<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 2000
REGISTRATION NO. 333-77499
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
CHARTER COMMUNICATIONS HOLDINGS, LLC
AND
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
<TABLE>
<S> <C> <C>
DELAWARE 4841 43-1843179
DELAWARE 4841 43-1843177
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (FEDERAL EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
12444 POWERSCOURT DRIVE
ST. LOUIS, MISSOURI 63131
(314) 965-0555
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANTS'
PRINCIPAL EXECUTIVE OFFICES)
CURTIS S. SHAW, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
12444 POWERSCOURT DRIVE
ST. LOUIS, MISSOURI 63131
(314) 965-0555
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DANIEL G. BERGSTEIN, ESQ. ALVIN G. SEGEL, ESQ.
LEIGH P. RYAN, ESQ. IRELL & MANELLA LLP
PATRICIA M. CARROLL, ESQ. 1800 AVENUE OF THE STARS, SUITE 900
PAUL, HASTINGS, JANOFSKY & WALKER LLP LOS ANGELES, CALIFORNIA 90067-4276
399 PARK AVENUE (310) 277-1010
NEW YORK, NEW YORK 10022
(212) 318-6000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE FEE(1)
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<S> <C> <C> <C> <C>
10.00% Senior Notes due 2009............. $675,000,000 100% $675,000,000 $178,000.00
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10.25% Senior Notes due 2010............. $325,000,000 100% $325,000,000 $ 85,800.00
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11.75% Senior Discount Notes due 2010.... $532,300,000(2) 56.448% $300,303,360 $ 79,280.09
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</TABLE>
(1) Calculated pursuant to Rule 457.
(2) Based on the aggregate principal amount at maturity.
-------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED JANUARY 25, 2000
$1,532,000,000
Offer to Exchange
10.00% Senior Notes due 2009,
10.25% Senior Notes due 2010 and 11.75% Senior Discount Notes due 2010
for any and all outstanding
10.00% Senior Notes due 2009,
10.25% Senior Notes due 2010 and 11.75% Senior Discount Notes due 2010,
respectively, of
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION
-------------------------
- This exchange offer expires at 5:00 p.m., New York City time, on February
, 2000, unless extended.
- No public market exists for the original notes or the new notes. We do
not intend to list the new notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR ORIGINAL NOTES IN THE
EXCHANGE OFFER AND BY PURCHASERS OF THE NOTES FROM PERSONS ELIGIBLE TO USE THIS
PROSPECTUS FOR RESALES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed 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 in which the offer or sale would be unlawful.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-b OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-b IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
The date of this prospectus is February , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 16
Forward-Looking Statements.................................. 31
Use of Proceeds............................................. 32
Capitalization.............................................. 33
Unaudited Pro Forma Financial Statements.................... 36
Selected Historical Financial Data.......................... 59
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 60
The Exchange Offer.......................................... 84
Business.................................................... 93
Regulation and Legislation.................................. 123
Management.................................................. 130
Principal Equity Holders.................................... 142
Certain Relationships and Related Transactions.............. 144
Description of Certain Indebtedness......................... 159
Description of Notes........................................ 175
Material United States Federal Income Tax Considerations.... 216
Plan of Distribution........................................ 224
Legal Matters............................................... 224
Experts..................................................... 225
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE> 4
SUMMARY
The following summary contains a general discussion of our business, the
exchange offer and summary financial information. It likely does not contain all
the information that is important to you in making a decision to tender original
notes in exchange for new notes. For a more complete understanding of the
exchange offer, you should read this entire prospectus and the other documents
to which we refer.
Unless stated otherwise, the discussion of our business in this prospectus
includes Charter Holdings and its direct and indirect subsidiaries after giving
effect to the transactions described on page 3 of this prospectus.
OUR BUSINESS
We are the fourth largest operator of cable television systems in the
United States, serving approximately 6.2 million customers, after giving effect
to the pending Bresnan acquisition, described below.
We offer a full range of traditional cable television services and have
begun to offer digital cable television services to customers in some of our
systems. Digital technology enables cable operators to increase the number of
channels a cable system can carry by permitting a significantly increased number
of video signals to be transmitted over a cable system's existing bandwidth.
Bandwidth is a measure of the information-carrying capacity of a communication
channel. It is the range of usable frequencies that can be carried by a cable
system.
We have also started to introduce a number of other new products and
services, including interactive video programming, which allows information to
flow in both directions, and high-speed Internet access to the World Wide Web.
We are also exploring opportunities in telephony, which will integrate telephone
services with the Internet through the use of cable. The introduction of these
new services represents an important step toward the realization of our Wired
World(TM) vision, where cable's ability to transmit voice, video and data at
high speeds will enable it to serve as the primary platform for the delivery of
new services to the home and workplace. We are accelerating the upgrade of our
systems to more quickly provide these new services.
We have grown rapidly over the past five years. During this period, our
management team has successfully completed 31 acquisitions, including eleven
acquisitions closed in 1999. We also merged with Marcus Cable Holdings, LLC in
April 1999. We have also expanded our customer base through significant internal
growth. For the 12 months ended September 30, 1999, our internal customer
growth, without giving effect to the cable systems we acquired during that
period, was 3.9%, compared to the national industry average of 1.8%. In 1998,
our internal customer growth, without giving effect to the cable systems we
acquired in that year, was 4.8%, more than twice the national industry average
of 1.7%.
Our principal executive offices are located at 12444 Powerscourt Drive, St.
Louis, Missouri 63131. Our telephone number is (314) 965-0555 and our web site
is located at www.chartercom.com. The information on our web site is not part of
this prospectus.
1
<PAGE> 5
BUSINESS STRATEGY
Our objective is to increase our operating cash flow by increasing our
customer base and the amount of cash flow per customer. To achieve this
objective, we are pursuing the following strategies:
- rapidly integrate acquired cable systems and apply our core operating
strategies to raise the financial and operating performance of these
acquired systems;
- expand the array of services we offer to our customers through the
implementation of our Wired World vision;
- upgrade the bandwidth capacity of our systems to 550 megahertz or greater
to enable greater channel capacity and add two-way capability to
facilitate interactive communication. Two-way capability is the ability
to have bandwidth available for upstream, or two-way, communication;
- maximize customer satisfaction by providing reliable, high-quality
service offerings, superior customer service and attractive programming
choices at reasonable rates;
- employ innovative marketing programs tailored to local customer
preferences to generate additional revenues;
- emphasize local management autonomy to better serve our customers while
providing support from regional and corporate offices and maintaining
centralized financial controls; and
- improve the geographic clustering of our cable systems by selectively
trading or acquiring systems to increase operating efficiencies and
improve operating margins. Clusters refer to cable systems under common
ownership which are located within geographic proximity to each other.
2
<PAGE> 6
CHARTER ORGANIZATIONAL STRUCTURE
The chart on the following page sets forth our organizational structure and
that of our direct and indirect parent companies and assumes the occurrence of
the following transactions, referred to in this prospectus as the "Pending
Transactions":
- all of the Avalon 9.375% senior subordinated notes have been repurchased
pursuant to a pending change of control offer for these notes and none of
the Avalon 11.875% senior discount notes have been put to Avalon pursuant
to a pending change of control offer for these notes;
- all of the Falcon 8.375% senior debentures and 9.285% senior discount
debentures have been repurchased pursuant to pending change of control
offers for these debentures;
- the acquisition of the Bresnan cable systems by Charter Communications
Holding Company has closed and the equity interests of the affiliated
companies which then own the cable systems acquired in this acquisition
have been contributed to Charter Holdings by Charter Communications
Holding Company;
- specified sellers in the Bresnan acquisition have received $1 billion of
their consideration in Charter Communications Holding Company membership
units rather than in cash and these membership units have not been
exchanged for shares of Class A common stock of Charter Communications,
Inc.;
- all of the Bresnan 8% senior notes and 9.250% senior discount notes have
been repurchased pursuant to change of control offers for these notes
that will be required after the Bresnan acquisition; and
- none of the outstanding options to purchase membership units of Charter
Communications Holding Company have been exercised.
The Avalon change of control offer and the Falcon change of control offers
are scheduled to close on or about January 28, 2000 and February 4, 2000,
respectively. We expect to commence the Bresnan change of control offers within
30 days of the closing of the Bresnan acquisition.
The following transfers occurred on January 1, 2000:
- the equity interests of the affiliated company which owns the cable
systems acquired by our direct 100% parent, Charter Communications
Holding Company, LLC, in the Avalon acquisition were transferred to
Charter Holdings;
- the equity interests of the affiliated companies which own the cable
systems acquired by Charter Communications Holdings Company in the Falcon
acquisition were transferred to Charter Holdings; and
- the equity interests of the affiliated company which owns the cable
systems acquired by Charter Communications Holdings Company in the Fanch
acquisition were transferred to Charter Holdings.
3
<PAGE> 7
CHARTER ORGANIZATIONAL STRUCTURE
The new notes to be issued in the exchange offer will be issued by Charter
Communications Holdings, LLC and Charter Communications Capital Corporation, the
co-issuers of the original notes. Our cable systems, which are managed by
Charter Communications, Inc., are owned by our wholly owned subsidiaries. The
chart below sets forth our corporate structure and that of our direct and
indirect parent companies.
[CHARTER COMMUNICATIONS FLOW CHART]
For a more detailed description of each entity and how it relates to us,
see "Business -- Charter Organizational Structure."
4
<PAGE> 8
RECENT EVENTS
1999 ACQUISITIONS
In 1999, we completed eleven acquisitions of cable systems. The systems
acquired during 1999 had revenues of approximately $1.0 billion for 1998. Other
information regarding the acquisitions is as follows:
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE MONTHS ENDED
PURCHASE PRICE SEPTEMBER 30, 1999
ACQUISITION (INCLUDING ---------------------------
CLOSING ASSUMED DEBT) REVENUE
ACQUISITIONS IN 1999 DATE (IN MILLIONS) CUSTOMERS (IN THOUSANDS)
-------------------- ------------ ------------------ --------- --------------
<S> <C> <C> <C> <C>
Renaissance Media Group LLC...... 4/99 $ 459 132,000 $ 46,589
American Cable Entertainment,
LLC............................ 5/99 240 69,000 27,540
Cable systems of Greater Media
Cablevision, Inc. ............. 6/99 500 174,000 63,749
Helicon Partners I, L.P. and
affiliates..................... 7/99 550 172,000 63,784
Vista Broadband Communications,
L.L.C.......................... 7/99 126 27,000 10,610
Cable system of Cable Satellite
of South Miami, Inc............ 8/99 22 9,000 3,106
Rifkin Acquisition Partners,
L.L.L.P. and InterLink
Communications Partners,
LLLP........................... 9/99 1,460 464,000 159,465
Cable systems of InterMedia
Capital Partners IV, L.P.,
InterMedia Partners 873+ 413,000
and affiliates................. 10/99 system swap (142,000)(a) 152,789
---------
271,000
Cable systems of Fanch
Cablevision L.P. and
affiliates..................... 11/99 2,400 538,000 155,626
Falcon Communications, L.P. ..... 11/99 3,481 1,004,000 320,228
Avalon Cable LLC................. 11/99 845 261,000(b) 81,559
----------- --------- ----------
Total.......................... $ 10,956 3,121,000 $1,085,045
=========== ========= ==========
</TABLE>
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(a) Represents the number of customers served by cable systems that we agreed to
transfer to InterMedia in connection with the InterMedia acquisition. This
number includes 30,000 customers served by an Indiana cable system that we
did not transfer at the time of the InterMedia closing because some of the
necessary regulatory approvals were still pending. We are obligated to
transfer this system to InterMedia upon receipt of such regulatory
approvals. We will have to pay approximately $88.2 million to InterMedia if
we do not obtain timely regulatory approvals for our transfer to InterMedia
of the Indiana cable system and we are unable to transfer replacement
systems.
(b) Includes approximately 5,400 customers served by cable systems that we will
acquire from certain former affiliates of Avalon. We expect the acquisition
of these systems to be completed in January 2000. The $845 million purchase
price for Avalon includes the purchase price for these systems of
approximately $13 million.
5
<PAGE> 9
PENDING BRESNAN ACQUISITION
In June 1999, Charter Communications Holding Company entered into an
agreement to purchase Bresnan Communications Company Limited Partnership. The
Bresnan cable systems had revenues of approximately $262 million for 1998. Other
information regarding the Bresnan acquisition is as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE NINE
PURCHASE MONTHS ENDED
PRICE SEPTEMBER 30, 1999
(INCLUDING ---------------------------
ANTICIPATED ASSUMED DEBT) REVENUES
PENDING ACQUISITION ACQUISITION CLOSING DATE (IN MILLIONS) CUSTOMERS (IN THOUSANDS)
- ------------------- ------------------------ ------------- --------- --------------
<S> <C> <C> <C> <C>
Bresnan Communications Company
Limited Partnership............. 1st Quarter 2000 $3,100 687,000(a) $209,749
</TABLE>
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(a) Includes approximately 23,800 customers served by cable systems acquired by
Bresnan since September 30, 1999 or to be acquired by Bresnan in
acquisitions not yet completed.
We expect that the Bresnan purchase price will be paid with a portion of
the net proceeds of Charter Communications, Inc.'s initial public offering, $1
billion of equity of Charter Communications Holding Company issued to specified
sellers in the acquisition, assumed debt (comprised of the existing Bresnan
credit facilities and publicly held notes) and borrowings under credit
facilities. We cannot assure you that the Bresnan acquisition will be completed.
We expect to assume and amend the existing Bresnan credit facilities and
increase the borrowing availability thereunder. We expect to borrow
approximately $635 million under these credit facilities in connection with the
closing of the Bresnan acquisition. The $635 million represents $512 million in
outstanding borrowings under the Bresnan credit facilities and $123 million in
additional borrowings under these credit facilities that we anticipate using to
fund a portion of the Bresnan purchase price. In addition, we expect that we
will have to repurchase outstanding Bresnan notes at prices equal to 101% of
their principal amount, plus accrued and unpaid interest, or their accreted
value, as applicable, in connection with required change of control offers for
these notes. As of the anticipated closing date of the Bresnan acquisition, the
total amount of principal and accreted value of the Bresnan notes will be
approximately $362.3 million. We intend to fund the repurchase of a portion of
the Bresnan notes with a portion of the net proceeds from the sale of the
original notes.
PENDING SWAP TRANSACTION
On December 1, 1999, Charter Communications, Inc. entered into a
non-binding letter of intent with AT&T Broadband & Internet Services to exchange
certain cable systems (the "Swap Transaction"). The contemplated Swap
Transaction involves cable systems owned by AT&T located in municipalities in
Alabama, Georgia, Illinois and Missouri serving approximately 701,000
subscribers and certain of our cable systems located in municipalities in
California, Connecticut, Kentucky, Massachusetts, Texas and Tennessee serving
approximately 631,000 subscribers. If the Swap Transaction is completed, it will
allow us to improve the clustering of our cable systems in certain key markets.
For example, upon completion of the Swap Transaction we would serve
approximately 800,000 customers in St. Louis and the surrounding areas of
Missouri and Illinois. We believe that improved clustering will allow us to gain
operating efficiencies and economies of scale, as well as to accelerate the
roll-out of enhanced broadband technology and services to more customers. The
agreed value of the AT&T systems is $2.5 billion and the agreed value of the
Charter systems is $2.4 billion. As part of the Swap Transaction, we will pay
AT&T approximately $108 million in cash, which represents the difference in the
agreed values of the systems being exchanged. The Swap
6
<PAGE> 10
Transaction is subject to the negotiation and execution of a definitive exchange
agreement, regulatory approvals and other conditions typical in transactions of
this type. We cannot assure you that the Swap Transaction will be completed.
INITIAL PUBLIC OFFERING OF COMMON STOCK OF CHARTER COMMUNICATIONS, INC.
Charter Holdings is a subsidiary of Charter Communications Holding Company.
Charter Communications, Inc.'s principal asset is an approximate 38% equity
interest and 100% voting interest in Charter Communications Holding Company. In
November 1999, Charter Communications, Inc. completed an initial public offering
of 195,500,000 shares of its Class A common stock at $19.00 per share for total
net proceeds of $3.57 billion. At that time, Paul G. Allen purchased 50,000
shares of high vote Class B common stock of Charter Communications, Inc. at the
initial public offering price. In addition, at the closing of the initial public
offering, Paul G. Allen through Vulcan Cable III Inc. invested $750 million to
purchase membership units from Charter Communications Holding Company at the
initial public offering price, net of underwriters' discounts. All of the
proceeds from the offering were used, directly or indirectly, by Charter
Communications, Inc. to purchase membership units in Charter Communications
Holding Company, which used a portion of the funds received from Charter
Communications, Inc. and Vulcan Cable III Inc. to pay a portion of the purchase
prices of the Fanch, Falcon and Avalon acquisitions.
RECENT AND PENDING TRANSFER TRANSACTIONS
On January 1, 2000, Charter Holdings and Charter Communications Holding
Company effected a number of transactions to transfer recently acquired cable
systems to Charter Holdings. As a result of these transactions, Charter Holdings
became the indirect parent of the Fanch, Falcon and Avalon cable systems. We
anticipate that the transfer of the Bresnan cable systems to Charter Holdings
will occur shortly after the consummation of the pending Bresnan acquisition,
which we expect to complete in the first quarter of 2000.
APRIL 1999 MERGER WITH MARCUS HOLDINGS
On April 23, 1998, Mr. Allen acquired approximately 99% of the non-voting
economic interests in Marcus Cable Company, L.L.C., and agreed to acquire the
remaining interests in Marcus Cable. The total purchase price was approximately
$3.2 billion, including $1.8 billion in assumed debt. On February 22, 1999,
Marcus Holdings was formed, and all of Mr. Allen's interests in Marcus Cable
were transferred to Marcus Holdings on March 15, 1999. On March 31, 1999, Mr.
Allen completed the acquisition of all remaining interests of Marcus Cable. On
April 7, 1999, Mr. Allen merged Marcus Holdings into Charter Holdings, with
Charter Holdings surviving the merger. The operating subsidiaries of Marcus
Holdings became subsidiaries of our subsidiary, Charter Communications
Operating, LLC.
MARCH 1999 CHARTER HOLDINGS NOTES. On March 17, 1999, Charter Holdings and
Charter Capital issued $3.6 billion principal amount of senior notes, referred
to in this prospectus as the "March 1999 Charter Holdings notes," consisting of
$600 million in aggregate principal amount of 8.250% senior notes due 2007,
referred to in this prospectus as the "March 1999 8.250% Charter Holdings
notes," $1.5 billion in aggregate principal amount of 8.625% senior notes due
2009, referred to in this prospectus as the "March 1999 8.625% Charter Holdings
notes," and $1.475 billion in aggregate principal amount at maturity of 9.920%
senior discount notes due 2011, referred to in this prospectus as the "March
1999 9.920% Charter Holdings notes." The net proceeds of approximately $2.99
billion, combined with borrowings under our credit facilities, were used to
consummate tender offers for publicly held debt of several of our subsidiaries,
to refinance borrowings under our previous credit facilities, for working
capital purposes and to finance a number of acquisitions.
7
<PAGE> 11
THE EXCHANGE OFFER
Resales Without Further
Registration............. We believe that the new notes issued pursuant to
the exchange offer may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933,
as amended, provided that:
- you are acquiring the new notes issued in the
exchange offer in the ordinary course of your
business;
- you have not engaged in, do not intend to
engage in, and have no arrangement or
understanding with any person to participate
in, the distribution of the new notes issued to
you in the exchange offer, and;
- you are not our "affiliate," as defined under
Rule 405 of the Securities Act.
Each of the participating broker-dealers that
receives new notes for its own account in exchange
for original notes that were acquired by such
broker or dealer as a result of market-making or
other activities must acknowledge that it will
deliver a prospectus in connection with the resale
of the new notes.
Expiration Date............ 5:00 p.m., New York City time, on February , 2000
unless we extend the exchange offer.
Exchange and Registration
Rights Agreements........ You have the right to exchange the original notes
that you hold for new notes with substantially
identical terms. This exchange offer is intended to
satisfy these rights. Once the exchange offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to
your original notes.
Accrued Interest on the New
Notes and Original
Notes.................... The new notes will bear interest from January 12,
2000. Holders of original notes which are accepted
for exchange will be deemed to have waived the
right to receive any payment in respect of interest
on such original notes accrued to the date of
issuance of the new notes.
Conditions to the Exchange
Offer.................... The exchange offer is conditioned upon certain
customary conditions which we may waive and upon
compliance with securities laws.
Procedures for Tendering
Original Notes........... Each holder of original notes wishing to accept the
exchange offer must:
- complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal; or
8
<PAGE> 12
- arrange for the Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a book-entry
transfer.
You must mail or otherwise deliver such
documentation together with the original notes to
the exchange agent.
Special Procedures for
Beneficial Holders....... If you beneficially own original notes registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your original notes in the exchange offer,
you should contact such registered holder promptly
and instruct them to tender on your behalf. If you
wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal
for the exchange offer and delivering your original
notes, either arrange to have your original notes
registered in your name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time.
Guaranteed Delivery
Procedures............... You must comply with the applicable procedures for
tendering if you wish to tender your original notes
and:
- time will not permit your required documents to
reach the exchange agent by the expiration date
of the exchange offer; or
- you cannot complete the procedure for
book-entry transfer on time; or
- your original notes are not immediately
available.
Withdrawal Rights.......... You may withdraw your tender of original notes at
any time prior to 5:00 p.m., New York City time, on
the date the exchange offer expires.
Failure to Exchange Will
Affect You Adversely..... If you are eligible to participate in the exchange
offer and you do not tender your original notes,
you will not have further exchange or registration
rights and your original notes will continue to be
subject to some restrictions on transfer.
Accordingly, the liquidity of the original notes
will be adversely affected.
Material United States
Federal Income Tax
Consideration............ The disclosure in this prospectus represents our
legal counsel's opinion as to the material United
States Federal income tax consequences of
participating in the exchange offer and in
connection with the ownership and disposition of
the new notes. The exchange of original notes for
new notes pursuant to the exchange offer will not
result in a taxable event. Accordingly, it is our
legal counsel's opinion that:
- no gain or loss will be realized by a U.S.
holder upon receipt of a new note;
9
<PAGE> 13
- a holder's holding period for new notes will
include the holding period for original notes;
and
- the adjusted tax basis of the new notes will be
the same as the adjusted tax basis of the
original notes exchanged at the time of such
exchange.
Paul, Hastings, Janofsky & Walker LLP has rendered
the above-referenced opinion in connection with the
exchange offer. See "Material United States Federal
Income Tax Consideration."
Exchange Agent............. Harris Trust and Savings Bank is serving as
exchange agent.
Use of Proceeds............ We will not receive any proceeds from the exchange
offer.
10
<PAGE> 14
SUMMARY TERMS OF NEW NOTES
Issuers....................... Charter Communications Holdings, LLC and
Charter Communications Holdings Capital
Corporation.
Notes Offered................. $675.0 million in principal amount of 10.00%
senior notes due 2009.
$325.0 million in principal amount of 10.25%
senior notes due 2010.
$532.3 million in principal amount at maturity
of 11.75% senior discount notes due 2010.
The form and terms of the new notes will be the
same as the form and terms of the outstanding
notes except that:
- the new notes will bear a different CUSIP
number from the original notes;
- the new notes will have been registered under
the Securities Act of 1933 and, therefore,
will not bear legends restricting their
transfer; and
- you will not be entitled to any exchange or
registration rights with respect to the new
notes.
The new notes will evidence the same debt as
the original notes. They will be entitled to
the benefits of the indentures governing the
original notes and will be treated under the
indentures as a single class with the original
notes.
<TABLE>
<CAPTION>
MATURITY
DATE ISSUE PRICE INTEREST
---------------- --------------------------- ---------------------------
<S> <C> <C> <C>
10.00% Notes..... April 1, 2009 100.00% plus accrued 10.00% per annum, payable
interest, if any, from every six months on April 1
January 12, 2000 and October 1, beginning
April 1, 2000
10.25% Notes..... January 15, 2010 100.00%, plus accrued 10.25% per annum, payable
interest, if any, from every six months on January
January 12, 2000 15 and July 15, beginning
July 15, 2000
11.75% Notes..... January 15, 2010 56.448%, with original Interest to accrete at a
issue discount to accrete rate of 11.75% per annum to
from January 12, 2000 an aggregate amount of
$532.0 million by January
15, 2005; thereafter, cash
interest will be payable
every six months on January
15 and July 15 at a rate of
11.75% per annum, beginning
July 15, 2005
</TABLE>
Ranking.................... The new notes will be senior debts. They will rank
equally with the current and future unsecured and
unsubordinated debt of Charter Holdings, including
the March 1999 senior notes and senior discount
notes and trade payables, which are accounts
payable to vendors,
11
<PAGE> 15
suppliers and service providers. Charter Holdings
is a holding company and conducts all of its
operations through its direct and indirect
subsidiaries. If it defaults, your right to payment
under the new notes will rank below all existing
and future liabilities, including trade payables,
of the subsidiaries of Charter Holdings. As of
September 30, 1999, all of our outstanding debt,
other than the March 1999 Charter Holdings notes
and the original notes, but including our credit
facilities, was incurred by our subsidiaries. As of
that date, as adjusted to give effect to the sale
of the original notes, acquisitions completed since
that date, the recent transfer to us of the Fanch,
Falcon and Avalon cable systems and the Pending
Transactions as if such transactions had occurred
on that date, debt of Charter Holdings and its
subsidiaries would have totaled approximately $10.7
billion, $6.4 billion of which would have ranked
senior to the new notes.
Optional Redemption........ We will not have the right to redeem the 10.00%
notes prior to their maturity date on April 1,
2009.
On or after January 15, 2005, we may redeem some or
all of the 10.25% notes and the 11.75% discount
notes at any time at the redemption prices listed
in the "Description of Notes" section under the
heading "Optional Redemption."
Before January 15, 2003, we may redeem up to 35% of
the 10.25% notes and the 11.75% discount notes with
the proceeds of certain offerings of equity
securities at the prices listed in the "Description
of Notes" section under the heading "Optional
Redemption."
Mandatory Offer to
Repurchase................. If Charter Holdings, Charter Communications Holding
Company or Charter Communications, Inc. experiences
certain changes of control, we must offer to
repurchase any then-outstanding notes at 101% of
their principal amount plus accrued and unpaid
interest or accreted value, as applicable.
Basic Covenants of
Indentures The indentures governing the notes will, among
other things, restrict our ability and the ability
of certain of our subsidiaries to:
- pay dividends on stock or repurchase stock;
- make investments;
- borrow money;
- create certain liens;
- sell all or substantially all of our assets or
merge with or into other companies;
- sell assets;
- in the case of our restricted subsidiaries,
create or permit to exist dividend or payment
restrictions with respect to us; and
- engage in certain transactions with affiliates.
These covenants are subject to important
exceptions. See "Description of Notes -- Certain
Covenants."
RISK FACTORS
You should carefully consider all of the information in this prospectus. In
particular, you should evaluate the specific risk factors under "Risk Factors"
for a discussion of risks associated with an investment in the new notes.
12
<PAGE> 16
UNAUDITED SUMMARY PRO FORMA FINANCIAL DATA
You should read the following unaudited summary pro forma financial data of
Charter Holdings in conjunction with the historical financial statements and
other financial information appearing elsewhere in this prospectus, including
"Capitalization," "Unaudited Pro Forma Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
UNAUDITED SUMMARY PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------
1999 BRESNAN OFFERING
CHARTER HOLDINGS ACQUISITIONS SUBTOTAL ACQUISITION ADJUSTMENTS TOTAL
---------------- ------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 970,362 $ 974,776 $ 1,945,138 $ 217,370 $ -- $ 2,162,508
----------- ---------- ----------- ---------- -------- -----------
Operating expenses:
Operating, general and
administrative....................... 505,041 481,917 986,958 121,089 -- 1,108,047
Depreciation and amortization.......... 505,058 587,184 1,092,242 164,936 -- 1,257,178
Stock option compensation expense...... 59,288 -- 59,288 -- -- 59,288
Corporate expense charges(a)........... 18,309 46,156 64,465 10,850 -- 75,315
Management fees........................ -- 11,677 11,677 221 -- 11,898
----------- ---------- ----------- ---------- -------- -----------
Total operating expenses............. 1,087,696 1,126,934 2,214,630 297,096 -- 2,511,726
----------- ---------- ----------- ---------- -------- -----------
Loss from operations.................... (117,334) (152,158) (269,492) (79,726) -- (349,218)
Interest expense........................ (310,650) (295,280) (605,930) (67,619) (22,804) (696,353)
Interest income......................... 2,284 1,308 3,592 26 -- 3,618
Other income (expense).................. (335) (455) (790) -- -- (790)
----------- ---------- ----------- ---------- -------- -----------
Loss before extraordinary item.......... $ (426,035) $ (446,585) $ (872,620) $ (147,319) $(22,804) $(1,042,743)
=========== ========== =========== ========== ======== ===========
OTHER FINANCIAL DATA:
EBITDA(b)............................... $ 387,389 $ 434,571 $ 821,960 $ 85,210 $ 907,170
EBITDA margin(c)........................ 39.9% 44.6% 42.3% 39.2% 41.9%
Adjusted EBITDA(d)...................... $ 465,321 $ 492,859 $ 958,180 $ 96,281 $ 1,054,461
Cash flows from operating activities.... 292,557 289,830 582,387 97,534 679,921
Cash flows used in investing
activities............................. (504,922) (500,680) (1,005,602) (69,303) (1,074,905)
Cash flows from financing activities.... 645,632 299,797 945,429 15,410 960,839
Cash interest expense................... 564,959
Capital expenditures.................... 442,358 348,403 790,761 59,645 850,406
Total debt to annualized EBITDA......... 8.89x
Total debt to annualized adjusted
EBITDA................................. 7.64
EBITDA to cash interest expense......... 1.61
EBITDA to interest expense.............. 1.30
Deficiency of earnings to cover fixed
charges(e)............................. $ 1,042,743
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................ $11,235,191 $7,419,671 $18,654,862 $3,116,319 $ 47,228 $21,818,409
Total debt.............................. 6,244,632 3,420,397 9,665,029 1,035,000 47,228 10,747,257
Member's equity......................... 4,514,306 3,793,149 8,307,455 2,048,721 -- 10,356,176
OPERATING DATA (AT END OF PERIOD, EXCEPT
FOR AVERAGES):
Homes passed(f)......................... 5,541,000 3,183,000 8,724,000 1,022,000 9,746,000
Basic customers(g)...................... 3,426,000 2,074,000 5,500,000 687,000 6,187,000
Basic penetration(h).................... 61.8% 65.2% 63.0% 67.2% 63.5%
Premium units(i)........................ 2,039,000 785,000 2,824,000 302,000 3,126,000
Premium penetration(j).................. 59.5% 37.8% 51.3% 44.0% 50.5%
Average monthly revenue per basic
customer(k)............................ $ 38.84
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
UNAUDITED SUMMARY PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------------
CHARTER 1999 BRESNAN OFFERING
HOLDINGS MARCUS ACQUISITIONS SUBTOTAL ACQUISITION ADJUSTMENTS TOTAL
---------- ---------- ------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 601,953 $ 457,929 $ 1,352,370 $ 2,412,252 $ 279,252 $ -- $ 2,691,504
---------- ---------- ----------- ----------- ---------- -------- -----------
Operating expenses:
Operating, general and
administrative............... 304,555 236,595 663,870 1,205,020 154,695 -- 1,359,715
Depreciation and
amortization................. 370,406 258,348 854,661 1,483,415 224,983 -- 1,708,398
Stock option compensation
expense...................... 845 -- -- 845 -- -- 845
Corporate expense charges(a)... 16,493 17,042 42,313 75,848 5,768 -- 81,616
Management fees................ -- -- 20,803 20,803 -- -- 20,803
---------- ---------- ----------- ----------- ---------- -------- -----------
Total operating expenses..... 692,299 511,985 1,581,647 2,785,931 385,446 -- 3,171,377
---------- ---------- ----------- ----------- ---------- -------- -----------
Loss from operations............. (90,346) (54,056) (229,277) (373,679) (106,194) -- (479,873)
Interest expense................. (200,794) (137,627) (489,077) (827,498) (90,764) (32,521) (950,783)
Other income (expense)........... 518 -- (11,462) (10,944) -- -- (10,944)
---------- ---------- ----------- ----------- ---------- -------- -----------
Loss before extraordinary
items.......................... $ (290,622) $ (191,683) $ (729,816) $(1,212,121) $ (196,958) $(32,521) $(1,441,600)
========== ========== =========== =========== ========== ======== ===========
OTHER FINANCIAL DATA:
EBITDA(b)........................ $ 280,578 $ 204,292 $ 613,922 $ 1,098,792 $ 118,789 $ 1,217,581
EBITDA margin(c)................. 46.6% 44.6% 45.4% 45.6% 42.5% 45.2%
Adjusted EBITDA(d)............... $ 297,398 $ 221,334 $ 688,500 $ 1,207,232 $ 124,557 $ 1,331,789
Cash flows from operating
activities..................... 141,602 135,466 345,766 622,834 102,361 725,195
Cash flows used in investing
activities..................... (206,607) (217,729) (430,290) (854,626) (77,276) (931,902)
Cash flows from (used in)
financing activities........... 210,265 109,924 164,457 484,646 (25,406) 459,240
Cash interest expense............ 776,147
Capital expenditures............. 213,353 224,723 256,469 694,545 58,601 753,146
Total debt to EBITDA............. 8.51x
Total debt to adjusted EBITDA.... 7.78
EBITDA to cash interest
expense........................ 1.57
EBITDA to interest expense....... 1.28
Deficiency of earnings to cover
fixed charges(e)............... $ 1,441,600
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets..................... $4,335,527 $2,900,129 $11,249,769 $18,485,425 $3,122,144 $ 47,228 $21,654,797
Total debt....................... 2,002,206 1,520,995 5,754,433 9,277,634 1,035,000 47,228 10,359,862
Member's equity.................. 2,147,379 1,281,912 5,251,461 8,680,752 2,048,721 -- 10,729,473
OPERATING DATA (AT END OF PERIOD,
EXCEPT FOR AVERAGES):
Homes passed(f).................. 2,149,000 1,743,000 4,701,000 8,593,000 1,009,000 9,602,000
Basic customers(g)............... 1,255,000 1,061,000 3,098,000 5,414,000 681,000 6,095,000
Basic penetration(h)............. 58.4% 60.9% 65.9% 63.0% 67.5% 63.5%
Premium units(i)................. 845,000 411,000 1,372,000 2,628,000 267,000 2,895,000
Premium penetration(j)........... 67.3% 38.7% 44.3% 48.5% 39.2% 47.5%
Average monthly revenue per basic
customer(k).................... $ 36.80
</TABLE>
14
<PAGE> 18
(a) For all of 1998 and through the date of the initial public offering of
Charter Communications, Inc. in November 1999, Charter Investment, Inc.
provided management services to subsidiaries of Charter Operating and,
beginning in October 1998, to subsidiaries of Marcus Holdings. From and
after the initial public offering of Charter Communications Inc., such
management services were provided by Charter Communications, Inc. See
"Certain Relationships and Related Transactions."
(b) EBITDA represents earnings (loss) before extraordinary item before interest,
income taxes, depreciation and amortization. EBITDA is presented because it
is a widely accepted financial indicator of a cable company's ability to
service indebtedness. However, EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating,
investing or financing activities, as determined in accordance with
generally accepted accounting principles. EBITDA should also not be
construed as an indication of a company's operating performance or as a
measure of liquidity. Management's discretionary use of funds depicted by
EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties.
(c) EBITDA margin represents EBITDA as a percentage of revenues.
(d) Adjusted EBITDA means EBITDA before stock option compensation expense,
corporate expense charges, management fees and other income (expense).
Adjusted EBITDA is presented because it is a widely accepted financial
indicator of a cable company's ability to service its indebtedness. However,
adjusted EBITDA should not be considered as an alternative to income from
operations or to cash flows from operating, investing or financing
activities, as determined in accordance with generally accepted accounting
principles. Adjusted EBITDA should also not be construed as an indication of
a company's operating performance or as a measure of liquidity. In addition,
because adjusted EBITDA is not calculated identically by all companies, the
presentation here may not be comparable to other similarly titled measures
of other companies. Management's discretionary use of funds depicted by
adjusted EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties.
(e) Earnings include net income (loss) plus fixed charges. Fixed charges consist
of interest expense and an estimated component of rent expense.
(f) Homes passed are the number of living units, such as single residence homes,
apartments and condominium units, passed by the cable television
distribution network in a given cable system service area.
(g) Basic customers are customers who receive basic cable service.
(h) Basic penetration represents basic customers as a percentage of homes
passed.
(i) Premium units represent the total number of subscriptions to premium
channels.
(j) Premium penetration represents premium units as a percentage of basic
customers.
(k) Average monthly revenue per basic customer represents revenues divided by
the number of months in the period divided by the number of basic customers
at period end.
15
<PAGE> 19
RISK FACTORS
The new notes, like the original notes, entail the following risks. You
should carefully consider these risk factors, as well as the other information
in this prospectus, before exchanging the original notes for new notes.
OUR BUSINESS
WE HAVE SUBSTANTIAL EXISTING DEBT AND WILL INCUR SUBSTANTIAL ADDITIONAL DEBT,
WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND OUR ABILITY TO OBTAIN
FINANCING IN THE FUTURE AND REACT TO CHANGES IN OUR BUSINESS.
We have a significant amount of debt. As of September 30, 1999, pro forma
for the sale of the original notes, acquisitions completed since that date, the
recent transfer to us of the Fanch, Falcon and Avalon cable systems and the
Pending Transactions, our total debt would have been approximately $10.7
billion, our total member's equity would have been approximately $10.4 billion
and the deficiency of our earnings available to cover fixed charges would have
been approximately $1.0 billion.
Our significant amount of debt could have important consequences to you.
For example, it could:
- make it more difficult for us to satisfy our obligations to you under the
notes, to our lenders under our credit facilities and to our other public
noteholders;
- increase our vulnerability to general adverse economic and cable industry
conditions, including interest rate fluctuations, because much of our
borrowings are and will continue to be at variable rates of interest;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, which will reduce our funds available
for working capital, capital expenditures, acquisitions of additional
systems and other general corporate expenses;
- limit our flexibility in planning for, or reacting to, changes in our
business and the cable industry generally;
- place us at a disadvantage compared to our competitors that have
proportionately less debt; and
- limit our ability to borrow additional funds in the future, if we need
them, due to applicable financial and restrictive covenants in our debt.
The agreements and instruments governing our debt do not prohibit us from
incurring additional debt, although they do place certain limitations on such
additional debt. Further, the agreements and instruments governing our debt
allow for the incurrence of debt by our subsidiaries, all of which would rank
senior to the notes. We anticipate incurring significant additional debt in the
future to fund the expansion, maintenance and upgrade of our cable systems. We
will also incur debt to finance the Bresnan acquisition, and may incur debt to
finance additional acquisitions. If new debt is added to our current debt
levels, the related risks that we and you now face could intensify.
16
<PAGE> 20
THE AGREEMENTS AND INSTRUMENTS GOVERNING OUR DEBT CONTAIN RESTRICTIONS AND
LIMITATIONS WHICH COULD SIGNIFICANTLY IMPACT THE HOLDERS OF THE NOTES AND OUR
ABILITY TO OPERATE OUR BUSINESS.
Our credit facilities and the indentures governing the notes and our other
public debt contain a number of significant covenants that could adversely
impact the holders of the notes and our business. These covenants, among other
things, restrict our ability and the ability of our subsidiaries to:
- pay dividends or make other distributions;
- make certain investments or acquisitions;
- dispose of assets or merge;
- incur additional debt;
- issue equity;
- repurchase or redeem equity interests and debt;
- create liens; and
- pledge assets.
Furthermore, in accordance with our credit facilities, we are required to
maintain specified financial ratios and meet financial tests. The ability to
comply with these provisions may be affected by events beyond our control. The
breach of any of these covenants will result in a default under the applicable
debt agreement or instrument, which could place us in default under the
indentures governing the notes.
OUR ABILITY TO GENERATE THE SIGNIFICANT AMOUNT OF CASH NEEDED TO REPAY THE
NOTES, SERVICE OUR OTHER DEBT AND GROW OUR BUSINESS DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to make payments on the notes and our other debt and to fund
our planned capital expenditures for upgrading our cable systems and our ongoing
operations will depend on our ability to generate cash and to secure financing
in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors beyond our
control. If our business does not generate sufficient cash flow from operations,
and sufficient future borrowings are not available to us under our credit
facilities or from other sources of financing, we may not be able to repay the
notes or our other debt, to grow our business or to fund our other liquidity
needs.
IF WE DEFAULT UNDER OUR CREDIT FACILITIES, WE MAY NOT HAVE THE ABILITY TO MAKE
PAYMENTS ON THE NOTES, WHICH WOULD PLACE US IN DEFAULT UNDER THE INDENTURES
GOVERNING THE NOTES.
In the event of a default under our credit facilities, lenders could elect
to declare all amounts borrowed, together with accrued and unpaid interest and
other fees, to be due and payable. In any event, when a default exists under our
subsidiaries' credit facilities, funds may not be distributed by our
subsidiaries to Charter Holdings to pay interest or principal on the notes. If
the amounts outstanding under such credit facilities are accelerated, thereby
causing an acceleration of amounts outstanding under the notes, we may not be
able to repay such amounts or the notes. Any default under any of our credit
facilities or our debt instruments may adversely affect the holders of the notes
and our growth, financial condition and results of operations.
