactions contemplated by this Agreement and supersede the letter agreement
dated April 26, 1999, between the Company and the Investor, which is terminated
in its entirety hereby.
(b) Any provision of this Agreement may be amended, modified
or supplemented in whole or in part at any time by an agreement in writing among
the parties hereto executed in the same manner as this Agreement.
(c) No failure on the part of any party to exercise, and no
delay in exercising, any right will operate as waiver thereof, nor will any
single or partial exercise by either party of any right preclude any other or
future exercise thereof or the exercise of any other right. No
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investigation by the Investor of the Company prior to or after the date hereof
will stop or prevent the Investor from exercising any right hereunder or be
deemed to be a waiver of any such right.
Section 10.5 Counterparts. This Agreement may be executed in
two or more counterparts, each of which will be deemed to constitute an
original, but all of which together will constitute one and the same document.
Section 10.6 Governing Law. All questions concerning the
validity, meaning and effect of this Agreement shall be determined in accordance
with the laws of the State of New York applicable to contracts made and to be
performed within the State, without regard to the principles of conflicts of
laws except to the extent necessary to permit this Agreement to be governed by
New York law as set forth above.
Section 10.7 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREBY, OR ANY BUSINESS OR OTHER DISPUTES BETWEEN THE PARTIES (WHETHER SUCH
ACTIONS OR PROCEEDINGS ARE BASED IN STATUTE, TORT, CONTRACT OR OTHERWISE), SHALL
BE LITIGATED IN SUCH COURTS. EACH PARTY (A) CONSENTS TO SUBMIT ITSELF TO THE
PERSONAL JURISDICTION OF SUCH COURTS FOR SUCH ACTIONS OR PROCEEDINGS, (B) AGREES
THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION
OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT, AND (C) AGREES THAT IT WILL NOT
BRING ANY SUCH ACTION OR PROCEEDING IN ANY COURT OTHER THAN SUCH COURTS. EACH
PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE AND IRREVOCABLE JURISDICTION AND VENUE OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY
AGREE TO BE BOUND BY ANY NON-APPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH ACTIONS OR PROCEEDINGS. A COPY OF ANY SERVICE OF PROCESS SERVED UPON
THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO THE RESPECTIVE PARTY EXCEPT
THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH
COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED
BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY AGREES THAT SERVICE UPON
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THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
Section 10.8 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED
HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
ACCORDINGLY, EACH PARTY ACKNOWLEDGES THAT IT HAS WAIVED ITS RIGHT TO SUE OR BE
SUED IN TEXAS AND TO A JURY TRIAL. EACH PARTY HAS DISCUSSED THIS AGREEMENT WITH
ITS COUNSEL AND AGREES TO BE BOUND BY ITS TERMS.
Section 10.9 Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof will inure to the benefit of,
and be binding upon, the Company's successors and assigns. Neither this
Agreement nor any rights hereunder will be assignable by
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operation of law or otherwise by any party hereto without the prior written
consent of the other party; provided, however, that the Investor may assign all
or part of its interest in this Agreement and its rights hereunder to any of its
Affiliates and, thereafter, the term "Investor," as applied to the assigning
Investor, will include any such Affiliate to the extent of such assignment and
will mean the assigning Investor and such Affiliates taken collectively.
Section 10.10 No Third-Party Beneficiaries. This Agreement is
for the sole benefit of the parties hereto and their respective successors and
permitted assigns and nothing herein, express or implied, is intended to or will
confer upon any other Person any legal or equitable right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement, except that the
provisions of Section 6.2 will inure to the benefit of and be enforceable by the
Investor Nominees and the provisions of Section 9.1 will inure to the benefit of
and be enforceable by each Indemnified Party.
Section 10.11 Brera Capital Partners Limited Partners. The
Investor has delivered a copy of a binding contribution agreement from Brera
Capital Partners Limited Partners to the Investor providing for the contribution
to Investor of up to $20 million. The Investor agrees to take all actions
necessary to draw upon such commitment to fund its liabilities hereunder.
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IN WITNESS WHEREOF, this Agreement has been executed on behalf
of the parties hereto by their respective duly authorized officers, all as of
the date first above written.
BRERA CLASSIC, LLC
By /s/ Lisa A. Hook
-----------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
CLASSIC COMMUNICATIONS, INC.
By /s/ J. Merritt Belisle
-----------------------------------
Name: J. Merritt Belisle
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT 10.8
May 24, 1999
Mr. J. Merritt Belisle
Chairman of the Board and
Chief Executive Officer
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Re: Management and Advisory Fees
Dear Merritt:
This letter confirms the agreement of Classic Communications,
Inc., a Delaware corporation ("Classic"), that Brera Classic, LLC, a Delaware
limited liability company ("Brera"), in connection with the transactions
contemplated by (i) that certain Investment Agreement, dated as of the date
hereof (the "Investment Agreement"), between Classic and Brera, including the
exhibits thereto, and (ii) that certain Securities Purchase Agreement, dated as
of May 11, 1999 (the "Securities Purchase Agreement"), among Classic, Buford
Group, Inc. and certain other sellers named therein (together, the "Agreements")
will be entitled to the following:
(1) simultaneously with the closing of the transactions
contemplated by the Investment Agreement (the "Closing"), Classic will
pay Brera a $3.0 million fee in consideration for Brera's efforts in
arranging the transactions contemplated by the Investment Agreement
and the Securities Purchase Agreement; provided such fee may not be
modified without the prior written approval of an Investor Majority (as
defined in the Stockholders' Agreement);
(2) Classic will pay Brera an annual fee of $250,000 in
consideration for any transactional assistance or advise that Brera
provides to Classic, which fee will be payable at Closing for 1999 and
during the first week of January beginning January 2000 until Classic
is sold or completes an Initial Public Offering (as defined in the
Stockholders' Agreement); provided such
<PAGE> 2
fee may not be modified without the prior written approval of an
Investor Majority (as defined in the Stockholders' Agreement); and
(3) Classic will reimburse Brera (a) regardless of whether the
transactions contemplated hereby are consummated, in an amount up to
$750,000 for all reasonable out-of-pocket costs and expenses incurred
by Brera and its affiliates in connection with the Agreements and the
transactions contemplated thereby, including, without limitation, all
fees and expenses of legal counsel, financial advisors, accountants,
and all third-party consultants engaged by Brera and its affiliates to
assist in such transactions, provided that the $750,000 cap cannot be
waived or increased without the approval of an Investor Majority (as
defined in the Stockholders' Agreement), (b) in the event of Closing,
for the fees payable to Brera's financial advisors in connection with
the Closing (including fees of Merrill Lynch & Co.), and (c) all fees
and expenses incurred in connection with enforcing the provisions of,
and collecting amounts payable pursuant to, this Agreement, including
fees and expenses of legal counsel; provided that, Brera will not be
entitled to reimbursement pursuant to this Agreement if the
transactions contemplated by the Investment Agreement are not
consummated as a result of a willful breach of the terms of that
agreement by Brera. Such reimbursements will be due to Brera promptly
following any termination of the Investment Agreement for any reason
or, in the case of fees and expenses incurred thereafter, promptly upon
demand therefor. All amounts payable under this Agreement will be paid
in immediately available funds by wire transfer to an account or
accounts designated by the recipient of such amounts.