17
<PAGE> 21
CHARTER HOLDINGS IS A HOLDING COMPANY WHICH HAS NO OPERATIONS AND WILL DEPEND ON
ITS OPERATING SUBSIDIARIES FOR CASH. OUR SUBSIDIARIES MAY BE LIMITED IN THEIR
ABILITY TO MAKE FUNDS AVAILABLE FOR THE PAYMENT OF THE NOTES AND OUR OTHER
OBLIGATIONS.
As a holding company, Charter Holdings will depend entirely on its
operating subsidiaries for the cash necessary to satisfy its obligations to you
as a holder of the notes. These operating subsidiaries may not be able to make
funds available to Charter Holdings.
Charter Holdings will not hold any significant assets other than its direct
and indirect interests in its subsidiaries which conduct all of its operations.
Charter Holdings' cash flow will depend upon the cash flow of its operating
subsidiaries and the payment of funds by these operating subsidiaries to Charter
Holdings. This may adversely affect the ability of Charter Holdings to meet its
obligations to the holders of the notes.
Our operating subsidiaries are not obligated to make funds available for
payment of these obligations in the form of loans, distributions or otherwise.
In addition, our operating subsidiaries' ability to make any such loans,
distributions or other payments to Charter Holdings will depend on their
earnings, business and tax considerations and legal restrictions. Covenants in
the indentures and credit agreements governing the debt of Charter Holdings'
subsidiaries restrict their ability to make loans, distributions or other
payments to Charter Holdings. This could adversely impact our ability to pay
interest and principal due on the notes. See "Description of Certain
Indebtedness."
BECAUSE OF OUR HOLDING COMPANY STRUCTURE, THE NOTES WILL BE SUBORDINATED TO ALL
LIABILITIES OF OUR SUBSIDIARIES.
The borrowers and guarantors under the Charter Operating credit facilities,
the Falcon credit facilities, the Fanch credit facilities and the Avalon credit
facilities are, and after giving effect to the Bresnan transfer, any borrowers
and guarantors under the anticipated Bresnan credit facilities will be, direct
or indirect subsidiaries of Charter Holdings. A number of Charter Holdings'
subsidiaries are also obligors under other debt instruments. As of September 30,
1999, as adjusted to give effect to the sale of the original notes, acquisitions
completed since that date, the recent transfer to us of the Fanch, Falcon and
Avalon cable systems and the Pending Transactions, as if such transactions had
occurred on that date, indebtedness of Charter Holdings and its subsidiaries
would have totaled approximately $10.7 billion, $6.4 billion of which would have
ranked senior to the notes. The lenders under all of these credit facilities and
the holders of the other debt instruments will have the right to be paid before
Charter Holdings from any of our subsidiaries' assets. In the event of
bankruptcy, liquidation or dissolution of a subsidiary, following payment by
such subsidiary of its liabilities, such subsidiary may not have sufficient
assets remaining to make payments to Charter Holdings as a shareholder or
otherwise. This will adversely affect our ability to make payments to you as a
holder of the notes.
WE HAVE GROWN RAPIDLY AND HAVE A LIMITED HISTORY OF OPERATING OUR CURRENT
SYSTEMS. THIS MAKES IT DIFFICULT FOR YOU TO COMPLETELY EVALUATE OUR PERFORMANCE.
We commenced active operations in 1994 and have grown rapidly since then
through acquisitions of cable systems. As of September 30, 1999, after giving
effect to acquisitions completed since that date, the recent transfer to us of
the Fanch, Falcon and Avalon cable systems and the Bresnan acquisition and
transfer to us, our systems served approximately 393% more customers than were
served as of December 31, 1998. As a result, historical financial information
about us may not be indicative of the future or of results that we can achieve
with the cable systems which will be under our control. Our recent growth in
revenue over our short operating history is not necessarily indicative of future
performance.
18
<PAGE> 22
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO EXPERIENCE NET LOSSES.
CONSEQUENTLY, WE MAY NOT HAVE THE ABILITY TO FINANCE FUTURE OPERATIONS.
We have had a history of net losses and expect to continue to report net
losses for the foreseeable future. We expect our net losses to increase as a
result of acquisitions completed in 1999, the recent transfer to us of the
Fanch, Falcon and Avalon cable systems and the Bresnan acquisition and transfer.
We reported net losses from continuing operations before extraordinary items of
$5 million for 1997, $23 million for 1998 and $380 million for the nine months
ended September 30, 1999. On a pro forma basis, giving effect to the merger of
Charter Holdings and Marcus Holdings, acquisitions completed in 1999, the recent
transfer to us of the Fanch, Falcon and Avalon cable systems and the Pending
Transactions, we had net losses from continuing operations before extraordinary
item of $1.4 billion for 1998. For the nine months ended September 30, 1999, on
the same pro forma basis, we had net losses from continuing operations before
extraordinary item of $1.0 billion. We cannot predict what impact, if any,
continued losses will have on our ability to finance our operations in the
future.
IF WE ARE UNSUCCESSFUL IN IMPLEMENTING OUR GROWTH STRATEGY, OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
If we are unable to grow our cash flow sufficiently, we may be unable to
repay the notes or our other debt, to grow our business or to fund our other
liquidity needs. We expect that a substantial portion of our future growth will
be achieved through revenues from new products and services and the acquisition
of additional cable systems. We may not be able to offer these new products and
services successfully to our customers and these new products and services may
not generate adequate revenues.
In addition, we cannot predict the success of our acquisition strategy. In
the past year, the cable television industry has undergone dramatic
consolidation which has reduced the number of future acquisition prospects. This
consolidation may increase the purchase price of future acquisitions, and we may
not be successful in identifying attractive acquisition targets in the future.
Additionally, those acquisitions we do complete are not likely to have a
positive net impact on our operating results in the near future. If we are
unable to grow our cash flow sufficiently, we may be unable to fulfill our
obligations to you under the notes or obtain alternative financing.
OUR PROGRAMMING COSTS ARE INCREASING. WE MAY NOT HAVE THE ABILITY TO PASS THESE
INCREASES ON TO OUR CUSTOMERS, WHICH WOULD ADVERSELY AFFECT OUR CASH FLOW AND
OPERATING MARGINS.
Programming has been, and is expected to continue to be, our largest single
expense item. In recent years, the cable industry has experienced a rapid
escalation in the cost of programming, particularly sports programming. This
escalation may continue, and we may not be able to pass programming cost
increases on to our customers. The inability to pass these programming cost
increases on to our customers would have an adverse impact on our cash flow and
operating margins. In addition, as we upgrade the channel capacity of our
systems, add programming to our basic and expanded basic programming tiers and
reposition premium services to the basic tier, we may face additional market
constraints on our ability to pass programming costs on to our customers. Basic
programming includes a variety of entertainment and local programming. Expanded
basic programming offers more services than basic programming. Premium service
includes unedited, commercial-free movies, sports and other special event
entertainment programming.
19
<PAGE> 23
WE MAY NOT BE ABLE TO OBTAIN CAPITAL SUFFICIENT TO FUND OUR PLANNED UPGRADES AND
OTHER CAPITAL EXPENDITURES. THIS COULD ADVERSELY AFFECT OUR ABILITY TO OFFER NEW
PRODUCTS AND SERVICES, WHICH COULD ADVERSELY AFFECT OUR GROWTH, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
We intend to upgrade a significant portion of our cable systems over the
coming years and make other capital investments. For the three years ending
December 31, 2002, we plan to spend approximately $5.6 billion for capital
expenditures, approximately $3.1 billion of which will be used to upgrade and
rebuild our systems to bandwidth capacity of 550 megahertz or greater and add
two-way capability so that we may offer advanced services. The remaining $2.5
billion will be used for extensions of systems, development of new products and
services, purchases of converters and system maintenance.
We cannot assure you that these amounts will be sufficient to accomplish
our planned system upgrades, maintenance and expansion. If we cannot obtain the
necessary funds from increases in our operating cash flow, additional borrowings
or other sources, we may not be able to fund our planned upgrades and expansion
and offer new products and services on a timely basis. Consequently, our growth,
financial condition and results of operations could suffer materially.
WE MAY NOT BE ABLE TO FUND THE CAPITAL EXPENDITURES NECESSARY TO KEEP PACE WITH
TECHNOLOGICAL DEVELOPMENTS OR OUR CUSTOMERS' DEMAND FOR NEW PRODUCTS AND
SERVICES. THIS COULD LIMIT OUR ABILITY TO COMPETE EFFECTIVELY. CONSEQUENTLY, OUR
GROWTH, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD SUFFER MATERIALLY.
The cable business is characterized by rapid technological change and the
introduction of new products and services. We cannot assure you that we will be
able to fund the capital expenditures necessary to keep pace with technological
developments, or that we will successfully anticipate the demand of our
customers for products and services requiring new technology. This type of rapid
technological change could adversely affect our plans to upgrade or expand our
systems and respond to competitive pressures. Our inability to upgrade, maintain
and expand our systems and provide enhanced services in a timely manner, or to
anticipate the demands of the market place, could adversely affect our ability
to compete. Consequently, our growth, financial condition and results of
operations could suffer materially.
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT WHICH CAN ADVERSELY AFFECT
OUR BUSINESS AND OPERATIONS.
The industry in which we operate is highly competitive. In some instances,
we compete against companies with fewer regulatory burdens, easier access to
financing, greater personnel resources, greater brand name recognition and
long-standing relationships with regulatory authorities. Mergers, joint ventures
and alliances among any of the following businesses could result in providers
capable of offering cable television, Internet and other telecommunications
services in direct competition with us:
- cable television operators;
- regional telephone companies;
- long distance telephone service providers;
- electric utilities;
- local exchange carriers, which are local phone companies that provide
local area telephone services and access to long distance services to
customers;
- providers of cellular and other wireless communications services; and
- Internet service providers.
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We face competition within the subscription television industry, which
includes providers of paid television service employing technologies other than
cable, such as direct broadcast satellite or DBS, and excludes broadcast
companies that transmit their signal to customers without assessing a
subscription fee. We also face competition from broadcast companies distributing
television broadcast signals without assessing a subscription fee and from other
communications and entertainment media, including conventional off-air
television and radio broadcasting services, newspapers, movie theaters, the
Internet, live sports events and home video products.
We cannot assure you that upgrading our cable systems will allow us to
compete effectively. Additionally, as we expand and introduce new and enhanced
services, including Internet and telecommunications services, we will be subject
to competition from telecommunications providers and Internet service providers.
We cannot predict the extent to which competition may affect our business and
operations in the future. See "Business -- Competition."
WE MAY BE UNABLE TO NEGOTIATE CONSTRUCTION CONTRACTS ON FAVORABLE TERMS AND OUR
CONSTRUCTION COSTS MAY INCREASE SIGNIFICANTLY. THIS COULD ADVERSELY AFFECT OUR
GROWTH, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The expansion and upgrade of our existing systems and the systems we plan
to acquire will require us to hire contractors and enter into a number of
construction agreements. We may have difficulty hiring civil contractors, and
the contractors we hire may encounter cost overruns or delays in construction.
Our construction costs may increase significantly over the next few years as
existing contracts expire and as demand for cable construction services
continues to grow. We cannot assure you that we will be able to construct new
systems or expand or upgrade existing or acquired systems in a timely manner or
at a reasonable cost. This may adversely affect our growth, financial condition
and results of operations.
THERE SHOULD BE NO EXPECTATION THAT MR. ALLEN WILL FUND OUR OPERATIONS OR
OBLIGATIONS IN THE FUTURE.
In the past, Mr. Allen and his affiliates have contributed funds to Charter
Holdings, Charter Communications, Inc. and Charter Communications Holding
Company. There should be no expectation that Mr. Allen or his affiliates will
contribute funds to Charter Holdings, Charter Communications, Inc., Charter
Communications Holding Company or to our subsidiaries in the future.
A SALE BY MR. ALLEN OF HIS DIRECT OR INDIRECT EQUITY INTERESTS COULD ADVERSELY
AFFECT OUR ABILITY TO MANAGE OUR BUSINESS.
Mr. Allen is not prohibited by any agreement from selling the shares of
Class B common stock he holds in Charter Communications, Inc. or causing Charter
Investment, Inc. or Vulcan Cable III Inc. to sell their membership units in
Charter Communications Holding Company after the last day of the 180-day lock-up
period following Charter Communications, Inc.'s November 8, 1999 initial public
offering. We cannot assure you that Mr. Allen or any of his affiliates will
maintain all or any portion of his direct or indirect ownership interests in
Charter Communications, Inc. or Charter Communications Holding Company. In the
event he sells all or any portion of his direct or indirect ownership interest
in Charter Communications, Inc. or Charter Communications Holding Company, we
cannot assure you that he would continue as Chairman of Charter Communications,
Inc.'s board of directors or otherwise participate in our management. The
disposition by Mr. Allen or any of his affiliates of these equity interests or
the loss of his services by Charter Communications, Inc. and/or
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Charter Communications Holding Company could adversely affect our growth,
financial condition and results of operations.
DATA PROCESSING FAILURES RELATED TO THE YEAR 2000 PROBLEM COULD SIGNIFICANTLY
DISRUPT OUR OPERATIONS, CAUSING A DECLINE IN CASH FLOW AND REVENUES AND OTHER
DIFFICULTIES.
The year 2000 problem affects our owned and licensed computer systems and
equipment used in connection with internal operations. It also affects our
non-information technology systems, including embedded systems in our buildings
and other infrastructure. Additionally, since we rely directly and indirectly,
in the regular course of business, on the proper operation and compatibility of
third-party systems, the year 2000 problem could cause these systems to fail,
err or become incompatible with our systems.
Much of our assessment efforts regarding the year 2000 problem have
involved, and depend on, inquiries to third party service providers. Some of
these third parties that have certified the readiness of their products will not
certify that such products have operating compatibility with our systems. If we,
or significant third parties with whom we communicate and do business through
computers, have failed to become year 2000 ready, or if the year 2000 problem
causes our systems to become internally incompatible or incompatible with key
third party systems, our business could suffer material disruptions. We could
also face disruptions if the year 2000 problem causes general widespread
problems or an economic crisis. We cannot now estimate the extent of these
potential disruptions. We cannot assure you that our efforts to date and our
ongoing efforts to prepare for the year 2000 problem will be sufficient to
prevent a material disruption of our operations, particularly with respect to
systems we acquired prior to December 31, 1999. As a result of any such
disruption, our growth, financial condition and results of operations could
suffer materially.
THE LOSS OF KEY EXECUTIVES COULD ADVERSELY AFFECT OUR ABILITY TO MANAGE OUR
BUSINESS.
Our success is substantially dependent upon the retention and the continued
performance of Mr. Allen, Chairman of Charter Communications, Inc.'s board of
directors, and Jerald L. Kent, Charter Communications, Inc.'s President and
Chief Executive Officer. The loss of the services of Mr. Allen or Mr. Kent could
adversely affect our growth, financial condition and results of operations.
CHARTER'S STRUCTURE
MR. ALLEN MAY HAVE INTERESTS THAT CONFLICT WITH YOUR INTERESTS.
Mr. Allen controls approximately 93.6% of the voting power of Charter
Communications, Inc. Charter Communications, Inc., in turn, controls Charter
Communications Holding Company, our 100% parent. Accordingly, Mr. Allen has the
ability to control fundamental corporate transactions, including, but not
limited to, approval of merger transactions involving us and the sale of all or
substantially all of our assets. Mr. Allen's control over our management and
affairs could create conflicts of interest if he is faced with decisions that
could have implications both for him and for us and the holders of the notes.
Further, Mr. Allen could cause us to enter into contracts with another entity in
which he owns an interest or cause us to decline a transaction that he or an
entity in which he owns an interest ultimately enters into.
Mr. Allen may engage in other businesses involving the operation of cable
television systems, video programming, high-speed Internet access, telephony or
electronic commerce, which is business and financial transactions conducted
through broadband interactivity and Internet services. Mr. Allen may also engage
in other businesses that compete or may in the future compete with us. In
addition,
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Mr. Allen currently engages and may engage in the future in businesses that are
complementary to our cable television business.
Accordingly, conflicts could arise with respect to the allocation of
corporate opportunities between us and Mr. Allen. Current or future agreements
between us and Mr. Allen or his affiliates may not be the result of arm's-length
negotiations. Consequently, such agreements may be less favorable to us than
agreements that we could otherwise have entered into with unaffiliated third
parties. Further, many past and future transactions with Mr. Allen or his
affiliates are informal in nature. As a result, there will be some discretion
left to the parties, who are subject to the potentially conflicting interests
described above. We cannot assure you that the interests of either Mr. Allen or
his affiliates will not conflict with the interests of the holders of the Notes.
We have not instituted any formal plans to address conflicts of interest that
may arise.
WE ARE NOT PERMITTED TO ENGAGE IN ANY BUSINESS ACTIVITY OTHER THAN THE CABLE
TRANSMISSION OF VIDEO, AUDIO AND DATA UNLESS MR. ALLEN AUTHORIZES US TO PURSUE
THAT PARTICULAR BUSINESS ACTIVITY. THIS COULD ADVERSELY AFFECT OUR ABILITY TO
OFFER NEW PRODUCTS AND SERVICES OUTSIDE OF THE CABLE TRANSMISSION BUSINESS AND
ENTER INTO NEW BUSINESSES, WHICH COULD ADVERSELY AFFECT OUR GROWTH, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Charter Communications, Inc.'s certificate of incorporation and Charter
Communications Holding Company's limited liability company agreement provide
that Charter Communications, Inc. and Charter Communications Holding Company and
their subsidiaries, including Charter Holdings and its subsidiaries, cannot
engage in any business activity outside the cable transmission business except
for the joint venture with Broadband Partners, LLC and incidental businesses
engaged in as of the closing of Charter Communications, Inc.'s initial public
offering. This will be the case unless the opportunity to pursue the particular
business activity is first offered to Mr. Allen, he decides not to pursue it and
he consents to our engaging in the business activity. The cable transmission
business means the business of transmitting video, audio, including telephone
services, and data over cable television systems owned, operated or managed by
us from time to time. These provisions may limit our ability to take advantage
of attractive business opportunities. Consequently, our ability to offer new
products and services outside of the cable transmission business and enter into
new businesses could be adversely affected, resulting in an adverse effect on
our growth, financial condition and results of operations. See "Certain
Relationships and Related Transactions -- Allocation of Business Opportunities
with Mr. Allen."
OUR MANAGEMENT MAY BE RESPONSIBLE FOR MANAGING OTHER CABLE OPERATIONS AND MAY
NOT DEVOTE THEIR FULL TIME TO OUR OPERATIONS. THIS COULD GIVE RISE TO CONFLICTS
OF INTEREST AND IMPAIR OUR OPERATING RESULTS.
Mr. Allen and certain other of our affiliates may from time to time in the
future acquire cable systems in addition to those owned by us or to be acquired
by us in the Bresnan acquisition and transfer. We cannot assure you that Charter
Communications, Inc., Charter Communications Holding Company or any of their
affiliates will contribute any future acquisitions to Charter Holdings or to any
of its subsidiaries.
Charter Communications, Inc., as well as some of the officers of Charter
Communications, Inc. who currently manage our cable systems, may have a
substantial role in managing outside cable systems that may be acquired in the
future. As a result, the time they devote to managing our systems may be
correspondingly reduced. This could adversely affect our growth, financial
condition and results of operations. Moreover, allocating managers' time and
other resources of Charter Communications, Inc. and Charter Communications
Holding Company between our systems and outside systems that may be held by our
affiliates could give rise to conflicts of interest. Charter
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Communications, Inc. and Charter Communications Holding Company do not have or
plan to create formal procedures for determining whether and to what extent
outside cable television systems acquired in the future will receive priority
with respect to personnel requirements.
ACQUISITIONS
CHARTER COMMUNICATIONS HOLDING COMPANY MAY BE UNABLE TO OBTAIN SUFFICIENT
CAPITAL TO REPAY DEBT OUTSTANDING UNDER THE BRESNAN CREDIT FACILITIES. THIS MAY
RESULT IN A DEFAULT UNDER THE BRESNAN ACQUISITION AGREEMENT.
The Bresnan acquisition will constitute an event of default under the
Bresnan credit facilities, permitting the lenders to declare all amounts
outstanding to be immediately due and payable. As of September 30, 1999, there
was $512 million outstanding under the Bresnan credit facilities. We cannot
assure you that the Bresnan lenders will waive the event of default or that
Charter Communications Holding Company will be able to amend and assume the
existing Bresnan credit facilities or obtain capital sufficient to refinance the
debt outstanding under these credit facilities. If there is a failure to so
obtain waivers, amend and assume, or refinance, the Bresnan acquisition may not
close. We cannot assure you that the Bresnan acquisition will close.
WE MAY BE UNABLE TO OBTAIN SUFFICIENT CAPITAL TO REPURCHASE CERTAIN EXISTING
PUBLIC DEBT. WE MAY AS A RESULT BE IN DEFAULT ON THIS DEBT WHICH COULD LEAD TO
LEGAL PROCEEDINGS BEING INITIATED AGAINST US. THIS COULD IN TURN LEAD TO
DEFAULTS UNDER OUR OTHER OBLIGATIONS, INCLUDING THE NOTES.
We may be required to repurchase the Avalon 11.875% senior discount notes
(which we do not expect will be tendered for repurchase) at 101% of their
accreted value for which a change of control offer has been made. The accreted
value of these notes was $126.1 million as of the closing of the Avalon
acquisition in November 1999. We cannot assure you that we will be able to
obtain capital sufficient to fulfill these repurchase obligations. If we fail to
satisfy these repurchase obligations, the holders of these notes could initiate
legal proceedings against the issuers of the notes, including under bankruptcy
and reorganization laws, for any damages they suffer as a result of
non-performance. This could trigger defaults under our other obligations,
including the notes, our credit facilities and other debt instruments.
WE MAY NOT HAVE THE ABILITY TO INTEGRATE THE NEW CABLE SYSTEMS THAT WE ACQUIRE
AND THE CUSTOMERS THEY SERVE WITH OUR EXISTING CABLE SYSTEMS. THIS COULD
ADVERSELY AFFECT OUR OPERATING RESULTS AND GROWTH STRATEGY.
Upon the completion of the Bresnan acquisition and transfer, we will own
and operate cable systems serving approximately 6.2 million customers. We have
grown rapidly through acquisitions of cable systems. We will acquire additional
cable systems if the Swap Transaction is completed and we may acquire more cable
systems in the future, through direct acquisition, system swaps or otherwise.
The integration of the cable systems we have recently acquired and plan to
acquire poses a number of significant risks, including:
- our acquisitions may not have a positive impact on our cash flows from
operations;
- the integration of these new systems and customers will place significant
demands on our management and our operations, information services, and
financial, legal and marketing resources. Our current operating and
financial systems and controls and information services may not be
adequate, and any steps taken to improve these systems and controls may
not be sufficient;
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- our current information systems may be incompatible with the information
systems we have acquired or plan to acquire. We may be unable to
integrate these information systems at a reasonable cost or in a timely
manner;
- acquired businesses sometimes result in unexpected liabilities and
contingencies which could be significant; and
- our continued growth will also increase our need for qualified personnel.
We may not be able to hire such additional qualified personnel.
We cannot assure you that we will successfully integrate any acquired
systems into our operations.
THE FAILURE TO OBTAIN NECESSARY REGULATORY APPROVALS, OR TO SATISFY OTHER
CLOSING CONDITIONS, COULD IMPEDE THE CONSUMMATION OF A PENDING TRANSACTION. THIS
WOULD PREVENT OR DELAY OUR STRATEGY TO EXPAND OUR BUSINESS AND INCREASE
REVENUES.
The Bresnan acquisition, the transfer to us of the Bresnan systems and the
Swap Transaction are subject to federal, state and local regulatory approvals.
We cannot assure you that we will be able to obtain any necessary approvals.
These transactions are also subject to a number of other closing conditions. We
cannot assure you as to when, or if, each such transaction will be consummated.
Any delay, prohibition or modification could adversely affect the terms of such
transactions or could require us to abandon an otherwise attractive opportunity
and possibly forfeit earnest money.
IF CHARTER COMMUNICATIONS, INC. AND CHARTER COMMUNICATIONS HOLDING COMPANY DO
NOT HAVE SUFFICIENT CAPITAL TO FUND POSSIBLE RESCISSION LIABILITIES, THEY COULD
SEEK FUNDS FROM CHARTER HOLDINGS AND ITS SUBSIDIARIES.
The Rifkin and Falcon sellers who acquired membership units in connection
with the respective Rifkin and Falcon acquisitions, the Bresnan sellers who will
acquire membership units in connection with the Bresnan acquisition and the
Helicon sellers who acquired shares of Class A common stock in Charter
Communications, Inc.'s initial public offering may have rescission rights
against Charter Communications, Inc. or Charter Communications Holding Company,
as the case may be, arising out of possible violations of Section 5 of the
Securities Act in connection with the offers and sales of these equity
interests. If all of these equity holders successfully exercise their possible
rescission rights and Charter Communications, Inc. or Charter Communications
Holding Company becomes obligated to repurchase all such equity interests, the
total repurchase obligations could be up to approximately $1.7 billion. We
cannot assure you that Charter Communications, Inc. and Charter Communications
Holding Company would be able to obtain capital sufficient to fund any required
repurchases. If Charter Communications, Inc. and Charter Communications Holding
Company fail to obtain sufficient funds for this purpose, they could seek such
funds from Charter Holdings and its subsidiaries. This could adversely affect
our financial condition and results of operations.
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REGULATORY AND LEGISLATIVE MATTERS
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL LEGISLATION AND REGULATION.
THE APPLICABLE LEGISLATION AND REGULATIONS, AND CHANGES TO THEM, COULD ADVERSELY
AFFECT OUR BUSINESS BY INCREASING OUR EXPENSES.
Regulation of the cable industry has increased the administrative and
operational expenses and limited the revenues of cable systems. Cable operators
are subject to, among other things:
- limited rate regulation;
- requirements that, under specified circumstances, a cable system carry a
local broadcast station or obtain consent to carry a local or distant
broadcast station;
- rules for franchise renewals and transfers; and
- other requirements covering a variety of operational areas such as equal
employment opportunity, technical standards and customer service
requirements.
Additionally, many aspects of these regulations are currently the subject
of judicial proceedings and administrative or legislative proposals. There are
also ongoing efforts to amend or expand the state and local regulation of some
of our cable systems, which may compound the regulatory risks we already face.
We cannot predict whether in response to these efforts any of the states or
localities in which we now operate will expand regulation of our cable systems
in the future or how they will do so.
WE MAY BE REQUIRED TO PROVIDE ACCESS TO OUR NETWORKS TO OTHER INTERNET SERVICE
PROVIDERS. THIS COULD SIGNIFICANTLY INCREASE OUR COMPETITION AND ADVERSELY
AFFECT THE UPGRADE OF OUR SYSTEMS OR OUR ABILITY TO PROVIDE NEW PRODUCTS AND
SERVICES.
There are proposals before the United States Congress and the Federal
Communications Commission to require all cable operators to make a portion of
their cable systems' bandwidth available to other Internet service providers,
such as telephone companies. Certain local franchising authorities are
considering or have already approved such "open access" requirements. Recently,
a number of companies, including telephone companies and Internet service
providers, have requested local authorities and the Federal Communications
Commission to require cable operators to provide access to cable's broadband
infrastructure, which allows cable to deliver a multitude of channels and/or
services, so that these companies may deliver Internet services directly to
customers over cable facilities. For example, Broward County, Florida granted
open access to an Internet service provider as a condition to a cable operator's
transfer of its franchise for cable service. The cable operator has commenced
legal action at the federal district court level. A federal district court in
Portland, Oregon has also upheld the legality of an open access requirement, but
that case has been appealed to the Ninth Circuit.
We believe that allocating a portion of our bandwidth capacity to other
Internet service providers:
- would impair our ability to use our bandwidth in ways that would generate
maximum revenues;
- would strengthen our Internet service provider competitors; and
- may cause us to decide not to upgrade our systems which would prevent us
from introducing our planned new products and services.
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In addition, we cannot assure you that if we were required to provide
access in this manner, it would not have a significant adverse impact on our
profitability. This could impact us in many ways, including by:
- increasing competition;
- increasing the expenses we incur to maintain our systems; and/or
- increasing the expense of upgrading and/or expanding our systems.
OUR CABLE SYSTEMS ARE OPERATED UNDER FRANCHISES WHICH ARE SUBJECT TO NON-RENEWAL
OR TERMINATION. THE FAILURE TO RENEW A FRANCHISE COULD ADVERSELY AFFECT OUR
BUSINESS IN A KEY MARKET.
Our cable systems generally operate pursuant to franchises, permits or
licenses typically granted by a municipality or other state or local government
controlling the public rights-of-way. Many franchises establish comprehensive
facilities and service requirements, as well as specific customer service
standards and establish monetary penalties for non-compliance. In many cases,
franchises are terminable if the franchisee fails to comply with material
provisions set forth in the franchise agreement governing system operations.
Franchises are generally granted for fixed terms and must be periodically
renewed. Local franchising authorities may resist granting a renewal if either
past performance or the prospective operating proposal is considered inadequate.
Franchise authorities often demand concessions or other commitments as a
condition to renewal, which have been and may continue to be costly to us. In
some instances, franchises have not been renewed at expiration, and we have
operated under either temporary operating agreements or without a license while
negotiating renewal terms with the local franchising authorities.
We cannot assure you that we will be able to comply with all material
provisions of our franchise agreements or that we will be able to renew our
franchises in the future. A termination of and/or a sustained failure to renew a
franchise could adversely affect our business in the affected geographic area.
WE OPERATE OUR CABLE SYSTEMS UNDER FRANCHISES WHICH ARE NON-EXCLUSIVE. LOCAL
FRANCHISING AUTHORITIES CAN GRANT ADDITIONAL FRANCHISES AND CREATE COMPETITION
IN MARKET AREAS WHERE NONE EXISTED PREVIOUSLY.
Our cable systems are operated under franchises granted by local
franchising authorities. These franchises are non-exclusive. Consequently, such
local franchising authorities can grant additional franchises to competitors in
the same geographic area. As a result, competing operators may build systems in
areas in which we hold franchises. In some cases municipal utilities may legally
compete with us without obtaining a franchise from the local franchising
authority. The existence of more than one cable system operating in the same
territory is referred to as an overbuild. These overbuilds could adversely
affect our growth, financial condition and results of operations by increasing
competition or creating competition where none existed previously. As of
September 30, 1999, we are aware of overbuild situations impacting 56,000 of our
customers and potential overbuild situations in areas servicing another 54,000
basic customers, together representing a total of 110,000 customers. Additional
overbuild situations may occur in other systems.
LOCAL FRANCHISE AUTHORITIES HAVE THE ABILITY TO IMPOSE ADDITIONAL REGULATORY
CONSTRAINTS ON OUR BUSINESS. THIS CAN FURTHER INCREASE OUR EXPENSES.
In addition to the franchise document, cable authorities have also adopted
in some jurisdictions cable regulatory ordinances that further regulate the
operation of cable systems. This additional
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regulation increases our expenses in operating our business. We cannot assure
you that the local franchising authorities will not impose new and more
restrictive requirements.
Local franchising authorities also have the power to reduce rates and order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. Basic service tier
rates are the prices charged for basic programming services. As of December 31,
1999, we have refunded a total of approximately $835,000 since our inception. We
may be required to refund additional amounts in the future.
DESPITE RECENT DEREGULATION OF EXPANDED BASIC CABLE PROGRAMMING PACKAGES, WE ARE
CONCERNED THAT CABLE RATE INCREASES COULD GIVE RISE TO FURTHER REGULATION. THIS
COULD CAUSE US TO DELAY OR CANCEL SERVICE OR PROGRAMMING ENHANCEMENTS OR IMPAIR
OUR ABILITY TO RAISE RATES TO COVER OUR INCREASING COSTS.
On March 31, 1999, the pricing guidelines of expanded basic cable
programming packages were deregulated, permitting cable operators to set their
own rates. This deregulation was not applicable to basic services. However, the
Federal Communications Commission and the United States Congress continue to be
concerned that cable rate increases are exceeding inflation. It is possible that
either the Federal Communications Commission or the United States Congress will
again restrict the ability of cable television operators to implement rate
increases. Should this occur, it would impede our ability to raise our rates. If
we are unable to raise our rates in response to increasing costs, our financial
condition and results of operations could be materially adversely affected.
IF WE OFFER TELECOMMUNICATIONS SERVICES, WE MAY BE SUBJECT TO ADDITIONAL
REGULATORY BURDENS CAUSING US TO INCUR ADDITIONAL COSTS.
If we enter the business of offering telecommunications services, we may be
required to obtain federal, state and local licenses or other authorizations to
offer these services. We may not be able to obtain such authorizations in a
timely manner, or at all, and conditions could be imposed upon such licenses or
authorizations that may not be favorable to us. Furthermore, telecommunications
companies, including Internet protocol telephony companies, generally are
subject to significant regulation as well as higher fees for pole attachments.
Internet protocol telephony companies are companies that have the ability to
offer telephone services over the Internet. Pole attachments are cable wires
that are attached to poles.
In particular, cable operators who provide telecommunications services and
cannot reach agreement with local utilities over pole attachment rates in states
that do not regulate pole attachment rates will be subject to a methodology
prescribed by the Federal Communications Commission for determining the rates.
These rates may be higher than those paid by cable operators who do not provide
telecommunications services. The rate increases are to be phased in over a five-
year period beginning on February 8, 2001. If we become subject to
telecommunications regulation or higher pole attachment rates, we may incur
additional costs which may be material to our business.
THE EXCHANGE OFFER
THERE IS NO MARKET FOR THE NOTES. WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE NOTES WHICH WOULD CAUSE DIFFICULTIES FOR YOU IF YOU
TRY TO RESELL THE NOTES.
Prior to the offering, there was no market for the original notes. We have
been informed by the Initial Purchasers that they intend to make a market in the
original notes after the offering is completed and in the new notes after the
exchange is completed. However, the Initial Purchasers may cease their
market-making at any time without notice. The original notes are not registered
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under the Securities Act and were offered and sold only to qualified
institutional buyers and to persons outside the United States. Consequently, the
original notes are subject to restrictions on transfer which are described under
the "Notice to Investors" section of this prospectus. The original notes have
been designated as eligible for trading in the PORTAL market. However, we do not
intend to apply for listing of the original notes or, if issued, the new notes,
on any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. The liquidity of the trading
market in the new notes, and the market price quoted for the new notes, may be
adversely affected by changes in the overall market for high yield securities
generally or the interest of securities dealers in making a market in the Notes
and by changes in our financial performance or prospects or in the prospects for
companies in our industry generally. As a result, we cannot assure you that an
active trading market will develop for the original Notes or, if issued, the new
notes.
IF YOU FAIL TO EXCHANGE YOUR ORIGINAL NOTES FOR NEW NOTES, SUCH ORIGINAL NOTES
WILL REMAIN SUBJECT TO RESTRICTIONS ON TRANSFER. ACCORDINGLY, THE LIQUIDITY OF
THE MARKET FOR THE ORIGINAL NOTES COULD BE ADVERSELY AFFECTED.
Holders of original notes who do not exchange their original notes for new
notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of the original notes set forth in the legend on the
original notes. This is a consequence of the issuance of the original notes
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. In general, original notes may
not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. If we complete the exchange
offer, we will not be required to register the original notes, and we do not
anticipate that we will register the original notes, under the Securities Act.
Additionally, to the extent that original notes are tendered and accepted in the
exchange offer, the aggregate principal amount of original notes outstanding
will decrease, with a resulting decrease in the liquidity of the market for the
original notes.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FULFILL OUR
OBLIGATIONS UNDER THE NOTES FOLLOWING A CHANGE OF CONTROL. THIS WOULD PLACE US
IN DEFAULT UNDER THE INDENTURES GOVERNING THE NOTES.
Under the indentures governing the notes, upon the occurrence of specified
change of control events, we will be required to offer to repurchase all
outstanding Notes. However, we may not have sufficient funds at the time of the
change of control event to make the required repurchase of the notes. In
addition, a change of control would require the repayment of borrowings under
our other publicly held debt and our credit facilities. Because our credit
facilities and other publicly held debt, other than the existing senior notes
and senior discount notes of Charter Holdings, are obligations of subsidiaries
of Charter Holdings, the credit facilities and such debt would have to be repaid
by our subsidiaries before their assets could be available to Charter Holdings
to repurchase the notes. Our failure to make or complete an offer to repurchase
the notes would place us in default under the indentures governing the notes.
You should also be aware that a number of important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a change of control under the indentures governing the
notes.
IF WE DO NOT FULFILL OUR OBLIGATIONS TO YOU UNDER THE NOTES, YOU WILL NOT HAVE
ANY RECOURSE AGAINST CHARTER COMMUNICATIONS, INC., CHARTER COMMUNICATIONS
HOLDING COMPANY, MR. ALLEN OR THEIR EQUITY HOLDERS OR THEIR AFFILIATES.
The notes will be issued solely by Charter Holdings and Charter Capital.
None of our equity holders, directors, officers, employees or affiliates,
including Charter Communications, Inc., Charter
29
<PAGE> 33
Communications Holding Company and Mr. Allen, will be an obligor or guarantor
under the notes. Furthermore, the indentures governing the notes expressly
provide that these parties will not have any liability for our obligations under
the notes or the indentures governing the notes. By accepting the notes, you
waive and release all such liability as consideration for issuance of the notes.
Consequently, if the issuers of the notes do not fulfill their obligations to
you under the notes, you will have no recourse against any of these parties.
Additionally, our equity holders, including Charter Communications, Inc.,
Charter Communications Holding Company and Mr. Allen, will be free to manage
other entities, including other cable companies. If we do not fulfill our
obligations to you under the notes, you will have no recourse against those
other entities or their assets.
THE 11.75% DISCOUNT NOTES WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT.
CONSEQUENTLY, HOLDERS OF THE 11.75% DISCOUNT NOTES WILL GENERALLY BE REQUIRED TO
INCLUDE AMOUNTS IN GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES IN ADVANCE OF
RECEIVING CASH.
The 11.75% discount notes will be issued at a substantial discount from
their stated principal amount. As a result, purchasers of the 11.75% discount
notes generally will be required to include the accrued portion of this discount
in gross income, as interest, for United States federal income tax purposes in
advance of the receipt of cash payments of this interest.
IF A BANKRUPTCY PETITION WERE FILED BY OR AGAINST US, YOU MAY RECEIVE A LESSER
AMOUNT FOR YOUR CLAIM THAN YOU WOULD BE ENTITLED TO RECEIVE UNDER THE INDENTURE
GOVERNING THE 11.75% DISCOUNT NOTES, AND YOU MAY REALIZE TAXABLE GAIN OR LOSS
UPON PAYMENT OF YOUR CLAIM.
If a bankruptcy petition were filed by or against us under the U.S.
Bankruptcy Code after the issuance of the 11.75% discount notes, the claim by a
holder of the 11.75% discount notes for the principal amount of the 11.75%
discount notes may be limited to an amount equal to the sum of:
(1) the initial offering price for the 11.75% discount notes; and
(2) that portion of the original issue discount that does not
constitute "unmatured interest" for purposes of the U.S. Bankruptcy Code.
Any original issue discount that was not amortized as of the date of the
bankruptcy filing would constitute unmatured interest. Accordingly, holders of
11.75% discount notes under these circumstances may receive a lesser amount than
they would be entitled to receive under the terms of the indenture governing the
11.75% discount notes, even if sufficient funds are available. In addition, to
the extent that the U.S. Bankruptcy Code differs from the Internal Revenue Code
in determining the method of amortization of original issue discount, a holder
of 11.75% discount notes may realize taxable gain or loss upon payment of that
holder's claim in bankruptcy.
30
<PAGE> 34
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding, among other
things, our plans, strategies and prospects, both business and financial.
Although we believe that our plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we cannot assure
you that we will achieve or realize these plans, intentions or expectations.
Forward-looking statements are inherently subject to risks, uncertainties and
assumptions. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this prospectus are
set forth under the caption "Risk Factors" and elsewhere in this prospectus and
include, but are not limited to:
- our plans to achieve growth by offering new products and services and
through acquisitions and swaps;
- our anticipated capital expenditures for our planned upgrades and the
ability to fund these expenditures;
- Charter Communications Holding Company's failure to obtain financing
sufficient to complete the Bresnan acquisition;
- our beliefs regarding the effects of governmental regulation on our
business;
- our ability to effectively compete in a highly competitive
environment; and
- our expectations to be ready for any year 2000 problem.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by those cautionary statements.
31
<PAGE> 35
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the exchange and registration rights agreements entered into in connection with
the offering of the original notes. We will not receive any proceeds from the
exchange offer. In consideration for issuing the new notes, we will receive
original notes with the same original principal amount at maturity. The form and
terms of the original notes are the same as the form and terms of the new notes,
except as otherwise described in this prospectus. The original notes surrendered
in exchange for new notes will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the new notes will not result in any increase in
our outstanding debt.
We received proceeds totaling approximately $1.3 billion from the private
placement of the original notes. These proceeds will be used to finance the
Avalon and Falcon change of control offers, to finance the Bresnan change of
control offers after the Bresnan acquisition is closed and to repay other debt.
Pending our use of the net proceeds from the sale of the original notes, we may
invest the funds in appropriate short-term investments as determined by us or
repay amounts outstanding under the revolving credit facilities of our
subsidiaries.
The break-down of the uses of proceeds is as follows (in millions):
<TABLE>
<S> <C>
Change of control offers:
Falcon
8.375% senior debentures due 2010...................... $ 378.8
9.285% senior discount debentures due 2010............. 322.5
Avalon
9.375% senior subordinated notes due 2008.............. 151.5
11.875% senior discount notes due 2008................. 127.4
Bresnan
8.0% senior notes due 2005............................. 167.0
9.25% senior discount notes due 2009................... 105.8
Discounts and commissions................................... 26.8
Expenses.................................................... 20.5
--------
Total....................................................... $1,300.3
========
</TABLE>
32
<PAGE> 36
CAPITALIZATION
The following table sets forth as of September 30, 1999 on a consolidated
basis:
- the actual capitalization of Charter Holdings;
- the pro forma capitalization of Charter Holdings, assuming that as of
September 30, 1999:
(1) all acquisitions closed since September 30, 1999 had been completed
(including the transfer of an Indiana cable system we agreed to swap
in the InterMedia acquisition);
(2) the recent transfer to Charter Holdings of the Fanch, Falcon and
Avalon cable systems had occurred and the Pending Transactions had
been completed;
(3) all of the Helicon notes and substantially all of the Rifkin notes
had been called or repurchased through tender offers;
(4) the Avalon 11.875% senior discount notes had not been put to us as
permitted under the change of control provisions in the indenture
for these notes. The Avalon 11.875% senior discount notes have been
classified as short-term debt since these notes are puttable to us;
and
(5) $165.0 million of the Avalon purchase price, $870.0 million of the
Fanch purchase price and $635.0 million of the Bresnan purchase
price had been funded with new credit facilities at these entities.
The borrowings under credit facilities at Bresnan have not yet been
arranged. Accordingly, this debt is classified as short-term.
- the pro forma as adjusted capitalization of Charter Holdings to reflect:
(1) the issuance and sale of the original notes; and
(2) the repurchase of the Avalon 9.375% senior subordinated notes, the
Falcon debentures and the Bresnan notes pursuant to the Avalon,
Falcon and Bresnan change of control offers at prices equal to 101%
of their aggregate principal amounts, plus accrued and unpaid
interest, or their accreted value, as applicable, with net proceeds
from the issuance and sale of the original notes.
33
<PAGE> 37
This table should be read in conjunction with the "Unaudited Pro Forma
Financial Statements" and the accompanying notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(a):
9.375% senior subordinated notes -- Avalon... $ -- $ 151,500 $ --
11.875% senior discount notes -- Avalon...... -- 127,400 127,400
8.375% senior debentures -- Falcon........... -- 378,750 --
9.285% senior discount
debentures -- Falcon...................... -- 322,522 --
8.0% senior notes -- Bresnan................. -- 167,025 --
9.25% senior discount notes -- Bresnan....... -- 194,335 --
Credit facilities -- Bresnan(b).............. -- 635,000 635,000
----------- ----------- -----------
Total short-term debt..................... -- 1,976,532 762,400
----------- ----------- -----------
Long-term debt:
Credit facilities:
Charter Operating(c)...................... 2,850,000 3,543,565 3,504,622
CC V -- Avalon............................ -- 165,000 165,000
CC VI -- Fanch............................ -- 870,000 870,000
CC VII -- Falcon.......................... -- 1,012,750 1,012,750
8.250% senior notes due 2007................. 598,448 598,448 598,448
8.625% senior notes due 2009................. 1,495,539 1,495,539 1,495,539
9.920% senior discount notes due 2011........ 954,395 954,395 954,395
10.00% senior notes due 2009................. -- -- 675,000
10.25% senior notes due 2010................. -- -- 325,000
11.75% senior discount notes due 2010........ -- -- 300,303
Other notes(d)............................... 346,250 83,800 83,800
----------- ----------- -----------
Total long-term debt...................... 6,244,632 8,723,497 9,984,857
----------- ----------- -----------
Member's equity(e)........................... 4,514,306 10,356,176 10,356,176
----------- ----------- -----------
Total capitalization...................... $10,758,938 $21,056,205 $21,103,433
=========== =========== ===========
</TABLE>
- -------------------------
(a) Avalon, Falcon and Bresnan notes and debentures are shown at their estimated
fair values under principles of purchase accounting as of September 30,
1999.
(b) We expect to assume and amend the existing Bresnan credit facilities and
increase the borrowing availability thereunder. The $635.0 million
represents $512.0 million in outstanding borrowings under the Bresnan credit
facilities and $123.0 million in additional borrowings under these credit
facilities that we anticipate using to fund a portion of the Bresnan
acquisition purchase price. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(c) Pro Forma and Pro Forma As Adjusted reflect additional borrowings to fund a
portion of the InterMedia acquisition purchase price, the repurchase of
Helicon and Rifkin notes and a portion of the Bresnan acquisition purchase
price. If the contemplated Swap Transaction is completed, we expect to
borrow an additional $108.0 million in connection with the closing of this
transaction. In addition, if we do not obtain timely regulatory approvals
for our transfer to InterMedia of an Indiana cable system and we are unable
to transfer replacement systems, we expect to borrow an additional $88.2
million to pay to InterMedia. Neither of these amounts is reflected in the
table.
34
<PAGE> 38
(d) Represents outstanding notes of our Renaissance, Rifkin and Helicon
subsidiaries. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Financing Activities."
(e) The increase in member's equity is a result of the transfer to Charter
Holdings of the Fanch, Falcon, Avalon and Bresnan cable systems.
35
<PAGE> 39
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Financial Statements are based on the
financial statements of Charter Holdings. Since January 1, 1999, Charter
Holdings has closed numerous acquisitions. In addition, Charter Holdings merged
with Marcus Holdings in April 1999. Our financial statements, on a consolidated
basis, are adjusted on a pro forma basis to illustrate the estimated effects of
acquisitions closed since September 30, 1999, the recent transfer to Charter
Holdings of the Fanch, Falcon and Avalon cable systems and the Pending
Transactions as if such transactions had occurred on September 30, 1999 for the
Unaudited Pro Forma Balance Sheet and to illustrate the estimated effects of the
following transactions as if they had occurred on January 1, 1998 for the
Unaudited Pro Forma Statements of Operations:
(1) the acquisition of Charter Holdings on December 23, 1998 by Mr. Allen;
(2) the acquisition of certain cable systems from Sonic Communications Inc.
on May 20, 1998 by Charter Holdings for an aggregate purchase price net
of cash acquired, of $228.4 million, comprised of $167.5 million in
cash and $60.9 million in a note payable to the seller;
(3) the acquisition of Marcus Cable by Mr. Allen and Marcus Holdings'
merger with and into Charter Holdings effective March 31, 1999;
(4) the acquisitions and dispositions during 1998 by Marcus Cable;
(5) the acquisitions by Charter Communications Holding Company, Charter
Holdings and their subsidiaries completed since January 1, 1999 and the
Bresnan acquisition;
(6) the refinancing of all the debt of our subsidiaries through the
issuance of the existing Charter Holdings senior notes and senior
discount notes and funding under our credit facilities;
(7) the completion of the Fanch, Falcon, Avalon and Bresnan transfers; and
(8) the receipt by specified sellers in the Bresnan acquisition of $1.0
billion of their consideration in Charter Communications Holding
Company membership units rather than in cash.
The Unaudited Pro Forma Financial Statements reflect the application of the
principles of purchase accounting to the transactions listed in items (1)
through (5) above. The allocation of certain purchase prices is based, in part,
on preliminary information, which is subject to adjustment upon obtaining
complete valuation information of intangible assets and post-closing purchase
price adjustments. We believe that finalization of the purchase prices will not
have a material impact on our results of operations or financial position.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that we believe are reasonable. In particular, the pro
forma adjustments assume the following:
- We will transfer to InterMedia the Indiana cable system that was retained
at the time of the InterMedia closing pending receipt of necessary
regulatory approvals.
- The holders of Avalon 11.875% senior discount notes will not require us
to repurchase these notes as required by change of control provisions in
the indentures for these notes.
- We will repurchase the Falcon debentures, the Avalon 9.375% senior
subordinated notes and the Bresnan notes at prices equal to 101% of their
aggregate principal amounts, plus accrued and unpaid interest, or
accreted value, as applicable.
36
<PAGE> 40
We expect that the Bresnan purchase price will be paid with a portion of
the net proceeds of Charter Communications, Inc.'s initial public offering, $1.0
billion of equity of Charter Communications Holding Company issued to specified
sellers in the acquisition, assumed debt (comprised of the existing Bresnan
credit facilities and publicly held notes) and borrowings under credit
facilities. We cannot assure you that the Bresnan acquisition will be completed.
We expect to assume and amend the existing Bresnan credit facilities and
increase the borrowing availability thereunder. We expect to borrow
approximately $635.0 million under these credit facilities in connection with
the closing of the Bresnan acquisition. The $635.0 million represents $512.0
million in outstanding borrowings under the Bresnan credit facilities and $123.0
million in additional borrowings under these credit facilities that we
anticipate using to fund a portion of the Bresnan purchase price. In addition,
we expect that we will have to repurchase outstanding Bresnan notes at prices
equal to 101% of their principal amount, plus accrued and unpaid interest, or
their accreted value, as applicable, in connection with required change of
control offers for these notes. As of the anticipated closing date of the
Bresnan acquisition, the total amount of principal and accreted value of the
Bresnan notes will be $362.3 million. We intend to fund a portion of the
repurchase of the Bresnan notes with a portion of the net proceeds of sale of
the original notes.
We cannot assure you that we will be able to raise the financing necessary
to consummate the Bresnan acquisition. If we are unable to raise the financing
necessary to satisfy this obligation, we may be unable to close the Bresnan
acquisition. In any such case, the relevant sellers or creditors could initiate
legal proceedings against us, including under bankruptcy and reorganization
laws, for any damages they suffer as a result of our non-performance. Any such
action could trigger defaults under our other obligations, including the notes,
our credit facilities and our other debt instruments.
The Unaudited Pro Forma Financial Statements of Charter Holdings do not
purport to be indicative of what our financial position or results of operations
would actually have been had the transactions described above been completed on
the dates indicated or to project our results of operations for any future date.
37
<PAGE> 41
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------------------
CHARTER 1999 BRESNAN OFFERING
HOLDINGS ACQUISITIONS ACQUISITION ADJUSTMENTS
(NOTE A) (NOTE B) SUBTOTAL (NOTE B) (NOTE C) TOTAL
---------- ------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................... $ 970,362 $ 974,776 $ 1,945,138 $ 217,370 $ -- $ 2,162,508
---------- ---------- ----------- ---------- -------- -----------
Operating expenses:
Operating, general and administrative....... 505,041 481,917 986,958 121,089 -- 1,108,047
Depreciation and amortization............... 505,058 587,184 1,092,242 164,936 -- 1,257,178
Stock option compensation expense........... 59,288 -- 59,288 -- -- 59,288
Corporate expense charges (Note D).......... 18,309 46,156 64,465 10,850 -- 75,315
Management fees............................. -- 11,677 11,677 221 -- 11,898
---------- ---------- ----------- ---------- -------- -----------
Total operating expenses.................. 1,087,696 1,126,934 2,214,630 297,096 -- 2,511,726
---------- ---------- ----------- ---------- -------- -----------
Loss from operations.......................... (117,334) (152,158) (269,492) (79,726) -- (349,218)
Interest expense.............................. (310,650) (295,280) (605,930) (67,619) (22,804) (696,353)
Interest income............................... 2,284 1,308 3,592 26 -- 3,618
Other income (expense)........................ (335) (455) (790) -- -- (790)
---------- ---------- ----------- ---------- -------- -----------
Loss before extraordinary item................ $ (426,035) $ (446,585) $ (872,620) $ (147,319) $(22,804) $(1,042,743)
========== ========== =========== ========== ======== ===========
OTHER FINANCIAL DATA:
EBITDA (Note E)............................... $ 387,389 $ 434,571 $ 821,960 $ 85,210 $ 907,170
EBITDA margin (Note F)........................ 39.9% 44.6% 42.3% 39.2% 41.9%
Adjusted EBITDA (Note G)...................... $ 465,321 $ 492,859 $ 958,180 $ 96,281 $ 1,054,461
Cash flows from operating activities.......... 292,557 289,830 582,387 97,534 679,921
Cash flows used in investing activities....... (504,922) (500,680) (1,005,602) (69,303) (1,074,905)
Cash flows from (used in) financing
activities.................................. 645,632 299,797 945,429 15,410 960,839
Cash interest expense......................... 564,959
Capital expenditures.......................... 442,358 348,403 790,761 59,645 850,406
Total debt to annualized EBITDA............... 8.89x
Total debt to annualized adjusted EBITDA...... 7.64
EBITDA to cash interest expense............... 1.61
EBITDA to interest expense.................... 1.30
Deficiency of earnings to cover fixed charges
(Note H).................................... $ 1,042,743
OPERATING DATA (AT END OF PERIOD, EXCEPT FOR
AVERAGES):
Homes passed (Note I)......................... 5,541,000 3,183,000 8,724,000 1,022,000 9,746,000
Basic customers (Note J)...................... 3,426,000 2,074,000 5,500,000 687,000 6,187,000
Basic penetration (Note K).................... 61.8% 65.2% 63.0% 67.2% 63.5%
Premium units (Note L)........................ 2,039,000 785,000 2,824,000 302,000 3,126,000
Premium penetration (Note M).................. 59.5% 37.8% 51.3% 44.0% 50.5%
Average monthly revenue per basic customer
(Note N).................................... $ 38.84
</TABLE>
38
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NOTE A: Pro forma operating results for Charter Holdings consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
HISTORICAL
------------------------
1/1/99 1/1/99
THROUGH THROUGH
9/30/99 3/31/99
CHARTER MARCUS PRO FORMA
HOLDINGS HOLDINGS(A) ADJUSTMENTS TOTAL
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 845,182 $125,180 $ -- $ 970,362
--------- -------- -------- ---------
Operating expenses:
Operating, general and administrative..................... 436,057 68,984 -- 505,041
Depreciation and amortization............................. 441,391 51,688 11,979(b) 505,058
Stock option compensation expense......................... 59,288 -- -- 59,288
Corporate expense charges................................. 18,309 -- -- 18,309
Management fees........................................... -- 4,381 (4,381)(c) --
--------- -------- -------- ---------
Total operating expenses................................ 955,045 125,053 7,598 1,087,696
--------- -------- -------- ---------
Income (loss) from operations............................... (109,863) 127 (7,598) (117,334)
Interest expense............................................ (288,750) (27,067) 5,167(d) (310,650)
Interest income............................................. 18,326 104 (16,146)(e) 2,284
Other income (expense)...................................... (177) (158) -- (335)
--------- -------- -------- ---------
Loss before extraordinary item.............................. $(380,464) $(26,994) $(18,577) $(426,035)
========= ======== ======== =========
</TABLE>
- ---------------
(a) Marcus Holdings represents the results of operations of Marcus Holdings
through March 31, 1999, the date of its merger with Charter Holdings.
(b) As a result of Mr. Allen acquiring a controlling interest in Marcus Cable, a
large portion of the purchase price was recorded as franchises ($2.5
billion) that are amortized over 15 years. This resulted in additional
amortization for the period from January 1, 1999 through March 31, 1999. The
adjustment to depreciation and amortization expense consists of the
following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
USEFUL LIFE DEPRECIATION/
FAIR VALUE (IN YEARS) AMORTIZATION
---------- ---------------- -------------
<S> <C> <C> <C>
Franchises.................................................. $2,500.0 15 $ 40.8
Cable distribution systems.................................. 720.0 8 21.2
Land, buildings and improvements............................ 28.3 10 0.7
Vehicles and equipment...................................... 13.6 3 1.0
------
Total depreciation and amortization....................... 63.7
Less -- historical depreciation and amortization of Marcus
Cable................................................... (51.7)
------
Adjustment.............................................. $ 12.0
======
</TABLE>
(c) Reflects the elimination of management fees.
(d) As a result of the acquisition of Marcus Cable by Mr. Allen, the carrying
value of outstanding debt was recorded at estimated fair value, resulting in
a debt premium that is to be amortized as an offset to interest expense over
the term of the debt. This resulted in a reduction of interest expense.
Interest expense was further reduced by the effects of the extinguishment of
substantially all of our long-term debt in March 1999, excluding borrowings
of our previous credit facilities, and the refinancing of all previous
credit facilities.
(e) Reflects the elimination of interest income on excess cash since we assumed
substantially all such cash was used to acquire InterMedia.
39
<PAGE> 43
NOTE B: Pro forma operating results for our 1999 acquisitions and the
Bresnan acquisition consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
1999 ACQUISITIONS -- HISTORICAL
----------------------------------------------------------------------------------------
GREATER
AMERICAN MEDIA INTERMEDIA
RENAISSANCE(A) CABLE(A) SYSTEMS(A) HELICON(A) RIFKIN(A) SYSTEMS FALCON
-------------- -------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $20,396 $12,311 $42,348 $ 49,565 $152,364 $152,789 $ 320,228
------- ------- ------- -------- -------- -------- ---------
Operating expenses:
Operating, general and
administrative.................. 9,382 6,465 26,067 31,693 95,077 84,174 167,824
Depreciation and amortization..... 8,912 5,537 5,195 16,617 77,985 79,325 168,546
Equity-based deferred
compensation.................... -- -- -- -- -- -- 44,600
Management fees................... -- 369 -- 2,511 2,513 2,356 --
------- ------- ------- -------- -------- -------- ---------
Total operating expenses........ 18,294 12,371 31,262 50,821 175,575 165,855 380,970
------- ------- ------- -------- -------- -------- ---------
Income (loss) from operations...... 2,102 (60) 11,086 (1,256) (23,211) (13,066) (60,742)
Interest expense................... (6,321) (3,218) (565) (20,682) (34,926) (17,636) (98,931)
Interest income.................... 122 32 -- 124 -- 187 --
Other income (expense)............. -- 2 (398) -- (12,742) (2,719) 8,085
------- ------- ------- -------- -------- -------- ---------
Income (loss) before income tax
expense (benefit)................. (4,097) (3,244) 10,123 (21,814) (70,879) (33,234) (151,588)
Income tax expense (benefit)....... (65) 5 4,535 -- (1,975) (2,681) (3,022)
------- ------- ------- -------- -------- -------- ---------
Income (loss) before extraordinary
item.............................. $(4,032) $(3,249) $ 5,588 $(21,814) $(68,904) $(30,553) $(148,566)
======= ======= ======= ======== ======== ======== =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
1999 ACQUISITIONS -- HISTORICAL
------------------------------------------
FANCH(B) AVALON OTHER TOTAL
-------- -------- ------- ----------
<S> <C> <C> <C> <C>
Revenues........................... $155,626 $ 80,198 $11,303 $ 997,128
-------- -------- ------- ----------
Operating expenses:
Operating, general and
administrative.................. 69,895 45,119 6,213 541,909
Depreciation and amortization..... 49,172 33,574 3,746 448,609
Equity-based deferred
compensation.................... -- -- -- 44,600
Management fees................... 4,253 -- 447 12,449
-------- -------- ------- ----------
Total operating expenses........ 123,320 78,693 10,406 1,047,567
-------- -------- ------- ----------
Income (loss) from operations...... 32,306 1,505 897 (50,439)
Interest expense................... (950) (34,340) (1,944) (219,513)
Interest income.................... 9 743 -- 1,217
Other income (expense)............. (842) -- (30) (8,644)
-------- -------- ------- ----------
Income (loss) before income tax
expense (benefit)................. 30,523 (32,092) (1,077) (277,379)
Income tax expense (benefit)....... 177 (1,362) -- (4,388)
-------- -------- ------- ----------
Income (loss) before extraordinary
item.............................. $30,346 $(30,730) $(1,077) $ (272,991)
======== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999 BRESNAN
ACQUISITION -- HISTORICAL
--------------------------
<S> <C>
Revenues.................................................... $209,749
--------
Operating expenses:
Operating, general and administrative..................... 127,799
Depreciation and amortization............................. 42,653
--------
Total operating expenses................................ 170,452
--------
Income from operations...................................... 39,297
Interest expense............................................ (49,186)
Other income (expense)...................................... (268)
--------
Loss before extraordinary item.............................. $(10,157)
========
</TABLE>
40
<PAGE> 44
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------------
1999 ACQUISITIONS
--------------------------------------------------------------------------------
PRO FORMA
-------------------------------------------------------------------
HISTORICAL ACQUISITIONS(C) DISPOSITIONS(D) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 997,128 $30,869 $(49,893) $ (3,328)(f) $ 974,776
--------- ------- -------- --------- ---------
Operating expenses:
Operating, general and administrative... 541,909 16,557 (23,806) (52,743)(f)(g) 481,917
Depreciation and amortization........... 448,609 6,504 (21,040) 153,111(h) 587,184
Equity-based deferred compensation...... 44,600 -- -- (44,600)(i) --
Corporate expense charges............... -- -- -- 46,156(g) 46,156
Management fees......................... 12,449 941 (1,713) -- 11,677
--------- ------- -------- --------- ---------
Total operating expenses................ 1,047,567 24,002 (46,559) 101,924 1,126,934
--------- ------- -------- --------- ---------
Income (loss) from operations............ (50,439) 6,867 (3,334) (105,252) (152,158)
Interest expense......................... (219,513) (1,870) 13 (73,910)(j) (295,280)
Interest income.......................... 1,217 91 -- -- 1,308
Other income (expense)................... (8,644) (5) (2,576) 10,770(k) (455)
--------- ------- -------- --------- ---------
Income (loss) before income tax expense
(benefit)............................... (277,379) 5,083 (5,897) (168,392) (446,585)
Income tax expense (benefit)............. (4,388) (12) -- 4,400(l) --
--------- ------- -------- --------- ---------
Income (loss) before extraordinary
item.................................... $(272,991) $ 5,095 $ (5,897) $(172,792) $(446,585)
========= ======= ======== ========= =========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------------------
BRESNAN ACQUISITION
-------------------------------------------------------------------------
PRO FORMA
------------------------------------------------------------
HISTORICAL ACQUISITIONS(C) DISPOSITIONS(E) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 209,749 $ 7,734 $(113) $ -- $ 217,370
--------- ------- ----- --------- ---------
Operating expenses:
Operating, general and administrative... 127,799 5,562 (69) (12,203)(g) 121,089
Depreciation and amortization........... 42,653 2,641 (23) 119,665(h) 164,936
Equity-based deferred compensation...... -- -- -- -- --
Corporate expense charges............... -- -- -- 10,850(g) 10,850
Management fees......................... -- 221 -- -- 221
--------- ------- ----- --------- ---------
Total operating expenses................ 170,452 8,424 (92) 118,312 297,096
--------- ------- ----- --------- ---------
Income (loss) from operations............ 39,297 (690) (21) (118,312) (79,726)
Interest expense......................... (49,186) (323) 24 (18,134)(j) (67,619)
Interest income.......................... -- 26 -- -- 26
Other income (expense)................... (268) 49,031 -- (48,763)(k) --
--------- ------- ----- --------- ---------
Income (loss) before income tax expense
(benefit)............................... (10,157) 48,044 3 (185,209) (147,319)
Income tax expense (benefit)............. -- (35) -- 35(l) --
--------- ------- ----- --------- ---------
Income (loss) before extraordinary
item.................................... $ (10,157) $48,079 $ 3 $(185,244) $(147,319)
========= ======= ===== ========= =========
</TABLE>
- ---------------
(a) Renaissance represents the results of operations of Renaissance through
April 30, 1999, the date of acquisition by Charter Holdings. American Cable
represents the results of operations of American Cable through May 7, 1999,
the date of acquisition by Charter Holdings. Greater Media Systems
represents the results of operations of Greater Media Systems through June
30, 1999, the date of acquisition by Charter Holdings. Helicon represents
the results of operations of Helicon through July 30, 1999, the date of
acquisition by the Charter Holdings. Rifkin includes the results of
operations of Rifkin Acquisition Partners, L.L.L.P., Rifkin Cable Income
Partners L.P., Indiana Cable Associates, Ltd. and R/N South Florida Cable
Management Limited Partnership, all under common ownership through September
13, 1999, the date of acquisition by Charter Holdings as follows (dollars in
thousands):
<TABLE>
<CAPTION>
RIFKIN RIFKIN INDIANA SOUTH
ACQUISITION CABLE INCOME CABLE FLORIDA OTHER TOTAL
----------- ------------ ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 68,829 $3,807 $ 6,034 $ 17,516 $ 56,178 $152,364
Income (loss) from operations........ (6,954) 146 (3,714) (14,844) 2,155 (23,211)
Loss before extraordinary item....... (21,571) (391) (4,336) (15,605) (27,001) (68,904)
</TABLE>
(b) Fanch includes the results of operations for the nine months ended September
30, 1999, of Fanch cable systems as follows (dollars in thousands):
<TABLE>
<CAPTION>
FANCH CABLE
SYSTEMS OTHER TOTAL
----------- ------- --------
<S> <C> <C> <C>
Revenues.................................................... $142,607 $13,019 $155,626
Income from operations...................................... 29,995 2,311 32,306
Income before extraordinary item............................ 29,557 789 30,346
</TABLE>
(c) Represents the historical results of operations for the period from January
1, 1999 through the date of purchase for acquisitions completed by Rifkin,
Fanch and Bresnan.
41
<PAGE> 45
These acquisitions were accounted for using the purchase method of
accounting. The purchase price in millions and closing dates for significant
acquisitions are as follows:
<TABLE>
<CAPTION>
RIFKIN FANCH BRESNAN
ACQUISITIONS ACQUISITIONS ACQUISITIONS
------------- ------------- ------------
<S> <C> <C> <C>
Purchase price................................. $165.0 $42.2 $40.0
Closing date................................... February 1999 February 1999 January 1999
Purchase price................................. $53.8 $248.0 $27.0
Closing date................................... July 1999 February 1999 March 1999
Purchase price................................. $70.5
Closing date................................... March 1999
Purchase price................................. $50.0
Closing date................................... June 1999
</TABLE>
(d) Represents the elimination of the operating results related to the cable
systems transferred to InterMedia as part of a swap of cable systems in
October 1999. The agreed value of our systems transferred to InterMedia was
$420.0 million. This number includes 30,000 customers served by an Indiana
cable system that we did not transfer at the time of the InterMedia closing
because some of the necessary regulatory approvals were still pending. We
are obligated to transfer this system to InterMedia upon receipt of such
regulatory approvals. We will have to pay $88.2 million to InterMedia if we
do not obtain timely regulatory approvals for our transfer to InterMedia of
the Indiana cable system and we are unable to transfer replacement systems.
No material gain or loss is anticipated on the disposition as these systems
were recently acquired and recorded at fair value at that time.
(e) Represents the elimination of the operating results related to the sale of a
Bresnan cable system sold in January 1999.
(f) Reflects the elimination of historical revenues and expenses associated
with an entity not included in the purchase by Charter.
(g) Reflects a reclassification of expenses representing corporate expenses that
would have occurred at Charter Investment, Inc. totalling $57.0 million and
the elimination of stock compensation expense and the write-off of debt
issuance costs that were included in operating, general and administrative
expense.
(h) Represents additional depreciation and amortization as a result of our
recent and pending acquisitions. A large portion of the purchase price was
allocated to franchises ($12.4 billion) that are amortized over 15 years.
The adjustment to depreciation and amortization expense consists of the
following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DEPRECIATION/
FAIR VALUE USEFUL LIFE AMORTIZATION
---------- ---------------- -------------
<S> <C> <C> <C>
Franchises............................................... $12,356.5 15 $ 574.1
Cable distribution systems............................... 1,729.1 8 155.7
Land, buildings and improvements......................... 53.9 10 3.6
Vehicles and equipment................................... 89.1 3 18.7
-------
Total depreciation and amortization................................................. 752.1
Less-historical depreciation and amortization....................................... (479.3)
-------
Adjustment..................................................................... $ 272.8
=======
</TABLE>
(i) Reflects the elimination of an estimated $44.6 million of change in control
payments under the terms of Falcon's equity-based compensation plans that
were triggered by the acquisition of Falcon. These plans will be terminated
and the employees will participate in the option plan of Charter
Communications Holding Company. As such, these costs will not recur.
42
<PAGE> 46
(j) Reflects additional interest expense on borrowings, which have been or will
be used to finance the acquisitions as follows (dollars in millions):
<TABLE>
<S> <C>
$165.0 million of credit facilities at a composite current
rate of 8.7% -- Avalon...................................... $ 10.8
$150.0 million 9.375% senior subordinated notes -- Avalon... 10.5
$196.0 million 11.875% senior discount notes -- Avalon...... 10.8
$870.0 million of credit facilities at a composite current
rate of 8.4% -- Fanch..................................... 54.9
$1.0 billion of credit facilities at a composite current
rate of 7.9% -- Falcon.................................... 59.1
$375.0 million 8.375% senior debentures -- Falcon........... 23.6
$435.3 million 9.285% senior discount
debentures -- Falcon...................................... 26.4
$696.3 anticipated and committed financing -- Bresnan....... 44.5
$170.0 million 8.0% senior notes -- Bresnan................. 10.2
$275.0 million 9.25% senior discount notes -- Bresnan....... 12.9
Interest expense for recent acquisitions prior to closing
at composite current rate of 8.2%......................... 99.2
-------
Total pro forma interest expenses...................... 362.9
Less-historical interest expense from acquired
companies............................................. (270.9)
-------
Adjustment........................................... $ 92.0
=======
</TABLE>
An increase in the interest rate of 0.125% on all variable rate debt would
result in an increase in interest expense of $5.9 million.
(k) Represents the elimination of gain (loss) on sale of cable television
systems whose results of operations have been eliminated in (d) and (e)
above.
(l) Reflects the elimination of income tax expense (benefit) as a result of
being acquired by a limited liability company.
NOTE C: The offering adjustments of approximately $22.8 million in higher
interest expense consist of the following (dollars in millions):
<TABLE>
<CAPTION>
INTEREST
DESCRIPTION EXPENSE
----------- --------
<S> <C>
$675 million of 10.00% senior notes......................... $ 50.6
$325 million of 10.25% senior notes......................... 25.0
$532 million of 11.75% senior discount notes................ 27.2
Amortization of debt issuance costs......................... 3.6
------
Total pro forma interest expense.......................... 106.4
Less-historical interest expense.......................... (83.6)
------
Adjustment............................................. $ 22.8
======
</TABLE>
NOTE D: Charter Investment, Inc. has provided corporate management and
consulting services to Charter Operating. In connection with the initial public
offering of common stock by Charter Communications, Inc., the existing
management agreement was assigned to Charter Communications, Inc. and Charter
Communications, Inc. entered into a new management agreement with Charter
Communications Holding Company. See "Certain Relationships and Related
Transactions."
NOTE E: EBITDA represents earnings (loss) before extraordinary item
before interest, income taxes, depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a cable
company's ability to service indebtedness. However, EBITDA should not be
considered as an alternative to income from operations or to cash flows from
operating, investing or financing activities, as determined in accordance with
generally accepted accounting principles. EBITDA should also not be construed as
an indication of a company's
43
<PAGE> 47
operating performance or as a measure of liquidity. In addition, because EBITDA
is not calculated identically by all companies, the presentation here may not be
comparable to other similarly titled measures of other companies. Management's
discretionary use of funds depicted by EBITDA may be limited by working capital,
debt service and capital expenditure requirements and by restrictions related to
legal requirements, commitments and uncertainties.
NOTE F: EBITDA margin represents EBITDA as a percentage of revenues.
NOTE G: Adjusted EBITDA means EBITDA before stock option compensation
expense, corporate expense charges, management fees and other income (expense).
Adjusted EBITDA is presented because it is a widely accepted financial indicator
of a cable company's ability to service indebtedness. However, adjusted EBITDA
should not be considered as an alternative to income from operations or to cash
flows from operating, investing or financing activities, as determined in
accordance with generally accepted accounting principles. Adjusted EBITDA should
also not be construed as an indication of a company's operating performance or
as a measure of liquidity. In addition, because adjusted EBITDA is not
calculated identically by all companies, the presentation here may not be
comparable to other similarly titled measures of other companies. Management's
discretionary use of funds depicted by adjusted EBITDA may be limited by working
capital, debt service and capital expenditure requirements and by restrictions
related to legal requirements, commitments and uncertainties.
NOTE H: Earnings include net income (loss) plus fixed charges. Fixed
charges consist of interest expense and an estimated interest component of rent
expense.
NOTE I: Homes passed are the number of living units, such as single
residence homes, apartments and condominium units, passed by the cable
television distribution network in a given cable system service area.
NOTE J: Basic customers are customers who receive basic cable service.
NOTE K: Basic penetration represents basic customers as a percentage of
homes passed.
NOTE L: Premium units represent the total number of subscriptions to
premium channels.
NOTE M: Premium penetration represents premium units as a percentage of
basic customers.
NOTE N: Average monthly revenue per basic customer represents revenues
divided by the number of months in the period divided by the number of basic
customers at September 30, 1999.
44
<PAGE> 48
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------
CHARTER 1999 BRESNAN OFFERING
HOLDINGS MARCUS ACQUISITIONS ACQUISITION ADJUSTMENTS
(NOTE A) (NOTE B) (NOTE C) SUBTOTAL (NOTE C) (NOTE D) TOTAL
----------- ----------- ------------ ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 601,953 $ 457,929 $ 1,352,370 $ 2,412,252 $ 279,252 $ -- $ 2,691,504
----------- ----------- ----------- ----------- ----------- -------- -----------
Operating expenses:
Operating, general and
administrative............. 304,555 236,595 663,870 1,205,020 154,695 -- 1,359,715
Depreciation and
amortization............... 370,406 258,348 854,661 1,483,415 224,983 -- 1,708,398
Stock option compensation
expense.................... 845 -- -- 845 -- -- 845
Corporate expense charges
(Note E)................... 16,493 17,042 42,313 75,848 5,768 -- 81,616
Management fees.............. -- -- 20,803 20,803 -- -- 20,803
----------- ----------- ----------- ----------- ----------- -------- -----------
Total operating
expenses................ 692,299 511,985 1,581,647 2,785,931 385,446 -- 3,171,377
----------- ----------- ----------- ----------- ----------- -------- -----------
Loss from operations.......... (90,346) (54,056) (229,277) (373,679) (106,194) -- (479,873)
Interest expense.............. (200,794) (137,627) (489,077) (827,498) (90,764) (32,521) (950,783)
Other income (expense)........ 518 -- (11,462) (10,944) -- -- (10,944)
----------- ----------- ----------- ----------- ----------- -------- -----------
Loss before extraordinary
item........................ $ (290,622) $ (191,683) $ (729,816) $(1,212,121) $ (196,958) $(32,521) $(1,441,600)
=========== =========== =========== =========== =========== ======== ===========
OTHER FINANCIAL DATA:
EBITDA (Note F)............... $ 280,578 $ 204,292 $ 613,922 $ 1,098,792 $ 118,789 $ 1,217,581
EBITDA margin (Note G)........ 46.6% 44.6% 45.4% 45.6% 42.5% 45.2%
Adjusted EBITDA (Note H)...... $ 297,398 $ 221,334 $ 688,500 $ 1,207,232 $ 124,557 $ 1,331,789
Cash flows from operating
activities.................. 141,602 135,466 345,766 622,834 102,361 725,195
Cash flows used in investing
activities.................. (206,607) (217,729) (430,290) (854,626) (77,276) (931,902)
Cash flows from (used in)
financing activities........ 210,265 109,924 164,457 484,646 (25,406) 459,240
Cash interest expense......... 776,147
Capital expenditures.......... 213,353 224,723 256,469 694,545 58,601 753,146
Total debt to EBITDA.......... 8.51x
Total debt to adjusted
EBITDA...................... 7.78
EBITDA to cash interest
expense..................... 1.57
EBITDA to interest expense.... 1.28
Deficiency of earnings to
cover fixed charges (Note
I).......................... $ 1,441,600
OPERATING DATA (AT END OF
PERIOD, EXCEPT FOR
AVERAGES):
Homes passed (Note J)......... 2,149,000 1,743,000 4,701,000 8,593,000 1,009,000 9,602,000
Basic customers (Note K)...... 1,255,000 1,061,000 3,098,000 5,414,000 681,000 6,095,000
Basic penetration (Note L).... 58.4% 60.9% 65.9% 63.0% 67.5% 63.5%
Premium units (Note M)........ 845,000 411,000 1,372,000 2,628,000 267,000 2,895,000
Premium penetration (Note
N).......................... 67.3% 38.7% 44.3% 48.5% 39.2% 47.5%
Average monthly revenue per
basic customer (Note O)..... $ 36.80
</TABLE>
45
<PAGE> 49
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NOTE A: Pro forma operating results for Charter Holdings, including the
acquisition of us on December 23, 1998 by Mr. Allen and the acquisition of Sonic
Communications, Inc., consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
12/24/98 1/1/98
1/1/98 THROUGH 12/23/98 THROUGH THROUGH
---------------------------------- 12/31/98 5/20/98
CCA CHARTERCOMM -------- -------
GROUP HOLDINGS CHARTER HOLDINGS SONIC ELIMINATIONS SUBTOTAL
--------- ----------- ------------------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................................... $ 324,432 $196,801 $ 49,731 $13,713 $17,276 $ -- $ 601,953
--------- -------- -------- ------- ------- ------- ---------
Operating expenses:
Operating, general and
administrative............................ 164,145 98,331 25,952 7,134 8,993 -- 304,555
Depreciation and amortization............... 136,689 86,741 16,864 8,318 2,279 -- 250,891
Stock option compensation expense........... -- -- -- 845 -- -- 845
Management fees/corporate expense charges... 17,392 14,780 6,176 473 -- -- 38,821
--------- -------- -------- ------- ------- ------- ---------
Total operating expenses.................. 318,226 199,852 48,992 16,770 11,272 -- 595,112
--------- -------- -------- ------- ------- ------- ---------
Income (loss) from operations................ 6,206 (3,051) 739 (3,057) 6,004 -- 6,841
Interest expense............................. (113,824) (66,121) (17,277) (2,353) (2,624) 1,900(c) (200,299)
Other income (expense)....................... 4,668 (1,684) (684) 133 (15) (1,900)(c) 518
--------- -------- -------- ------- ------- ------- ---------
Income (loss) before income taxes............ (102,950) (70,856) (17,222) (5,277) 3,365 -- (192,940)
Income tax expense........................... -- -- -- -- 1,346 -- 1,346
--------- -------- -------- ------- ------- ------- ---------
Income (loss) before extraordinary item...... $(102,950) $(70,856) $(17,222) $(5,277) $ 2,019 $ -- $(194,286)
========= ======== ======== ======= ======= ======= =========
<CAPTION>
PRO FORMA
--------------------------
ADJUSTMENTS TOTAL
----------- ---------
<S> <C> <C>
Revenues..................................... $ -- $ 601,953
--------- ---------
Operating expenses:
Operating, general and
administrative............................ -- 304,555
Depreciation and amortization............... 119,515(a) 370,406
Stock option compensation expense........... -- 845
Management fees/corporate expense charges... (22,328)(b) 16,493
--------- ---------
Total operating expenses.................. 97,187 692,299
--------- ---------
Income (loss) from operations................ (97,187) (90,346)
Interest expense............................. (495)(d) (200,794)
Other income (expense)....................... -- 518
--------- ---------
Income (loss) before income taxes............ (97,682) (290,622)
Income tax expense........................... (1,346)(e) --
--------- ---------
Income (loss) before extraordinary item...... $ (96,336) $(290,622)
========= =========
</TABLE>
- ---------------
(a) Represents additional depreciation and amortization as a result of the
acquisition of us by Mr. Allen. A large portion of the purchase price was
allocated to franchises ($3.6 billion) that are amortized over 15 years.
The adjustment to depreciation and amortization expense consists of the
following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE DEPRECIATION/
FAIR VALUE USEFUL LIFE (IN YEARS) AMORTIZATION
---------- ---------------------- -------------
<S> <C> <C> <C>
Franchises......................................... $3,600.0 15 $240.0
Cable distribution systems......................... 1,439.2 12 115.3
Land, buildings and improvements................... 41.3 11 3.5
Vehicles and equipment............................. 61.2 5 11.6
------
Total depreciation and amortization.............. 370.4
Less-historical depreciation and amortization.... (250.9)
------
Adjustment.................................... $119.5
======
</TABLE>
(b) Reflects the reduction in corporate expense charges of approximately $7.9
million to reflect the actual costs incurred. Management fees charged to CCA
Group and CharterComm Holdings, companies not controlled by Charter
Investment, Inc. at that time, exceeded the allocated costs incurred by
Charter Investment, Inc. on behalf of those companies by $7.9 million. Also
reflects the elimination of approximately $14.4 million of change of control
payments under the terms of the then-existing equity appreciation rights
plans. Such payments were triggered by the acquisition of us by Mr. Allen.
Such payments were made by Charter Investment, Inc. and were not subject to
reimbursement by us, but were allocated to us for financial reporting
purposes. The equity appreciation rights plans were terminated in connection
with the acquisition of us by Mr. Allen, and these costs will not recur.
(c) Represents the elimination of intercompany interest on a note payable from
Charter Holdings to CCA Group.
46
<PAGE> 50
(d) Reflects additional interest expense on $228.4 million of borrowings under
our previous credit facilities used to finance the Sonic acquisition offset
by a reduction of interest expense related to the extinguishment of
substantially all of our long-term debt in March 1999, excluding borrowings
of our previous credit facilities, and the refinancing of all previous
credit facilities.
(e) Reflects the elimination of income tax expense (benefit) as a result of
being acquired by a limited liability company.