(4) All questions concerning the validity, meaning and effect
of this letter shall be determined in accordance with the laws of the
State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws
except to the extent necessary to permit this letter to be governed by
New York law as set forth above.
(5) EACH OF THE SIGNATORIES TO THIS LETTER HEREBY CONSENTS TO
THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR
2
<PAGE> 3
RELATING TO THIS LETTER, THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY
BUSINESS OR OTHER DISPUTES BETWEEN THE SIGNATORIES (WHETHER SUCH
ACTIONS OR PROCEEDINGS ARE BASED IN STATUTE, TORT, CONTRACT OR
OTHERWISE), SHALL BE LITIGATED IN SUCH COURTS. EACH SIGNATORY (A)
CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF SUCH COURTS
FOR SUCH ACTIONS OR PROCEEDINGS, (B) AGREES THAT IT WILL NOT ATTEMPT TO
DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST
FOR LEAVE FROM ANY SUCH COURT, AND (C) AGREES THAT IT WILL NOT BRING
ANY SUCH ACTION OR PROCEEDING IN ANY COURT OTHER THAN SUCH COURTS. EACH
SIGNATORY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE AND IRREVOCABLE JURIS-
DICTION AND VENUE OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-
APPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH ACTIONS
OR PROCEEDINGS. A COPY OF ANY SERVICE OF PROCESS SERVED UPON THE
SIGNATORIES SHALL BE MAILED BY REGISTERED MAIL TO THE RESPECTIVE
SIGNATORY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE
OF PROCESS. IF ANY AGENT APPOINTED BY A SIGNATORY REFUSES TO ACCEPT
SERVICE, EACH SIGNATORY AGREES THAT SERVICE UPON THE APPROPRIATE
SIGNATORY BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF A SIGNATORY TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW.
(6) EACH OF THE SIGNATORIES TO THIS LETTER HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS LETTER OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THIS LETTER AND THE RELATIONSHIP THAT
IS BEING ESTABLISHED. EACH SIGNATORY ALSO WAIVES ANY BOND OR SECU-
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<PAGE> 4
RITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF
ANY OF THE OTHER SIGNATORIES. THE SCOPE OF THIS WAIVER IS INTENDED TO
BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS LETTER, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH SIGNATORY
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
EXECUTING THIS LETTER AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. EACH SIGNATORY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND
THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS LETTER OR TO ANY OTHER DOCUMENTS
OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS LETTER MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
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<PAGE> 5
ACCORDINGLY, EACH SIGNATORY ACKNOWLEDGES THAT IT HAS WAIVED ITS RIGHT
TO SUE OR BE SUED IN TEXAS AND TO A JURY TRIAL. EACH SIGNATORY HAS
DISCUSSED THIS LETTER WITH ITS COUNSEL AND AGREES TO BE BOUND BY ITS
TERMS.
Very truly yours,
BRERA CLASSIC, LLC
By: /s/ Lisa A. Hook
--------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
Agreed and Accepted this
24th day of May, 1999.
CLASSIC COMMUNICATIONS, INC.
By: /s/ J. Merritt Belisle
--------------------------------
Name: J. Merritt Belisle
Title: Chief Executive Officer
5
<PAGE> 1
EXHIBIT 10.9
STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and
Austin Ventures, L.P. (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
<PAGE> 2
written consent), to promptly vote all of his or its Equity Securities over
which he or it has voting control in favor of the transactions contemplated by
the Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of authorized
shares of voting Company Common Stock from 5,442,000 to 15,000,000. For purposes
of this Agreement, "Equity Securities" means any class of capital stock of the
Company and all securities convertible into or rights to purchase capital stock
of equity securities of the Company, including any warrants and options and any
and all other equity securities of the Company or securities convertible into or
exchangeable for such securities or issued as a distribution with respect to or
in exchange for such securities. The Stockholder acknowledges that it has
received and reviewed with counsel a copy of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated
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<PAGE> 3
by the Investment Agreement (e.g. filing of documents necessary for regulatory
approval of the transactions contemplated by the Investment Agreement).
(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors'
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<PAGE> 4
rights generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
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<PAGE> 5
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera will have five days after receiving the Notice to notify the
Stockholder whether Brera will exercise its rights under this Section 3.3(b). If
Brera notifies the Stockholder that it will exercise its purchase rights within
such five (5) day period, the Stockholder will sell such shares to Brera
pursuant to the terms and conditions described in such bona fide offer and Brera
will be obligated to complete such purchase of the shares within the greater of
(i) 30 days after responding to the Notice or (ii) the period of time
contemplated by the bona fide offer for consummating the purchase of the shares.
Brera's failure to respond to the Notice within the five-day period will be
deemed to constitute a notification to the Stockholder of Brera's decision not
to exercise its right of first refusal to purchase the shares under this Section
3.3(b). If Brera notifies the Selling Holder within such five-day period of its
decision not to exercise its right of first refusal, then the relevant
provisions of that certain Amended and Restated Stockholder Agreement, dated as
of October 31, 1995, among the Company, the Stockholder and the other
stockholders described therein (the "1995 Stockholders Agreement") will apply to
such proposed transaction and such five-day period shall be deemed to run
concurrently with the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
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<PAGE> 6
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which Investor is entitled at law or in equity.
Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party
6
<PAGE> 7
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other provision
hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent to the parties as closely as possible to the fullest
extent permitted by applicable law in a mutually acceptable manner in order that
the terms of this Agreement remain as originally contemplated to the fullest
extent possible.