NOTE B: Pro forma operating results for Marcus Holdings consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED PRO FORMA
DECEMBER 31, -------------------------------------------------------------
1998 ACQUISITIONS(A) DISPOSITIONS(B) ADJUSTMENTS TOTAL
------------ --------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 499,820 $2,620 $ (44,511) $ -- $ 457,929
--------- ------ --------- --------- ---------
Operating expenses:
Operating, general and administrative............ 271,638 1,225 (20,971) (15,297)(c) 236,595
Depreciation and amortization.................... 215,789 -- -- 42,559(d) 258,348
Corporate expense charges........................ -- -- -- 17,042(c) 17,042
Management fees.................................. 3,341 -- -- (3,341)(c) --
Transaction and severance costs.................. 135,379 -- -- (135,379)(e) --
--------- ------ --------- --------- ---------
Total operating expenses....................... 626,147 1,225 (20,971) (94,416) 511,985
--------- ------ --------- --------- ---------
Income (loss) from operations...................... (126,327) 1,395 (23,540) 94,416 (54,056)
Interest expense................................... (159,985) -- -- 22,358(d) (137,627)
Other income (expense)............................. 201,278 -- (201,278) -- --
--------- ------ --------- --------- ---------
Income (loss) before extraordinary item............ $ (85,034) $1,395 $(224,818) $ 116,774 $(191,683)
========= ====== ========= ========= =========
</TABLE>
- ---------------
(a) Represents the results of operations of acquired cable systems prior to
their acquisition in 1998 by Marcus Holdings.
(b) Represents the elimination of the operating results and corresponding gain
on sale of cable systems sold by Marcus Holdings during 1998.
(c) Represents a reclassification of expenses totaling $15.3 million from
operating, general and administrative to corporate expense charges. Also
reflects the elimination of management fees and the addition of corporate
expense charges of $1.7 million for actual costs incurred by Charter
Investment, Inc. on behalf of Marcus Holdings. Management fees charged to
Marcus Holdings exceeded the costs incurred by Charter Investment, Inc. by
$1.3 million.
(d) As a result of the acquisition of Marcus Holdings by Mr. Allen, a large
portion of the purchase price was recorded as franchises ($2.5 billion) that
are amortized over 15 years. This resulted in additional amortization for
year ended December 31, 1998. The adjustment to depreciation and
amortization expense consists of the following (dollars in millions):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
USEFUL LIFE DEPRECIATION/
FAIR VALUE (IN YEARS) AMORTIZATION
---------- ---------------- -------------
<S> <C> <C> <C>
Franchises.................................... $2,500.0 15 $ 167.2
Cable distribution systems.................... 720.0 8 84.5
Land, buildings and improvements.............. 28.3 10 2.7
Vehicles and equipment........................ 13.6 3 4.0
-------
Total depreciation and amortization...... 258.4
Less-historical depreciation and
amortization........................... (215.8)
-------
Adjustment............................. $ 42.6
=======
</TABLE>
Additionally, the carrying value of outstanding debt was recorded at
estimated fair value, resulting in a debt premium that is to be amortized
as an offset to interest expense over the term of the debt. This resulted
in a reduction in interest expense for the year ended December 31, 1998.
47
<PAGE> 51
(e) As a result of the acquisition of Marcus Holdings by Mr. Allen, Marcus
Holdings recorded transaction costs of approximately $135.4 million. These
costs were primarily comprised of approximately $90.2 million in
compensation paid to employees of Marcus Holdings in settlement of specially
designated Class B membership units, approximately $24.0 million of
transaction fees paid to certain equity partners for investment banking
services and $5.2 million of transaction fees paid primarily for
professional fees. In addition, Marcus Holdings recorded costs related to
employee and officer stay-bonus and severance arrangements of approximately
$16.0 million.
NOTE C: Pro forma operating results for our recently completed and pending
acquisitions consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------
1999 ACQUISITIONS -- HISTORICAL
-------------------------------------------------------------------------------------------
GREATER
AMERICAN MEDIA INTERMEDIA
RENAISSANCE CABLE SYSTEMS HELICON RIFKIN(A) SYSTEMS AVALON FALCON
----------- -------- ------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 41,524 $15,685 $78,635 $ 75,577 $124,382 $176,062 $ 18,187 $ 307,558
-------- ------- ------- -------- -------- -------- -------- ---------
Operating expenses:
Operating, general and
administrative.................. 21,037 7,441 48,852 40,179 63,815 86,753 10,067 161,233
Depreciation and amortization..... 19,107 6,784 8,612 24,290 47,657 85,982 8,183 152,585
Corporate expense charges......... -- -- -- -- -- -- 655 --
Management fees................... -- 471 -- 3,496 4,106 3,147 -- --
-------- ------- ------- -------- -------- -------- -------- ---------
Total operating expenses........ 40,144 14,696 57,464 67,965 115,578 175,882 18,905 313,818
-------- ------- ------- -------- -------- -------- -------- ---------
Income (loss) from operations...... 1,380 989 21,171 7,612 8,804 180 (718) (6,260)
Interest expense................... (14,358) (4,501) (535) (27,634) (30,482) (25,449) (8,223) (102,591)
Interest income.................... 158 122 -- 93 -- 341 173 --
Other income (expense)............. -- -- (493) -- 36,279 23,030 (463) (3,093)
-------- ------- ------- -------- -------- -------- -------- ---------
Income (loss) before income tax
expense........................... (12,820) (3,390) 20,143 (19,929) 14,601 (1,898) (9,231) (111,944)
Income tax expense (benefit)....... 135 -- 7,956 -- (4,178) 1,623 186 1,897
-------- ------- ------- -------- -------- -------- -------- ---------
Income (loss) before extraordinary
item.............................. $(12,955) $(3,390) $12,187 $(19,929) $ 18,779 $ (3,521) $ (9,417) $(113,841)
======== ======= ======= ======== ======== ======== ======== =========
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------
1999 ACQUISITIONS -- HISTORICAL
--------------------------------
FANCH(B) OTHER TOTAL
--------- ------- ----------
<S> <C> <C> <C>
Revenues........................... $ 141,104 $15,812 $ 994,526
--------- ------- ----------
Operating expenses:
Operating, general and
administrative.................. 62,977 7,821 510,175
Depreciation and amortization..... 45,886 4,732 403,818
Corporate expense charges......... 105 -- 760
Management fees................... 3,998 -- 15,218
--------- ------- ----------
Total operating expenses........ 112,966 12,553 929,971
--------- ------- ----------
28,138 3,259 64,555
Income (loss) from operations......
(1,873) (4,023) (219,669)
Interest expense...................
17 -- 904
Interest income....................
(6,628) 5 48,637
Other income (expense).............
--------- ------- ----------
Income (loss) before income tax 19,654 (759) (105,573)
expense...........................
286 7,905
Income tax expense (benefit).......
--------- ------- ----------
Income (loss) before extraordinary $ 19,368 $ (759) $ (113,478)
item..............................
========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------------
BRESNAN ACQUISITION --
HISTORICAL
-----------------------
<S> <C>
Revenues.................................................... $ 261,964
---------------
Operating expenses:
Operating, general and administrative..................... 150,750
Depreciation and amortization............................. 54,308
---------------
Total operating expenses............................ 205,058
---------------
Income from operations...................................... 56,906
Interest expense............................................ (18,296)
Other income (expense)...................................... 26,754
---------------
Income before extraordinary item............................ $ 65,364
===============
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------------
1999 ACQUISITIONS
---------------------------------------------------------------------------
PRO FORMA
--------------------------------------------------------------
HISTORICAL ACQUISITIONS(C) DISPOSITIONS(D) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 994,526 $417,569 $(59,725) $ -- $ 1,352,370
--------- -------- -------- --------- -----------
Operating expenses:
Operating, general and
administrative................ 510,175 210,824 (30,538) (26,591)(f) 663,870
Depreciation and amortization... 403,818 115,727 (35,981) 371,097(g) 854,661
Corporate expense charges....... 760 14,962 -- 26,591(f) 42,313
Management fees................. 15,218 6,217 (632) -- 20,803
--------- -------- -------- --------- -----------
Total operating expenses...... 929,971 347,730 (67,151) 371,097 1,581,647
--------- -------- -------- --------- -----------
Income (loss) from operations.... 64,555 69,839 7,426 (371,097) (229,277)
Interest expense................. (219,669) (52,683) 16,927 (233,652)(h) (489,077)
Interest income.................. 904 1,124 -- -- 2,028
Other income (expense)........... 48,637 2,311 235 (64,673)(i) (13,490)
--------- -------- -------- --------- -----------
Income (loss) before income tax
expense (benefit)............... (105,573) 20,591 24,588 (669,422) (729,816)
Income tax expense (benefit)..... 7,905 669 10 (8,584)(j) --
--------- -------- -------- --------- -----------
Income (loss) before
extraordinary item.............. $(113,478) $ 19,922 $ 24,578 $(660,838) $ (729,816)
========= ======== ======== ========= ===========
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------
BRESNAN ACQUISITION
--------------------------------------------------------------------------
PRO FORMA
-------------------------------------------------------------
HISTORICAL ACQUISITIONS(C) DISPOSITIONS(E) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 261,964 $ 28,932 $ (11,644) $ -- $ 279,252
---------- -------- --------- --------- ----------
Operating expenses:
Operating, general and
administrative................ 150,750 16,255 (6,542) (5,768)(f) 154,695
Depreciation and amortization... 54,308 3,971 (2,191) 168,895(g) 224,983
Corporate expense charges....... -- -- -- 5,768(f) 5,768
Management fees................. -- -- -- -- --
---------- -------- --------- --------- ----------
Total operating expenses...... 205,058 20,226 (8,733) 168,895 385,446
---------- -------- --------- --------- ----------
Income (loss) from operations.... 56,906 8,706 (2,911) (168,895) (106,194)
Interest expense................. (18,296) (1,338) 738 (71,868)(h) (90,764)
Interest income.................. -- -- -- -- --
Other income (expense)........... 26,754 1,957 (1,080) (27,631)(i) --
---------- -------- --------- --------- ----------
Income (loss) before income tax
expense (benefit)............... 65,364 9,325 (3,253) (268,394) (196,958)
Income tax expense (benefit)..... -- -- -- -- --
---------- -------- --------- --------- ----------
Income (loss) before
extraordinary item.............. $ 65,364 $ 9,325 $ (3,253) $(268,394) $ (196,958)
========== ======== ========= ========= ==========
</TABLE>
- ---------------
(a) Rifkin includes the results of operations of Rifkin Acquisition Partners,
L.L.L.P., as follows (dollars in thousands):
<TABLE>
<CAPTION>
RIFKIN
ACQUISITION OTHER TOTAL
----------- ------- --------
<S> <C> <C> <C>
Revenues.............................................. $89,921 $34,461 $124,382
Income from operations................................ 1,040 7,764 8,804
Income (loss) before extraordinary item............... 24,419 (5,640) 18,779
</TABLE>
(b) Fanch includes the results of operations of Fanch cable systems as follows
(dollars in thousands):
<TABLE>
<CAPTION>
FANCH CABLE
SYSTEMS OTHERS TOTAL
----------- ------- --------
<S> <C> <C> <C>
Revenues............................................. $124,555 $16,549 $141,104
Income from operations............................... 25,241 2,897 28,138
Income before extraordinary item..................... 18,814 554 19,368
</TABLE>
(c) Represents the historical results of operations for the period from January
1, 1998 through the date of purchase for acquisitions completed by
Renaissance, the InterMedia systems, Helicon, Rifkin, Fanch, Avalon, Falcon
and Bresnan in 1998, and for the period from January 1, 1998 through
December 31, 1998 for acquisitions completed in 1999.
49
<PAGE> 53
These acquisitions were accounted for using the purchase method of
accounting. Purchase prices and the closing dates or anticipated closing
dates for significant acquisitions are as follows (dollars in millions):
<TABLE>
<CAPTION>
RENAISSANCE INTERMEDIA HELICON RIFKIN AVALON
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Purchase price......................... $309.5 $29.1 $26.1 $165.0 $30.5
Closing date........................... April 1998 December 1998 December 1998 February 1999 July 1998
Purchase price......................... $53.8 $431.6
Closing date........................... July 1999 November 1998
Purchase price.........................
Closing date...........................
Purchase price.........................
Closing date...........................
<CAPTION>
FALCON FANCH BRESNAN
-------------- -------------- -------------
<S> <C> <C> <C>
Purchase price......................... $86.2 $42.2 $17.0
Closing date........................... July 1998 February 1999 February 1998
Purchase price......................... $158.6 $248.0 $11.8
Closing date........................... September 1998 February 1999 October 1998
Purchase price......................... $513.3 $70.5 $40.0
Closing date........................... September 1998 March 1999 January 1999
Purchase price......................... $50.0 $27.0
Closing date........................... June 1999 March 1999
</TABLE>
The InterMedia acquisition above was part of a "swap."
(d) Represents the elimination of the operating results primarily related to the
cable systems transferred to InterMedia as part of a swap of cable systems
in October 1999. The fair value of the systems transferred to InterMedia was
$420.0 million. This number includes 30,000 customers served by an Indiana
cable system that we did not transfer at the time of the InterMedia closing
because some of the necessary regulatory approvals were still pending. We
are obligated to transfer this system to InterMedia upon receipt of such
regulatory approvals. We will have to pay $88.2 million to InterMedia if we
do not obtain timely regulatory approvals for our transfer to InterMedia of
the Indiana cable system and we are unable to transfer replacement systems.
No material gain or loss is anticipated on the disposition as these systems
were recently acquired and recorded at fair value at that time.
(e) Represents the elimination of the operating results related to the sale of a
Bresnan cable system sold in January 1999.
(f) Reflects a reclassification of expenses representing corporate expenses that
would have occurred at Charter Investment, Inc.
(g) Represents additional depreciation and amortization as a result of our
recently completed and pending acquisitions. A large portion of the purchase
price was allocated to franchises ($12.4 billion) that are amortized over 15
years. The adjustments to depreciation and amortization expense consists of
the following (dollars in millions):
<TABLE>
<CAPTION>
FAIR WEIGHTED AVERAGE DEPRECIATION/
VALUE USEFUL LIFE AMORTIZATION
--------- ---------------- -------------
<S> <C> <C> <C>
Franchises...................................... $12,356.5 15 $ 823.8
Cable distribution systems...................... 1,729.1 8 223.8
Land, building and improvements................. 53.9 10 5.2
Vehicles and equipment.......................... 89.1 3 26.9
--------
Total depreciation and amortization........... 1,079.7
Less-historical depreciation and
amortization............................... (539.7)
--------
Adjustment................................. $ 540.0
========
</TABLE>
50
<PAGE> 54
(h) Reflects additional interest expense on borrowings which have been or will
be used to finance the acquisitions as follows (dollars in millions):
<TABLE>
<S> <C>
$2.7 billion of credit facilities at composite current rate
of 8.2%................................................... $ 217.9
$114.4 million 10% senior discount notes -- Renaissance..... 10.7
$165.0 million of credit facilities at a composite current
rate of 8.7% -- Avalon.................................... 14.4
$150.0 million 9.375% senior subordinated notes -- Avalon... 14.1
$196.0 million 11.875% senior discount notes -- Avalon...... 14.7
$870.0 million of credit facilities at composite current
rate of 8.4% -- Fanch..................................... 73.2
$1.0 billion of credit facilities at composite current rate
of 7.9% -- Falcon......................................... 80.1
$375.0 million 8.375% senior debentures -- Falcon........... 31.4
$435.3 million 9.285% senior discount
debentures -- Falcon...................................... 32.5
$696.3 anticipated and committed financing -- Bresnan....... 59.4
$170.0 million 8% senior notes -- Bresnan................... 13.6
$275.0 million 9.25% senior discount notes -- Bresnan....... 17.8
-------
Total pro forma interest expenses......................... 579.8
Less-historical interest expense from acquired
companies.............................................. (274.3)
-------
Adjustment............................................. $ 305.5
=======
</TABLE>
An increase in the interest rate on all variable rate debt of 0.125% would
result in an increase in interest expense of $7.8 million.
(i) Represents the elimination of gain (loss) on the sale of cable television
systems whose results of operations have been eliminated in (d) and (e)
above.
(j) Reflects the elimination of income tax expense (benefit) as a result of
being acquired by a limited liability company.
NOTE D: The offering adjustments of approximately $32.5 million in higher
interest expense consist of the following (dollars in millions):
<TABLE>
<CAPTION>
INTEREST
DESCRIPTION EXPENSE
- ----------- --------
<S> <C>
$675 million of 10.00% senior notes......................... $ 67.5
$325 million of 10.25% senior notes......................... 33.3
$532 million of 11.75% senior discount notes................ 36.3
Amortization of debt issuance costs......................... 4.8
------
Total pro forma interest expense.......................... 141.9
Less-historical interest expense.......................... (109.4)
------
Adjustment............................................. $ 32.5
======
</TABLE>
NOTE E: For all of 1998 and through the date of the initial public
offering of Charter Communications, Inc. in November 1999, Charter Investment,
Inc. provided corporate management and consulting services to Charter Operating
and to Marcus Holdings beginning in October 1998. From and after the initial
public offering of Charter Communications, Inc., such management services were
provided by Charter Communications Inc. See "Certain Relationships and Related
Transactions."
NOTE F: EBITDA represents earnings (loss) before extraordinary item before
interest, income taxes, depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a cable company's ability
to service indebtedness. However, EBITDA should not be considered as an
alternative
51
<PAGE> 55
to income from operations or to cash flows from operating, investing or
financing activities, as determined in accordance with generally accepted
accounting principles. EBITDA should also not be construed as an indication of a
company's operating performance or as a measure of liquidity. In addition,
because EBITDA is not calculated identically by all companies, the presentation
here may not be comparable to other similarly titled measures of other
companies. Management's discretionary use of funds depicted by EBITDA may be
limited by working capital, debt service and capital expenditure requirements
and by restrictions related to legal requirements, commitments and
uncertainties.
NOTE G: EBITDA margin represents EBITDA as a percentage of revenues.
NOTE H: Adjusted EBITDA means EBITDA before stock option compensation
expense, corporate expense charges, management fees and other income (expense).
Adjusted EBITDA is presented because it is a widely accepted financial indicator
of a cable company's ability to service indebtedness. However, adjusted EBITDA
should not be considered as an alternative to income from operations or to cash
flows from operating, investing or financing activities, as determined in
accordance with generally accepted accounting principles. Adjusted EBITDA should
also not be construed as an indication of a company's operating performance or
as a measure of liquidity. In addition, because adjusted EBITDA is not
calculated identically by all companies, the presentation here may not be
comparable to other similarly titled measures of other companies. Management's
discretionary use of funds depicted by adjusted EBITDA may be limited by working
capital, debt service and capital expenditure requirements and by restrictions
related to legal requirements, commitments and uncertainties.
NOTE I: Earnings include net income (loss) plus fixed charges. Fixed
charges consist of interest expense and an estimated component of rent expense.
NOTE J: Homes passed are the number of living units, such as single
residence homes, apartments and condominium units, passed by the cable
television distribution network in a given cable system service area.
NOTE K: Basic customers are customers who receive basic cable service.
NOTE L: Basic penetration represents basic customers as a percentage of
homes passed.
NOTE M: Premium units represent the total number of subscriptions to
premium channels.
NOTE N: Premium penetration represents premium units as a percentage of
basic customers.
NOTE O: Average monthly revenue per basic customer represents revenues
divided by the number of months in the period divided by the number of basic
customers at December 31, 1998.
52
<PAGE> 56
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------
1999 BRESNAN OFFERING
CHARTER ACQUISITIONS ACQUISITION ADJUSTMENTS
HOLDINGS (NOTE A) SUBTOTAL (NOTE A) (NOTE B) TOTAL
----------- ------------ ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 434,183 $ (409,597) $ 24,586 $ (23,849) $ -- $ 737
Accounts receivable, net......... 48,470 41,650 90,120 9,774 -- 99,894
Receivable from related party.... 51,458 (51,458) -- -- -- --
Prepaid expenses and other....... 27,374 33,881 61,255 225 -- 61,480
----------- ---------- ----------- ---------- ----------- -----------
Total current assets........ 561,485 (385,524) 175,961 (13,850) -- 162,111
Property, plant and equipment.... 2,279,489 1,075,397 3,354,886 360,921 -- 3,715,807
Franchises....................... 8,268,021 6,716,916 14,984,937 2,759,248 -- 17,744,185
Other assets..................... 126,196 12,882 139,078 10,000 47,228 196,306
----------- ---------- ----------- ---------- ----------- -----------
Total assets................ $11,235,191 $7,419,671 $18,654,862 $3,116,319 $ 47,228 $21,818,409
=========== ========== =========== ========== =========== ===========
LIABILITIES AND MEMBER'S EQUITY
Short-term debt.................. $ -- $ 980,172 $ 980,172 $ 996,360 $(1,214,132) $ 762,400
Accounts payable and accrued
expenses....................... 382,565 206,125 588,690 32,598 -- 621,288
Payables to manager of cable
systems........................ 8,036 -- 8,036 -- -- 8,036
----------- ---------- ----------- ---------- ----------- -----------
Total current liabilities... 390,601 1,186,297 1,576,898 1,028,958 (1,214,132) 1,391,724
Long-term debt................... 6,244,632 2,440,225 8,684,857 38,640 1,261,360 9,984,857
Deferred management fees......... 17,004 -- 17,004 -- -- 17,004
Other long-term liabilities...... 68,648 -- 68,648 -- -- 68,648
Member's equity.................. 4,514,306 3,793,149 8,307,455 2,048,721 -- 10,356,176
----------- ---------- ----------- ---------- ----------- -----------
Total liabilities and
member's equity........... $11,235,191 $7,419,671 $18,654,862 $3,116,319 $ 47,228 $21,818,409
=========== ========== =========== ========== =========== ===========
</TABLE>
53
<PAGE> 57
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
NOTE A: Pro forma balance sheets for our 1999 acquisitions and the Bresnan
acquisition consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------------------------
1999 ACQUISITIONS -- HISTORICAL
----------------------------------------------------------
INTERMEDIA TOTAL
SYSTEMS FALCON FANCH(A) AVALON RECENT
---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................................... $ -- $ 4,196 $ 933 $ 2,995 $ 8,124
Accounts receivable, net.................................... 14,971 16,236 4,910 7,059 43,176
Receivable from related party............................... 7,966 2,414 -- -- 10,380
Prepaid expenses and other.................................. 1,286 30,422 1,600 879 34,187
-------- ---------- -------- -------- ----------
Total current assets...................................... 24,223 53,268 7,443 10,933 95,867
Property, plant and equipment............................... 228,676 549,476 254,802 121,973 1,154,927
Franchises.................................................. 214,182 372,322 4,489 468,855 1,059,848
Deferred income taxes....................................... 15,279 -- -- -- 15,279
Other assets................................................ 544 434,163 595,637 46 1,030,390
-------- ---------- -------- -------- ----------
Total assets.............................................. $482,904 $1,409,229 $862,371 $601,807 $3,356,311
======== ========== ======== ======== ==========
Current maturities of long-term debt........................ -- -- 20,534 25 20,559
Accounts payable and accrued expenses....................... $ 15,504 $ 147,949 $ 24,281 22,242 $ 209,976
Current deferred revenue.................................... 11,151 -- -- 3,272 14,423
Note payable to related party............................... 2,265 -- -- -- 2,265
Other current liabilities................................... -- -- -- 2,968 2,968
-------- ---------- -------- -------- ----------
Total current liabilities................................. 28,920 147,949 44,815 28,507 250,191
Deferred revenues 3,583 -- -- -- 3,583
Deferred income taxes....................................... -- -- -- -- --
Long-term debt.............................................. -- 1,681,454 7,931 451,827 2,141,212
Note payable to related party, including accrued interest... 406,975 -- 1,457 408,432
Other long-term liabilities, including redeemable preferred
shares.................................................... 14,934 424,280 203 951 440,368
Equity (deficit)............................................ 28,492 (844,454) 807,965 120,522 112,525
-------- ---------- -------- -------- ----------
Total liabilities and equity (deficit).................... $482,904 $1,409,229 $862,371 $601,807 $3,356,311
======== ========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------
BRESNAN ACQUISITION -- HISTORICAL
---------------------------------
<S> <C>
Cash and cash equivalents................................... $ 1,215
Accounts receivable, net.................................... 9,653
--------
Total current assets...................................... 10,868
Property, plant and equipment............................... 353,864
Franchises.................................................. 320,650
Other assets................................................ 20,198
--------
Total assets.............................................. $705,580
========
Accounts payable and accrued expenses....................... $ 31,693
Other current liabilities................................... 12,969
--------
Total current liabilities................................. 44,662
Long-term debt.............................................. 869,211
Other long-term liabilities................................. 7,329
Deficit..................................................... (215,622)
--------
Total liabilities and deficit............................. $705,580
========
</TABLE>
54
<PAGE> 58
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
--------------------------------------------------------------------------
1999 ACQUISITIONS
--------------------------------------------------------------------------
PRO FORMA
-------------------------------------------------------------
HISTORICAL ACQUISITIONS(B) DISPOSITIONS(C) ADJUSTMENTS TOTAL
---------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 8,124 $ 418 $ (4,819) $ (413,320)(d) $ (409,597)
Accounts receivable, net........... 43,176 64 (1,590) -- 41,650
Receivable from related party...... 10,380 125 -- (61,963)(f) (51,458)
Prepaid expenses and other......... 34,187 60 (366) -- 33,881
---------- ------ --------- ----------- -----------
Total current assets.............. 95,867 667 (6,775) (475,283) (385,524)
Property, plant and equipment...... 1,154,927 3,197 (82,727) -- 1,075,397
Franchises......................... 1,059,848 722 (334,137) 5,990,483(g) 6,716,916
Deferred income taxes.............. 15,279 -- -- (15,279)(h) --
Other assets....................... 1,030,390 141 (424) (1,017,225)(i) 12,882
---------- ------ --------- ----------- -----------
Total assets...................... $3,356,311 $4,727 $(424,063) $ 4,482,696 $ 7,419,671
========== ====== ========= =========== ===========
Current maturities of long-term
debt.............................. $ 20,559 $ -- $ -- $ (20,559)(k) $ --
Short-term debt.................... -- -- -- 980,172(k) 980,172
Accounts payable and accrued
expenses.......................... 209,976 212 (4,063) 206,125
Current deferred revenue........... 14,423 -- -- (14,423)(e) --
Note payable to related party...... 2,265 -- -- (2,265)(j) --
Other current liabilities.......... 2,968 -- -- (2,968)(j) --
---------- ------ --------- ----------- -----------
Total current liabilities......... 250,191 212 (4,063) 939,957 1,186,297
Deferred revenue................... 3,583 -- -- (3,583)(e) --
Long-term debt..................... 2,141,212 2,751 (420,000) 716,262(k) 2,440,225
Note payable to related party,
including accrued interest........ 408,432 -- -- (408,432)(j) --
Other long-term liabilities,
including redeemable preferred
shares............................ 440,368 -- -- (440,368)(l) --
Equity (deficit)................... 112,525 1,764 -- 3,678,860(m) 3,793,149
---------- ------ --------- ----------- -----------
Total liabilities and equity
(deficit)....................... $3,356,311 $4,727 $(424,063) $ 4,482,696 $ 7,419,671
========== ====== ========= =========== ===========
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------------------------
BRESNAN ACQUISITION
----------------------------------------------------------
PRO FORMA
---------------------------------------------
HISTORICAL ACQUISITIONS(B) ADJUSTMENTS TOTAL
---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 1,215 $ 164 $ (25,228)(d) $ (23,849)
Accounts receivable, net........... 9,653 121 -- 9,774
Receivable from related party...... -- -- -- --
Prepaid expenses and other......... -- 225 -- 225
---------- ------ ---------- ----------
Total current assets.............. 10,868 510 (25,228) (13,850)
Property, plant and equipment...... 353,864 7,057 -- 360,921
Franchises......................... 320,650 -- 2,438,598(g) 2,759,248
Deferred income taxes.............. -- -- -- --
Other assets....................... 20,198 -- (10,198)(i) 10,000
---------- ------ ---------- ----------
Total assets...................... $ 705,580 $7,567 $2,403,172 $3,116,319
========== ====== ========== ==========
Current maturities of long-term
debt.............................. $ -- $ 52 $ (52)(k) $ --
Short-term debt.................... -- -- 996,360(k) 996,360
Accounts payable and accrued
expenses.......................... 31,693 905 -- 32,598
Current deferred revenue........... -- 6 (6)(e) --
Note payable to related party...... -- -- -- --
Other current liabilities.......... 12,969 -- (12,969)(j) --
---------- ------ ---------- ----------
Total current liabilities......... 44,662 963 983,333 1,028,958
Deferred revenue................... -- -- -- --
Long-term debt..................... 869,211 4,465 (835,036)(k) 38,640
Note payable to related party,
including accrued interest........ -- -- -- --
Other long-term liabilities,
including redeemable preferred
shares............................ 7,329 -- (7,329)(l) --
Equity (deficit)................... (215,622) 2,139 2,262,204(m) 2,048,721
---------- ------ ---------- ----------
Total liabilities and equity
(deficit)....................... $ 705,580 $7,567 $2,403,172 $3,116,319
========== ====== ========== ==========
</TABLE>
55
<PAGE> 59
- ---------------
(a) Fanch includes the balance sheet of Fanch cable systems as follows (dollars
in thousands):
<TABLE>
<CAPTION>
FANCH CABLE
SYSTEMS OTHERS TOTAL
----------- ------- --------
<S> <C> <C> <C>
Total current assets................................... $ 6,014 $ 1,429 $ 7,443
Total assets........................................... 837,398 24,973 862,371
Total current liabilities.............................. 21,652 23,163 44,815
Equity................................................. 815,746 (7,781) 807,965
Total liabilities and equity........................... 837,398 24,973 862,371
</TABLE>
(b) Represents the historical balance sheets as of September 30, 1999 for
acquisitions to be completed subsequent to September 30, 1999.
(c) Represents the historical assets and liabilities as of September 30, 1999 of
cable systems transferred to InterMedia on October 1, 1999 and one Indiana
cable system we are required to transfer to InterMedia as part of a swap of
cable systems. The cable system being swapped will be accounted for at fair
value. No material gain or loss is anticipated in conjunction with the swap.
See "Business -- Acquisitions -- Recently Completed
Acquisitions -- InterMedia Systems."
(d) Represents Charter Holdings' historical cash used to finance a portion of
the InterMedia, Avalon and Bresnan acquisitions.
(e) Represents the offset of advance billings against deferred revenue to be
consistent with Charter Holdings accounting policy and the elimination of
deferred revenue.
(f) Reflects assets retained by the seller.
(g) Substantial amounts of the purchase price have been allocated to franchises
based on estimated fair values. This results in an allocation of purchase
price as follows (dollars in thousands):
<TABLE>
<CAPTION>
INTERMEDIA
SYSTEMS AVALON FALCON FANCH BRESNAN TOTAL
---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Working capital.................. $ (1,959) $(10,979) $ (97,095) $ (16,838) $ (21,220) $ (148,091)
Property, plant and equipment.... 145,949 125,170 549,476 254,802 360,921 1,436,318
Franchises....................... 760,434 712,079 3,084,626 2,159,777 2,759,248 9,476,164
Other............................ (424) 1,939 3,387 7,980 10,000 22,882
-------- -------- ---------- ---------- ---------- -----------
$904,000 $828,209 $3,540,394 $2,405,721 $3,108,949 $10,787,273
======== ======== ========== ========== ========== ===========
</TABLE>
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<PAGE> 60
The sources of cash for the 1999 acquisitions and the Bresnan acquisition
are as follows (dollars in millions):
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Publicly held debt, at fair market value:
9.375% senior subordinated notes -- Avalon......... $ 151.5
11.875% senior discount notes -- Avalon............ 127.4
8.375% senior debentures -- Falcon................. 378.8
9.285% senior discount debentures -- Falcon........ 322.5
8.0% senior notes -- Bresnan....................... 167.0
9.25% senior discount notes -- Bresnan............. 194.3
Expected credit facilities draw down of acquisitions:
Bresnan............................................ 635.0 $1,976.5
--------
Long term liabilities:
Credit facilities drawn down upon close of
acquisitions:
CC V -- Avalon..................................... 165.0
CC VI -- Fanch..................................... 870.0
CC VII -- Falcon................................... 1,012.8
Expected credit facilities draw down -- Charter
Operating.......................................... 921.1 2,968.9 $ 4,945.4
-------- --------
Funded or expected equity contributions:
Mr. Allen equity contributions..................... 750.0
Net proceeds from sale of Class B shares........... 1.0
Net proceeds from sale of Class A shares........... 3,540.9
Bresnan sellers' equity............................ 1,000.0
Falcon sellers' equity............................. 550.0 5,841.9
-------- ---------
$10,787.3
=========
</TABLE>
We expect to assume and amend the existing Bresnan credit facilities and
increase the borrowing availability thereunder. We expect to borrow
approximately $635.0 million under these credit facilities in connection with
the closing of the Bresnan acquisition. The $635.0 million represents $512.0
million in outstanding borrowings under the Bresnan credit facilities and $123.0
million in additional borrowings under these credit facilities that we
anticipate using to fund a portion of the Bresnan purchase price. In addition,
we expect that we will have to repurchase outstanding Bresnan notes at prices
equal to 101% of their principal amount, plus accrued and unpaid interest, or
their accreted value, as applicable, in connection with required change of
control offers for these notes. As of the anticipated closing date of the
Bresnan acquisition, the total amount of principal and accreted value of the
Bresnan notes will be $362.3 million. We intend to fund a portion of the
repurchase of the Bresnan notes with a portion of the net proceeds of the sale
of the original notes.
We cannot assure you that we will be able to raise the financing necessary
to consummate the Bresnan acquisition. If we are unable to raise the financing
necessary to satisfy this obligation, we may be unable to close the Bresnan
acquisition. In any such case, the relevant sellers or creditors could initiate
legal proceedings against us, including under bankruptcy and reorganization
laws, for any damages they suffer as a result of our non-performance. Any such
action could trigger defaults under our other obligations, including our credit
facilities and debt instruments.
(h) Represents the elimination of deferred income tax assets and liabilities.
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<PAGE> 61
(i) Represents the elimination of the unamortized historical cost of various
assets based on the allocation of purchase price (see (g) above) as follows
(dollars in thousands):
<TABLE>
<S> <C>
Subscriber lists............................................ $ (444,178)
Noncompete agreements....................................... (12,489)
Deferred financing costs.................................... (50,176)
Goodwill.................................................... (619,901)
Other assets................................................ (121,161)
-----------
(1,247,905)
Less-accumulated amortization............................... 220,482
-----------
$(1,027,423)
===========
</TABLE>
(j) Represents liabilities retained by the seller.
(k) Represents the following (dollars in millions):
<TABLE>
<S> <C>
Long-term debt not assumed.................................. $(1,654.2)
Helicon notes (called)...................................... (115.0)
Rifkin notes (tendered)..................................... (125.0)
Falcon debentures (to be put)............................... (701.3)
Avalon 9.375% senior subordinated notes (to be put)......... (151.5)
Bresnan notes (to be put)................................... (361.3)
---------
Total pro forma debt not assumed....................... (3,108.3)
Short-term debt:
9.375% senior subordinated notes -- Avalon............. 151.5
11.875% senior discount notes -- Avalon................ 127.4
8.375% senior debentures -- Falcon..................... 378.8
9.285% senior discount debentures -- Falcon............ 322.5
8% senior notes -- Bresnan............................. 167.0
9.25% senior discount notes -- Bresnan................. 194.3
Bresnan credit facilities.............................. 635.0
---------
Total short-term debt.................................. 1,976.5
Long-term debt:
Credit facilities:
Charter Operating.................................... 921.1
CC V -- Avalon....................................... 165.0
CC VI -- Fanch....................................... 870.0
CC VII -- Falcon..................................... 1,012.8
---------
Total long-term debt................................... 2,968.9
---------
$ 1,837.1
=========
</TABLE>
(l) Represents the elimination of historical liabilities retained by the seller
and the elimination of Falcon's historical redeemable preferred shares.
(m) Represents the elimination of historical equity of $322.9 million and
additional contributions of $5.84 billion made or to be made to us related
to the transfer to Charter Holdings of the Fanch, Falcon, Avalon and Bresnan
cable systems.
NOTE B: Offering adjustments represent additional long-term debt of $1.3
billion from the issuance and sale of the original notes, the use of the
proceeds from the original notes to repurchase the Avalon 9.375% senior
subordinated notes, Falcon debentures and Bresnan notes pursuant to the Avalon,
Falcon and Bresnan change of control offers, to pay down the Charter Operating
credit facilities totaling $38.9 million, and the addition to other assets of
the estimated expenses paid in connection with the issuance and sale of the
original notes which were capitalized and will be amortized over the term of the
related debt.
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<PAGE> 62
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data below for the years ended December
31, 1996 and 1997, for the periods from January 1, 1998 through December 23,
1998, from December 24, 1998 through December 31, 1998, and January 1, 1999
through September 30, 1999 are derived from the consolidated financial
statements of Charter Holdings. The consolidated financial statements of Charter
Holdings for the years ended December 31, 1996 and 1997, for the periods from
January 1, 1998 through December 23, 1998 and from December 24, 1998 through
December 31, 1998, have been audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere in this prospectus. The selected
historical financial data for the period from October 1, 1995 through December
31, 1995, are derived from the Charter Holdings unaudited financial statements
and are not included elsewhere in this prospectus. The selected historical
financial data for the year ended December 31, 1994 and for the period from
January 1, 1995 through September 30, 1995 are derived from the unaudited
financial statements of Charter Holdings predecessor business and are not
included elsewhere in this prospectus. The information presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements of
Charter Holdings and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PREDECESSOR OF
CHARTER HOLDINGS CHARTER HOLDINGS
---------------------- ------------------------------------------------------------------
YEAR ENDED
YEAR ENDED 1/1/95 10/1/95 DECEMBER 31, 1/1/98 12/24/98 1/1/99
DECEMBER 31, THROUGH THROUGH ----------------- THROUGH THROUGH THROUGH
1994 9/30/95 12/31/95 1996 1997 12/23/98 12/31/98 9/30/99
------------ ------- -------- ------- ------- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues............................ $ 6,584 $5,324 $ 1,788 $14,881 $18,867 $49,731 $ 13,713 $ 845,182
-------- ------- ------- ------- ------- -------- ---------- -----------
Operating expenses:
Operating, general and
administrative.................. 3,247 2,581 931 8,123 11,767 25,952 7,134 436,057
Depreciation and amortization..... 2,508 2,137 648 4,593 6,103 16,864 8,318 441,391
Stock option compensation
expense......................... -- -- -- -- -- -- 845 59,288
Management fees/corporate expense
charges......................... 106 224 54 446 566 6,176 473 18,309
-------- ------- ------- ------- ------- -------- ---------- -----------
Total operating expenses........ 5,861 4,942 1,633 13,162 18,436 48,992 16,770 955,045
-------- ------- ------- ------- ------- -------- ---------- -----------
Income (loss) from operations....... 723 382 155 1,719 431 739 (3,057) (109,863)
Interest expense.................... -- -- (691) (4,415) (5,120) (17,277) (2,353) (288,750)
Interest income..................... 26 -- 5 20 41 44 133 18,326
Other income (expense).............. -- 38 -- (47) 25 (728) -- (177)
-------- ------- ------- ------- ------- -------- ---------- -----------
Income (loss) before extraordinary
item.............................. $ 749 $ 420 $ (531) $(2,723) $(4,623) $(17,222) $ (5,277) $ (380,464)
======== ======= ======= ======= ======= ======== ========== ===========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets........................ $ 25,511 $26,342 $31,572 $67,994 $55,811 $281,969 $4,335,527 $11,235,191
Total debt.......................... 10,194 10,480 28,847 59,222 41,500 274,698 2,002,206 6,244,632
Member's equity (deficit)........... 14,822 15,311 971 2,648 (1,975) (8,397) 2,147,379 4,514,306
</TABLE>
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<PAGE> 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the "-- Certain Trends and Uncertainties" section
below in this Management's Discussion and Analysis for a discussion of important
factors that could cause actual results to differ from expectations and
non-historical information contained herein.
INTRODUCTION
We do not believe that our historical financial condition and results of
operations are accurate indicators of future results because of recent and
pending significant events, including:
(1) the acquisition by Mr. Allen of CCA Group, Charter Communications
Properties Holdings, LLC and CharterComm Holdings LLC, referred to
together with their subsidiaries as the Charter companies;
(2) the merger of Marcus Holdings with and into Charter Holdings;
(3) the recent and pending acquisitions of Charter Communications Holding
Company, Charter Holdings and their subsidiaries;
(4) the refinancing of the previous credit facilities of the Charter
companies;
(5) the purchase of publicly held notes that had been issued by several of
the direct and indirect subsidiaries of Charter Holdings;
(6) the completion of the transfer to Charter Holdings of the Fanch, Falcon
and Avalon cable systems; and
(7) the anticipated completion of the Pending Transactions.
Provided below is a discussion of our organizational history consisting of:
(1) the operation and development of the Charter companies prior to the
acquisition by Mr. Allen, together with the acquisition of the Charter
companies by Mr. Allen;
(2) the merger of Marcus Holdings with and into Charter Holdings; and
(3) the recent and pending acquisitions of Charter Communications Holding
Company and its direct and indirect subsidiaries.
ORGANIZATIONAL HISTORY
Prior to the acquisition of the Charter companies by Mr. Allen on December
23, 1998, and the merger of Marcus Holdings with and into Charter Holdings on
April 7, 1999, the cable systems of the Charter and Marcus companies were
operated under four groups of companies. Three of these groups were comprised of
companies that were managed by Charter Investment, Inc. prior to the acquisition
of the Charter companies by Mr. Allen and the fourth group was comprised of
companies that were subsidiaries of Marcus Holdings. Charter Investment, Inc.
started managing Marcus Holdings in October 1998.