Section 4.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
7
<PAGE> 8
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
8
<PAGE> 9
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN CONNECTION WITH
THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM
NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY SERVICE OF
PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO THE
RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY
FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS.
IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY AGREES
THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL CONSTITUTE
SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
9
<PAGE> 10
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED
HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
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<PAGE> 11
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
AUSTIN VENTURES, L.P.
By: AV Partners, L.P.
Its: General Partner
By: /s/ JEFFERY C. GARVEY
--------------------------------------
Name: Jeffery C. Garvey
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
--------------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
11
<PAGE> 12
EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
A-1
<PAGE> 13
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
AUSTIN VENTURES, L.P.
By: AV Partners, L.P.
Its: General Partner
By: /s/ JEFFERY C. GARVEY
-------------------------------
Name: Jeffery C. Garvey
Address:
-----------------------
-------------------------------
-------------------------------
Equity Securities beneficially owned:
323,832 shares of Company Common Stock
A-2
<PAGE> 14
STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and
Austin Ventures III-A, L.P. (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of authorized
shares of voting Company Common Stock from 5,442,000 to 15,000,000. For purposes
of this Agreement, "Equity Securities" means any class of capital stock of the
Company and all securities convertible into or rights to purchase capital stock
of equity securities of the Company, including any warrants and options and any
and all other equity securities of the Company or securities convertible into or
exchangeable for such securities or issued as a distribution with respect to or
in exchange for such securities. The Stockholder acknowledges that it has
received and reviewed with counsel a copy of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary for
regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
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Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera will
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have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms and
conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right of
first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which Investor is entitled at law or in equity.
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Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or
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<PAGE> 20
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
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<PAGE> 21
and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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<PAGE> 22
CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY
SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO
THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY
AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL
CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER
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<PAGE> 23
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
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<PAGE> 24
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
AUSTIN VENTURES III-A, L.P.
By: AV Partners III, L.P.
Its: General Partner
By: /s/ JEFFERY C. GARVEY
----------------------------------------
Name: Jeffery C. Garvey
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
----------------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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<PAGE> 25
EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding
upon the successors and assigns of the undersigned.
Dated: May 24, 1999
AUSTIN VENTURES III-A, L.P.
By: AV Partners III, L.P.
Its: General Partner
By: /s/ JEFFERY C. GARVEY
--------------------------
Name: Jeffery C. Garvey
Address:
------------------
--------------------------
--------------------------
Equity Securities beneficially owned:
223,422 shares of Company Common Stock
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<PAGE> 27
STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and
Austin Ventures III-B, L.P. (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of authorized
shares of voting Company Common Stock from 5,442,000 to 15,000,000. For purposes
of this Agreement, "Equity Securities" means any class of capital stock of the
Company and all securities convertible into or rights to purchase capital stock
of equity securities of the Company, including any warrants and options and any
and all other equity securities of the Company or securities convertible into or
exchangeable for such securities or issued as a distribution with respect to or
in exchange for such securities. The Stockholder acknowledges that it has
received and reviewed with counsel a copy of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary for
regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
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Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera will
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have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms and
conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right of
first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which Investor is entitled at law or in equity.
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Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or
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other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
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<PAGE> 34
and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY
SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO
THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY
AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL
CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER
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<PAGE> 36
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
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<PAGE> 37
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
AUSTIN VENTURES III-B, L.P.
By: AV Partners III, L.P.
Its: General Partner
By: /s/ JEFFERY C. GARVEY
------------------------------------------
Name: Jeffery C. Garvey
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
------------------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
AUSTIN VENTURES III-B, L.P.
By: AV Partners III, L.P.
Its: General Partner
By: /s/ JEFFERY C. GARVEY
-------------------------------------
Name: Jeffery C. Garvey
Address:
-----------------------------
-------------------------------------
-------------------------------------
Equity Securities beneficially owned:
188,733 shares of Company Common Stock
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<PAGE> 40
STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and J.
Merritt Belisle (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of authorized
shares of voting Company Common Stock from 5,442,000 to 15,000,000. For purposes
of this Agreement, "Equity Securities" means any class of capital stock of the
Company and all securities convertible into or rights to purchase capital stock
of equity securities of the Company, including any warrants and options and any
and all other equity securities of the Company or securities convertible into or
exchangeable for such securities or issued as a distribution with respect to or
in exchange for such securities. The Stockholder acknowledges that it has
received and reviewed with counsel a copy of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary for
regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
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Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera will
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<PAGE> 44
have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms and
conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right of
first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which Investor is entitled at law or in equity.
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Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or
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other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
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<PAGE> 47
and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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<PAGE> 48
CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY
SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO
THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY
AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL
CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER
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<PAGE> 49
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
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<PAGE> 50
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
/s/ J. MERRITT BELISLE
------------------------------------------------
J. Merritt Belisle
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
-----------------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
/s/ J. MERRITT BELISLE
-----------------------------------
J. Merritt Belisle
Address:
---------------------------
-----------------------------------
-----------------------------------
Equity Securities beneficially owned:
244,862 shares of Company Common Stock
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<PAGE> 53
STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and
Stephen E. Seach (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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<PAGE> 54
or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of authorized
shares of voting Company Common Stock from 5,442,000 to 15,000,000. For purposes
of this Agreement, "Equity Securities" means any class of capital stock of the
Company and all securities convertible into or rights to purchase capital stock
of equity securities of the Company, including any warrants and options and any
and all other equity securities of the Company or securities convertible into or
exchangeable for such securities or issued as a distribution with respect to or
in exchange for such securities. The Stockholder acknowledges that it has
received and reviewed with counsel a copy of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary for
regulatory approval of the transactions contemplated by the Investment
Agreement).
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<PAGE> 55
(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
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<PAGE> 56
Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera will
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<PAGE> 57
have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms and
conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right of
first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which Investor is entitled at law or in equity.