The following is an explanation of how:
(1) Charter Communications Properties Holdings; the operating companies
that formerly comprised CCA Group; CharterComm Holdings; and the Marcus
companies became wholly owned subsidiaries of Charter Operating;
(2) Charter Operating became a wholly owned subsidiary of Charter Holdings;
60
<PAGE> 64
(3) Charter Holdings became a wholly owned subsidiary of Charter
Communications Holding Company; and
(4) Charter Communications Holding Company became a wholly owned subsidiary
of Charter Investment, Inc.
THE CHARTER COMPANIES
Prior to Charter Investment, Inc. acquiring the remaining interests that it
did not previously own in two of the three groups of Charter companies, namely
CCA Group and CharterComm Holdings, as described below, the operating
subsidiaries of the three groups of Charter companies were parties to separate
management agreements with Charter Investment, Inc. pursuant to which Charter
Investment, Inc. provided management and consulting services. Prior to our
acquisition by Mr. Allen, the Charter companies were as follows:
(1) Charter Communications Properties Holdings, LLC
Charter Communications Properties Holdings, LLC was a wholly owned
subsidiary of Charter Investment, Inc. The primary subsidiary of Charter
Communications Properties Holdings, which owned the cable systems, was
Charter Communications Properties. In connection with Mr. Allen's
acquisition on December 23, 1998, Charter Communications Properties
Holdings was merged out of existence. Charter Communications Properties
became a direct, wholly owned subsidiary of Charter Investment, Inc. In May
1998, Charter Communications Properties acquired certain cable systems from
Sonic Communications, Inc. for a total purchase price, net of cash
acquired, of $228.4 million, including $60.9 million of assumed debt.
(2) CCA Group
The controlling interests in CCA Group were held by affiliates of
Kelso & Co. Charter Investment, Inc. had only a minority interest.
Effective December 23, 1998, prior to Mr. Allen's acquisition, the
remaining interests it did not previously own in CCA Group were acquired by
Charter Investment, Inc. from the Kelso affiliates. Consequently, the
companies comprising CCA Group became wholly owned subsidiaries of Charter
Investment, Inc.
CCA Group consisted of the following three sister companies:
(a) CCT Holdings, LLC,
(b) CCA Holdings, LLC, and
(c) Charter Communications Long Beach, LLC.
The cable systems were owned by the various subsidiaries of these
three sister companies. The financial statements for these three sister
companies historically were combined and the term "CCA Group" was assigned
to these combined entities. In connection with Mr. Allen's acquisition on
December 23, 1998, the three sister companies and some of the non-operating
subsidiaries were merged out of existence, leaving certain of the operating
subsidiaries owning all of the cable systems under this former group. These
operating subsidiaries became indirect, wholly owned subsidiaries of
Charter Investment, Inc.
(3) CharterComm Holdings, LLC
The controlling interests in CharterComm Holdings were held by
affiliates of Charterhouse Group International Inc. Charter Investment,
Inc. had only a minority interest. Effective December 23, 1998, prior to
Mr. Allen's acquisition, the remaining interests it did not previously own
in CharterComm Holdings were acquired by Charter Investment, Inc. from the
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<PAGE> 65
Charterhouse affiliates. Consequently, CharterComm Holdings became a wholly
owned subsidiary of Charter Investment, Inc.
The cable systems were owned by the various subsidiaries of CharterComm
Holdings. In connection with Mr. Allen's acquisition on December 23, 1998, some
of the non-operating subsidiaries were merged out of existence, leaving certain
of the operating subsidiaries owning all of the cable systems under this former
group. CharterComm Holdings was merged out of existence. Charter Communications,
LLC became a direct, wholly owned subsidiary of Charter Investment, Inc.
In February 1999, Charter Holdings was formed as a wholly owned subsidiary
of Charter Investment, Inc., and Charter Operating was formed as a wholly owned
subsidiary of Charter Holdings. All of Charter Investment, Inc.'s direct
interests in the entities described above were transferred to Charter Operating.
All of the prior management agreements were terminated and a new management
agreement was entered into between Charter Investment, Inc. and Charter
Operating.
In May 1999, Charter Communications Holding Company was formed as a wholly
owned subsidiary of Charter Investment, Inc. All of Charter Investment, Inc.'s
interests in Charter Holdings were transferred to Charter Communications Holding
Company.
Our acquisition by Mr. Allen became effective on December 23, 1998, through
a series of transactions in which Mr. Allen acquired approximately 94% of the
equity interests of Charter Investment, Inc. for an aggregate purchase price of
$2.2 billion, excluding $2.0 billion in assumed debt. Charter Communications
Properties Holdings, the operating companies that formerly comprised CCA Group
and CharterComm Holdings were contributed to Charter Operating subsequent to Mr.
Allen's acquisition. Charter Communications Properties Holdings is deemed to be
our predecessor. Consequently, the contribution of Charter Communications
Properties Holdings was accounted for as a reorganization under common control.
Accordingly, the accompanying financial statements for periods prior to December
24, 1998 include the accounts of Charter Communications Properties Holdings. The
contributions of the operating companies that formerly comprised CCA Group and
CharterComm Holdings were accounted for in accordance with purchase accounting.
Accordingly, the financial statements for periods after December 23, 1998
include the accounts of Charter Communications Properties Holdings, CCA Group
and CharterComm Holdings.
MARCUS COMPANIES
In April 1998, Mr. Allen acquired approximately 99% of the non-voting
economic interests in Marcus Cable, and agreed to acquire the remaining
interests. The owner of the remaining partnership interests retained voting
control of Marcus Cable. In October 1998, Marcus Cable entered into a management
consulting agreement with Charter Investment, Inc., pursuant to which Charter
Investment, Inc. provided management and consulting services to Marcus Cable and
its subsidiaries which own the cable systems. This agreement placed Marcus
Cable's systems under common management with the cable systems of the Charter
companies acquired by Mr. Allen in December 1998.
In March 1999, all of Mr. Allen's interests in Marcus Cable were
transferred to Marcus Holdings, a then newly formed company. Later in March
1999, Mr. Allen acquired the remaining interests in Marcus Cable, including
voting control, which interests were transferred to Marcus Holdings. In April
1999, Mr. Allen merged Marcus Holdings into Charter Holdings, and the operating
subsidiaries of Marcus Holdings and all of the cable systems they owned came
under the ownership of Charter Holdings and, in turn, Charter Operating. For
financial reporting purposes, the merger of Marcus Holdings with and into
Charter Holdings was accounted for as an acquisition of Marcus Holdings
effective March 31, 1999, and accordingly, the results of operations of Marcus
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<PAGE> 66
Holdings have been included in the financial statements of Charter
Communications Holding Company since that date.
ACQUISITIONS
In 1999, direct or indirect subsidiaries of Charter Holdings acquired
Renaissance Media Group LLC, American Cable Entertainment, LLC, cable television
systems of Greater Media Cablevision, Inc., Helicon Partners I, L.P. and
affiliates, Vista Broadband Communications, L.L.C., a cable television system of
Cable Satellite of South Miami, Inc., Rifkin Acquisition Partners, L.L.L.P. and
InterLink Communications LLLP (collectively, "Rifkin") and cable television
systems of InterMedia Partners and affiliates for a total purchase price of
approximately $4.2 billion, including assumed debt of $354 million. See
"Business -- Acquisitions" and "Description of Certain Indebtedness." These
acquisitions were funded through excess cash from the issuance by Charter
Holdings of its existing senior notes and senior discount notes, borrowings
under the Charter Operating credit facilities, capital contributions to Charter
Holdings by Mr. Allen through Vulcan Cable III Inc. and the assumption of the
outstanding Renaissance, Helicon and Rifkin notes.
As part of the transaction with InterMedia, we agreed to "swap" some of our
non-strategic cable systems located in Indiana, Montana, Utah and northern
Kentucky, representing 142,000 basic customers. The InterMedia systems serve
approximately 413,000 customers in Georgia, North Carolina, South Carolina and
Tennessee. We have transferred cable systems with 112,000 customers to
InterMedia in connection with this swap. A cable system with customers totaling
30,000 has yet to be transferred pending the necessary regulatory approvals. If
the necessary regulatory approvals cannot be obtained for the transfer of this
system by March 28, 2000 InterMedia could require us to pay it $88.2 million in
lieu of transferring the cable system. If InterMedia has not required us to make
such payment by October 1, 2000 and we are still unable to transfer to
InterMedia satisfactory replacement systems by that date because of failure to
obtain the necessary regulatory approvals, we could elect to pay InterMedia
$88.2 million. In addition, if we transfer cash or property other than the
retained system to InterMedia, in certain circumstances, we must indemnify
InterMedia 50% of all taxes and related costs incurred or arising out of any
claim that InterMedia suffered tax losses to which it would not have been
subject if we had transferred the retained system. The exchange of cable
television systems will be recorded at the agreed value of the systems
exchanged.
In addition to these acquisitions, since the beginning of 1999, Charter
Communications Holding Company acquired the Fanch, Falcon and Avalon cable
systems and entered into a definitive agreement to acquire the Bresnan cable
systems. All of these acquisitions are set forth in the table below. The Fanch,
Falcon and Avalon purchase prices were paid with the net proceeds of the initial
public offering of the common stock of Charter Communications, Inc., an equity
contribution to Charter Communications Holding Company by Mr. Allen through
Vulcan Cable III Inc., borrowings under credit facilities and the assumption of
outstanding notes issued by Falcon and Avalon. The Bresnan acquisition will be
financed with a portion of the net proceeds of Charter Communications, Inc.'s
initial public offering, equity to be issued to specific sellers in the
acquisition, assumed debt (comprised of the Bresnan credit facilities and
publicly held notes) and borrowings under credit facilities. We intend to amend
and assume the existing Bresnan credit facilities and increase the borrowing
availability thereunder. See "-- Liquidity and Capital Resources" and
"Description of Certain Indebtedness."
On January 1, 2000, as a result of transfers from Charter Communications
Holding Company, Charter Holdings became the indirect owner of the Fanch, Falcon
and Avalon cable systems. After completion of the Bresnan acquisition and
transfer to us of the Bresnan cable systems, we will be the indirect owner of
the Bresnan cable systems.
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<PAGE> 67
Under the Falcon purchase agreement, specified Falcon sellers received
$550.0 million of the Falcon purchase price in the form of membership units in
Charter Communications Holding Company. Under the Bresnan purchase agreement,
the Bresnan sellers have agreed to receive $1.0 billion of the Bresnan purchase
price in the form of membership units in Charter Communications Holding Company.
In addition, certain Rifkin sellers received $133.3 million of the purchase
price in the form of preferred equity of Charter Communications Holding Company.
Under the Helicon purchase agreement, $25 million of the purchase price was paid
in the form of preferred limited liability company interests of Charter-Helicon,
LLC, a direct wholly owned subsidiary of Charter Communications, LLC, itself an
indirect subsidiary of Charter Communications Holding Company.
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
ACTUAL OR ----------------------------
ANTICIPATED PURCHASE
ACQUISITION PRICE REVENUE
ACQUISITION DATE (IN MILLIONS) CUSTOMERS (IN THOUSANDS)
- ----------- ----------- ------------- --------- --------------
<S> <C> <C> <C> <C>
Renaissance................. 4/99 $ 459 132,000 $ 46,589
American Cable.............. 5/99 240 69,000 27,540
Greater Media systems....... 6/99 500 174,000 63,749
Helicon..................... 7/99 550 172,000 63,784
Vista....................... 7/99 126 27,000 10,610
Cable Satellite............. 8/89 22 9,000 3,106
Rifkin...................... 9/99 1,460 464,000 159,465
InterMedia systems.......... 10/99 873+ 413,000
systems swap (142,000)(a) 152,789
----------
271,000
Fanch....................... 11/99 2,400 538,000 155,626
Falcon...................... 11/99 3,481 1,004,000 320,228
Avalon(b)................... 11/99 845 261,000 81,559
Bresnan..................... 1st Quarter 2000 3,100 687,000 209,749
--------- ---------- -------------
Total.................. $14,056 4,079,000 $1,294,794
--------- ---------- -------------
--------- ---------- -------------
</TABLE>
- -------------------------
(a) Represents the number of customers served by cable systems that we agreed to
transfer to InterMedia. This number includes 30,000 customers served by an
Indiana cable system that we did not transfer at the time of the InterMedia
closing because the necessary regulatory approvals were still pending.
(b) Includes approximately 5,400 customers served by cable systems that we will
acquire from certain former affiliates of Avalon. We expect the acquisition
of these systems to be completed in January 2000. The $845 million purchase
price for Avalon includes the purchase price for these systems of
approximately $13 million.
The systems acquired pursuant to these recent and pending acquisitions
served, in the aggregate, approximately 3.8 million customers as of September
30, 1999. On December 1, 1999, Charter Communications, Inc. and AT&T entered
into a non-binding letter of intent to exchange certain of our cable systems for
systems owned by AT&T. If this transaction is completed, subsidiaries of Charter
Holdings will acquire such systems. In connection with the Swap Transaction, we
will be
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required to pay to AT&T approximately $108 million in cash. This payment
represents the difference in the agreed values of the systems to be exchanged.
In addition, we are negotiating with several other potential acquisition and
swapping candidates whose systems would further complement our regional
operating clusters.
OVERVIEW
Approximately 87% of our historical revenues for the nine months ended
September 30, 1999 are attributable to monthly subscription fees charged to
customers for our basic, expanded basic and premium cable television programming
services, equipment rental and ancillary services provided by our cable
television systems. In addition, we derive other revenues from installation and
reconnection fees charged to customers to commence or reinstate service,
pay-per-view programming, where users are charged a fee for individual programs
requested, advertising revenues and commissions related to the sale of
merchandise by home shopping services. We have generated increased revenues in
each of the past three fiscal years, primarily through internal customer growth,
basic and expanded tier rate increases and acquisitions as well as innovative
marketing. We are beginning to offer our customers several other services, which
are expected to significantly contribute to our revenues. One of these services
is digital cable, which provides subscribers with additional programming
options. We are also offering high speed Internet access to the World Wide Web
through cable modems. Cable modems can be attached to personal computers so that
users can send and receive data over cable systems. Our television based
Internet access allows us to offer the services provided by WorldGate
Communications, Inc., which provides users with TV-based e-mail and other
Internet access.
Our expenses primarily consist of operating costs, general and
administrative expenses, depreciation and amortization expense and management
fees/corporate expense charges. Operating costs primarily include programming
costs, cable service related expenses, marketing and advertising costs,
franchise fees and expenses related to customer billings. Programming costs
accounted for approximately 44% of our operating, general and administrative
expenses for the nine months ended September 1999. Programming costs have
increased in recent years and are expected to continue to increase due to
additional programming being provided to customers, increased cost to produce or
purchase cable programming, inflation and other factors affecting the cable
television industry. In each year we have operated, our costs to acquire
programming have exceeded customary inflationary increases. Significant factors
with respect to increased programming costs are the rate increases and
surcharges imposed by national and regional sports networks directly tied to
escalating costs to acquire programming for professional sports packages in a
competitive market. We have benefited in the past from our membership in an
industry cooperative that provides members with volume discounts from
programming networks. We believe our membership has kept increases in our
programming costs below what the increases would otherwise have been. We also
believe that we should derive additional discounts from programming networks due
to our increased size. Finally, we were able to negotiate favorable terms with
premium networks in conjunction with the premium packages we offer, which
minimized the impact on margins and provided substantial volume incentives to
grow the premium category. Although we believe that we will be able to pass
future increases in programming costs through to customers, there can be no
assurance that we will be able to do so.
General and administrative expenses primarily include accounting and
administrative personnel and professional fees. Depreciation and amortization
expense relates to the depreciation of our tangible assets and the amortization
of our franchise costs. Management fees/corporate expense charges are fees paid
or charges for management services. Charter Holdings records actual expense
charges incurred by Charter Communications, Inc. on behalf of Charter Holdings.
Prior to the acquisition of us by Mr. Allen, the CCA Group and CharterComm
Holdings recorded management fees payable to Charter Investment, Inc. equal to
3.0% to 5.0% of gross revenues plus certain
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expenses. In October 1998, Charter Investment, Inc. began managing the cable
operations of Marcus Holdings under a management agreement, which was terminated
in February 1999 and replaced by a master management fee arrangement. The
Charter Operating credit facilities limit management fees to 3.5% of gross
revenues.
In connection with Charter Communications, Inc.'s initial public offering
of common stock in November 1999, the management agreement between Charter
Investment, Inc. and Charter Operating was assigned to Charter Communications,
Inc. and Charter Communications, Inc. entered into a new management agreement
with Charter Communications Holding Company. These management agreements are
substantially similar to the previous management agreement with Charter
Operating except that Charter Communications, Inc. is only entitled to receive
reimbursement of its expenses as consideration for its providing management
services. In addition, the Falcon, Fanch and Avalon cable systems are managed
and the Bresnan cable systems will be managed pursuant to agreements that
entitle Charter Communications, Inc. to receive reimbursement of its expenses as
consideration for its provision of management services. See "Certain
Relationships and Related Transactions."
We have had a history of net losses and expect to continue to report net
losses for the foreseeable future. The principal reasons for our prior and
anticipated net losses include depreciation and amortization expenses associated
with our acquisitions, capital expenditures related to construction and
upgrading of our systems, and interest costs on borrowed money. We cannot
predict what impact, if any, continued losses will have on our ability to
finance our operations in the future.
RESULTS OF OPERATIONS
The following discusses the results of operations for:
(1) Charter Holdings, comprised of Charter Communications Properties
Holdings, for the nine months ended September 30, 1998, and
(2) Charter Holdings comprised of the following for the nine months ended
September 30, 1999:
- Charter Communications Properties Holdings, CCA Group and CharterComm
Holdings for the entire period;
- Marcus Holdings for the period from March 31, 1999, the date Mr. Allen
acquired voting control, through September 30, 1999;
- Renaissance Media Group LLC for the period from April 30, 1999, the
acquisition date, through September 30, 1999;
- American Cable Entertainment, LLC for the period from May 7, 1999, the
acquisition date, through September 30, 1999;
- Cable television systems of Greater Media Cablevision, Inc. for the
period from June 30, 1999, the acquisition date, through September 30,
1999;
- Helicon Partners I, L.P. and affiliates for the period from July 30,
1999, the acquisition date, through September 30, 1999;
- Vista Broadband Communications, L.L.C. for the period from July 30,
1999, the acquisition date, through September 30, 1999;
- Cable television system of Cable Satellite of South Miami, Inc. for
the period from August 4, 1999, the acquisition date, through
September 30, 1999; and
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- Rifkin Acquisition Partners, L.L.L.P. and InterLink Communications
Partners, LLLP for the period from September 13, 1999, the acquisition
date, through September 30, 1999;
No operating results are included for the InterMedia systems acquired on
October 1, 1999 or for the Fanch, Falcon or Avalon systems acquired by Charter
Communications Holding Company in November 1999 and transferred to us on January
1, 2000.
The following table sets forth the percentages of revenues that items in
the unaudited statements of operations constitute for the indicated periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1999 1998
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Revenues........................................ $ 845,182 100.0% $ 32,532 100.0%
--------- ----- -------- -----
Operating expenses:
Operating, general and administrative......... 436,057 51.6 17,498 53.8
Depreciation and amortization................. 441,391 52.2 11,236 34.5
Stock option compensation expense............. 59,288 7.0 -- --
Management fees/corporate expense charges..... 18,309 2.2 1,499 4.6
--------- ----- -------- -----
Total operating expenses.............. 955,045 113.0 30,233 92.9
--------- ----- -------- -----
(Loss) income from operations................... (109,863) (13.0) 2,299 7.1
Interest income................................. 18,326 2.2 23 0.1
Interest expense................................ (288,750) (34.2) (11,831) (36.4)
Other (expense) income.......................... (177) -- 6 --
--------- ----- -------- -----
Loss before extraordinary item.................. (380,464) (45.0) (9,503) (29.2)
Extraordinary item-loss from early
extinguishment of debt........................ 7,794 0.9 -- --
--------- ----- -------- -----
Net loss.............................. $(388,258) (45.9)% $ (9,503) (29.2)%
========= ===== ======== =====
</TABLE>
PERIOD FROM JANUARY 1, 1999 THROUGH SEPTEMBER 30, 1999
COMPARED TO PERIOD FROM JANUARY 1, 1998 THROUGH SEPTEMBER 30, 1998
REVENUES. Revenues increased by $812.7 million, from $32.5 million for the
first nine months of 1998 to $845.2 million for the first nine months of 1999.
The increase in revenues primarily resulted from the acquisitions of CCA Group
and CharterComm Holdings, Sonic, Marcus Holdings and other recent acquisitions.
Additional revenues from these entities included for the nine-month period ended
September 30, 1999 were $439.3 million, $26.2 million, $261.2 million and $90.7
million, respectively.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses increased by $418.6 million, from $17.5 million for the
period from January 1, 1998 through September 30, 1998 to $436.1 million for the
period from January 1, 1999 through September 30, 1999. This increase was due
primarily to the acquisitions of the CCA Group and CharterComm Holdings, Sonic,
Marcus Holdings and other recent acquisitions. Additional operating, general and
administrative expenses from these entities included for the nine-month period
ended September 30, 1999 were $221.1 million, $13.7 million, $140.4 million and
$46.8 million, respectively.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $430.2 million, from $11.2 million for the period from January 1,
1998 through September 30, 1998 to $441.4 million for the period from January 1,
1999 through September 30, 1999. There was a significant increase in
amortization expense resulting from the acquisitions of the CCA Group and
CharterComm Holdings, Sonic, Marcus Holdings and other recent acquisitions.
Additional depreciation and amortization expense from these entities included
for the nine-month period ended September 30, 1999 were $244.0 million, $5.3
million, $133.9 million and $47.3 million, respectively.
STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense for
the period from January 1, 1999 through September 30, 1999 was $59.3 million due
to the granting of options to employees in December 1998, February 1999 and
April 1999. The exercise prices of the options are less than the estimated fair
values of the underlying membership units on the date of grant, resulting in
compensation expense accrued over the vesting period of each grant that varies
from four to five years.
MANAGEMENT FEES/CORPORATE EXPENSE CHARGES. Management fees/corporate
expense charges increased by $16.8 million, from $1.5 million for the period
from January 1, 1998 through September 30, 1998 to $18.3 million for the period
from January 1, 1999 through September 30, 1999. The increase from the period
from January 1, 1998 through September 30, 1998 compared to the period from
January 1, 1999 through September 30, 1999 was the result of the acquisitions of
CCA Group and CharterComm Holdings, Sonic, Marcus Holdings and other recent
acquisitions.
INTEREST INCOME. Interest income increased by $18.3 million from $23,000
for the period from January 1, 1998 to September 30, 1998 to $18.3 million for
the period from January 1, 1999 to September 30, 1999. The increase was
primarily due to investing excess cash that resulted from required credit
facilities drawdowns.
INTEREST EXPENSE. Interest expense increased by $276.9 million, from $11.8
million for the period from January 1, 1998 through September 30, 1998 to $288.8
million for the period from January 1, 1999 through September 30, 1999. This
increase resulted primarily from interest on the notes and credit facilities
used to finance the acquisitions of CCA Group and CharterComm Holdings, Marcus
Holdings and other recent acquisitions.
NET LOSS. Net loss increased by $378.8 million, from $9.5 million for the
period from January 1, 1998 through September 30, 1998 to $388.3 million for the
period from January 1, 1999 through September 30, 1999. The increase in revenues
that resulted from the acquisitions of CCA Group, CharterComm Holdings, Sonic
and Marcus Holdings was not sufficient to offset the operating expenses
associated with the acquired systems and loss from early extinguishment of debt.
RESULTS OF OPERATIONS
The following discusses the results of operations for:
(1) Charter Holdings comprised of Charter Communications Properties
Holdings, for the period from January 1, 1998 through December 23, 1998
and for the years ended December 31, 1997 and 1996, and
(2) Charter Holdings comprised of Charter Communications Properties
Holdings, CCA Group and CharterComm Holdings, for the period from
December 24, 1998 through December 31, 1998.
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The following table sets forth the percentages of revenues that items in
the statements of operations constitute for the indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1/1/98 12/24/98
------------------------------------ THROUGH THROUGH
1996 1997 12/23/98 12/31/98
---------------- ---------------- ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Revenues........................................ $14,881 100.0% $18,867 100.0% $ 49,731 100.0% $13,713 100.0%
------- ----- ------- ----- -------- ----- ------- -----
Operating expenses:
Operating costs................................ 5,888 39.5% 9,157 48.5% 18,751 37.7% 6,168 45.0%
General and administrative costs............... 2,235 15.0% 2,610 13.8% 7,201 14.5% 966 7.0%
Depreciation and amortization.................. 4,593 30.9% 6,103 32.4% 16,864 33.9% 8,318 60.7%
Stock option compensation expense.............. -- -- -- -- -- -- 845 6.2%
Management fees/corporate expense charges...... 446 3.0% 566 3.0% 6,176 12.4% 473 3.4%
------- ----- ------- ----- -------- ----- ------- -----
Total operating expenses....................... 13,162 88.4% 18,436 97.7% 48,992 98.5% 16,770 122.3%
------- ----- ------- ----- -------- ----- ------- -----
Income (loss) from operations................... 1,719 11.6% 431 2.3% 739 1.5% (3,057) (22.3%)
Interest income................................. 20 0.1% 41 0.2% 44 0.1% 133 1.0%
Interest expense................................ (4,415) (29.7%) (5,120) (27.1%) (17,277) (34.7%) (2,353) (17.2%)
Other income (expense).......................... (47) (0.3%) 25 0.1% (728) (1.5%) -- --
------- ----- ------- ----- -------- ----- ------- -----
Net loss........................................ $(2,723) (18.3%) $(4,623) (24.5%) $(17,222) (34.6%) $(5,277) (38.5%)
======= ===== ======= ===== ======== ===== ======= =====
</TABLE>
PERIOD FROM DECEMBER 24, 1998 THROUGH DECEMBER 31, 1998
This period is not comparable to any other period presented. The financial
statements represent eight days of operations. This period not only contains the
results of operations of Charter Communications Properties, but also the results
of operations of those entities purchased in the acquisition of the Charter
companies by Mr. Allen. As a result, no comparison of the operating results for
this eight-day period is presented.
PERIOD FROM JANUARY 1, 1998 THROUGH DECEMBER 23, 1998 COMPARED TO 1997
REVENUES. Revenues increased by $30.9 million, or 163.6%, from $18.9
million in 1997 to $49.7 million for the period from January 1, 1998 through
December 23, 1998. The increase in revenues primarily resulted from the
acquisition of Sonic, which had revenues for that period of $29.8 million.
OPERATING EXPENSES. Operating expenses increased by $9.6 million, or
104.8%, from $9.2 million in 1997 to $18.8 million for the period from January
1, 1998 through December 23, 1998. This increase was due primarily to the
acquisition of Sonic, which had operating expenses for that period of $9.4
million, partially offset by the loss of $1.4 million on the sale of a cable
system in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $4.6 million, or 175.9%, from $2.6 million in 1997 to $7.2 million
for the period from January 1, 1998 through December 23, 1998. This increase was
due primarily to the acquisition of Sonic, which had general and administrative
expenses for that period of $6.0 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $10.8 million, or 176.3%, from $6.1 million in 1997 to $16.9
million for the period from January 1, 1998 through December 23, 1998. There was
a significant increase in amortization resulting from the acquisition of Sonic.
Incremental depreciation and amortization expenses of the acquisition of Sonic
were $9.9 million.
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MANAGEMENT FEES/CORPORATE EXPENSE CHARGES. Corporate expense charges
increased by $5.6 million, or 991.2% from $0.6 million in 1997 to $6.2 million
for the period from January 1, 1998 through December 23, 1998. The increase from
1997 compared to the period from January 1, 1998 through December 23, 1998 was
the result of additional Charter Investment, Inc. charges related to equity
appreciation rights plans of $3.8 million for the period from January 1, 1998
through December 23, 1998 and an increase of $0.9 million in management services
provided by Charter Investment, Inc. as a result of the acquisition of Sonic.
INTEREST EXPENSE. Interest expense increased by $12.2 million, or 237.4%,
from $5.1 million in 1997 to $17.3 million for the period from January 1, 1998
through December 23, 1998. This increase resulted primarily from the
indebtedness of $220.6 million, including a note payable for $60.9 million,
incurred in connection with the acquisition of Sonic resulting in additional
interest expense.
NET LOSS. Net loss increased by $12.6 million, or 272.5%, from $4.6
million in 1997 to $17.2 million for the period from January 1, 1998 through
December 23, 1998. The increase in revenues that resulted from cable television
customer growth was not sufficient to offset the operating expenses related to
the acquisition of Sonic.
1997 COMPARED TO 1996
REVENUES. Revenues increased by $4.0 million, or 26.8%, from $14.9 million
in 1996 to $18.9 million in 1997. The primary reason for this increase is the
acquisition of five cable systems in 1996 that increased customers by 58.9%.
Revenues of Charter Communications Properties, excluding the activity of
any other systems acquired during the periods, increased by $0.7 million, or
8.9%, from $7.9 million in 1996 to $8.6 million in 1997.
OPERATING EXPENSES. Operating expenses increased by $3.3 million, or
55.5%, from $5.9 million in 1996 to $9.2 million in 1997. This increase was
primarily due to the acquisitions of the cable systems in 1996 and the loss of
$1.4 million on the sale of a cable system in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $0.4 million, or 16.8%, from $2.2 million in 1996 to $2.6 million
in 1997. This increase was primarily due to the acquisitions of the cable
systems in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $1.5 million, or 32.9%, from $4.6 million in 1996 to $6.1 million
in 1997. There was a significant increase in amortization resulting from the
acquisitions of the cable systems in 1996.
MANAGEMENT FEES/CORPORATE EXPENSE CHARGES. Corporate expense charges
increased by $0.2 million, or 26.9%, from $0.4 million in 1996 to $0.6 million
in 1997. These fees were 3.0% of revenues in both 1996 and 1997.
INTEREST EXPENSE. Interest expense increased by $0.7 million, or 16.0%,
from $4.4 million in 1996 to $5.1 million in 1997. This increase resulted
primarily from the indebtedness incurred in connection with the acquisitions of
several cable systems in 1996.
NET LOSS. Net loss increased by $1.9 million, or 69.8%, from $2.7 million
in 1996 to $4.6 million in 1997. The increase in net loss is primarily related
to the $1.4 million loss on the sale of a cable system.
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OUTLOOK
Our business strategy emphasizes the increase of our operating cash flow by
increasing our customer base and the amount of cash flow per customer. We
believe that there are significant advantages in increasing the size and scope
of our operations, including:
- improved economies of scale in management, marketing, customer service,
billing and other administrative functions;
- reduced costs for our cable systems and our infrastructure in general;
- increased leverage for negotiating programming contracts; and
- increased influence on the evolution of important new technologies
affecting our business.
We seek to "cluster" cable systems in suburban and ex-urban areas
surrounding selected metropolitan markets. We believe that such "clustering"
offers significant opportunities to increase operating efficiencies and to
improve operating margins and cash flow by spreading fixed costs over an
expanding subscriber base. In addition, we believe that by concentrating
"clusters" in markets, we will be able to generate higher growth in revenues and
operating cash flow. Through strategic acquisitions and "swaps" of cable
systems, we seek to enlarge the coverage of our current areas of operations,
and, if feasible, develop "clusters" in new geographic areas within existing
regions. Swapping of cable systems allows us to trade systems that do not
coincide with our operating strategy while gaining systems that meet our
objectives. Several significant swaps have been announced. These swaps have
demonstrated the industry's trend to cluster operations. To date, Charter
Holdings has participated in one swap in connection with the transaction with
InterMedia. In addition, Charter Communications, Inc. has entered into a letter
of intent providing for the Swap Transaction.
LIQUIDITY AND CAPITAL RESOURCES
Our business requires significant cash to fund acquisitions, capital
expenditures, debt service costs and ongoing operations. We have historically
funded and expect to fund future liquidity and capital requirements through cash
flows from operations, equity contributions, borrowings under our credit
facilities and debt and equity financings.
Our historical cash flows from operating activities for 1998 were $30.2
million, and for the nine months ended September 30, 1999 were $265.6 million.
Pro forma for our merger with Marcus Holdings, the sale of the original notes,
acquisitions completed since that date, the Fanch, Falcon and Avalon transfers
and the Pending Transactions, our cash flows from operating activities for 1998
were $725.2 million, and for the nine months ended September 30, 1999 were
$672.0 million.
CAPITAL EXPENDITURES
We have substantial ongoing capital expenditure requirements. We make
capital expenditures primarily to upgrade, rebuild and expand our cable systems,
as well as for system maintenance, the development of new products and services,
and converters. Converters are set-top devices added in front of a subscriber's
television receiver to change the frequency of the cable television signals to a
suitable channel. The television receiver is then able to tune and to allow
access to premium service.
Upgrading our cable systems will enable us to offer new products and
services, including digital television, additional channels and tiers, expanded
pay-per-view options, high-speed Internet access and interactive services.
Capital expenditures for 1999, pro forma for recent acquisitions, the
recent transfer to Charter Holdings of the Fanch, Falcon and Avalon cable
systems and the Pending Transactions, are estimated to be approximately $1.048
billion. For the nine months ended September 30, 1999, we made capital
expenditures, excluding the acquisitions of cable systems, of $385 million. The
majority of the capital
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expenditures related to rebuilding existing cable systems. Those expenditures
were funded from cash flows from operations and borrowings under credit
facilities.
For the period from January 1, 2000 to December 31, 2002, we plan to spend
approximately $5.6 billion for capital expenditures, approximately $3.1 billion
of which will be used to upgrade and rebuild our systems to bandwidth capacity
of 550 megahertz or greater and add two-way capability, so that we may offer
advanced services. The remaining $2.5 billion will be used for extensions of
systems, development of new products and services, converters and system
maintenance. Capital expenditures for 2000, 2001 and 2002 are expected to be
approximately $1.6 billion, $2.0 billion and $2.0 billion, respectively. We
currently expect to finance approximately 80% of the anticipated capital
expenditures with cash generated from operations and approximately 20% with
additional borrowings under credit facilities. We cannot assure you that these
amounts will be sufficient to accomplish our planned system upgrade, expansion
and maintenance. See "Risk Factors -- Our Business -- We may not be able to
obtain capital sufficient to fund our planned upgrades and other capital
expenditures." This could adversely affect our ability to offer new products and
services and compete effectively, and could adversely affect our growth,
financial condition and results of operations.
FINANCING ACTIVITIES
As of September 30, 1999, pro forma for our merger with Marcus Holdings,
the sale of the original notes, acquisitions completed since that date, the
recent transfer to Charter Holdings of the Fanch, Falcon and Avalon cable
systems and the Pending Transactions, the total debt of Charter Holdings and its
subsidiaries would have been approximately $10.7 billion, Charter Holdings'
member's equity would have been approximately $10.4 billion and the deficiency
of earnings available to cover fixed charges would have been approximately $1.0
billion. Our significant amount of debt may adversely affect our ability to
obtain financing in the future and react to changes in our business. Our credit
facilities and other debt instruments contain, and the credit facilities that we
expect to enter into and the other debt that we expect to assume in connection
with the Pending Transactions will contain, various financial and operating
covenants that could adversely impact our ability to operate our business,
including restrictions on the ability of our operating subsidiaries to
distribute cash to their parents. See "-- Certain Trends and
Uncertainties -- Restrictive Covenants" and "Description of Certain
Indebtedness", for further information and a more detailed description of our
existing debt and the debt that we will assume or refinance in connection with
the Pending Transactions.
MARCH 1999 CHARTER HOLDINGS NOTES. On March 17, 1999, Charter Holdings and
Charter Capital issued $3.6 billion principal amount of senior notes, the March
1999 Charter Holdings notes consisted of $600 million in aggregate principal
amount of 8.250% senior notes due 2007, $1.5 billion in aggregate principal
amount of 8.625% senior notes due 2009, and $1.475 billion in aggregate
principal amount at maturity of 9.920% senior discount notes due 2011. The net
proceeds of approximately $2.99 billion, combined with the borrowings under our
credit facilities, were used to consummate tender offers for publicly held debt
of several of our subsidiaries, as described below, to refinance borrowings
under our previous credit facilities, for working capital purposes and to
finance a number of recent acquisitions.
Semi-annual interest payments with respect to the March 1999 8.250% Charter
Holdings notes and the March 1999 8.625% Charter Holdings notes are
approximately $89.4 million, commencing on October 1, 1999. No interest on the
March 1999 9.920% Charter Holdings notes will be payable prior to April 1, 2004.
Thereafter, semi-annual interest payments on the three series of March 1999
Charter Holdings notes will be approximately $162.6 million in the aggregate,
commencing on October 1, 2004. In October 1999, Charter Holdings and Charter
Capital completed an offer to exchange the March 1999 Charter Holdings notes for
notes with substantially similar terms, except that the new notes are registered
and are not subject to restrictions on transfer. With the exception of $120,000
principal amount of the March 1999 8.625% Charter Holdings notes, all of the
March 1999
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Charter Holdings notes were exchanged for new notes. As of September 30, 1999,
$2.1 billion was outstanding under the March 1999 8.250% Charter Holding notes
and 8.625% Charter Holdings notes, and the accreted value of the March 1999
9.920% Charter Holdings notes was $954.1 million.
Concurrently with the issuance of the March 1999 Charter Holdings notes, we
refinanced substantially all of our previous credit facilities and Marcus Cable
Operating Company, L.L.C.'s credit facilities with new credit facilities entered
into by Charter Operating. In February and March 1999, we commenced cash tender
offers to purchase the 14% senior discount notes issued by Charter
Communications Southeast Holdings, LLC, the 11.25% senior notes issued by
Charter Communications Southeast, LLC, the 13.50% senior subordinated discount
notes issued by Marcus Cable Operating Company, L.L.C., and the 14.25% senior
discount notes issued by Marcus Cable. All such notes, except for $1.1 million
in principal amount, were paid off for an aggregate amount of $1.0 billion. The
remaining $1.1 million of such notes were repaid in September 1999.
CHARTER OPERATING CREDIT FACILITIES. Charter Operating's credit facilities
provide for two term facilities, Term A with a principal amount of $1.0 billion
that matures September 2007 and Term B with a principal amount of $1.85 billion
that matures on March 2008. The Charter Operating credit facilities also provide
for a $1.25 billion revolving credit facility with a maturity date of September
2007. As of September 30, 1999, approximately $2.85 billion was outstanding and
$1.25 billion was available for borrowing under the Charter Operating credit
facilities. In addition, an uncommitted incremental term facility of up to $500
million with terms similar to the terms of these credit facilities is permitted
under such credit facilities, but will be conditioned on receipt of additional
new commitments from existing and new lenders. We borrowed $520 million under
the revolving credit facility on October 1, 1999 to complete the acquisition of
the InterMedia systems. In addition, we borrowed approximately $269 million in
the aggregate under the revolving credit facility to retire the Rifkin notes and
the Helicon notes during October 1999 and November 1999, respectively.
In November 1999, Charter Communications Holding Company loaned $856.0
million of the net proceeds of Charter Communications, Inc.'s initial public
offering to Charter Operating. The funds were used by Charter Operating to pay
down amounts outstanding under the Charter Operating credit facilities. As of
December 31, 1999, approximately $2.91 billion was outstanding and approximately
$1.19 billion was available for borrowing under the Charter Operating credit
facilities. In connection with the funding of the Bresnan acquisition, we expect
that Charter Operating will repay this loan to Charter Communications Holding
Company which will use the funds so received to pay a portion of the purchase
price for the Bresnan acquisition. We anticipate that Charter Communications
Holding Company will subsequently transfer the Bresnan cable systems to Charter
Holdings.
Amounts under the Charter Operating credit facilities bear interest at a
base rate or a eurodollar rate, plus a margin up to 2.75%. A quarterly
commitment fee of between 0.25% and 0.375% per annum is payable on the
unborrowed balance of Term A and the revolving credit facility. The weighted
average interest rate for outstanding debt on September 30, 1999 was 7.52%.
Furthermore, Charter Operating has entered into interest rate protection
agreements to reduce the impact of changes in interest rates on the debt
outstanding under its credit facilities. See "-- Interest Rate Risk."
RENAISSANCE NOTES. We acquired Renaissance in April 1999. The Renaissance
10% senior discount notes due 2008 had $163.2 million principal amount at
maturity outstanding and $100.0 million accreted value upon issuance. The
Renaissance 10% notes do not require the payment of interest until April 15,
2003. From and after April 15, 2003, the Renaissance 10% notes bear interest,
payable semi-annually in cash, on April 15 and October 15, commencing on October
15, 2003. The Renaissance 10% notes are due on April 15, 2008. Due to the change
of control of Renaissance, an offer to purchase the Renaissance 10% notes was
made at 101% of their accreted value, plus accrued and unpaid interest, on June
28, 1999. Of the $163.2 million face amount of Renaissance 10% notes
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outstanding, $48.8 million were repurchased. As of September 30, 1999, the
accreted value of the Renaissance 10% notes was approximately $82.4 million.
HELICON NOTES. We acquired Helicon in July 1999. As of September 30, 1999,
Helicon had outstanding $115.0 million in principal amount of 11% senior secured
notes due 2003. On November 1, 1999, we redeemed all of the Helicon 11% notes at
a purchase price equal to 103% of their principal amount, plus accrued interest,
for $124.8 million.