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<PAGE> 58
Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or
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<PAGE> 59
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
A-9
<PAGE> 60
and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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<PAGE> 61
CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY
SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO
THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY
AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL
CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER
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<PAGE> 62
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
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IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
/s/ STEPHEN E. SEACH
-------------------------------------------
Stephen E. Seach
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
------------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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<PAGE> 64
EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
/s/ STEPHEN E. SEACH
----------------------------
Stephen E. Seach
Address:
--------------------
----------------------------
----------------------------
Equity Securities beneficially owned:
244,862 shares of Company Common Stock
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STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and BT
Capital Partners (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of authorized
shares of voting Company Common Stock from 5,442,000 to 15,000,000. For purposes
of this Agreement, "Equity Securities" means any class of capital stock of the
Company and all securities convertible into or rights to purchase capital stock
of equity securities of the Company, including any warrants and options and any
and all other equity securities of the Company or securities convertible into or
exchangeable for such securities or issued as a distribution with respect to or
in exchange for such securities. The Stockholder acknowledges that it has
received and reviewed with counsel a copy of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary for
regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
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Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera will
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have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms and
conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right of
first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which Investor is entitled at law or in equity.
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Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or
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other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
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and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY
SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO
THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY
AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL
CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER
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ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
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IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
BT CAPITAL PARTNERS
By: /s/ ROBERT MARAKOVITS
---------------------------------
Name: Robert Marakovits
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
---------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a
Delaware corporation (the "Company"), hereby irrevocably (to the full extent
permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints Lisa A. Hook and David Webb, and each of them, as the sole
and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Equity
Securities") in accordance with the terms of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned
with respect to any Equity Securities only with respect to the matters referred
to in the third paragraph of this proxy are hereby revoked and the undersigned
agrees not to grant any subsequent proxies only with respect to the matters
referred to in paragraph 3 of this proxy with respect to the Equity Securities
until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to promptly
vote (at every special or annual meeting of the stockholders, however called,
and each adjournment or postponement thereof, and by execution of a written
consent or in any other manner permitted by law and the certificate of
incorporation and/or bylaws of the Company) all of the undersigned
stockholder's Equity Securities in the Company over which the undersigned
stockholder has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of shares of
the voting common stock of the Company, par value $0.01 per share (the "Company
Common Stock"), from 5,442,000 to 15,000,000. The undersigned stockholder may
vote the Equity Securities on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
BT CAPITAL PARTNERS
By: /s/ ROBERT MARAKOVITS
--------------------------------------
Name: Robert Marakovits
---------------------------------
Address:
------------------------------
--------------------------------------
--------------------------------------
Equity Securities beneficially owned:
767,537 shares of Company Common Stock
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STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and
Bryan D. Noteboom (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof
(as the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of
authorized shares of voting Company Common Stock from 5,442,000 to 15,000,000.
For purposes of this Agreement, "Equity Securities" means any class of capital
stock of the Company and all securities convertible into or rights to purchase
capital stock of equity securities of the Company, including any warrants and
options and any and all other equity securities of the Company or securities
convertible into or exchangeable for such securities or issued as a
distribution with respect to or in exchange for such securities. The
Stockholder acknowledges that it has received and reviewed with counsel a copy
of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy
in the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS
IRREVOCABLE AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed
and intended to be irrevocable in accordance with the provisions of Section
212(e) of the Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary
duties, take such other reasonable actions, and to cause the Company to take
such other reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary
for regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any
other action, in each case, that would in anyway restrict, limit or interfere
with the performance of the Stockholder's obligations hereunder or the
transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder
that is not a natural person is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. Each such
Stockholder has all the requisite power and authority to execute, delivery and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action on such Stockholder's part. Such Stockholder's board of
directors has approved the Stockholder's entry into this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Stockholder and, assuming the
due authorization, execution and delivery by Investor, constitutes a legal,
valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except that the enforcement hereof
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
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Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each
other holder of Equity Securities (each a "Non-Selling Holder" and
collectively, the "Non-Selling Holders") in writing to such effect, enclosing a
copy of the bona fide offer (it being agreed that the Stockholder will cause
any such offer to be reduced to writing) and specifying the number of shares of
Equity Securities which the Stockholder desires to sell, the name of the person
or persons to whom the Stockholder desires to make the sale and the dollar
value of the consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are
proposed to be sold for cash at a purchase price equal to the dollar value of
such consideration (in the event such consideration includes non-cash
consideration, the dollar value of such non-cash consideration shall be its
Appraised Value (as defined in the Stockholders' Agreement, which is an exhibit
to the Investment Agreement). Brera will
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have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms
and conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right
of first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is
accordingly agreed that Investor shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement, this being in
addition to any other remedy to which Investor is entitled at law or in equity.
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Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder without the prior written consent of Investor. If the Stockholder
acquires ownership of, or voting power with respect to, any additional Equity
Securities in any manner, whether by the exercise of any options or rights of
first offer or refusal or rights convertible into or exchangeable for Company
Common Stock, by operation of law or otherwise, such Equity Securities shall be
held subject to all of the terms of this Agreement. By taking and holding such
Equity Securities, the Stockholder shall be conclusively deemed to have agreed
to be bound by and to comply with all of the terms and provisions of this
Agreement. Without limiting the foregoing, the Stockholder specifically agrees
that its obligations hereunder shall not be terminated by operation of law,
whether by the death or incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such determination
that any term or
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other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
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and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT
HEREBY CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY
NON-APPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A
COPY OF ANY SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY
REGISTERED MAIL TO THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED
BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY
OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT
SERVICE, EACH PARTY AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY
REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF A PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS,
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER
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ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
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IN WITNESS WHEREOF, each of the parties hereto have caused
this Agreement to be duly executed on the date hereof.
/s/ BRYAN D. NOTEBOOM
-----------------------------------
Bryan D. Noteboom
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
--------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a
Delaware corporation (the "Company"), hereby irrevocably (to the full extent
permitted by the General Corporation Law of the State of Delaware (the
"DGCL")), appoints Lisa A. Hook and David Webb, and each of them, as the sole
and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned or owned of record by the undersigned, and
any and all other shares or securities of the Company issued or issuable in
respect thereof on or after the date hereof (collectively, the "Equity
Securities") in accordance with the terms of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned
with respect to any Equity Securities only with respect to the matters referred
to in the third paragraph of this proxy are hereby revoked and the undersigned
agrees not to grant any subsequent proxies only with respect to the matters
referred to in paragraph 3 of this proxy with respect to the Equity Securities
until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to promptly
vote (at every special or annual meeting of the stockholders, however called,
and each adjournment or postponement thereof, and by execution of a written
consent or in any other manner permitted by law and the certificate of
incorporation and/or bylaws of the Company) all of the undersigned
stockholder's Equity Securities in the Company over which the undersigned
stockholder has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of shares of
the voting common stock of the Company, par value $0.01 per share (the "Company
Common Stock"), from 5,442,000 to 15,000,000. The undersigned stockholder may
vote the Equity Securities on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
/s/ BRYAN D. NOTEBOOM
--------------------------------------
Bryan D. Noteboom
Address:
------------------------------
--------------------------------------
--------------------------------------
Equity Securities beneficially owned:
15,536 shares of Company Common Stock
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STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and
Texas Growth Fund (the "Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof
(as the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SHARES
Section 1.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any action by
written consent), to promptly vote all of his or its Equity Securities over
which he
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or it has voting control in favor of the transactions contemplated by the
Investment Agreement and all actions reasonably necessary to consummate such
transactions, including, without limitation, increasing the number of
authorized shares of voting Company Common Stock from 5,442,000 to 15,000,000.