RIFKIN NOTES. We acquired Rifkin in September 1999. As of September 30,
1999, Rifkin had outstanding $125.0 million in principal amount of 11.125%
senior subordinated notes due 2006. In September 1999, we commenced an offer to
purchase any and all of the outstanding Rifkin notes, together with a $3.0
million promissory note payable, for cash at a premium over the principal
amounts. Notes with a total outstanding principal amount of $124.1 million were
repurchased for a total of $140.6 million, including a consent fee of $30 per
$1,000 to the holders who delivered timely consents to amend the indenture
governing those notes to eliminate substantially all of the restrictive
covenants. We repurchased the promissory note for $3.4 million.
FALCON DEBENTURES. Falcon has outstanding publicly held debt comprised of
8.375% senior debentures due 2010 and 9.285% senior discount debentures due
2010. As of September 30, 1999, $375.0 million total principal amount of the
Falcon 8.375% debentures were outstanding and the accreted value of the Falcon
9.285% debentures was approximately $315.7 million. In November 1999, we paid
off all of Falcon's 11.56% subordinated notes due 2001 for a total of $15.0
million. Interest on the Falcon 8.375% debentures is payable semi-annually on
April 15 and October 15 of each year. No interest on the Falcon 9.285%
debentures will be payable prior to April 15, 2003. From and after April 15,
2003, the issuers of the Falcon 9.285% debentures may elect to commence accrual
of cash interest payment on any date, and the interest will be payable semi-
annually in cash on each April 15 and October 15 thereafter.
On December 10, 1999, we commenced change of control offers to repurchase
the Falcon debentures at purchase prices of 101% of principal amount, plus
unpaid and accrued interest, or accreted value, as applicable. Because the
Falcon debentures are trading at or near the change of control repurchase
prices, we expect that the Falcon debentures will be put to us. The Falcon
change of control offers will remain open until February 3, 2000. We intend to
finance the Falcon change of control offers with a portion of the net proceeds
of the sale of the original notes.
FALCON CREDIT FACILITIES. In connection with the Falcon acquisition, we
amended and restated the existing Falcon credit facilities to provide for
available borrowing capacity of $1.25 billion. In November 1999, Charter
Communications Holding Company loaned $173.0 million of the net proceeds of
Charter Communications, Inc.'s initial public offering to the borrower under the
Falcon credit facilities, Falcon Cable Communications, LLC. The funds were used
by Falcon Cable Communications to pay down a portion of the debt under the
Falcon credit facilities. As of November 30, 1999, $846.8 million was
outstanding and $405.2 million was available for borrowing under the Falcon
credit facilities. In connection with the funding of the Bresnan acquisition, we
expect that Falcon Cable Communications will repay the loan to Charter
Communications Holding Company which will use the funds so received to pay a
portion of the purchase price for the Bresnan acquisition.
AVALON NOTES. Avalon has 11.875% senior discount notes due 2008 and 9.375%
senior subordinated notes due 2008. As of September 30, 1999, the accreted value
of the Avalon 11.875% notes was $121.6 and $150.0 million in principal of the
Avalon 9.375% notes remained outstanding. Before December 1, 2003, there will be
no payments of cash interest on the Avalon 11.875% notes. After December 1,
2003, cash interest on the Avalon 11.875% notes will be payable semi-annually on
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June 1 and December 1 of each year, commencing June 1, 2004. Interest on the
Avalon 9.375% notes is payable semi-annually on June 1 and December 1 of each
year.
On December 3, 1999, we commenced change of control offers to repurchase
the Avalon 9.375% notes and the 11.875% notes at purchase prices of 101% of
principal amount or accreted value, as applicable. Because the Avalon 9.375%
notes are trading at or near the change of control repurchase price, we expect
these notes to be put to us. Because the Avalon 11.875% notes have been trading
above the change of control repurchase price, we do not expect these notes to be
put to us. These change of control repurchase offers will remain open until
January 26, 2000. We intend to finance the Avalon change of control offer with a
portion of the net proceeds of the sale of the original notes.
AVALON CREDIT FACILITIES. The Avalon credit facilities have maximum
borrowings of $300.0 million, consisting of a revolving facility in the amount
of $175.0 million and a term loan B in the amount of $125.0 million. We borrowed
$165.0 million under the Avalon credit facilities to fund a portion of the
Avalon purchase price.
FANCH CREDIT FACILITIES. The Fanch credit facilities have maximum
borrowings of $1.2 billion, of which we used $870.0 million to fund a portion of
the Fanch purchase price. In November 1999, Charter Communications Holding
Company loaned $20.0 million of the net proceeds of Charter Communications,
Inc.'s initial public offering to the borrower under the Fanch credit
facilities, CC VI Operating Company, LLC. The funds were used by CC VI Operating
Company to pay down a portion of the debt under the Fanch credit facilities. In
connection with the funding of the Bresnan acquisition, we expect that CC VI
Operating Company will repay the loan to Charter Communications Holding Company
which will use the funds so received to pay a portion of the purchase price for
the Bresnan acquisition.
BRESNAN NOTES. Bresnan has outstanding 8% senior notes due 2009 and 9.25%
senior discount notes due 2009. As of September 30, 1999, $170.0 million in
principal amount of the Bresnan 8% notes was outstanding and the accreted value
of the Bresnan 9.25% notes was $185.9 million. Interest on the Bresnan 8% notes
is payable semi-annually on February 1 and August 1 of each year. On and after
August 1, 2004, interest on the Bresnan 9.25% notes will be payable
semi-annually in cash on February 1 and August 1 of each year. The Bresnan
acquisition will trigger change of control provisions under the Bresnan notes
that will require us to make an offer to repurchase these notes at a price equal
to 101% of the outstanding principal amounts plus accrued interest or accreted
value, as applicable. We expect that the Bresnan notes will be tendered and we
intend to fund the repurchase of a portion of the Bresnan notes with a portion
of the net proceeds of the sale of the original notes.
BRESNAN CREDIT FACILITIES. Bresnan has credit facilities providing for
borrowings of up to $650.0 million. As of September 30, 1999, $512.0 million was
outstanding and $138.0 million was available for borrowing under the Bresnan
credit facilities. Because the acquisition of Bresnan will trigger change of
control and other provisions under the Bresnan credit facilities, we intend to
amend and assume these credit facilities, including an increase in borrowing
availability. If we cannot amend and assume these credit facilities, we will be
required to refinance the Bresnan credit facilities and repay all outstanding
borrowings thereunder.
ACQUISITIONS
In 1999, we acquired the Renaissance, American Cable, Greater Media,
Helicon, Vista, Cable Satellite, Rifkin and InterMedia cable systems. The total
purchase price for these acquisitions was $4.2 billion, including $354 million
of assumed debt. We financed the cash portion of the purchase prices for these
acquisitions through excess cash from the issuance of the March 1999 Charter
Holdings notes, borrowings under the Charter Operating credit facilities,
capital contributions by Mr. Allen through Vulcan Cable III Inc., and, in the
case of InterMedia, through a swap of cable
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systems valued at $331.8 million and a commitment to transfer an additional
cable system valued at $88.2 million. We will have to pay $88.2 million to
InterMedia if we do not obtain timely regulatory approvals for our transfer to
InterMedia of the Indiana cable system and we are unable to transfer replacement
systems.
In addition to these acquisitions, since the beginning of 1999, Charter
Communications Holding Company acquired the Fanch, Falcon and Avalon cable
systems and entered into a definitive agreement to acquire the Bresnan cable
systems. The total purchase price for the Fanch, Falcon and Avalon acquisitions
was $6.7 billion, including $1.9 billion of assumed debt. The cash portion of
the Fanch, Falcon and Avalon purchase prices were paid with the net proceeds of
the initial public offering of the common stock of Charter Communications, Inc.,
an equity contribution to Charter Communications Holding Company by Mr. Allen
through Vulcan Cable III Inc. and borrowings under credit facilities. On January
1, 2000 Charter Communications Holding Company transferred the Fanch, Falcon and
Avalon cable systems to us and we became the indirect owner of these systems.
In August 1999, Vulcan Cable III Inc. contributed to Charter Communications
Holding Company $500 million in cash and, in September 1999, an additional $825
million, of which approximately $644.3 million was in cash and approximately
$180.7 million was in the form of equity interests acquired by Vulcan Cable III
Inc. in connection with this Rifkin acquisition. Charter Communications Holding
Company in turn contributed the cash and equity interests to Charter Holdings.
In November 1999, in connection with Charter Communications, Inc.'s initial
public offering, Vulcan Cable III contributed to Charter Communications Holding
Company $750 million in cash. In connection with the Rifkin and Falcon
acquisitions, Charter Communications Holding Company issued equity interests
totaling approximately $683.3 million and a subsidiary of Charter Holdings
issued preferred equity interests totaling $25 million to the sellers.
We expect that the Bresnan purchase price will be paid with a portion of
the net proceeds of Charter Communications, Inc.'s initial public offering, $1.0
billion of equity of Charter Communications Holding Company issued to specified
sellers in the acquisition, assumed debt, comprised of the existing Bresnan
credit facilities and publicly held notes, and borrowings under credit
facilities. We cannot assure you that the Bresnan acquisition will be completed.
Assuming the Bresnan acquisition and transfer are completed, Charter Holdings
will then be the indirect owner of the Bresnan cable systems.
We expect to assume and amend the existing Bresnan credit facilities and
increase the borrowing availability thereunder. We expect to borrow
approximately $635.0 million under these credit facilities in connection with
the closing of the Bresnan acquisition. The $635.0 million represents $512.0
million in outstanding borrowings under the Bresnan credit facilities and $123.0
million in additional borrowings under these credit facilities that we
anticipate using to fund a portion of the Bresnan purchase price. In addition,
we expect that we will have to repurchase outstanding Bresnan notes at prices
equal to 101% of their principal amount, plus accrued and unpaid interest, or
their accreted value, as applicable, in connection with required change of
control offers for these notes. As of the anticipated closing date of the
Bresnan acquisition, the total amount of principal and accreted value of the
Bresnan notes will be $362.3 million. We intend to fund a portion of the
repurchase of the Bresnan notes with a portion of the net proceeds of the sale
of the original notes.
On December 1, 1999, Charter Communications, Inc. and AT&T entered into a
non-binding letter of intent to exchange certain of our cable systems for
certain cable systems owned by AT&T. As part of this transaction, we will be
required to pay to AT&T approximately $108.0 million in cash.
We cannot assure you that we will be able to raise the financing necessary
to satisfy the obligations described above. If we are unable to raise the
financing necessary to satisfy any or all of these obligations, we could be in
default under one or more other obligations.
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For a description of our recently completed and pending acquisitions, see
"Business -- Acquisitions."
CERTAIN TRENDS AND UNCERTAINTIES
The following discussion highlights a number of trends and uncertainties,
in addition to those discussed elsewhere in this prospectus, including in "Risk
Factors" and "Business," that could materially impact our business, results of
operations and financial condition.
SUBSTANTIAL LEVERAGE. As of September 30, 1999, pro forma for our merger
with Marcus Holdings, the sale of the original notes, acquisitions completed
since that date, the recent transfer to Charter Holdings of the Fanch, Falcon
and Avalon cable systems and the Pending Transactions, the total debt of Charter
Holdings and its subsidiaries was approximately $10.7 billion and Charter
Holdings' member's equity was approximately $10.4 billion. We anticipate
incurring significant additional debt in the future to fund the expansion,
maintenance and the upgrade of our cable systems.
Our ability to make payments on our debt and to fund our planned capital
expenditures for upgrading our cable systems and our ongoing operations will
depend on our ability to generate cash and secure financing in the future. This,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond our control. We cannot assure
you that our business will generate sufficient cash flow from operations, or
that future borrowings will be available to us under our existing credit
facilities, new facilities or from other sources of financing in an amount
sufficient to enable us to repay our debt, to grow our business or to fund our
other liquidity and capital needs.
VARIABLE INTEREST RATES. A significant portion of our debt bears interest
at variable rates that are linked to short-term interest rates. In addition, a
significant portion of our existing debt, assumed debt or debt we expect to
arrange in connection with the Pending Transactions will bear interest at
variable rates. If interest rates rise, our costs relative to those obligations
will also rise. See discussion on "-- Interest Rate Risk."
RESTRICTIVE COVENANTS. Our credit facilities and the indentures governing
our outstanding debt contain a number of significant covenants that, among other
things, restrict our ability and the ability of our subsidiaries to:
- pay dividends or make other distributions;
- make certain investments or acquisitions.
- dispose of assets or merge;
- incur additional debt;
- issue equity;
- repurchase or redeem equity interests and debt;
- create liens; and
- pledge assets.
Furthermore, in accordance with our credit facilities we are required to
maintain specified financial ratios and meet financial tests. The ability to
comply with these provisions may be affected by events beyond our control. The
breach of any of these covenants will result in a default under the applicable
debt agreement or instrument, which could trigger acceleration of the debt. Any
default under our credit facilities or the indentures governing our outstanding
debt may adversely affect our growth, our financial condition and our results of
operations.
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IMPORTANCE OF GROWTH STRATEGY AND RELATED RISKS. We expect that a
substantial portion of any of our future growth will be achieved through
revenues from additional services and the acquisition of additional cable
systems. We cannot assure you that we will be able to offer new services
successfully to our customers or that those new services will generate revenues.
In addition, the acquisition of additional cable systems may not have a positive
net impact on our operating results. Acquisitions involve a number of special
risks, including diversion of management's attention, failure to retain key
acquired personnel, risks associated with unanticipated events or liabilities
and difficulties in assimilation of the operations of the acquired companies,
some or all of which could have a material adverse effect on our business,
results of operations and financial condition. If we are unable to grow our cash
flow sufficiently, we may be unable to fulfill our obligations or obtain
alternative financing.
MANAGEMENT OF GROWTH. As a result of the acquisition of the Charter
companies by Paul G. Allen, our merger with Marcus Holdings and our recent
acquisitions, we have experienced and will continue to experience rapid growth
that has placed and is expected to continue to place a significant strain on our
management, operations and other resources. Our future success will depend in
part on our ability to successfully integrate the operations acquired and to be
acquired and to attract and retain qualified personnel. Historically, acquired
entities have had minimal employee benefit related costs and all benefit plans
have been terminated with acquired employees transferring to our 401(k) plan. No
significant severance cost is expected in conjunction with the recent
acquisitions. The failure to retain or obtain needed personnel or to implement
management, operating or financial systems necessary to successfully integrate
acquired operations or otherwise manage growth when and as needed could have a
material adverse effect on our business, results of operations and financial
condition.
In connection with our recent acquisitions, we have formed
multi-disciplinary teams to formulate plans for establishing customer service
centers, identifying property, plant and equipment requirements and possible
reduction of headends. Headends are the control centers of a cable television
system, where incoming signals are amplified, converted, processed and combined
for transmission to customers. These teams also determine market position and
how to attract talented personnel. Our goals include rapid transition in
achieving performance objectives and implementing "best practice" procedures.
REGULATION AND LEGISLATION. Cable systems are extensively regulated at the
federal, state, and local level. These regulations have increased the
administrative and operational expenses of cable television systems and affected
the development of cable competition. Rate regulation of cable systems has been
in place since passage of the Cable Television Consumer Protection and
Competition Act of 1992, although the scope of this regulation recently was
sharply contracted. Since March 31, 1999, rate regulation exists only with
respect to the lowest level of basic cable service and associated equipment.
Basic cable service is the service that cable customers receive for a threshold
fee. This service usually includes local television stations, some distant
signals and perhaps one or more non-broadcast services. This change affords
cable operators much greater pricing flexibility, although Congress could
revisit this issue if confronted with substantial rate increases.
Cable operators also face significant regulation of their channel capacity.
They currently can be required to devote substantial capacity to the carriage of
programming that they would not carry voluntarily, including certain local
broadcast signals, local public, educational and government access users, and
unaffiliated commercial leased access programmers. This carriage burden could
increase in the future, particularly if the Federal Communications Commission
were to require cable systems to carry both the analog and digital versions of
local broadcast signals or if it were to allow unaffiliated Internet service
providers seeking direct cable access to invoke commercial leased access rights
originally devised for video programmers. The Federal Communications Commission
is currently conducting proceedings in which it is considering both of these
channel usage possibilities.
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There is also uncertainty whether local franchising authorities, the
Federal Communications Commission, or the U.S. Congress will impose obligations
on cable operators to provide unaffiliated Internet service providers with
access to cable plant on non-discriminatory terms. If they were to do so, and
the obligations were found to be lawful, it could complicate our operations in
general, and our Internet operations in particular, from a technical and
marketing standpoint. These access obligations could adversely impact our
profitability and discourage system upgrades and the introduction of new
products and services.
POSSIBLE RESCISSION LIABILITY. The Rifkin and Falcon sellers who acquired
Charter Communications Holding Company membership units in connection with the
respective Rifkin and Falcon acquisitions, the Bresnan sellers who will acquire
Charter Communications Holding Company membership units in connection with the
Bresnan acquisition and the Helicon sellers who acquired shares of Class A
common stock in Charter Communications, Inc.'s initial public offering may have
rescission rights against Charter Communications, Inc. and Charter
Communications Holding Company, as the case may be, arising out of possible
violations of Section 5 of the Securities Act in connection with the offers and
sales of these equity interests. If all of these equity holders successfully
exercised their possible rescission rights and Charter Communications, Inc. or
Charter Communications Holding Company became obligated to repurchase all such
equity interests, the total repurchase obligations could be up to approximately
$1.7 billion. We cannot assure you that Charter Communications, Inc. and Charter
Communications Holding Company would be able to obtain capital sufficient to
fund any required repurchases. If Charter Communications, Inc. and Charter
Communications Holding Company fail to obtain sufficient capital funds for this
purpose, they may seek funds from Charter Holdings and its subsidiaries. This
could adversely affect our financial condition and results of operations.
INTEREST RATE RISK
The use of interest rate risk management instruments, such as interest rate
exchange agreements, interest rate cap agreements and interest rate collar
agreements, is required under the terms of our credit facilities. Our policy is
to manage interest costs using a mix of fixed and variable rate debt. Using
interest rate swap agreements, we agree to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference
to an agreed-upon notional principal amount. Interest rate cap agreements are
used to lock in a maximum interest rate should variable rates rise, but enable
us to otherwise pay lower market rates. Collars limit our exposure to and
benefits from interest rate fluctuations on variable rate debt to within a
certain range of rates.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR VALUE AT
---------------------------------------------------- DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
-------- -------- -------- -------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Fixed Rate....................... -- -- -- -- -- $ 271,799 $ 271,799 $ 271,799
Average Interest Rate........... -- -- -- -- -- 13.5% 13.5%
Variable Rate.................... $ 10,450 $ 21,495 $ 42,700 $113,588 $157,250 $1,381,038 $1,726,521 $1,726,521
Average Interest Rate........... 6.0% 6.1% 6.3% 6.5% 7.2% 7.6% 7.2%
INTEREST RATE INSTRUMENTS
Variable to Fixed Swaps.......... $130,000 $255,000 $180,000 $320,000 $370,000 $ 250,000 $1,505,000 $ (28,977)
Average Pay Rate................ 4.9% 6.0% 5.8% 5.5% 5.6% 5.6% 5.6%
Average Receive Rate............ 5.0% 5.0% 5.2% 5.2% 5.4% 5.4% 5.2%
Caps............................. $ 15,000 -- -- -- -- -- $ 15,000 --
Average Cap Rate................ 8.5% -- -- -- -- -- 8.5%
Collar........................... -- $195,000 $ 85,000 $ 30,000 -- -- $ 310,000 $ (4,174)
Average Cap Rate................ -- 7.0% 6.5% 6.5% -- -- 6.8%
Average Floor Rate.............. -- 5.0% 5.1% 5.2% -- -- 5.0%
</TABLE>
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The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated using the average implied forward London
Interbank Offering Rate (LIBOR) rates for the year of maturity based on the
yield curve in effect at December 31, 1998. While swaps, caps and collars
represent an integral part of our interest rate risk management program, their
incremental effect on interest expense for the years ended December 31, 1998,
1997, and 1996 was not significant.
In March 1999, substantially all existing long-term debt, excluding
borrowings of our previous credit facilities, was extinguished, and all previous
credit facilities were refinanced with the Charter Operating credit facilities.
The following table sets forth the fair values and contract terms of the
long-term debt maintained by us as of September 30, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR VALUE AT
--------------------------------------------------- SEPTEMBER 30,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1999
-------- -------- -------- ------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Fixed Rate........................ -- -- -- -- $115,000 $3,817,413 $3,932,413 $3,206,520
Average Interest Rate............ -- -- -- -- 11% 9.0% 9.0%
Variable Rate..................... -- -- -- $88,875 $156,000 $2,605,125 $2,850,000 $2,850,000
Average Interest Rate............ -- -- -- 6.7% 6.8% 7.0% 7.0%
</TABLE>
Interest rates on variable debt are estimated using the average implied
forward LIBOR rates for the year of maturity based on the yield curve in effect
at September 30, 1999.
YEAR 2000 ISSUES
GENERAL. Many existing computer systems and applications, and other
control devices and embedded computer chips use only two digits, rather than
four, to identify a year in the date field, failing to consider the impact of
the recent change in the century. Computer chips are the physical structure upon
which integrated circuits are fabricated as components of systems, such as
telephone systems, computers and memory systems. As a result, such systems,
applications, devices, and chips could create erroneous results or might fail
altogether unless corrected to properly interpret data related to the year 2000
and beyond. These errors and failures may result, not only from a date
recognition problem in the particular part of a system failing, but may also
result as systems, applications, devices and chips receive erroneous or improper
data from third parties suffering from the year 2000 problem. In addition, two
interacting systems, applications, devices or chips, each of which has
individually been fixed so that it will properly handle the year 2000 problem,
could nonetheless result in a failure because their method of dealing with the
problem is not compatible.
The year 2000 issue impacts our owned or licensed computer systems and
equipment used in connection with internal operations, including:
- information processing and financial reporting systems;
- customer billing systems;
- customer service systems;
- telecommunication transmission and reception systems; and
- facility systems.
We have not experienced significant service disruptions or any other
problems since the beginning of the year 2000. We cannot assure you, however,
that such problems will not arise in connection with customer billing or other
periodic information gathering.
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THIRD PARTIES. We rely directly and indirectly, in the regular course of
business, on the proper operation and compatibility of third-party systems. The
year 2000 problem could cause these systems to fail, err, or become incompatible
with our systems.
If we have or a significant third party on which we rely has failed to
adequately prepare its systems for the change to 2000, or if the year 2000
problem causes our systems to become internally incompatible or incompatible
with such third party systems, our business could suffer from material
disruptions, including the inability to process transactions, send invoices,
accept customer orders or provide customers with our cable services. We could
also face similar disruptions if the year 2000 problem causes general widespread
problems or an economic crisis. We cannot now estimate the extent of these
potential disruptions.
STATE OF READINESS. We have conducted a three-stage process addressing the
year 2000 problem and its impact on our internal operations, which consisted of:
(1) conducting an inventory and evaluation of our systems, components, and
other significant infrastructure to identify those elements that we
reasonably believe could be expected to be affected by the year 2000
problem. This stage has been completed;
(2) remediating or replacing equipment that, based upon such inventory and
evaluation, we believe may fail to operate properly in the year 2000.
This stage has been completed; and
(3) testing of the remediation and replacement conducted in stage two. This
stage has been completed.
Much of our assessment efforts in stage one have involved, and depend on,
inquiries to third party service providers, suppliers and vendors of various
parts or components of our systems. We have obtained certifications from third
party service providers, suppliers and vendors as to the readiness of mission
critical elements and we are in the process of obtaining certifications of
readiness as to non-mission critical elements. Certain of these third parties
that have certified the readiness of their products will not certify their
interoperability within our fully integrated systems. We cannot assure you that
these technologies of third parties, on which we rely, will be year 2000 ready
or timely converted into year 2000 compliant systems compatible with our
systems. Moreover, because a full test of our systems, on an integrated basis,
would require a complete shut down of our operations, it is not practicable to
conduct such testing. However, we have utilized a third party, in cooperation
with other cable operators, to test a "mock-up" of our major billing and plant
components, including pay-per-view systems, as an integrated system. We are
utilizing another third party to conduct comprehensive testing on our
advertising related scheduling and billing systems. In addition, we have
evaluated the potential impact of third party failure and integration failure on
our systems in developing our contingency plans.
RISKS AND REASONABLY LIKELY WORST CASE SCENARIOS. The failure to correct a
material year 2000 problem could result in system failures leading to a
disruption in, or failure of certain normal business activities or operations,
for example, a failure of our major billing systems and plant components such as
our pay-per-view systems. Such failures could materially and adversely affect
our results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the year 2000 readiness of third-party suppliers and customers,
we are unable to determine at this time whether the consequences of year 2000
failures will have a material impact on our results of operations, liquidity or
financial condition. However, our year 2000 taskforce has significantly reduced
our level of uncertainty about the year 2000 problem and, in particular, about
the year 2000 compliance and readiness of our material vendors.
CONTINGENCY AND BUSINESS CONTINUATION PLAN. Our year 2000 plan calls for
suitable contingency planning for our at-risk business functions. We normally
make contingency plans in order to avoid
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interrupted service providing video, voice and data products to our customers.
We have distributed detailed guidelines outlining remedial actions for the
failure of any component of our systems which is critical to the transport of
our signal. This includes a communications plan for informing key personnel
across the country in the event of such a failure to accelerate remediation
actions throughout the company.
COST. We have redeployed internal resources and have selectively engaged
outside vendors to meet the goals of our year 2000 program. We currently
estimate the total cost of our year 2000 remediation program, to be
approximately $9.8 million, substantially all of which has been expended to
date.
OPTIONS
In accordance with an employment agreement between Charter Communications,
Inc. and Jerald L. Kent, the President and Chief Executive Officer of Charter
Communications, Inc. and a related option agreement between Charter
Communications Holding Company and Mr. Kent, an option to purchase 3% of the
equity value of all cable systems managed by Charter Investment, Inc. on the
date of the grant, or 7,044,127 membership units, were issued to Mr. Kent. The
option vests over a four-year period from the date of grant and expires ten
years from the date of grant.
In February 1999, Charter Holdings adopted an option plan, which was
assumed by Charter Communications Holding Company in May 1999, providing for the
grant of options to purchase up to 25,009,798 Charter Communications Holding
Company membership units. The option plan provides for grants of options to
employees, consultants and directors of Charter Communications Holding Company
and its affiliates. Options granted will be fully vested after five years from
the date of grant. Options not exercised accumulate and are exercisable, in
whole or in part, any subsequent period, but not later than ten years from the
date of grant.
Membership units received upon exercise of the options will be
automatically exchanged for shares of Class A common stock of Charter
Communications, Inc. on a one-for-one basis.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS
REMAINING EXERCISABLE
CONTRACT -----------
NUMBER OF EXERCISE TOTAL LIFE NUMBER OF
OPTIONS PRICE DOLLARS (IN YEARS) OPTIONS
--------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding as of January 1, 1999(1)......... 7,044,127 $20.00 $140,882,540 9.2(3) 1,761,032
Granted:
February 9, 1999(2)........................ 9,111,681 20.00 182,233,620 130,000
April 5, 1999(2)........................... 473,000 20.73 9,805,290 --
November 8, 1999(2)........................ 4,741,400 19.00 90,086,600 200,000
Cancelled.................................. (485,600) 20.00 (9,712,000) --
(56,400) 20.73 (1,169,172) --
(70,600) 19.00 (1,341,400) --
---------- ------ ------------ --- ----------
Outstanding as of December 31, 1999.......... 20,757,608 $19.79(3) $410,785,478 9.2(3) 2,091,032
========== ====== ============ === ==========
</TABLE>
- -------------------------
(1) Granted to Jerald L. Kent pursuant to his employment agreement and related
option agreement.
(2) Granted pursuant to the option plan.
(3) Weighted average.
We follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" to account for the option plans. We recorded stock option
compensation expense of $845,000 for the year ended December 31, 1998 and $59.3
million for the nine months ended
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September 30, 1999 in the financial statements since the exercise prices were
less than the estimated fair value of the underlying membership units on the
date of grant. The estimated fair value was determined using the valuation
inherent in Mr. Allen's acquisition of Charter Holdings and valuations of public
companies in the cable television industry adjusted for factors specific to us.
Compensation expense is accrued over the vesting period of each grant which
varies from four to five years. As of September 30, 1999, deferred compensation
remaining to be recognized in future periods totalled $104 million.
ACCOUNTING STANDARD NOT YET IMPLEMENTED
In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133 -- An Amendment of FASB No. 133"
has delayed the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. We have not yet quantified the impacts of adopting SFAS No. 133
on our consolidated financial statements nor have we determined the timing or
method of our adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings (loss).
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
We sold the original notes on January 12, 2000 in a transaction exempt from
the registration requirements of the Securities Act of 1933, as amended. The
initial purchasers of the notes subsequently resold the original notes to
qualified institutional buyers in reliance on Rule 144A and under Regulation S
under the Securities Act.
In connection with the sale of original notes to the initial purchasers
pursuant to the Purchase Agreement, dated January 6, 2000, among us and Goldman,
Sachs & Co., Chase Securities Inc., Credit Suisse First Boston, FleetBoston
Robertson Stephens, Merrill & Co., Morgan Stanley Dean Witter, TD Securities,
First Union Securities, Inc., PNC Capital Markets, Inc. and SunTrust Equitable
Securities, the holders of the original notes became entitled to the benefits of
the exchange and registration rights agreements dated January 12, 2000, among us
and the initial purchasers.
Under the registration rights agreements, the issuers became obligated to
file a registration statement in connection with an exchange offer within 120
days after January 12, 2000 and to use their reasonable best efforts to have the
exchange offer registration statement declared effective within 180 days after
January 12, 2000. The exchange offer being made by this prospectus, if
consummated within the required time periods, will satisfy our obligations under
the registration rights agreements. This prospectus, together with the letter of
transmittal, is being sent to all beneficial holders known to the issuers.
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, the issuers will accept all
original notes properly tendered and not withdrawn prior to the expiration date.
The issuers will issue $1,000 principal amount of new notes in exchange for each
$1,000 principal amount of outstanding original notes accepted in the exchange
offer. Holders may tender some or all of their original notes pursuant to the
exchange offer.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties we believe that holders of the new notes
issued in exchange for original notes may offer for resale, resell and otherwise
transfer the new notes, other than any holder that is an affiliate of ours
within the meaning of Rule 405 under the Securities Act, without compliance with
the registration and prospectus delivery provisions of the Securities Act. This
is true as long as the new notes are acquired in the ordinary course of the
holder's business, the holder has no arrangement or understanding with any
person to participate in the distribution of the new notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the new notes. A broker-dealer that acquired original notes
directly from the issuers cannot exchange the original notes in the exchange
offer. Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the new notes cannot rely on the no-action
letters of the staff of the Securities and Exchange Commission and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for original notes, where original notes were acquired by such broker-dealer as
a result of market-making or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such new notes. See
"Plan of Distribution" for additional information.
We shall be deemed to have accepted validly tendered original notes when,
as and if we have given oral or written notice of the acceptance of such notes
to the exchange agent. The exchange agent will act as agent for the tendering
holders of original notes for the purposes of receiving the new notes from the
issuers and delivering new notes to such holders.
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If any tendered original notes are not accepted for exchange because of an
invalid tender or the occurrence of the conditions set forth under
"-- Conditions" without waiver by us, certificates for any such unaccepted
original notes will be returned, without expense, to the tendering holder of any
such original notes as promptly as practicable after the expiration date.
Holders of original notes who tender 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
original notes, pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes in connection with the exchange
offer. See "-- Fees and Expenses."
SHELF REGISTRATION STATEMENT
Pursuant to the registration rights agreements, if the exchange offer is
not completed prior to the date on which the earliest of any of the following
events occurs:
(a) applicable interpretations of the staff of the Securities and
Exchange Commission do not permit us to effect the exchange offer,
(b) any holder of notes notifies us that either:
(1) such holder is not eligible to participate in the exchange
offer, or
(2) such holder participates in the exchange offer and does not
receive freely transferable new notes in exchange for tendered original
notes, or
(c) the exchange offer is not completed within 210 days after January
12, 2000,
we will, at our cost:
- file a shelf registration statement covering resales of the original
notes,
- use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act at the earliest
possible time, but no later than 90 days after the time such obligation
to file arises, and
- use our reasonable best efforts to keep effective the shelf registration
statement until the earlier of two years after the date as of which the
Securities and Exchange Commission declares such shelf registration
statement effective or the shelf registration otherwise becomes
effective, or the time when all of the applicable original notes are no
longer outstanding.
If any of the events described occurs, we will refuse to accept any
original notes and will return all tendered original notes.
We will, if and when we file the shelf registration statement, provide to
each holder of the original notes copies of the prospectus which is a part of
the shelf registration statement, notify each holder when the shelf registration
statement has become effective and take other actions as are required to permit
unrestricted resales of the original notes. A holder that sells original notes
pursuant to the shelf registration statement generally must be named as a
selling security-holder in the related prospectus and must deliver a prospectus
to purchasers, a seller will be subject to civil liability provisions under the
Securities Act in connection with these sales. A seller of the original notes
also will be bound by applicable provisions of the registration rights
agreements, including indemnification obligations. In addition, each holder of
original notes must deliver information to be used in connection with the shelf
registration statement and provide comments on the shelf registration statement
in order to have its original notes included in the shelf registration statement
and benefit from the provisions regarding any liquidated damages in the
registration rights agreement.
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INCREASE IN INTEREST RATE
If:
(1) the registration statement, of which this prospectus is a part, has not
been declared effective by the Securities and Exchange Commission within 180
days of the issuance of the original notes, and we have not used or are not
continuing to use our reasonable best efforts to cause the registration
statement to become effective, or
(2) the exchange offer has not been completed within 30 business days after
the initial effective date of the exchange offer registration statement, or
(3) the exchange offer registration statement is either withdrawn by us or
subject to an effective stop order without being followed immediately by an
additional registration statement filed and declared effective, or
(4) we are required to file the shelf registration statement and either
(a) the shelf registration statement has not become effective or been
declared effective on or before the 90th calendar day following the
date such obligation to file arises, or
(b) the shelf registration statement has been declared effective and
such shelf registration statement ceases to be effective, except as
specifically permitted in the registration rights agreements,
without being succeeded promptly by an additional registration
statement filed and declared effective,
the interest rate borne by the original notes will be increased by 0.25% per
year for the first 90 days of default, 0.50% per year for the second 90 days of
default, 0.75% per year for the third 90 days of default and 1.0% per year for
the remaining period of time in default.
The sole remedy available to the holders of the original notes will be the
immediate increase in the interest rate on the original notes as described
above. Any amounts of additional interest due as described above will be payable
in cash on the same interest payments dates as the original notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
We will keep the exchange offer open for not less than 30 days, or longer
if required by applicable law, after the date on which notice of the exchange
offer is mailed to the holders of the old notes. The term "expiration date"
means the expiration date set forth on the cover page of this prospectus, unless
we extend the exchange offer, in which case the term "expiration date" means the
latest date to which the exchange offer is extended.
In order to extend the expiration date, we will notify the exchange agent
of any extension by oral or written notice and will issue a public announcement
of the extension, each prior to 5:00 p.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right
(a) to delay accepting any original notes, to extend the exchange
offer or to terminate the exchange offer and not accept original notes not
previously accepted if any of the conditions set forth under
"-- Conditions" shall have occurred and shall not have been waived by us,
if permitted to be waived by us, by giving oral or written notice of such
delay, extension or termination to the exchange agent, or
(b) to amend the terms of the exchange offer in any manner deemed by
us to be advantageous to the holders of the original notes.
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Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we promptly will disclose such amendment in a manner reasonably calculated to
inform the holders of the original notes of such amendment. Depending upon the
significance of the amendment, we may extend the exchange offer if it otherwise
would expire during such extension period.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the exchange offer,
we will not be obligated to publish, advertise, or otherwise communicate any
such announcement, other than by making a timely release to an appropriate news
agency.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile of the letter of transmittal, have the
signatures on the letter of transmittal guaranteed if required by instruction 2
of the letter of transmittal, and mail or otherwise deliver such letter of
transmittal or such facsimile or an agent's message in connection with a book
entry transfer, together with the original notes and any other required
documents. To be validly tendered, such documents must reach the exchange agent
before 5:00 p.m., New York City time, on the expiration date. Delivery of the
original notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the exchange agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent, forming a part of a
confirmation of a book-entry transfer, which states that such book-entry
transfer facility has received an express acknowledgment from the participant in
such book-entry transfer facility tendering the original notes that such
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce such agreement against such participant.
The tender by a holder of original notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. 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 TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL
NOTES SHOULD BE SENT TO US.
Only a holder of original notes may tender original notes in the exchange
offer. The term "holder" with respect to the exchange offer means any person in
whose name original notes are registered on our books or any other person who
has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose original notes are registered in the name of
its broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on its behalf. If such beneficial holder wishes
to tender on its own behalf, such registered holder must, prior to completing
and executing the letter of transmittal and delivering its original notes,
either make appropriate
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arrangements to register ownership of the original notes in such holder's name
or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States referred to
as an "eligible institution", unless the original notes are tendered
(a) by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal or
(b) for the account of an eligible institution. In the event that
signatures on a letter of transmittal or a notice of withdrawal, are
required to be guaranteed, such guarantee must be by an eligible
institution.
If the letter of transmittal is signed by a person other than the
registered holder of any original notes listed therein, such original notes must
be endorsed or accompanied by appropriate bond powers and a proxy which
authorizes such person to tender the original notes on behalf of the registered
holder, in each case signed as the name of the registered holder or holders
appears on the original notes.
If the letter of transmittal or any original 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 unless waived by us,
evidence satisfactory to us of their authority so to act must be submitted with
the letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, and withdrawal of the tendered original notes will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all original notes not properly
tendered or any original notes our acceptance of which, in the opinion of
counsel for us, would be unlawful. We also reserve the right to waive any
irregularities or conditions of tender as to particular original notes. Our
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 original notes must be cured within such time as we shall determine. None of
us, the exchange agent or any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of original
notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of original notes will not be deemed to have been made
until such irregularities have been cured or waived. Any original 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 without cost to
such holder by the exchange agent to the tendering holders of original notes,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In addition, we reserve the right in our sole discretion to
(a) purchase or make offers for any original notes that remain outstanding
subsequent to the expiration date or, as set forth under
"-- Conditions," to terminate the exchange offer in accordance with the
terms of the registration rights agreements and
(b) to the extent permitted by applicable law, purchase original notes in
the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the
exchange offer.
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By tendering, each holder will represent to us that, among other things,
(a) the new notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of such holder or other
person,
(b) neither such holder nor such other person is engaged in or intends to
engage in a distribution of the new notes,
(c) neither such holder or other person has any arrangement or
understanding with any person to participate in the distribution of
such new notes, and
(d) such holder or other person is not our "affiliate," as defined under
Rule 405 of the Securities Act, or, if such holder or other person is
such an affiliate, will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the original
notes at the Depository Trust Company for the purpose of facilitating the
exchange offer, and subject to the establishment of such accounts, any financial
institution that is a participant in the Depository Trust Company's system may
make book-entry delivery of original notes by causing the Depository Trust
Company to transfer such original notes into the exchange agent's account with
respect to the original notes in accordance with the Depository Trust Company's
procedures for such transfer. Although delivery of the original notes may be
effected through book-entry transfer into the exchange agent's account at the
Depository Trust Company, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee, or an agent's
message in lieu of the letter of transmittal, and all other required documents
must in each case be transmitted to and received or confirmed by the exchange
agent at its address set forth below on or prior to the expiration date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to Depository
Trust Company does not constitute delivery to the exchange agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their original notes and
(a) whose original notes are not immediately available or
(b) who cannot deliver their original notes, the letter of transmittal
or any other required documents to the exchange agent prior to the
expiration date, may effect a tender if:
(1) the tender is made through an eligible institution;
(2) prior to the expiration date, the exchange agent receives from
such eligible institution a properly completed and duly executed Notice
of Guaranteed Delivery, by facsimile transmission, mail or hand
delivery, setting forth the name and address of the holder of the
original notes, the certificate number or numbers of such original notes
and the principal amount of original notes tendered, stating that the
tender is being made thereby, and guaranteeing that, within three
business days after the expiration date, the letter of transmittal, or
facsimile thereof or agent's message in lieu of the letter of
transmittal, together with the certificate(s) representing the original
notes to be tendered in proper form for transfer and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
(3) such properly completed and executed letter of transmittal (or
facsimile thereof) together with the certificate(s) representing all
tendered original notes in proper form for
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transfer and all other documents required by the letter of transmittal
are received by the exchange agent within three business days after the
expiration date.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of original notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date. However, where the expiration date has been extended, tenders
of original notes previously accepted for exchange as of the original expiration
date may not be withdrawn.
To withdraw a tender of original notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth in this prospectus prior to 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
(a) specify the name of the depositor, who is the person having
deposited the original notes to be withdrawn,
(b) identify the original notes to be withdrawn, including the
certificate number or numbers and principal amount of such original notes
or, in the case of original notes transferred by book-entry transfer, the
name and number of the account at Depository Trust Company to be credited,
(c) be signed by the depositor in the same manner as the original
signature on the letter of transmittal by which such original notes were
tendered, including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
original notes register the transfer of such original notes into the name
of the depositor withdrawing the tender and
(d) specify the name in which any such original 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
withdrawal notices will be determined by us, and our determination shall be
final and binding on all parties. Any original notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer
and no new notes will be issued with respect to the original notes
withdrawn unless the original notes so withdrawn are validly retendered.