For purposes of this Agreement, "Equity Securities" means any class of capital
stock of the Company and all securities convertible into or rights to purchase
capital stock of equity securities of the Company, including any warrants and
options and any and all other equity securities of the Company or securities
convertible into or exchangeable for such securities or issued as a
distribution with respect to or in exchange for such securities. The
Stockholder acknowledges that it has received and reviewed with counsel a copy
of the Investment Agreement.
Section 1.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy
in the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS
IRREVOCABLE AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed
and intended to be irrevocable in accordance with the provisions of Section
212(e) of the Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers
of attorney with respect to the Equity Securities which the Stockholder may
have heretofore appointed or granted only with respect to the matters referred
to in Section 1.1 hereof, and no subsequent proxy or power of attorney shall be
given or written consent executed only with respect to the matters referred to
in Section 1.1 hereof (and if given or executed, such proxy or power of
attorney shall not be effective) by such Stockholder with respect thereto. All
authority conferred by this Section 1.2 or agreed to be conferred shall survive
the death or incapacity of the Stockholder and any obligation of the
Stockholder under this Agreement shall be binding upon the heirs, personal
representatives, assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary
duties, take such other reasonable actions, and to cause the Company to take
such other reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary
for regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 1.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any
other action, in each case, that would in anyway restrict, limit or interfere
with the performance of the Stockholder's obligations hereunder or the
transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 2.1 Authority Relative to This Agreement. Each Stockholder
that is not a natural person is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. Each such
Stockholder has all the requisite power and authority to execute, delivery and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action on such Stockholder's part. Such Stockholder's board of
directors has approved the Stockholder's entry into this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Stockholder and, assuming the
due authorization, execution and delivery by Investor, constitutes a legal,
valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except that the enforcement hereof
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
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Section 2.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 2.3 Title to the Shares. Except as provided in this Agreement,
the Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Equity Securities.
ARTICLE III
RIGHT OF FIRST REFUSAL
Section 3.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each
other holder of Equity Securities (each a "Non-Selling Holder" and
collectively, the "Non-Selling Holders") in writing to such effect, enclosing a
copy of the bona fide offer (it being agreed that the Stockholder will cause
any such offer to be reduced to writing) and specifying the number of shares of
Equity Securities which the Stockholder desires to sell, the name of the person
or persons to whom the Stockholder desires to make the sale and the dollar
value of the consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are
proposed to be sold for cash at a purchase price equal to the dollar value of
such consideration (in the event such consideration includes non-cash
consideration, the dollar value of such non-cash consideration shall be its
Appraised Value (as defined in the Stockholders' Agreement, which is an exhibit
to the Investment Agreement). Brera will
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have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms
and conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right
of first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 4.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is
accordingly agreed that Investor shall be entitled to an injunction or
injunctions to prevent breaches by the Stockholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement, this being in
addition to any other remedy to which Investor is entitled at law or in equity.
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Section 4.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by the
Stockholder without the prior written consent of Investor. If the Stockholder
acquires ownership of, or voting power with respect to, any additional Equity
Securities in any manner, whether by the exercise of any options or rights of
first offer or refusal or rights convertible into or exchangeable for Company
Common Stock, by operation of law or otherwise, such Equity Securities shall be
held subject to all of the terms of this Agreement. By taking and holding such
Equity Securities, the Stockholder shall be conclusively deemed to have agreed
to be bound by and to comply with all of the terms and provisions of this
Agreement. Without limiting the foregoing, the Stockholder specifically agrees
that its obligations hereunder shall not be terminated by operation of law,
whether by the death or incapacity of the Stockholder or otherwise.
Section 4.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 4.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 4.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
Section 4.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such determination
that any term or
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other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent to the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
Section 4.8 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made and shall be effective upon receipt, if delivered personally,
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission (provided that a confirmation copy is sent by another
approved means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
Fax: (512) 476-5204
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and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 4.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
Section 4.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 4.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT
HEREBY CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS.
EACH OF THE PARTIES ACCEPTS FOR THEMSELVES, RESPECTIVELY, AND IN
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CONNECTION WITH THEIR RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION AND VENUE OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE
OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY
NON-APPEALABLE JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. A
COPY OF ANY SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY
REGISTERED MAIL TO THE RESPECTIVE PARTY EXCEPT THAT, UNLESS OTHERWISE PROVIDED
BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY
OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT
SERVICE, EACH PARTY AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY
REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF A PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
Section 4.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS,
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER
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ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
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IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
BOARD OF TRUSTEES OF TEXAS
GROWTH FUND - 1991 TRUST, AS
TRUSTEE
By: TGF Management Corp.
Its: Executive Director
By: /s/ JAMES J. KOZLOWSKI
--------------------------
Name: James J. Kozlowski
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
--------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
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The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
BOARD OF TRUSTEES OF TEXAS
GROWTH FUND - 1991 TRUST, AS
TRUSTEE
By: TGF Management Corp.
Its: Executive Director
By: /s/ JAMES J. KOZLOWSKI
-----------------------------
Name: James J. Kozlowski
Address:
---------------------
-----------------------------
-----------------------------
Equity Securities beneficially owned:
170,563 shares of Company Common Stock
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STOCKHOLDER VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 24, 1999 (this "Agreement"), between
Brera Classic, LLC, a Delaware limited liability company ("Investor"), and BA
SBIC Management, L.L.C., successor in interest to NationsBanc Capital Corp. (the
"Stockholder").
WHEREAS, Investor and Classic Communications, Inc., a Delaware
corporation (the "Company"), have, contemporaneously with the execution of this
Agreement, entered into an Investment Agreement, dated as of the date hereof (as
the same may be amended or supplemented, the "Investment Agreement"), which
provides, among other things, that the Investor desires to purchase common
stock, par value $0.01 per share of the Company (the "Company Common Stock"),
subject to the terms and conditions of the Investment Agreement (the
"Investment"); and
WHEREAS, as of the date hereof, the Stockholder is the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
of Company Common Stock; and
WHEREAS, as a condition to the willingness of Investor to enter into
the Investment Agreement, Investor has required that the Stockholder agree, and
to induce Investor to enter into the Investment Agreement, the Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, capitalized terms not defined herein have the meanings given
in the Investment Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE V
VOTING OF SHARES
Section 5.1 Voting Agreement. The Stockholder hereby agrees at any
meeting of the stockholders of the Company relating to the Investment Agreement
or the transactions contemplated thereby (or in connection with any
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action by written consent), to promptly vote all of his or its Equity Securities
over which he or it has voting control in favor of the transactions contemplated
by the Investment Agreement and all actions reasonably necessary to consummate
such transactions, including, without limitation, increasing the number of
authorized shares of voting Company Common Stock from 5,442,000 to 15,000,000.
For purposes of this Agreement, "Equity Securities" means any class of capital
stock of the Company and all securities convertible into or rights to purchase
capital stock of equity securities of the Company, including any warrants and
options and any and all other equity securities of the Company or securities
convertible into or exchangeable for such securities or issued as a distribution
with respect to or in exchange for such securities. The Stockholder acknowledges
that it has received and reviewed with counsel a copy of the Investment
Agreement.
Section 5.2 Irrevocable Proxy. (a) In furtherance of the transactions
contemplated by the Investment Agreement, concurrently with the execution of
this Agreement, the Stockholder shall execute and deliver to Investor a proxy in
the form attached hereto as Exhibit A (the "Proxy"). THE PROXY IS IRREVOCABLE
AND COUPLED WITH AN INTEREST. Such irrevocable Proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law (the "DGCL").
(b) The Stockholder hereby revokes all other proxies and powers of
attorney with respect to the Equity Securities which the Stockholder may have
heretofore appointed or granted only with respect to the matters referred to in
Section 1.1 hereof, and no subsequent proxy or power of attorney shall be given
or written consent executed only with respect to the matters referred to in
Section 1.1 hereof (and if given or executed, such proxy or power of attorney
shall not be effective) by such Stockholder with respect thereto. All authority
conferred by this Section 1.2 or agreed to be conferred shall survive the death
or incapacity of the Stockholder and any obligation of the Stockholder under
this Agreement shall be binding upon the heirs, personal representatives,
assigns and successors of the Stockholder.
(c) The Stockholder agrees to (i) enter into the Stockholders'
Agreement and Registration Rights Agreement at the Closing (as such terms are
defined in the Investment Agreement) and (ii) subject to their fiduciary duties,
take such other reasonable actions, and to cause the Company to take such other
reasonable actions, which are necessary to complete the transactions
contemplated by the Investment Agreement (e.g. filing of documents necessary for
regulatory approval of the transactions contemplated by the Investment
Agreement).
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(d) The Stockholder hereby agrees to take any and all actions
necessary to cause the Proxy to be voted at any meeting of the Company's
stockholders in favor of all the transactions contemplated by the Investment
Agreement.
Section 5.3 No Inconsistent Agreements. The Stockholder hereby
covenants and agrees that, except as contemplated by this Agreement and the
Investment Agreement, the Stockholder shall not (i) enter into any voting
agreement or arrangement with respect to the Equity Securities with respect to
the matters referred to in Section 1.1 hereof, (ii) grant a proxy or power of
attorney or other authorization with respect to the Equity Securities with
respect to the matters referred to in Section 1.1 hereof or (iii) take any other
action, in each case, that would in anyway restrict, limit or interfere with the
performance of the Stockholder's obligations hereunder or the transactions
contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to Investor as follows:
Section 6.1 Authority Relative to This Agreement. Each Stockholder that
is not a natural person is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each such Stockholder
has all the requisite power and authority to execute, delivery and perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
such Stockholder's part. Such Stockholder's board of directors has approved the
Stockholder's entry into this Agreement and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Stockholder and, assuming the due authorization, execution and
delivery by Investor, constitutes a legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except that the enforcement hereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
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Section 6.2 No Conflict. The execution and delivery of this Agreement
by the Stockholder does not, and the performance of this Agreement by the
Stockholder shall not result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Equity Securities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
the Equity Securities are bound or affected, except, in the case of each of the
foregoing, for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance by the Stockholder
of its obligations under this Agreement.
Section 6.3 Title to the Shares. Except as provided in this
Agreement, the Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to the Equity Securities.
ARTICLE VII
RIGHT OF FIRST REFUSAL
Section 7.1 Right of First Refusal.
(a) The Stockholder agrees not to transfer its Equity Securities
unless it complies with the terms of this Section 3.3. Whenever and as often as
the Stockholder desires to sell any shares of his or its Equity Securities
pursuant to a bona fide offer for the purchase thereof in an independent
transaction, he or it will give notice (the "Notice") to Brera and to each other
holder of Equity Securities (each a "Non-Selling Holder" and collectively, the
"Non-Selling Holders") in writing to such effect, enclosing a copy of the bona
fide offer (it being agreed that the Stockholder will cause any such offer to be
reduced to writing) and specifying the number of shares of Equity Securities
which the Stockholder desires to sell, the name of the person or persons to whom
the Stockholder desires to make the sale and the dollar value of the
consideration which has been offered in connection therewith.