Any original notes which have been tendered but which are not accepted for
exchange will be returned to its holder without cost to such holder as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn original notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange, any new notes for any original
notes, and may terminate or amend the exchange offer before the expiration date,
if the exchange offer violates any applicable law or interpretation by the staff
of the Securities and Exchange Commission.
If we determine in our reasonable discretion that the foregoing condition
exists, we may
(1) refuse to accept any original notes and return all tendered
original notes to the tendering holders,
(2) extend the exchange offer and retain all original notes tendered
prior to the expiration of the exchange offer, subject, however, to the
rights of holders who tendered such original notes to withdraw their
tendered original notes, or
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(3) waive such condition, if permissible, with respect to the exchange
offer and accept all properly tendered original notes which have not been
withdrawn. If such waiver constitutes a material change to the exchange
offer, we will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the holders, and we will extend the
exchange offer as required by applicable law.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to Harris Trust and Savings Bank addressed as follows:
For Information by Telephone:
(212) 701-7624
HARRIS TRUST AND SAVINGS BANK
<TABLE>
<S> <C>
By Registered or Certified Mail By Hand or Overnight Mail:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station Wall Street Plaza
P.O. Box 1023 88 Pine Street
New York, New York 10268-1023 19th Floor
New York, New York 10005
Attention: Reorganization Trust Department
</TABLE>
By Facsimile Transmission:
(212) 701-7637
(Telephone Confirmation)
(212) 701-7624
Harris Trust and Savings Bank is an affiliate of the trustee under the
indentures governing the notes.
FEES AND EXPENSES
We have agreed to bear the expenses of the exchange offer pursuant to the
exchange and registration rights agreements. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. We, however, will pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection with providing the services.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us. Such expenses include fees and expenses of Harris Trust and
Savings Bank as exchange agent, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the original
notes as reflected in our accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us.
The expenses of the exchange offer and the unamortized expenses related to the
issuance of the original notes will be amortized over the term of the notes.
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CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of original notes who are eligible to participate in the exchange
offer but who do not tender their original notes will not have any further
registration rights, and their original notes will continue to be subject to
restrictions on transfer. Accordingly, such original notes may be resold only
- to us, upon redemption of these notes or otherwise,
- so long as the original notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person inside the United States whom
the seller reasonably believes is a qualified institutional buyer within
the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A,
- in accordance with Rule 144 under the Securities Act, or under another
exemption from the registration requirements of the Securities Act, and
based upon an opinion of counsel reasonably acceptable to us,
- outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act, or
- under an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of original
notes should carefully consider whether to accept the terms and condition of
this exchange offer. Holders of the original notes are urged to consult their
financial and tax advisors in making their own decisions on what action to take
with respect to the exchange offer.
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BUSINESS
OVERVIEW
We are the fourth largest operator of cable television systems in the
United States, serving approximately 6.2 million customers, after giving effect
to the Bresnan acquisition and transfer. We currently serve approximately 5.5
million customers.
We offer a full range of traditional cable television services. Our service
offerings include the following programming packages:
- basic programming;
- expanded basic programming;
- premium service; and
- pay-per-view television programming.
As part of our Wired World vision, we are also beginning to offer an array
of new services including:
- digital television;
- interactive video programming; and
- high-speed Internet access.
We are also exploring opportunities in telephony.
The new products and services described above will take advantage of the
significant bandwidth of our cable systems. We are accelerating the upgrade of
our cable systems to more quickly provide these products and services.
For the year ended December 31, 1998, pro forma for our merger with Marcus
Holdings, the acquisitions completed during 1998 and 1999, the recent transfer
to Charter Holdings of the Fanch, Falcon and Avalon cable systems and the
Pending Transactions, our revenues would have been approximately $2.7 billion.
For the first nine months of 1999, pro forma for our merger with Marcus
Holdings, acquisitions completed in 1999, the Fanch, Falcon and Avalon transfers
and the Pending Transactions, our revenues would have been $2.2 billion. For the
three months ended September 30, 1999 on the same pro forma basis, our revenues
would have been $0.7 billion.
Mr. Allen, the principal owner of Charter Communications, Inc. and one of
the computer industry's visionaries, has long believed in a Wired World in which
cable technology will facilitate the convergence of television, computers and
telecommunications. We believe cable's ability to deliver voice, video and data
at high speeds will enable it to serve as the primary platform for the delivery
of new services to the home and workplace.
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BUSINESS STRATEGY
Our objective is to increase our operating cash flow by increasing our
customer base and the amount of cash flow per customer. To achieve this
objective, we are pursuing the following strategies:
INTEGRATE AND IMPROVE ACQUIRED CABLE SYSTEMS. We seek to rapidly integrate
acquired cable systems and apply our core operating strategies to raise the
financial and operating performance of these acquired systems. Our integration
process occurs in three stages:
SYSTEM EVALUATION. We conduct an extensive evaluation of each system
we acquire. This process begins prior to reaching an agreement to purchase
the system and focuses on the system's:
- business plan;
- customer service standards;
- management capabilities; and
- technological capacity and compatibility.
We also evaluate opportunities to consolidate headends and billing and
other administrative functions. Based upon this evaluation, we formulate
plans for customer service centers, plant upgrades, market positioning, new
product and service launches and human resource requirements.
IMPLEMENTATION OF OUR CORE OPERATING STRATEGIES. To achieve our high
standards for customer satisfaction and financial and operating
performance, we:
- attract and retain high quality local management;
- empower local managers with a high degree of day-to-day operational
autonomy;
- set key financial and operating benchmarks for management to meet,
such as revenue and cash flow per subscriber, subscriber growth,
customer service and technical standards; and
- provide incentives to all employees through grants of cash bonuses and
stock options.
ONGOING SUPPORT AND MONITORING. We provide local managers with
regional and corporate management guidance, marketing and other support for
implementation of their business plans. We monitor performance of our
acquired cable systems on a frequent basis to ensure that performance goals
can be met.
The turn-around in our Fort Worth system, which our management team began
to manage in October 1998, is an example of our success in integrating newly
acquired cable systems into our operations. We introduced a customer care team
that has worked closely with city governments to improve customer service and
local government relations, and each of our customer service representatives
attended a training program. We also conducted extensive training programs for
our technical and engineering, dispatch, sales and support, and management
personnel. We held a series of sales events and service demonstrations to
increase customer awareness and enhance our community exposure and reputation.
We reduced the new employee hiring process from two to three weeks to three to
five days.
OFFER NEW PRODUCTS AND SERVICES. We intend to expand the array of products
and services we offer to our customers to implement our Wired World vision.
Using digital technology, we plan to offer additional channels on our existing
service tiers, create new service tiers, introduce multiple packages of premium
services and increase the number of pay-per-view channels. We also plan to add
digital music services and interactive program guides which are comprehensive
guides to television program listings that can be accessed by network, time,
date or genre. In addition, we have begun to
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roll out advanced services, including interactive video programming and high
speed Internet access, and we are currently exploring opportunities in
telephony. We have entered into agreements with several providers of high speed
Internet and other interactive services, including EarthLink Network, Inc., High
Speed Access Corp., WorldGate Communications, Inc., Wink Communications, Inc.
and Excite@Home Corporation. We have recently entered into a joint venture with
Vulcan Ventures Inc. and Go2Net, Inc. to form Broadband Partners, LLC. The
purpose of this joint venture is to deliver high speed Internet portal services
to our subscribers.
UPGRADE THE BANDWIDTH CAPACITY OF OUR SYSTEMS. Over the next three years,
we plan to spend approximately $5.6 billion from 2000 to 2002 to upgrade to 550
megahertz or greater the bandwidth of our cable systems and the systems we
acquire through our pending acquisitions and to add two-way capability.
Upgrading to at least 550 megahertz of bandwidth capacity will allow us to:
- offer advanced services, such as digital television, Internet access and
other interactive services;
- increase channel capacity up to 82 channels, or even more programming
channels if some of our bandwidth is used for digital services; and
- permit two-way communication which will give our customers the ability to
send and receive signals over the cable system so that high speed cable
services, such as Internet access, will not require a separate telephone
line.
As of September 30, 1999, approximately 53% of our customers were served by
cable systems with at least 550 megahertz bandwidth capacity, and approximately
31% of our customers had two-way communication capability. By year-end 2003,
including all recent acquisitions, the recent transfer to Charter Holdings of
the Fanch, Falcon and Avalon cable systems and the systems we will operate after
the Bresnan acquisition and transfer, we expect that approximately 98% of our
customers will be served by cable systems with at least 550 megahertz bandwidth
capacity and two-way communication capability.
Our planned upgrades are designed to reduce the number of headends from
1,257 in 1999 to 456 in 2003, including the recent transfers and the systems we
will operate after the Bresnan acquisition and transfer. Reducing the number of
headends will reduce headend equipment and maintenance expenditures and,
together with other upgrades, will provide enhanced picture quality and system
reliability. In addition, by year-end 2003, including the recent Fanch, Falcon
and Avalon transfers and the systems we will operate after the Bresnan
acquisition and transfer, we expect that approximately 90% of our customers will
be served by headends serving at least 10,000 customers.
MAXIMIZE CUSTOMER SATISFACTION. To maximize customer satisfaction, we
operate our business to provide reliable, high-quality products and services,
superior customer service and attractive programming choices at reasonable
rates. We have implemented stringent internal customer service standards which
we believe meet or exceed those established by the National Cable Television
Association, which is the Washington, D.C.-based trade association for the cable
television industry. We believe that our customer service efforts have
contributed to our superior customer growth, and will strengthen the Charter
brand name and increase acceptance of our new products and services.
EMPLOY INNOVATIVE MARKETING. We have developed and successfully
implemented a variety of innovative marketing techniques to attract new
customers and increase revenue per customer. Our marketing efforts focus on
tailoring Charter branded entertainment and information services that provide
value, choice, convenience and quality to local customer preference. We use
demographic "cluster codes" to address messages to target audiences through
direct mail and telemarketing. Cluster codes identify customers by marketing
type such as young professionals, retirees or families. In addition, we promote
our services on radio, in local newspapers and by door-to-door selling. In many
of our systems, we offer discounts to customers who purchase multiple premium
services such as Home Box Office or Showtime. We also have a coordinated
strategy for retaining customers that
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includes televised retention advertising to reinforce the link between quality
service and the Charter brand name and to encourage customers to purchase higher
service levels. Successful implementation of these marketing techniques has
contributed to internal customer growth rates in excess of the cable industry
average in each year from 1996 through 1998 for the systems we owned in each of
those years. We have begun to implement our marketing programs in all of the
systems we have recently acquired.
EMPHASIZE LOCAL MANAGEMENT AUTONOMY WHILE PROVIDING REGIONAL AND CORPORATE
SUPPORT AND CENTRALIZED FINANCIAL CONTROLS. Our local cable systems are
organized into seven operating regions. A regional management team oversees
local system operations in each region. We believe that a strong management
presence at the local system level:
- improves our customer service;
- increases our ability to respond to customer needs and programming
preferences;
- reduces the need for a large centralized corporate staff;
- fosters good relations with local governmental authorities; and
- strengthens community relations.
Our regional management teams work closely with both local managers and
senior management in our corporate office to develop budgets and coordinate
marketing, programming, purchasing and engineering activities. Our centralized
financial management enables us to set financial and operating benchmarks and
monitor performance on an ongoing basis. In order to attract and retain high
quality managers at the local and regional operating levels, we provide a high
degree of operational autonomy and accountability and cash and equity-based
compensation. Charter Communications Holding Company has adopted a plan to
distribute to employees and consultants, including members of corporate
management and key regional and system-level management personnel, options
exercisable for up to 25,009,798 Charter Communications Holding Company
membership units.
CONCENTRATE OUR SYSTEMS IN TIGHTER GEOGRAPHICAL CLUSTERS. To improve
operating margins and increase operating efficiencies, we regularly seek to
improve the geographic clustering of our cable systems by selectively swapping
our cable systems for systems of other cable operators or acquiring systems in
close proximity to our systems. We believe that by concentrating our systems in
clusters, we will be able to generate higher growth in revenues and operating
cash flow. Clustering enables us to consolidate headends and spread fixed costs
over a larger subscriber base. Charter Communications, Inc. and AT&T Broadband &
Internet Services have entered into a non-binding letter of intent for the Swap
Transaction to exchange certain cable systems. If completed, this will allow us
to improve the clustering of our cable systems in certain key markets. We are
negotiating with several other cable operators whose systems we consider to be
potential acquisition or swapping candidates.
CHARTER ORGANIZATIONAL STRUCTURE
Each of the entities in our organizational structure and how it relates to
us is described below. In our discussion of the following entities, we make the
same assumptions as described on page 3 with respect to our organizational
chart.
CHARTER COMMUNICATIONS, INC. Charter Communications, Inc. is a holding
company whose principal asset is an approximate 38% equity interest and a 100%
voting interest in Charter Communications Holding Company. Charter
Communications, Inc.'s only business is to act as the sole manager of Charter
Communications Holding Company and its subsidiaries. As sole manager, Charter
Communications, Inc. controls the affairs of us and our subsidiaries. Mr. Allen,
through his ownership of Charter Communications, Inc.'s high vote Class B common
stock and his indirect
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ownership of Charter Communications Holding Company membership units, controls
approximately 93.6% of the voting power of all of Charter Communications, Inc.'s
capital stock.
VULCAN CABLE III INC. In August 1999, Mr. Allen, through Vulcan Cable III
Inc., contributed to Charter Communications Holding Company $500 million in cash
and, in September 1999, an additional $825 million, of which approximately
$644.3 million was in cash and approximately $180.7 million was in the form of
equity interests acquired by Vulcan Cable III Inc. in connection with the Rifkin
acquisition, in each case in exchange for membership units at a price per
membership unit of $20.73. In addition, Mr. Allen, through Vulcan Cable III
Inc., made a $750 million equity contribution to Charter Communications Holding
Company. Mr. Allen owns 100% of the equity of Vulcan Cable III Inc. Vulcan Cable
III Inc. has a 18.3% equity interest and no voting rights in Charter
Communications Holding Company.
CHARTER INVESTMENT, INC. Mr. Allen owns approximately 96.8% of the
outstanding stock of Charter Investment, Inc. The remaining equity is owned by
our founders, Jerald L. Kent, Barry L. Babcock and Howard L. Wood. Charter
Investment, Inc. has a 37.3% equity interest and no voting rights in Charter
Communications Holding Company.
BRESNAN SELLERS. Under the terms of the pending Bresnan acquisition, some
of the sellers have the right to receive a portion of their purchase price in
Charter Communications Holding Company common membership units rather than in
cash. They will be able to exchange these membership units for shares of Class A
common stock on a one-for-one basis. These equity holders as a group will have a
6.4% equity interest and no voting rights in Charter Communications Holding
Company.
CHARTER COMMUNICATIONS HOLDING COMPANY, LLC. Charter Communications
Holding Company is our direct 100% parent. We anticipate that Charter
Communications Holding Company will transfer the Bresnan cable systems to us
after the Bresnan acquisition.
CHARTER COMMUNICATIONS HOLDINGS, LLC. Charter Holdings is a co-issuer of
the notes and the March 1999 Charter Holdings notes. Charter Holdings owns 100%
of Charter Operating and Charter Capital.
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION. Charter Capital is a
wholly owned subsidiary of Charter Holdings and a co-issuer of the notes and the
March 1999 Charter Holdings notes.
CHARTER COMPANIES. These companies consist of the companies that own or
operate all of the cable systems currently owned by Charter Holdings. These
include all recent acquisitions, other than the Fanch, Falcon and Avalon
acquisitions, the systems obtained through the merger of Marcus Holdings with
Charter Holdings and the cable systems originally managed by Charter Investment,
Inc., namely Charter Communications Properties Holdings, LLC, CCA Group and
CharterComm Holdings. Historical financial information is presented separately
for these companies. Charter Operating, a direct subsidiary of Charter Holdings,
owns all of the operating subsidiaries and is the borrower under the Charter
Operating credit facilities. The Charter Companies also include the issuers of
the outstanding notes of Renaissance and Rifkin.
FALCON COMPANIES. These companies consist of the companies that own or
operate all of the cable systems acquired in the Falcon acquisition and Falcon
Cable Communications, which is the borrower under the Falcon credit facilities.
FANCH COMPANIES. These companies consist of the companies that own or
operate all of the cable systems acquired in the Fanch acquisition and CC VI
Operating, LLC, which is the borrower under the Fanch credit facilities.
AVALON COMPANIES. These companies consist of the companies that own or
operate all of the cable systems acquired in the Avalon acquisition, including
CC Michigan, LLC and CC New
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England, LLC, which are the borrowers under the Avalon credit facilities. CC V
Holdings, LLC (formerly Avalon Cable LLC) and CC V Holdings Finance, Inc.
(formerly Avalon Cable Finance Holdings, Inc.) are co-issuers of the Avalon
11.875% senior discount notes.
BRESNAN COMPANIES. These companies consist of the companies that own or
operate all of the cable systems to be acquired in the pending Bresnan
acquisition. One of these companies will be the borrower under the anticipated
Bresnan credit facilities to be arranged in connection with the Bresnan
acquisition.
ACQUISITIONS
Our primary criterion in considering acquisition and swapping opportunities
is the financial return that we expect to ultimately realize. We consider each
acquisition in the context of our overall existing and planned operations,
focusing particularly on the impact on our size and scope and the ability to
reinforce our clustering strategy, either directly or through future swaps or
acquisitions. Other specific factors we consider in acquiring a cable system
are:
- demographic profile of the market as well as the number of homes passed
and customers within the system;
- per customer revenues and operating cash flow and opportunities to
increase these financial benchmarks;
- proximity to our existing cable systems or the potential for developing
new clusters of systems;
- the technological state of such system; and
- the level of competition within the local market.
We believe that there are significant advantages in increasing the size and
scope of our operations, including:
- improved economies of scale in management, marketing, customer service,
billing and other administrative functions;
- reduced costs for our cable plants and our infrastructure in general;
- increased leverage for negotiating programming contracts; and
- increased influence on the evolution of important new technologies
affecting our business.
We believe that as a result of our acquisition strategy and our systems
upgrade we will be well positioned to have cable systems with economies of scale
sufficient to allow us to execute our strategy to expand the array of products
and services that we offer to our customers as we implement our Wired World
vision. We will, however, continue to explore acquisitions and swaps of cable
systems that would further complement our existing cable systems.
MERGER WITH MARCUS HOLDINGS. On April 23, 1998, Mr. Allen acquired
approximately 99% of the non-voting economic interests in Marcus Cable Company,
L.L.C., and agreed to acquire the remaining interests in Marcus Cable. The
aggregate purchase price was approximately $1.4 billion, excluding $1.8 billion
in assumed debt. On February 22, 1999, Marcus Holdings was formed, and all of
Mr. Allen's interests in Marcus Cable were transferred to Marcus Holdings on
March 15, 1999. On March 31, 1999, Mr. Allen completed the acquisition of all
remaining interests of Marcus Cable. On April 7, 1999, the holding company
parent of the Marcus companies, Marcus Holdings, merged into Charter Holdings,
which was the surviving entity of the merger. The subsidiaries of Marcus
Holdings became subsidiaries of Charter Operating. During the period of
obtaining the requisite regulatory approvals for the transaction, the Marcus
systems came under common management with
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our subsidiaries in October 1998 pursuant to the terms of a management agreement
dated as of October 1998.
RECENTLY COMPLETED ACQUISITIONS
RENAISSANCE. In April 1999, one of our subsidiaries purchased Renaissance
Media Group LLC for approximately $459 million, consisting of $348 million in
cash and $111 million of assumed debt, consisting of the Renaissance notes. As a
result of our acquisition of Renaissance, we recently completed a tender offer
for this publicly held debt pursuant to the change of control provisions under
the Renaissance notes. Holders of notes representing 30% of the total
outstanding principal amount of the notes tendered their notes. See "Description
of Certain Indebtedness" for a description of the material restrictive covenants
and other terms under the Renaissance notes. Renaissance owns cable systems
located in Louisiana, Mississippi and Tennessee, has approximately 132,000
customers and is being operated as part of our Southern region. For the nine
months ended September 30, 1999, Renaissance had revenues of approximately $46.6
million. For the year ended December 31, 1998, Renaissance had revenues of
approximately $41.5 million. Approximately 48% of Renaissance's customers are
currently served by systems with at least 550 megahertz bandwidth capacity.
AMERICAN CABLE. In May 1999, one of our subsidiaries purchased American
Cable Entertainment, LLC for approximately $240 million. American Cable owns
cable systems located in California serving approximately 69,000 customers and
is being operated as part of our Western region. For the nine months ended
September 30, 1999, American Cable had revenues of approximately $27.5 million.
For the year ended December 31, 1998, American Cable had revenues of
approximately $15.7 million. None of the American Cable systems' customers is
currently served by systems with 550 megahertz bandwidth capacity or greater.
GREATER MEDIA SYSTEMS. In June 1999, one of Charter Holdings' subsidiaries
purchased certain cable systems of Greater Media Cablevision Inc. for
approximately $500 million. The Greater Media systems are located in
Massachusetts, have approximately 174,000 customers and are being operated as
part of our Northeast Region. For the nine months ended September 30, 1999, the
Greater Media systems had revenues of approximately $63.7 million. For the year
ended December 31, 1998, the Greater Media systems had revenues of approximately
$78.6 million. Approximately 49% of the Greater Media systems' customers are
currently served by systems with at least 550 megahertz bandwidth capacity.
HELICON. In July 1999, we acquired Helicon Partners I, L.P. and affiliates
for approximately $550 million, consisting of $410 million in cash, $115 million
of assumed debt, and $25 million in the form of preferred limited liability
company interest of Charter-Helicon LLC, a direct wholly owned subsidiary of
Charter Communications, LLC. The holders of the preferred interest have the
right to require Mr. Allen to purchase the interest until the fifth anniversary
of the closing of the Helicon acquisition. The preferred interest will be
redeemable at any time following the fifth anniversary of the Helicon
acquisition or upon a change of control, and it must be redeemed on the tenth
anniversary of the Helicon acquisition. Helicon owns cable systems located in
Alabama, Georgia, New Hampshire, North Carolina, West Virginia, South Carolina,
Tennessee, Pennsylvania, Louisiana and Vermont, and has approximately 172,000
customers. For the nine months ended September 30, 1999, Helicon had revenues of
approximately $63.8 million. For the year ended December 31, 1998, Helicon had
revenues of approximately $75.6 million. Approximately 79% of Helicon's
customers are currently served by systems with at least 550 megahertz bandwidth
capacity. The debt we assumed consisted of publicly held Helicon notes. On
November 1, 1999, we redeemed all of the Helicon notes at a price of 103% of the
total principal amount of the notes, plus accrued and unpaid interest to the
date of redemption.
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RIFKIN. In September 1999, Charter Operating acquired Rifkin Acquisition
Partners L.L.L.P. and InterLink Communications Partners, LLLP for a purchase
price of approximately $1.46 billion, consisting of $1.2 billion in cash, $133.3
million in equity and $125.0 million in assumed debt.
In accordance with the terms of the agreements, certain sellers elected to
receive a total of approximately $133.3 million of the purchase price in the
form of Class A preferred membership units of Charter Communications Holding
Company. The preferred membership units were exchangeable at the time of Charter
Communications, Inc.'s initial public offering for shares of Charter
Communications, Inc.'s Class A common stock. Certain Rifkin sellers exchanged
approximately $130 million of the preferred membership units for shares of Class
A common stock.
The debt assumed in the Rifkin acquisition consisted of the publicly held
Rifkin notes and a promissory note. In September 1999, we commenced an offer to
repurchase the Rifkin notes at a premium over their principal amount, plus
accrued interest. In connection with this offer to repurchase the Rifkin notes,
we obtained consents to amend the related indenture and offered to pay any
holder of notes that consented and tendered on or prior to October 1, 1999 an
additional $30 for each $1,000 principal amount of notes tendered. We
repurchased Rifkin notes with a total outstanding principal amount of $124.1
million for an aggregate purchase price of $140.6 million. In addition, we
repurchased the promissory note for $3.4 million.
Rifkin owns cable systems primarily in Florida, Georgia, Illinois, Indiana,
Tennessee, Virginia and West Virginia, serving approximately 464,000 customers.
For the nine months ended September 30, 1999, Rifkin had revenues of
approximately $159.5 million. For the year ended December 31, 1998, Rifkin had
revenues of approximately $124.4 million. Approximately 30% of the Rifkin
systems' customers are currently served by systems with at least 550 megahertz
bandwidth capacity.
INTERMEDIA SYSTEMS. In October 1999, Charter Communications, LLC purchased
certain cable systems of InterMedia Capital Partners IV, L.P., InterMedia
Partners and their affiliates in exchange for approximately $873 million in cash
and certain of our cable systems. The InterMedia systems serve approximately
413,000 customers in North Carolina, South Carolina, Georgia and Tennessee. As
part of this transaction, we agreed to "swap" some of our non-strategic cable
systems serving approximately 142,000 customers located in Indiana, Montana,
Utah and northern Kentucky.
At the closing, we retained a cable system located in Indiana serving
approximately 30,000 customers for which we were unable to obtain the necessary
regulatory approval. We agreed to retain ownership and bear the risk of loss
associated with this system until such approvals can be obtained. In the event
that the necessary regulatory approvals are not obtained by March 28, 2000,
InterMedia may elect to receive other properties from us mutually acceptable to
InterMedia and us.
If we are unable to transfer to InterMedia satisfactory replacement
systems, we must pay InterMedia $88.2 million in cash. In addition, if we
transfer cash or property other than the retained Indiana system to InterMedia,
in certain circumstances, we must indemnify InterMedia and its affiliates for
50% of all taxes and associated costs incurred or arising out of any claim that
InterMedia suffered and tax losses to which it would not have been subject if we
had transferred the retained Indiana system in October 1999.
This transaction after giving effect to the transfer of the retained
Indiana system results in a net increase of 271,000 customers concentrated in
our Southeast and Southern regions. Approximately 84% of these customers are
currently served by systems with at least 550 megahertz bandwidth capacity. For
the nine months ended September 30, 1999, the InterMedia systems had revenues of
approximately $152.8 million. For the year ended December 31, 1998, the
InterMedia systems had revenues of approximately $176.1 million.
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FANCH. In November 1999, Charter Communications Holding Company purchased
the partnership interests of Fanch Cablevision of Indiana, L.P., specified
assets of Cooney Cable Associates of Ohio, Limited Partnership, Fanch-JV2 Master
Limited Partnership, Mark Twain Cablevision Limited Partnership,
Fanch-Narragansett CSI Limited Partnership, North Texas Cablevision, Ltd., Post
Cablevision of Texas, Limited Partnership and Spring Green Communications, L.P.
and the stock of Tioga Cable Company, Inc., Cable Systems, Inc. and, indirectly,
Hornell Television Service, Inc. for a total combined purchase price of
approximately $2.4 billion in cash. These interests and assets have been
transferred to Charter Holdings or its subsidiaries. At the time of the closing
of the acquisition, we closed the Fanch credit facilities providing for
borrowings of up to $1.2 billion. We used $0.9 billion of this availability to
fund a portion of the Fanch purchase price.
Under the Fanch purchase agreement, immediately prior to the closing of the
Fanch acquisition, certain assets of TWFanch-one Co. were distributed to Fanch
Cablevision of Indiana and Hornell Television Service, Inc. in exchange for all
of their partnership interests in TWFanch-one Co. In addition, immediately prior
to the closing of the Fanch acquisition, certain assets of TWFanch-two Co. were
distributed to Fanch-JV2 Master and Cooney Cable in exchange for all of their
partnership interests in TWFanch-two Co.
The cable television systems acquired in this acquisition are located in
Colorado, Indiana, Kansas, Kentucky, Michigan, Mississippi, New Mexico,
Oklahoma, Texas and Wisconsin, and serve approximately 538,000 customers. For
the nine months ended September 30, 1999, these cable systems had revenues of
approximately $155.6 million. For the year ended December 31, 1998, these
systems had revenues of approximately $141.1 million. Approximately 19% of these
systems' customers are currently served by systems with at least 550 megahertz
bandwidth capacity.
FALCON. In November 1999, Charter Communications Holding Company purchased
partnership interests in Falcon Communications, L.P. from Falcon Holding Group,
L.P. and TCI Falcon Holdings, LLC, interests in a number of Falcon entities held
by Falcon Cable Trust and Falcon Holding Group, Inc., specified interests in
Enstar Communications Corporation and Enstar Finance Company, LLC held by Falcon
Holding Group, L.P., and specified interests in Adlink held by DHN Inc. These
interests were transferred to us on January 1, 2000.
The purchase price for the transaction was approximately $3.5 billion,
consisting of cash, $550 million in membership units in Charter Communications
Holding Company issued to the Falcon sellers and $1.67 billion in assumed debt.
All of the membership units have been exchanged for Class A common stock of
Charter Communications, Inc. or have been put to Mr. Allen. Offers to repurchase
the Falcon debentures have been made. We intend to finance required repayments
of Falcon debentures with a portion of the proceeds of the sale of the original
notes.
The Falcon cable systems are located in California and the Pacific
Northwest, Missouri, North Carolina, Alabama and Georgia and serve approximately
1,004,000 customers. For the nine months ended September 30, 1999, the cable
systems to be acquired had revenues of approximately $320.2 million. For the
year ended December 31, 1998, the cable systems had revenues of approximately
$307.6 million. As of September 30, 1999, $375 million total principal amount of
Falcon senior debentures and $15 million total principal amount of Falcon
subordinated notes were outstanding and the accreted value of the Falcon senior
discount debentures was $315.7 million. The subordinated notes were repurchased
in connection with the Falcon acquisition. In addition, $975.8 million was
outstanding under the Falcon credit facilities. Approximately 7% of the
customers of the systems to be acquired are currently served by systems with at
least 550 megahertz bandwidth capacity.
AVALON. In November 1999, Charter Communications Holding Company purchased
directly and indirectly all of the equity interests of Avalon Cable LLC from
Avalon Cable Holdings LLC and Avalon Investors, L.L.C. for approximately $576.9
million in cash and $268.1 million in assumed
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notes. These interests were transferred to us on January 1, 2000. Avalon Cable
operates primarily in Michigan and New England and serves approximately 261,000
customers. For the nine months ended September 30, 1999, Avalon Cable had
revenues of approximately $81.6 million. For the year ended December 31, 1998,
Avalon Cable had revenues of approximately $18.2 million. As of September 30,
1999, there was $150.0 million principal amount outstanding and $121.6 million
accreted value under the Avalon 9.375% notes and the Avalon 11.875% notes,
respectively. We have made offers to repurchase the Avalon 9.375% notes and the
Avalon 11.875% notes. Because the Avalon 11.875% notes are trading above the
change of control repurchase price, we do not expect these notes to be put to
us. We intend to finance required payments of Avalon 9.375% notes with a portion
of the proceeds of the sale of the original notes. Approximately 15% of the
Avalon systems' customers are currently served by systems with at least 550
megahertz bandwidth capacity.
OTHER ACQUISITIONS. One of our subsidiaries acquired Vista Broadband
Communications, LLC in July 1999 and acquired a cable system of Cable Satellite
of South Miami, Inc. in August 1999. These cable systems are located in Georgia
and southern Florida and serve a total of approximately 36,000 customers. The
total purchase price for these other acquisitions was approximately $148 million
in cash. For the nine months ended September 30, 1999, the systems acquired in
connection with these other acquisitions had revenues of approximately $13.7
million. For the year ended December 31, 1998, these systems had revenues of
approximately $15.8 million. Approximately 76% of the Vista and South Miami
systems' customers are currently served by 550 megahertz bandwidth capacity.
PENDING BRESNAN ACQUISITION
In June 1999, Charter Communications Holding Company entered into an
agreement to purchase Bresnan Communications Company Limited Partnership for a
total purchase price of approximately $3.1 billion. For a discussion of the
funding requirements for the Bresnan acquisition, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The equity portion of the purchase price will be membership units in
Charter Communications Holding Company equal to 6.4% of the total membership
units in Charter Communications Holding Company. This percentage interest is
calculated based on a number of assumptions about Charter Communications Holding
Company and pending acquisitions, including debt levels, the value of pending
acquisition targets and the enterprise value of Charter Communications Holding
Company. Accordingly, this percentage interest will likely change at or prior to
the closing of the Bresnan acquisition.
The Bresnan cable systems to be acquired in this acquisition are located in
Michigan, Minnesota, Wisconsin and Nebraska and serve approximately 687,000
customers. For the nine months ended September 30, 1999, the Bresnan cable
systems we are buying had revenues of approximately $209.7 million. For the year
ended December 31, 1998, these systems had revenues of approximately $262.0
million. Approximately 57% of these systems' customers are currently served by
systems with at least 550 megahertz bandwidth capacity. Following regulatory
approvals, we anticipate that this transaction will close during the first
quarter of 2000. The agreement may be terminated if the acquisition has not been
completed on or prior to May 1, 2000.
PENDING SWAP TRANSACTION
On December 1, 1999, Charter Communications, Inc. entered into a
non-binding letter of intent with AT&T Broadband & Internet Services to exchange
certain cable systems. The contemplated Swap Transaction would involve cable
systems owned by AT&T located in municipalities in Alabama, Georgia, Illinois
and Missouri serving approximately 701,000 subscribers and certain of our cable
systems located in municipalities in California, Connecticut, Kentucky,
Massachusetts, Texas
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and Tennessee serving approximately 631,000 subscribers. If the Swap Transaction
is completed, subsidiaries of Charter Holdings will acquire the AT&T systems
being exchanged. The Swap Transaction will allow us to improve the clustering of
our cable systems in certain key markets. For example, upon completion of the
Swap Transaction we will serve approximately 800,000 customers in St. Louis and
the surrounding areas of Missouri and Illinois. We believe that improved
clustering will allow us to gain operating efficiencies and economies of scale,
as well as to accelerate the roll-out of enhanced broadband technology and
services to more customers. The agreed value of the AT&T systems is $2.5 billion
and the agreed value of the Charter systems is $2.4 billion. As part of the Swap
Transaction, we will be required to pay AT&T approximately $108 million in cash.
This represents the difference in the agreed values of the systems being
exchanged. The Swap Transaction is subject to the negotiation and execution of a
definitive exchange agreement, regulatory approvals and other conditions typical
in transactions of this type. We cannot assure you that the Swap Transaction
will be completed.
PRODUCTS AND SERVICES
We offer our customers a full array of traditional cable television
services and programming and we have begun to offer new and advanced high
bandwidth services such as high-speed Internet access. We plan to continually
enhance and upgrade these services, including adding new programming and other
telecommunications services, and will continue to position cable television as
an essential service.
TRADITIONAL CABLE TELEVISION SERVICES. As of September 30, 1999,
approximately 87% of our customers subscribe to both "basic" and "expanded
basic" service and generally receive a line-up of between 33 and 85 channels of
television programming, depending on the bandwidth capacity of the system.
Customers who pay additional amounts can also subscribe for additional channels,
either individually or in packages of several channels, as add-ons to the basic
channels. As of September 30, 1999, more than 25% of our customers subscribe for
premium channels, with additional customers subscribing for other special add-on
packages. We tailor both our basic channel line-up and our additional channel
offerings to each system according to demographics, programming preferences,
competition, price sensitivity and local regulation.
Our traditional cable television service offerings include the following:
- BASIC CABLE. All of our customers receive basic cable services, which
generally consist of local broadcast television, local community
programming, including governmental and public access, and limited
satellite programming. For the nine months ended September 30, 1999, the
average monthly fee was $12.57 for basic service.
- EXPANDED BASIC CABLE. This expanded tier includes a group of
satellite-delivered or non-broadcast channels, such as Entertainment and
Sports Programming Network (ESPN), Cable News Network (CNN) and Lifetime
Television, in addition to the basic channel line-up. For the nine months
ended September 30, 1999, the average monthly fee was $16.08 for expanded
basic service.
- PREMIUM CHANNELS. These channels provide unedited, commercial-free
movies, sports and other special event entertainment programming. Home
Box Office, Cinemax and Showtime are typical examples. We offer
subscriptions to these channels either individually or in packages. For
the nine months ended September 30, 1999, the average monthly fee was
$6.28 per premium subscription.
- PAY-PER-VIEW. These channels allow customers to pay to view a single
showing of a recently released movie, a one-time special sporting event
or music concerts on an unedited, commercial-free basis. We currently
charge a fee that ranges from $2.95 to $8.95 for movies.
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For special events, such as championship boxing matches, we have charged
a fee of up to $54.95.
We have employed a variety of targeted marketing techniques to attract new
customers by focusing on delivering value, choice, convenience and quality. We
employ direct mail and telemarketing, using demographic "cluster codes" to
target specific messages to target audiences. In many of our systems, we offer
discounts to customers who purchase premium services on a limited trial basis in
order to encourage a higher level of service subscription. We also have a
coordinated strategy for retaining customers that includes televised retention
advertising to reinforce the decision to subscribe and to encourage customers to
purchase higher service levels.
NEW PRODUCTS AND SERVICES. A variety of emerging technologies and the
rapid growth of Internet usage have presented us with substantial opportunities
to provide new or expanded products and services to our customers and to expand
our sources of revenue. The desire for such new technologies and the use of the
Internet by businesses in particular have triggered a significant increase in
our commercial market penetration. As a result, we are in the process of
introducing a variety of new or expanded products and services beyond the
traditional offerings of analog television programming for the benefit of both
our residential and commercial customers. These new products and services
include:
- digital television and its related enhancements;
- high-speed Internet access, through television set-top converter boxes,
cable modems installed in personal computers and traditional telephone
Internet access;
- interactive services, such as Wink, which adds interactivity and
electronic commerce opportunities to traditional programming and
advertising; and
- telephony and data transmission services, which are private network
services interconnecting locations for a customer.
Cable television's high bandwidth allows cable to be well positioned to
deliver a multitude of channels and/or new and advanced products and services.
We believe that this high bandwidth will be a key factor in the successful
delivery of these products and services.
DIGITAL TELEVISION. As part of upgrading our systems, we are installing
headend equipment capable of delivering digitally encoded cable transmissions to
a two-way digital-capable set-top converter box in the customer's home. This
digital connection offers significant advantages. For example, we can compress
the digital signal to allow the transmission of up to twelve digital channels in
the bandwidth normally used by one analog channel. This will allow us to
increase both programming and service offerings, including near video-on-demand
for pay-per-view customers. We expect to increase the amount of services
purchased by our customers.
Digital services customers may receive a mix of additional television
programming, an electronic program guide and up to 40 channels of digital music.
The additional programming falls into four categories which are targeted toward
specific markets:
- additional basic channels, which are marketed in systems primarily
serving rural communities;
- additional premium channels, which are marketed in systems serving both
rural and urban communities;
- "multiplexes" of premium channels to which a customer previously
subscribed, such as multiple channels of HBO or Showtime, which are
varied as to time of broadcast or varied based on programming content
theme which are marketed in systems serving both rural and urban
communities; and
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- additional pay-per-view programming, such as more pay-per-view options
and/or frequent showings of the most popular films to provide near
video-on-demand, which are more heavily marketed in systems primarily
serving both rural and urban communities.
As part of our current pricing strategy for digital services, we have
established a retail rate of $4.95 to $8.95 per month for the digital set-top
converter and the delivery of "multiplexes" of premium services, additional
pay-per-view channels, digital music and an electronic programming guide. Some
of our systems also offer additional basic and expanded basic tiers of service.
These tiers of services retail for $6.95 per month. As of September 30, 1999,
more than 28,600 of our customers subscribed to the digital service offered by
21 of our cable systems, which served approximately 480,000 basic cable
customers. For the six-month period ended October 30, 1999, revenue per customer
for our digital service was approximately $20.76 and cash flow per customer was
$11.21. As of December 31, 1999, approximately 2.4 million of our customers were
served by cable systems capable of delivering digital services.
INTERNET ACCESS. We currently provide Internet access to our customers by
two principal means:
- via cable modems attached to personal computers, either directly or
through an outsourcing contract with an Internet service provider; and
- through television access, via a service such as WorldGate.
We also provide Internet access in some markets through traditional dial-up
telephone modems, using a third party service provider.
The principal advantage of cable Internet connections is the high speed of
data transfer over a cable system. We currently offer these services to our
residential customers over coaxial cable at speeds that can range up to
approximately 50 times the speed of a conventional telephone modem. Furthermore,
a two-way communication cable system using a hybrid fiber optic/coaxial
structure can support the entire connection at cable modem speeds without the
need for a separate telephone line. If the cable system only supports one-way
signals from the headend to the customer, the customer must use a separate
telephone line in order to send signals to the provider, although such customer
still receives the benefit of high speed cable access when downloading
information, which is the primary reason for using cable as an Internet
connection. In addition to Internet access over our traditional coaxial system,
we also provide our commercial customers fiber optic cable access at a price
that we believe is less than the price offered by the telephone companies.
In the past, cable Internet connections have provided customers with widely
varying access speeds because each customer accessed the Internet by sending and
receiving data through a node. Users connecting simultaneously through a single
node share the bandwidth of that node, so that users' connection speeds may
diminish as additional users connect through the same node. To induce users to
switch to our Internet services, however, we guarantee our cable modem customers
the minimum access speed selected from several speed options we offer. We also
provide higher guaranteed access speeds for customers willing to pay an
additional cost. In order to meet these guarantees, we are increasing the
bandwidth of our systems and "splitting" nodes easily and cost-effectively to
reduce the number of customers per node.