(b) Upon receipt of the Notice, Brera will have a right of first
refusal to purchase all of the shares described in the Notice which are proposed
to be sold for cash at a purchase price equal to the dollar value of such
consideration (in the event such consideration includes non-cash consideration,
the dollar value of such non-cash consideration shall be its Appraised Value (as
defined in the Stockholders' Agreement, which is an exhibit to the Investment
Agreement). Brera
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will have five days after receiving the Notice to notify the Stockholder whether
Brera will exercise its rights under this Section 3.3(b). If Brera notifies the
Stockholder that it will exercise its purchase rights within such five (5) day
period, the Stockholder will sell such shares to Brera pursuant to the terms and
conditions described in such bona fide offer and Brera will be obligated to
complete such purchase of the shares within the greater of (i) 30 days after
responding to the Notice or (ii) the period of time contemplated by the bona
fide offer for consummating the purchase of the shares. Brera's failure to
respond to the Notice within the five-day period will be deemed to constitute a
notification to the Stockholder of Brera's decision not to exercise its right of
first refusal to purchase the shares under this Section 3.3(b). If Brera
notifies the Selling Holder within such five-day period of its decision not to
exercise its right of first refusal, then the relevant provisions of that
certain Amended and Restated Stockholder Agreement, dated as of October 31,
1995, among the Company, the Stockholder and the other stockholders described
therein (the "1995 Stockholders Agreement") will apply to such proposed
transaction and such five-day period shall be deemed to run concurrently with
the notice provisions of the 1995 Stockholder Agreement.
(c) The Stockholder hereby agrees the provisions of this Section
3.3 supercede, and shall be deemed to amend the terms of the 1995 Stockholders
Agreement. If the terms of this Section 3.3 are deemed to conflict the terms of
the 1995 Stockholder Agreement, the terms of this Agreement shall be followed.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination. This Agreement shall terminate upon the
earliest to occur of (a) the termination of the Investment Agreement in
accordance with its terms pursuant to Article VIII of the Investment Agreement
and (b) the Closing (as defined in the Investment Agreement).
Section 8.2 Enforcement of Agreement. The Stockholder agrees that
irreparable damage would occur and that Investor would not have any adequate
remedy at law if any provision of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is accordingly
agreed that Investor shall be entitled to an injunction or injunctions to
prevent breaches by the Stockholder of this Agreement and to enforce
specifically the terms
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and provisions of this Agreement, this being in addition to any other remedy to
which Investor is entitled at law or in equity.
Section 8.3 Successors and Affiliates. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and assigns. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by the Stockholder without
the prior written consent of Investor. If the Stockholder acquires ownership of,
or voting power with respect to, any additional Equity Securities in any manner,
whether by the exercise of any options or rights of first offer or refusal or
rights convertible into or exchangeable for Company Common Stock, by operation
of law or otherwise, such Equity Securities shall be held subject to all of the
terms of this Agreement. By taking and holding such Equity Securities, the
Stockholder shall be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement. Without limiting
the foregoing, the Stockholder specifically agrees that its obligations
hereunder shall not be terminated by operation of law, whether by the death or
incapacity of the Stockholder or otherwise.
Section 8.4 Entire Agreement. This Agreement constitutes the entire
agreement between Investor and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Investor and the Stockholder with respect to the
subject matter hereof.
Section 8.5 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 8.6 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
Section 8.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or
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public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent to the parties as closely as possible to the fullest
extent permitted by applicable law in a mutually acceptable manner in order that
the terms of this Agreement remain as originally contemplated to the fullest
extent possible.
Section 8.8 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means):
(i) if to Investor,
Brera Classic, LLC
c/o Brera Capital Partners, LLC
712 Fifth Avenue
34th Floor
New York, NY 10009
Attn: Lisa Hook
Fax: (212) 835-1399
with a copy to:
Skadden, Arps, Slate, Meagher &
Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy No.: (312) 407-0411
Attn: Peter C. Krupp, Esq.
and a copy to:
Classic Communications, Inc.
515 Congress Avenue
Austin, TX 78701
Attention: J. Merritt Belisle
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<PAGE> 112
Fax: (512) 476-5204
and a copy to:
Winstead Sechrest & Minick P.C.
100 Congress Avenue, Suite 800
Austin, TX 78701
Attention: Timothy E. Young, Esq.
Fax: (512) 370-2850
and a copy to:
Cary Ferchill, Esq.
500 Capital of Texas Highway North
Building 6, Suite 225
Austin, Texas 78746
Fax: (512) 327-7272
(ii) if to Stockholder, to the address set forth in Exhibit A
hereto.
Section 8.9 Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
Section 8.10 Governing Law. All questions concerning the validity,
meaning and effect of this Agreement shall be determined in accordance with the
laws of the State of New York applicable to contracts made and to be performed
within the State, without regard to the principles of conflicts of laws except
to the extent necessary to permit this Agreement to be governed by New York law
as set forth above.
Section 8.11 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process. EACH PARTY TO THIS AGREEMENT HEREBY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND ANY NEW YORK STATE COURT LOCATED IN THE
BOROUGH OF MANHATTAN AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO
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<PAGE> 113
THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH OF THE PARTIES ACCEPTS
FOR THEMSELVES, RESPECTIVELY, AND IN CONNECTION WITH THEIR RESPECTIVE
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION AND VENUE
OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREE TO BE BOUND BY ANY NON-APPEALABLE JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT. A COPY OF ANY SERVICE OF PROCESS SERVED UPON THE
PARTIES SHALL BE MAILED BY REGISTERED MAIL TO THE RESPECTIVE PARTY EXCEPT THAT,
UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL
NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A PARTY
REFUSES TO ACCEPT SERVICE, EACH PARTY AGREES THAT SERVICE UPON THE APPROPRIATE
PARTY BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF A PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.
Section 8.12 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE
RELATIONSHIP THAT IS BEING ESTABLISHED. EACH PARTY ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS, LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
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FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be duly executed on the date hereof.
BA SBIC MANAGEMENT, L.L.C.,
By: BA Equity Mangement, L.P.,
Its Sole Member
By: BA Equity Management G.P.
Its General Partner
By: /s/ ROBERT H. SHERIDAN, III
-------------------------------
Name: Robert H. Sheridan, III
Member
100 North Tryon Street, 25th Floor
NCI-007-25-02
Charlotte, NC 2825-0001
BRERA CLASSIC, LLC
By: /s/ LISA A. HOOK
-------------------------------
Name: Lisa A. Hook
Title: Authorized Signatory
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EXHIBIT A
IRREVOCABLE PROXY
to Vote
CLASSIC COMMUNICATIONS, INC.
COMMON STOCK
The undersigned stockholder of Classic Communications, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the full extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL")), appoints
Lisa A. Hook and David Webb, and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned or owned of record by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Equity Securities") in accordance with
the terms of this Proxy. Upon the undersigned's execution of this Proxy, any and
all prior proxies given by the undersigned with respect to any Equity Securities
only with respect to the matters referred to in the third paragraph of this
proxy are hereby revoked and the undersigned agrees not to grant any subsequent
proxies only with respect to the matters referred to in paragraph 3 of this
proxy with respect to the Equity Securities until after the Expiration Date (as
defined below).
This Proxy is irrevocable (to the extent permitted by the DGCL), is
granted pursuant to that certain Voting Agreement, dated as of May 24, 1999,
between Investor and the undersigned stockholder of the Company (the "Voting
Agreement"), and is granted in consideration of Investor and the Company
entering into that certain Investment Agreement, dated as of May 24, 1999 (the
"Investment Agreement"). As used herein, the term "Expiration Date" shall mean
the earlier to occur of (i) the termination of the Voting Agreement in
accordance with its terms, and (ii) the consummation of the transactions
contemplated by the Investment Agreement in accordance with the terms and
provisions of the Investment Agreement.
A-1
<PAGE> 117
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to promptly vote (at every
special or annual meeting of the stockholders, however called, and each
adjournment or postponement thereof, and by execution of a written consent or in
any other manner permitted by law and the certificate of incorporation and/or
bylaws of the Company) all of the undersigned stockholder's Equity Securities in
the Company over which the undersigned stockholder has voting control in favor
of the transactions contemplated by the Investment Agreement and all actions
reasonably necessary to consummate such transactions, including, without
limitation, increasing the number of shares of the voting common stock of the
Company, par value $0.01 per share (the "Company Common Stock"), from 5,442,000
to 15,000,000. The undersigned stockholder may vote the Equity Securities on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: May 24, 1999
BA SBIC MANAGEMENT, L.L.C.,
By: BA Equity Management, L.P.,
Its Sole Member
By: BA Equity Management G.P.
Its General Partner
By: /s/ ROBERT H. SHERIDAN, III
-------------------------------
Name: Robert H. Sheridan, III
Member
100 North Tryon Street, 25th Floor
NCI-007-25-02
Charlotte, NC 2825-0001
Equity Securities beneficially owned:
702,044 shares of Company Common Stock
A-2
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------
For the Quarter Ended
For the Year Ended December 31, March 31,
---------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss before income tax benefit, minority
interest and extraordinary loss (3,596) (12,860) (19,968) (21,476) (27,269) (5,389) (6,186)
Fixed Charges:
Interest expense 4,975 14,199 20,633 21,299 24,442 4,872 5,310
Interest portion of rental expense 113 264 428 464 514 114 157
Dividends on unconsolidated subsidiary -- -- 101 101 67 26 --
------ ------- ------- ------- ------- ------ ------
Earnings 1,492 1,603 1,194 388 (2,246) (377) (719)
====== ======= ======= ======= ======= ====== ======
Fixed charges:
Interest expense 4,975 14,199 20,633 21,299 24,442 4,872 5,310
Interest portion of rental expense 113 264 428 464 514 114 157
Dividends on unconsolidated subsidiary -- -- 101 101 67 26 --
------ ------- ------- ------- ------- ------ ------
Total fixed charges 5,088 14,463 21,162 21,864 25,023 5,012 5,467
------ ------- ------- ------- ------- ------ ------
Ratio of earnings to fixed charges n/a n/a n/a n/a n/a n/a n/a
Earnings inadequate to cover fixed charges:
Total fixed charges 5,088 14,463 21,162 21,864 25,023 5,012 5,467
Earnings 1,492 1,603 1,194 388 (2,246) (377) (719)
------ ------- ------- ------- ------- ------ ------
Deficiency of earnings to fixed charges (3,596) (12,860) (19,968) (21,476) (27,269) (5,389) (6,186)
====== ======= ======= ======= ======= ====== ======
<CAPTION>
ProForma
-------------------------
For the For the
Year Ended Quarter Ended
December 31, March 31,
1998 1999
------- -------
<S> <C> <C>
Loss before income tax benefit, minority
interest and extraordinary loss (61,982) (14,487)
Fixed Charges:
Interest expense 47,483 12,763
Interest portion of rental expense 1,085 271
Dividends on unconsolidated subsidiary -- --
------- -------
Earnings (13,414) (1,453)
======= =======
Fixed charges:
Interest expense 47,483 12,763
Interest portion of rental expense 1,085 271
Dividends on unconsolidated subsidiary -- --
------- -------
Total fixed charges 48,568 13,034
------- -------
Ratio of earnings to fixed charges n/a n/a
Earnings inadequate to cover fixed charges:
Total fixed charges 48,568 13,034
Earnings (13,414) (1,453)
------- -------
Deficiency of earnings to fixed charges (61,982) (14,487)
======= =======
</TABLE>
<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, in Amendment No. 6 to the Registration
Statement (Form S-4 No. 333-63641) and the related Prospectus of Classic
Communications, Inc.
/s/ ERNST & YOUNG LLP
Austin, Texas
July 6, 1999
<PAGE> 1
EXHIBIT 23.3
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
July 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0001069602
<NAME>CLASSIC COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<CASH> 616 2,779 3,472
<SECURITIES> 0 0 0
<RECEIVABLES> 5,281 5,799 5,418
<ALLOWANCES> 762 325 357
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 5,742 8,677 9,405
<PP&E> 96,850 127,169 130,399
<DEPRECIATION> 28,211 39,977 43,641
<TOTAL-ASSETS> 220,162 254,604 249,888
<CURRENT-LIABILITIES> 11,735 17,482 13,170
<BONDS> 0 0 0
0 0 0
26,705 0 0
<COMMON> 28 32 0
<OTHER-SE> (13,214) (46,820) 0
<TOTAL-LIABILITY-AND-EQUITY> 220,162 254,604 249,888
<SALES> 0 0 0
<TOTAL-REVENUES> 60,995 69,802 19,576
<CGS> 0 0 0
<TOTAL-COSTS> 64,387 72,601 20,469
<OTHER-EXPENSES> (3,215) 28 (17)
<LOSS-PROVISION> 1,248 971 0
<INTEREST-EXPENSE> 21,299 24,442 7,446
<INCOME-PRETAX> (21,476) (27,269) (8,322)
<INCOME-TAX> (7,347) (1,930) 0
<INCOME-CONTINUING> (14,129) (25,339) (8,322)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (5,524) 0
<CHANGES> 0 0 0
<NET-INCOME> (14,129) (30,863) (8,322)
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