- CABLE MODEM-BASED INTERNET ACCESS. We have deployed cable modem-based
Internet access services in 46 markets including: Los Angeles, California; St.
Louis, Missouri; and Fort Worth, Texas.
As of September 30, 1999, we provided Internet access service to
approximately 27,225 homes and 250 commercial customers. The following table
indicates the historical and projected availability, pro forma for our recent
and pending acquisitions, of cable modem Internet access services in our
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systems, as of the dates indicated. Only a small percentage of the homes passed
currently subscribe to these services.
<TABLE>
<CAPTION>
HOMES PASSED BY
ADVANCED DATA SERVICES
----------------------------------
SEPTEMBER 30,
1999 DECEMBER 31, 1999
------------- -----------------
(ACTUAL) (PROJECTED)
<S> <C> <C>
HIGH SPEED INTERNET ACCESS VIA CABLE MODEMS:
High Speed Access ....................................... 721,300 1,165,000
EarthLink/Charter Pipeline............................. 572,700 708,700
Excite@Home............................................ 233,400 932,600
Convergence.com........................................ 263,200 263,200
In-House/Other......................................... 79,700 459,000
--------- ----------
Total cable modems.................................. 1,870,300 3,528,500
========= ==========
Internet access via WorldGate.......................... 348,600 428,800
========= ==========
</TABLE>
We have an agreement with EarthLink Network, Inc., an independent Internet
service provider, to provide as a label service Charter Pipeline(TM), which is a
cable modem-based, high-speed Internet access service we offer. EarthLink and
MindSpring Enterprises, Inc. have announced plans to merge by next spring
creating the second-largest Internet service provider (ISP) in the United
States. We currently charge a monthly usage fee of between $24.95 and $39.95.
Our customers have the option to lease a cable modem for $10 to $15 a month or
to purchase a modem for between $300 and $400. As of September 30, 1999, we
offered EarthLink Internet access to approximately 573,000 of our homes passed
and have approximately 8,500 customers.
We have a relationship with High Speed Access to offer Internet access in
some of our smaller systems. High Speed Access also provides Internet access
services to our customers under the Charter Pipeline brand name. Although the
Internet access service is provided by High Speed Access, the Internet "domain
name" of our customer's e-mail address and web site, if any, is "Charter.net,"
allowing the customer to switch or expand to our other Internet services without
a change of e-mail address. High Speed Access provides three different tiers of
service to us. The base tier is similar to our arrangements with EarthLink and
Excite@Home. The turnkey tier bears all capital, operating and marketing costs
of providing the service, and seeks to build economies of scale in our smaller
systems that we cannot efficiently build ourselves by simultaneously contracting
to provide the same services to other small geographically contiguous systems.
The third tier allows for a la carte selection of services between the base tier
and the turnkey tier. As of September 30, 1999, High Speed Access offered
Internet access to approximately 721,000 of our homes passed, and approximately
8,600 customers have signed up for the service. During the last three months of
1999, we, jointly with High Speed Access, launched service in an additional 13
systems, covering approximately 432,000 additional homes passed. Vulcan
Ventures, Inc., a company controlled by Mr. Allen, has an equity investment in
High Speed Access. See "Certain Relationships and Related Transactions."
We have a revenue sharing agreement with Excite@Home, under which
Excite@Home currently provides Internet service to customers in our systems
serving Fort Worth, University Park and Highland Park, Texas. The Excite@Home
network provides high-speed, cable modem-based Internet access using our cable
infrastructure. As of September 30, 1999, we offered Excite@Home Internet
service to approximately 233,000 of our homes passed and had approximately 4,700
customers.
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We also have services agreements with Convergence.com, under which
Convergence.com currently provides Internet service to customers in systems
acquired from Rifkin. The Convergence.com network provides high-speed, cable
modem-based Internet access using our cable infrastructure. As of September 30,
1999, we offered Convergence.com service to approximately 263,000 homes passed
and had approximately 5,400 customers.
We actively market our cable modem service to businesses in each one of our
systems where we have the capability to offer such service. Our marketing
efforts are often door-to-door, and we have established a separate division
whose function is to make businesses aware that this type of Internet access is
available through us. We also provide several virtual local area networks for
municipal and educational facilities in our Los Angeles cluster including Cal
Tech, the City of Pasadena and the City of West Covina.
- TV-BASED INTERNET ACCESS. We have a non-exclusive agreement with
WorldGate to provide its TV-based e-mail and Internet access to our cable
customers. WorldGate's technology is only available to cable systems with
two-way capability. WorldGate offers easy, low-cost Internet access to customers
at connection speeds ranging up to 128 kilobits per second. For a monthly fee,
we provide our customers with e-mail and Internet access that does not require
the use of a PC, an existing or additional telephone line, or any additional
equipment. Instead, the customer accesses the Internet through the set-top box,
which the customer already has on his television set, and a wireless keyboard,
that is provided with the service and which interfaces with the box. WorldGate
works on advanced analog and digital converters and, therefore, can be installed
utilizing advanced analog converters already deployed. In contrast, other
converter-based, non-PC Internet access products require a digital platform and
a digital converter prior to installation.
Customers who opt for television-based Internet access are generally
first-time users who prefer this more user-friendly interface. Of these users,
39% use WorldGate at least once a day, and 66% use it at least once a week.
Although the WorldGate service bears the WorldGate brand name, the Internet
domain names of the customers who use this service is "Charter.net." This allows
the customers to switch or expand to our other Internet services without a
change of e-mail address.
We first offered WorldGate to customers on the upgraded portion of our
systems in St. Louis in April 1998. We are also currently offering this service
in five other systems. In addition, we plan to introduce it in four additional
systems during 2000. Charter Investment, Inc. and a subsidiary of Charter
Holdings own a minority interest in WorldGate. Charter Investment, Inc. will
transfer its ownership interests to Charter Communications Holding Company. See
"Certain Relationships and Related Transactions." As of September 30, 1999, we
provided WorldGate Internet service to approximately 6,100 customers.
- INTERNET PORTAL SERVICES. On October 1, 1999, Charter Communications
Holding Company, Vulcan Ventures, an entity controlled by Mr. Allen, and Go2Net,
Inc. entered into a joint venture to form Broadband Partners, LLC. Broadband
will provide access to the Internet through a "portal" to our current and future
subscribers and potentially to other providers of high speed Internet access. A
portal is an Internet web site that serves as a user's initial point of entry to
the World Wide Web. By offering selected content, services and links to other
web sites, a portal guides and directs users through the World Wide Web and
generates revenues from advertising on its own web pages and by sharing revenues
generated by linked or featured web sites.
Revenue splits and other economic terms in this arrangement will be at
least as favorable to us as terms between Broadband and any other parties.
Charter Communications Holding Company has agreed to use Broadband's portal
services exclusively for an initial six-year period that will begin when the
portal services are launched, except that Charter Communications Holding
Company's existing agreements with other Internet high speed portal services and
High Speed Access may run
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for their current term to the extent that such agreements do not allow for the
carriage of content provided by Charter Communications Holding Company or Vulcan
Ventures. The joint venture is for an initial 25-year term, subject to
successive five-year renewals by mutual consent. Vulcan Ventures will own 55.2%,
Charter Communications Holding Company will own 24.9% and Go2Net will own 19.9%
of Broadband's membership interests. Vulcan Ventures will have voting control
over the Broadband entity. Broadband's board of directors will consist of three
directors designated by Vulcan Ventures and one by each of Charter
Communications Holding Company and Go2Net.
Each of Broadband's investors will be obligated to provide their pro rata
share of funding for Broadband's operations and capital expenditures, except
that Vulcan Ventures will fund our portion of Broadband's expenses for the first
four years and will fund Go2Net's portion of Broadband's expenses to the extent
Go2Net's portion exceeds budget for the first four years.
We believe that our participation in the Broadband joint venture will
facilitate the delivery of a broad array of Internet products and services to
our customers over the television set's digital set-top box and through the
personal computer.
The Broadband joint venture has not yet established a timetable for
launching its portal services. We do not anticipate that our participation in
the joint venture will have a material adverse impact on our financial condition
or results of operations for the foreseeable future.
WINK-ENHANCED PROGRAMMING. We have formed a relationship with Wink, which
sells technology to embed interactive features, such as additional information
and statistics about a program or the option to order an advertised product,
into programming and advertisements. A customer with a Wink-enabled set-top box
and a Wink-enabled cable provider sees an icon flash on the screen when
additional Wink features are available to enhance a program or advertisement. By
pressing the select button on a standard remote control, a viewer of a
Wink-enhanced program is able to access additional information regarding such
program, including, for example, information on prior episodes or the program's
characters. A viewer watching an advertisement would be able to access
additional information regarding the advertised product and may also be able to
utilize the two-way transmission features to order a product. We have bundled
Wink's services with our traditional cable services in both our advanced analog
and digital platforms. Wink's services are provided free of charge. A company
controlled by Mr. Allen has made an equity investment in Wink. See "Certain
Relationships and Related Transactions."
Various programming networks, including CNN, NBC, ESPN, HBO, Showtime,
Lifetime, VH1, the Weather Channel, and Nickelodeon, are currently producing
over 1,000 hours of Wink-enhanced programming per week. Under certain
revenue-sharing arrangements, we will modify our headend technology to allow
Wink-enabled programming to be offered on our systems. Each time one of our
customers uses Wink to request certain additional information or order an
advertised product, we receive fees from Wink.
TELEPHONE SERVICES. We expect to be able to offer cable telephony services
in the near future using our systems' direct, two-way connections to homes and
other buildings. We are exploring technologies using Internet protocol
telephony, as well as traditional switching technologies that are currently
available, to transmit digital voice signals over our systems. AT&T and other
telephone companies have already begun to pursue strategic partnering and other
programs which make it attractive for us to acquire and develop this alternative
Internet protocol technology. For the last two years, we have sold telephony
services as a competitive access provider in the state of Wisconsin through one
of our subsidiaries, and are currently looking to expand our services as a
competitive access provider into other states.
JOINT VENTURE WITH RCN CORPORATION. On October 1, 1999, Charter
Communications Holding Company and RCN Corporation entered into a binding term
sheet containing the principal terms of a
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non-exclusive joint venture to provide a broad range of telephony services to
the customers of Charter Communications Holding Company's subsidiaries in its
Los Angeles franchise territory. RCN is engaged in the businesses of bundling
residential voice, video and Internet access operations, cable operations and
certain long distance telephony operations. RCN is developing advanced fiber
optic networks to provide a wide range of telecommunications services, including
long distance telephone, video programming and data services, such as high-speed
Internet access.
Charter Communications Holding Company will provide access to its
subsidiaries' Los Angeles subscriber base and will provide the capital necessary
to develop telephony capability in Los Angeles. In addition, Charter
Communications Holding Company will provide the necessary personnel to oversee
and manage the telephony services. RCN will provide the necessary personnel and
support services to develop and implement telephony services to be provided by
Charter Communications Holding Company. Charter Communications Holding Company
will pay RCN's fees at rates consistent with industry market compensation.
Charter Communications Holding Company will have all rights to the telephony
business and assets and will receive all revenues derived from the telephony
business unless the parties expand RCN's role by mutual agreement. We believe
that our telephony joint venture, together with Mr. Allen's investment in RCN,
may allow us to take advantage of RCN's telephony experience as we deliver
telephone services to our customers, although we cannot assure you that we will
realize anticipated advantages.
The term sheet contains only the principal terms of this joint venture and
provides that the parties will enter into definitive agreements, which will
contain, among other terms, details of the compensation to be received by RCN.
To date, we and RCN have had only preliminary discussions regarding specific
operational matters and have not determined a timetable for the commencement of
services by the joint venture. We do not anticipate that this joint venture will
have a material impact on our financial condition or results of operations in
the foreseeable future.
MISCELLANEOUS SERVICES. We also offer paging services to our customers in
certain markets. As of September 30, 1999, we had approximately 9,400 paging
customers. We also lease our fiber-optic cable plant and equipment to commercial
and non-commercial users of data and voice telecommunications services.
OUR SYSTEMS
As of September 30, 1999, without giving effect to acquisitions since that
date, our cable systems consisted of approximately 93,200 miles of coaxial and
approximately 11,100 sheath miles of fiber optic cable passing approximately 5.5
million households and serving approximately 3.4 million customers. Coaxial
cable is a type of cable used for broadband data and cable systems. This type of
cable has excellent broadband frequency characteristics, noise, immunity and
physical durability. The cable is connected from each node to individual homes
or buildings. A node is a single connection to a cable system's main
high-capacity fiber optic cable that is shared by a number of customers. A
sheath mile is the actual length of cable in miles. Fiber optic cable is a
communication medium that uses hair-thin glass fibers to transmit signals over
long distances with minimum signal loss or distortion. As of September 30, 1999,
without giving effect to acquisitions since that date, approximately 53% of our
customers were served by systems with at least 550 megahertz bandwidth capacity,
approximately 30% had at least 750 megahertz bandwidth capacity and
approximately 31% were served by systems capable of providing two-way
interactive communication capability. Such two-way interactive communication
capability includes two-way Internet connections, services provided by Wink, and
interactive program guides.
CORPORATE MANAGEMENT. Pursuant to a services agreement between Charter
Communications, Inc. and Charter Investment, Inc., Charter Investment, Inc.
provides the necessary personnel and services to manage Charter Communications
Holding Company, Charter Holdings and their
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subsidiaries. These personnel and services are provided to Charter
Communications, Inc. on a cost reimbursement basis. Management of Charter
Communications, Inc. and Charter Investment, Inc. consists of approximately 275
people led by Charter Communications chief executive officer Jerald L. Kent.
They are responsible for coordinating and overseeing our operations, including
certain critical functions, such as marketing and engineering, that are
conducted by personnel at the regional and local system level. The corporate
office also performs certain financial control functions such as accounting,
finance and acquisitions, payroll and benefit administration, internal audit,
purchasing and programming contract administration on a centralized basis.
OPERATING REGIONS. To manage and operate our systems, we have established
two divisions that contain a total of twelve operating regions. Each of the two
divisions is managed by a Senior Vice President who reports directly to Mr. Kent
and is responsible for overall supervision of the operating regions within the
division. Each region is managed by a team consisting of a Senior Vice President
or a Vice President, supported by operational, marketing and engineering
personnel. Within each region, certain groups of cable systems are further
organized into clusters. We believe that much of our success is attributable to
our operating philosophy which emphasizes decentralized management, with
decisions being made as close to the customer as possible.
The Western Division is comprised of the following regions: Central, North
Central, MetroPlex (Dallas/Fort Worth), Southern California, Northwest, Michigan
and National. The Eastern Division is comprised of the following regions:
Southeast, Mid-South, Northeast, Gulf Coast and Mid-Atlantic.
The following table provides an overview of customer data for each of our
operating regions as of September 30, 1999 giving effect to acquisitions closed
since September 30, 1999, the recent transfer to Charter Holdings of the Fanch,
Falcon and Avalon cable systems, the Bresnan acquisition and transfer and the
Swap Transaction, after which our systems will pass approximately 9.7 million
homes serving approximately 6.3 million customers.
CUSTOMER DATA
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CHARTER RECENT BRESNAN SWAP
HOLDINGS ACQUISITIONS(a) SUBTOTAL ACQUISITION SUBTOTAL TRANSACTION(b) TOTAL
--------- --------------- --------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
WESTERN DIVISION:
Central.................... 435,840 6,280 442,120 -- 442,120 390,390 832,510
North Central............ 405,710 14,150 419,860 371,670 791,530 -- 791,530
MetroPlex................ 189,340 -- 189,340 -- 189,340 (189,340) --
Southern California...... 585,280 166,800 752,080 -- 752,080 (49,530) 702,550
Northwest................ -- 388,670 388,670 -- 388,670 -- 388,670
Michigan................. -- 302,710 302,710 254,500 557,210 -- 557,210
National................. 74,360 110,370 184,730 61,060 245,790 (14,500) 231,290
--------- --------- --------- ------- --------- -------- ---------
1,690,530 988,980 2,679,510 687,230 3,366,740 137,020 3,503,760
EASTERN DIVISION:
Southeast................ 581,740 382,390 964,130 -- 964,130 150,630 1,114,760
Mid-South................ 306,370 232,030 538,400 -- 538,400 (50,570) 487,830
Northeast................ 285,150 41,420 326,570 -- 326,570 (326,570) --
Gulf Coast............... 362,000 69,100 431,100 -- 431,100 160,470 591,570
Mid-Atlantic............. 199,860 359,890 559,750 -- 559,750 -- 559,750
--------- --------- --------- ------- --------- -------- ---------
1,735,120 1,084,830 2,819,950 -- 2,819,950 (66,040) 2,753,910
--------- --------- --------- ------- --------- -------- ---------
Total...................... 3,425,650 2,073,810 5,499,460 687,230 6,186,690 70,980 6,257,670
========= ========= ========= ======= ========= ======== =========
</TABLE>
- ---------------
(a) Represents the InterMedia, Avalon, Falcon and Fanch cable systems.
(b) The Swap Transaction is the subject of a non-binding letter of intent. We
cannot assure you that this transaction will be completed.
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The following discussion provides a description of our operating regions as
of September 30, 1999, giving effect to acquisitions closed since that date, the
recent transfer to Charter Holdings of the Fanch, Falcon and Avalon cable
systems and the Bresnan acquisition and transfer.
CENTRAL REGION. The Central region consists of cable systems serving
approximately 442,000 customers of which approximately 250,000 customers reside
in and around St. Louis County or in adjacent areas in Illinois. The remaining
approximate 192,000 customers reside in small to medium-sized communities in
Missouri, Illinois and Indiana. If the pending Swap Transaction with AT&T is
completed, we would serve more than 800,000 customers in the Central region and
approximately 525,000 customers in the St. Louis area.
NORTH CENTRAL REGION. The North Central region consists of cable systems
serving approximately 792,000 customers located throughout the states of
Wisconsin and Minnesota. Approximately 539,000 and 253,000 customers reside in
the states of Wisconsin and Minnesota, respectively. Within the state of
Wisconsin, the two largest operating clusters are located in and around Madison,
serving approximately 225,000 customers, and Fond du Lac, serving approximately
107,000 customers. Within the state of Minnesota, the two largest operating
clusters are located in and around Rochester, serving approximately 141,000
customers, and St. Cloud, serving approximately 62,000 customers.
METROPLEX REGION. The MetroPlex region consists of cable systems serving
approximately 189,000 customers of which approximately 132,000 are served by the
Fort Worth system. If the pending Swap Transaction with AT&T is completed, we
will no longer serve the Metroplex region.
SOUTHERN CALIFORNIA REGION. The Southern California region consists of
cable systems serving approximately 752,000 customers located entirely in the
state of California, with approximately 510,000 customers located in the Los
Angeles metropolitan area. These customers reside primarily in the communities
of Pasadena, Alhambra, Glendale, Long Beach and Riverside. We also have
approximately 193,000 customers in central California, principally located in
the communities of San Luis Obispo, West Sacramento and Turlock, and
approximately 50,000 customers in northern California that will be "swapped" to
AT&T.
NORTHWEST REGION. The Northwest region was formed in connection with the
recent Fanch and Falcon acquisitions. After these acquisitions, the Northwest
region consists of cable systems serving approximately 389,000 customers
residing in the states of Oregon, Washington, Idaho, Utah and California. The
two largest operating clusters in the Northwest region are located in and around
Kennewick, Washington, serving approximately 85,000 customers and Medford,
Oregon, serving approximately 72,000 customers.
MICHIGAN REGION. The Michigan region was formed in connection with the
recent Fanch, Avalon and Falcon acquisitions. After these acquisitions and the
pending Bresnan acquisition, the Michigan region consists of cable systems
serving approximately 557,000 customers. The largest operating cluster in the
Michigan region is located in and around Bay City, Michigan serving
approximately 134,000 customers.
NATIONAL REGION. The National region consists of cable systems serving
approximately 246,000 customers residing in small to medium-sized communities in
the states of Nebraska, Texas, New Mexico, North Dakota, Kansas, Colorado and
Oklahoma. If the pending Swap Transaction is completed, we will swap
approximately 14,500 customers to AT&T.
SOUTHEAST REGION. The Southeast region consists of cable systems serving
approximately 964,000 customers residing primarily in small to medium-sized
communities in North Carolina, South Carolina, Georgia and Florida. There are
significant clusters of cable systems in and around the cities and counties of
Greenville/Spartanburg, South Carolina; Hickory and Asheville, North Carolina;
and
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Atlanta, Georgia. If the pending Swap Transaction with AT&T is completed, we
will acquire approximately 151,000 customers in this region.
MID-SOUTH REGION. The Mid-South region consists of cable systems serving
approximately 538,000 customers residing in the states of Tennessee and
Kentucky. The Mid-South region has a significant cluster of cable systems in and
around Kingsport, Tennessee serving approximately 123,000 customers. A portion
of the Mid-South cable systems with approximately 51,000 customers will be
"swapped" if the pending Swap Transaction with AT&T is completed.
NORTHEAST REGION. The Northeast region consists of cable systems serving
approximately 327,000 customers residing in the states of Connecticut and
Massachusetts. These systems serve the communities of Newtown and Willimantic,
Connecticut, and areas in and around Pepperell, Massachusetts. If the pending
Swap Transaction with AT&T is completed, we will no longer serve the Northeast
region.
GULF COAST REGION. The Gulf Coast region was formed in connection with the
Fanch and Falcon acquisitions. After these recent acquisitions and the Swap
Transaction with AT&T, the Gulf Coast region will consist of cable systems
serving approximately 592,000 customers residing in the states of Louisiana,
Mississippi and Alabama. Within the state of Alabama, the two largest operating
clusters are located in and around Birmingham, serving approximately 175,000
customers, and Montgomery, serving approximately 113,000 customers.
MID-ATLANTIC REGION. The Mid-Atlantic region consists of cable systems
serving approximately 560,000 customers residing in the states of Virginia, West
Virginia, Vermont, Ohio, Pennsylvania, New York and Maryland. The Mid-Atlantic
region has significant clusters of cable systems in and around the cities of
Charleston, West Virginia, serving approximately 190,000 customers, and
Johnstown, Pennsylvania, serving approximately 77,000 customers.
PLANT AND TECHNOLOGY OVERVIEW. We have engaged in an aggressive program to
upgrade our existing cable plant over the next three years. For the period from
January 1, 2000 to December 31, 2002, we plan to spend approximately $5.6
billion for capital expenditures, approximately $3.1 billion of which will be
used to upgrade our systems to bandwidth capacity of 550 megahertz or greater,
so that we may offer advanced services. The remaining capital will be spent on
plant extensions, new services, converters and system maintenance.
The following table describes the current technological state of our
systems and the anticipated progress of planned upgrades through 2001, based on
the percentage of our customers who will have access to the bandwidth and other
features shown:
<TABLE>
<CAPTION>
LESS THAN 750 MEGAHERTZ TWO-WAY
550 MEGAHERTZ 550 MEGAHERTZ OR GREATER CAPABILITY
------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
September 30, 1999................... 46.7% 23.3% 30.0% 31.2%
December 31, 1999.................... 54.7% 15.0% 30.3% 30.3%
December 31, 2000.................... 32.8% 9.5% 57.7% 57.7%
December 31, 2001.................... 17.7% 7.2% 75.1% 75.1%
December 31, 2002.................... 6.0% 5.6% 88.4% 88.4%
</TABLE>
We have adopted HFC architecture as the standard for our ongoing systems
upgrades. HFC architecture combines the use of fiber optic cable, which can
carry hundreds of video, data and voice channels over extended distances, with
coaxial cable, which requires a more extensive signal amplification in order to
obtain the desired transmission levels for delivering channels. In most systems,
we connect fiber optic cable to individual nodes serving an average of 500 homes
or
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commercial buildings. We believe that this network design provides high capacity
and superior signal quality, and will enable us to provide the newest forms of
telecommunications services to our customers. The primary advantages of HFC
architecture over traditional coaxial cable networks include:
- increased channel capacity of cable systems;
- reduced number of amplifiers, which are devices to compensate for signal
loss caused by coaxial cable, needed to deliver signals from the headend
to the home, resulting in improved signal quality and reliability;
- reduced number of homes that need to be connected to an individual node,
improving the capacity of the network to provide high-speed Internet
access and reducing the number of households affected by disruptions in
the network; and
- sufficient dedicated bandwidth for two-way services, which avoids reverse
signal interference problems that can otherwise occur when you have
two-way communication capability.
The HFC architecture will enable us to offer new and enhanced services,
including:
- additional channels and tiers;
- expanded pay-per-view options;
- high-speed Internet access;
- wide area networks, which permit a network of computers to be connected
together beyond an area;
- point-to-point data services, which can switch data links from one point
to another; and
- digital advertising insertion, which is the insertion of local, regional
and national programming.
The upgrades will facilitate our new services in two primary ways:
- Greater bandwidth allows us to send more information through our systems.
This provides us with the capacity to provide new services in addition to
our current services. As a result, we will be able to roll out digital
cable programming in addition to existing analog channels offered to
customers who do not wish to subscribe to a package of digital services.
- Enhanced design configured for two-way communication with the customer
allows us to provide cable Internet services without telephone support
and other interactive services, such as an interactive program guide,
impulse pay-per-view, video-on-demand and Wink, that cannot be offered
without upgrading the bandwidth capacity of our systems.
This HFC architecture will also position us to offer cable telephony
services in the future, using either Internet protocol technology or
switch-based technology, another method of linking communications.
CUSTOMER SERVICE AND COMMUNITY RELATIONS
Providing a high level of service to our customers has been a central
driver of our historical success. Our emphasis on system reliability,
engineering support and superior customer satisfaction is key to our management
philosophy. In support of our commitment to customer satisfaction, we operate a
24-hour customer service hotline in most systems and offer on-time installation
and service guarantees. It is our policy that if an installer is late for a
scheduled appointment the customer receives free installation, and if a service
technician is late for a service call the customer receives a $20 credit.
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As of September 30, 1999, we maintained eleven call centers located in our
twelve regions, which are responsible for handling call volume for more than 54%
of our customers. They are staffed with dedicated personnel who provide service
to our customers 24 hours a day, seven days a week. We believe operating
regional call centers allows us to provide "localized" service, which also
reduces overhead costs and improves customer service. We have invested
significantly in both personnel and equipment to ensure that these call centers
are professionally managed and employ state-of-the-art technology. As of
December 31, 1999, pro forma for the transfer to us of the Fanch, Falcon and
Avalon cable systems and the Bresnan acquisition and transfer, we employed
approximately 2,650 customer service representatives throughout the systems. Our
customer service representatives receive extensive training to develop customer
contact skills and product knowledge critical to successful sales and high rates
of customer retention. As of December 31, 1999, pro forma for the transfer to us
of the Fanch, Falcon and Avalon cable systems and the Bresnan acquisition and
transfer, we had approximately 4,800 technical employees who are encouraged to
enroll in courses and attend regularly scheduled on-site seminars conducted by
equipment manufacturers to keep pace with the latest technological developments
in the cable television industry. We utilize surveys, focus groups and other
research tools as part of our efforts to determine and respond to customer
needs. We believe that all of this improves the overall quality of our services
and the reliability of our systems, resulting in fewer service calls from
customers.
We are also committed to fostering strong community relations in the towns
and cities our systems serve. We support many local charities and community
causes in various ways, including marketing promotions to raise money and
supplies for persons in need, and in-kind donations that include production
services and free air-time on major cable networks. Recent charity affiliations
include campaigns for "Toys for Tots," United Way, local theatre, children's
museums, local food banks and volunteer fire and ambulance corps. We also
participate in the "Cable in the Classroom" program, whereby cable television
companies throughout the United States provide schools with free cable
television service. In addition, we install and provide free basic cable service
to public schools, government buildings and non-profit hospitals in many of the
communities in which we operate. We also provide free cable modems and
high-speed Internet access to schools and public libraries in our franchise
areas. We place a special emphasis on education, and regularly award
scholarships to employees who intend to pursue courses of study in the
communications field.
SALES AND MARKETING
PERSONNEL RESOURCES. We have a centralized team responsible for
coordinating the marketing efforts of our individual systems. For most of our
systems with over 30,000 customers we have a dedicated marketing manager, while
smaller systems are handled regionally. We believe our success in marketing
comes in large part from new and innovative ideas and from good interaction
between our corporate office, which handles programs and administration, and our
field offices, which implement the various programs. We are also continually
monitoring the regulatory arena, customer perception, competition, pricing and
product preferences to increase our responsiveness to our customer base. Our
customer service representatives are given the incentive to use their daily
contacts with customers as opportunities to sell our new service offerings.
MARKETING STRATEGY. Our long-term marketing objective is to increase cash
flow through deeper market penetration and growth in revenue per household. To
achieve this objective and to position our service as an indispensable consumer
service, we are pursuing the following strategies:
- increase the number of rooms per household with cable;
- introduce new cable products and services;
- design product offerings to enable greater opportunity for customer
choices;
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- utilize "tiered" packaging strategies to promote the sale of premium
services and niche programming;
- offer our customers more value through discounted bundling of products;
- increase the number of residential consumers who use our set-top box,
which enables them to obtain advanced digital services such as a greater
number of television stations and interactive services;
- target households based on demographic data;
- develop specialized programs to attract former customers, households that
have never subscribed and illegal users of the service; and
- employ Charter branding of products to promote customer awareness and
loyalty.
We have innovative marketing programs which utilize market research on
selected systems, compare the data to national research and tailor marketing
programs for individual markets. We gather detailed customer information through
our regional marketing representatives and use the Claritas geodemographic data
program and consulting services to create unique packages of services and
marketing programs. These marketing efforts and the follow-up analysis provide
consumer information down to the city block or suburban subdivision level, which
allows us to create very targeted marketing programs.
We seek to maximize our revenue per customer through the use of "tiered"
packaging strategies to market premium services and to develop and promote niche
programming services.
We regularly use targeted direct mail campaigns to sell these tiers and
services to our existing customer base. We are developing an in-depth profile
database that goes beyond existing and former customers to include all homes
passed. This database information is expected to improve our targeted direct
marketing efforts, bringing us closer toward our objective of increasing total
customers as well as sales per customer for both new and existing customers. For
example, using customer profile data currently available, we are able to
identify customers who have children under a specified age and do not currently
subscribe to The Disney Channel. We then target our marketing efforts with
respect to The Disney Channel to those households. In 1998, we were chosen by
Claritas Corporation, sponsor of a national marketing competition across all
industries, as the first place winner in their media division, which includes
cable systems operations, telecommunications and newspapers, for our national
segmenting and targeted marketing program.
Our marketing professionals have also received numerous industry awards
within the last two years, including the Cable and Telecommunication Association
of Marketers' awards for consumer research and best advertising and marketing
programs.
In 1998, we introduced a new package of premium services. Customers receive
a substantial discount on bundled premium services of HBO, Showtime, Cinemax and
The Movie Channel. We were able to negotiate favorable terms with premium
networks, which allowed minimal impact on margins and provided substantial
volume incentives to grow the premium category. The MVP package has increased
our premium household penetration, premium revenue and cash flow. As a result of
this package, HBO recognized us as a top performing customer. We are currently
introducing this same premium strategy in the systems we have recently acquired.
We expect to continue to invest significant amounts of time, effort and
financial resources in the marketing and promotion of new and existing services.
To increase customer penetration and increase the level of services used by our
customers, we use a coordinated array of marketing techniques, including
door-to-door solicitation, telemarketing, media advertising and direct mail
solicitation. We believe we have one of the cable television industry's highest
success rates in attracting and retaining
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customers who have never before subscribed to cable television. Historically,
these "nevers" are the most difficult customers to attract and retain.
PROGRAMMING SUPPLY
GENERAL. We believe that offering a wide variety of conveniently scheduled
programming is an important factor influencing a customer's decision to
subscribe to and retain our cable services. We devote considerable resources to
obtaining access to a wide range of programming that we believe will appeal to
both existing and potential customers of basic and premium services. We rely on
extensive market research, customer demographics and local programming
preferences to determine channel offerings in each of our markets. See "-- Sales
and Marketing."
PROGRAMMING SOURCES. We obtain basic and premium programming from a number
of suppliers, usually pursuant to a written contract. As of September 30, 1999,
we obtained approximately 64% of our programming through contracts entered into
directly with a programming supplier. We obtained the rest of our programming
through TeleSynergy, Inc., which offers its partners contract benefits in buying
programming by virtue of volume discounts available to a larger buying base.
Recent consolidation in the cable television industry coupled with our growth
through acquisitions has reduced the benefits associated with our participation
in TeleSynergy. As a result of our recent acquisitions, we are reviewing our
programming arrangements and have decided to terminate our agreement with
TeleSynergy, effective January 31, 2000.
Programming tends to be made available to us for a flat fee per customer.
However, some channels are available without cost to us. In connection with the
launch of a new channel, we may receive a distribution fee to support the
channel launch, a portion of which is applied to marketing expenses associated
with the channel launch. The amounts we receive in distribution fees are not
significant.
Our programming contracts generally continue for a fixed period of time,
usually from three to ten years. Although longer contract terms are available,
we prefer to limit contracts to three years so that we retain flexibility to
change programming and include new channels as they become available. Some
program suppliers offer marketing support or volume discount pricing structures.
Some of our programming agreements with premium service suppliers offer cost
incentives under which premium service unit prices decline as certain premium
service growth thresholds are met.
For home shopping channels, we receive a percentage of the amount spent in
home shopping purchases by our customers on channels we carry. In 1998, these
revenues totalled approximately $220,000. These revenues totalled approximately
$1,518,000 for the nine months ended September 30, 1999.
PROGRAMMING COSTS. Our cable programming costs have increased in recent
years and are expected to continue to increase due to factors including:
- system acquisitions;
- additional programming being provided to customers;
- increased cost to produce or purchase cable programming; and
- inflationary increases.
In every year we have operated, our costs to acquire programming have exceeded
customary inflationary and cost-of-living type increases. Sports programming
costs have increased significantly over the past several years. In addition,
contracts to purchase sports programming sometimes contain built-in cost
increases for programming added during the term of the contract which we may or
may not have the option to add to our service offerings.
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Under rate regulation of the Federal Communications Commission, cable
operators may increase their rates to customers to cover increased costs for
programming, subject to certain limitations. See "Regulation and Legislation."
We believe we will, as a general matter, be able to pass increases in our
programming costs through to customers, although we cannot assure you that it
will be possible.
RATES
Pursuant to the Federal Communications Commission's rules, we have set
rates for cable-related equipment, such as converter boxes and remote control
devices, and installation services. These rates are based on actual costs plus a
11.25% rate of return. We have unbundled these charges from the charges for the
provision of cable service.
Rates charged to customers vary based on the market served and service
selected, and are typically adjusted on an annual basis. As of September 30,
1999, the average monthly fee was $12.57 for basic service and $16.08 for
expanded basic service. Regulation of the expanded basic service was eliminated
by federal law as of March 31, 1999 and such rates are now based on market
conditions. A one-time installation fee, which may be waived in part during
certain promotional periods, is charged to new customers. We believe our rate
practices are in accordance with Federal Communications Commission Guidelines
and are consistent with those prevailing in the industry generally. See
"Regulation and Legislation."
THEFT PROTECTION
The unauthorized tapping of cable plant and the unauthorized receipt of
programming using cable converters purchased through unauthorized sources are
problems which continue to challenge the entire cable industry. We have adopted
specific measures to combat the unauthorized use of our plant to receive
programming. For instance, in several of our regions, we have instituted a
"perpetual audit" whereby each technician is required to check at least four
other nearby residences during each service call to determine if there are any
obvious signs of piracy, namely, a drop line leading from the main cable line
into other homes. Addresses where the technician observes drop lines are then
checked against our customer billing records. If the address is not found in the
billing records, a sales representative calls on the unauthorized user to
correct the "billing discrepancy" and persuade the user to become a formal
customer. In our experience, approximately 25% of unauthorized users who are
solicited in this manner become customers. Billing records are then closely
monitored to guard against these new customers reverting to their status as
unauthorized users. Unauthorized users who do not convert are promptly
disconnected and, in certain instances, flagrant violators are referred for
prosecution. In addition, we have prosecuted individuals who have sold cable
converters programmed to receive our signals without proper authorization.
FRANCHISES
As of September 30, 1999, without giving effect to acquisitions since that
date, our systems operated pursuant to an aggregate of 1,742 franchises, permits
and similar authorizations issued by local and state governmental authorities.
As of September 30, 1999, giving effect to acquisitions since that date and the
recent transfer of the Fanch, Falcon and Avalon cable systems, we held
approximately 4,210 franchises in the aggregate. Each franchise is awarded by a
governmental authority and is usually not transferable unless the granting
governmental authority consents. Most franchises are subject to termination
proceedings in the event of a material breach. In addition, most franchises
require us to pay the granting authority a franchise fee of up to 5.0% of gross
revenues generated by cable television services under the franchise (i.e., the
maximum amount that may be charged under the Communications Act).
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Our franchises have terms which range from four years to more than 32
years. Prior to the scheduled expiration of most franchises, we initiate renewal
proceedings with the granting authorities. This process usually takes three
years but can take a longer period of time and often involves substantial
expense. The Communications Act provides for an orderly franchise renewal
process in which granting authorities may not unreasonably withhold renewals. If
a renewal is withheld and the granting authority takes over operation of the
affected cable system or awards it to another party, the granting authority must
pay the existing cable operator the "fair market value" of the system. The
Communications Act also established comprehensive renewal procedures requiring
that an incumbent franchisee's renewal application be evaluated on its own merit
and not as part of a comparative process with competing applications. In
connection with the franchise renewal process, many governmental authorities
require the cable operator make certain commitments, such as technological
upgrades to the system, which may require substantial capital expenditures. We
cannot assure you, however, that any particular franchise will be renewed or
that it can be renewed on commercially favorable terms. Our failure to obtain
renewals of our franchises, especially those in major metropolitan areas where
we have the most customers, would have a material adverse effect on our
business, results of operations and financial condition. See "Risk
Factors -- Regulatory and Legislative Matters."
The following table summarizes our systems' franchises by year of
expiration, and approximate number of basic customers as of September 30, 1999,
without giving effect to acquisitions since that date.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF OF TOTAL TOTAL BASIC OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES CUSTOMERS CUSTOMERS
- ---------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Prior to December 31, 1999............... 186 11% 305,100 10%
2000 to 2002............................. 316 18% 699,100 23%
2003 to 2005............................. 360 21% 724,900 19%
2006 or after............................ 880 50% 1,696,600 48%
----- --- --------- ---
Total............................... 1,742 100% 3,425,700 100%
</TABLE>
Under the 1996 Telecom Act, cable operators are not required to obtain
franchises in order to provide telecommunications services, and granting
authorities are prohibited from limiting, restricting or conditioning the
provision of such services. In addition, granting authorities may not require a
cable operator to provide telecommunications services or facilities, other than
institutional networks, as a condition of an initial franchise grant, a
franchise renewal, or a franchise transfer. The 1996 Telecom Act also limits
franchise fees to an operator's cable-related revenues and clarifies that they
do not apply to revenues that a cable operator derives from providing new
telecommunications services.
We believe our relations with the franchising authorities under which our
systems are operated are generally good. Substantially all of the material
franchises relating to our systems which are eligible for renewal have been
renewed or extended at or prior to their stated expiration dates.
COMPETITION
We face competition in the areas of price, service offerings, and service
reliability. We compete with other providers of television signals and other
sources of home entertainment. In addition, as we expand into additional
services such as Internet access, interactive services and telephony, we will
face competition from other providers of each type of service. See "Risk
Factors -- Our Business --
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We operate in a very competitive business environment which can adversely affect
our business and operations."
To date, we believe that we have not lost a significant number of
customers, or a significant amount of revenue, to our competitors' systems.
However, competition from other providers of the technologies we expect to offer
in the future may have a negative impact on our business in the future.
Through mergers such as the recent merger of Tele-Communications, Inc. and
AT&T, customers will come to expect a variety of services from a single
provider. While the TCI/AT&T merger has no direct or immediate impact on our
business, it encourages providers of cable and telecommunications services to
expand their service offerings. It also encourages consolidation in the cable
industry as cable operators recognize the competitive benefits of a large
customer base and expanded financial resources.
Key competitors today include:
- BROADCAST TELEVISION. Cable television has long competed with broadcast
television, which consists of television signals that the viewer is able to
receive without charge using an "off-air" antenna. The extent of such
competition is dependent upon the quality and quantity of broadcast signals
available through "off-air" reception compared to the services provided by the
local cable system. The recent licensing of digital spectrum by the Federal
Communications Commission will provide incumbent television licenses with the
ability to deliver high definition television pictures and multiple
digital-quality program streams, as well as advanced digital services such as
subscription video.
- DBS. Direct broadcast satellite, known as DBS, has emerged as
significant competition to cable systems. The DBS industry has grown rapidly
over the last several years, far exceeding the growth rate of the cable
television industry, and now serves approximately 10 million subscribers
nationwide. DBS service allows the subscriber to receive video services directly
via satellite using a relatively small dish antenna. Moreover, video compression
technology allows DBS providers to offer more than 100 digital channels, thereby
surpassing the typical analog cable system. DBS companies historically were
prohibited from retransmitting popular local broadcast programming, but a change
to the existing copyright laws in November 1999 eliminated this legal
impediment. After an initial six-month grace period, DBS companies will need to
secure retransmission consent from the popular broadcast stations they wish to
carry, and they will face mandatory carriage obligations of less popular
broadcast stations as of January 2002. In response to the legislation, DirecTV,
Inc. and EchoStar Communications Corporation already have initiated plans to
carry the major network stations in the nation's top television markets. DBS,
however, is limited in the local programming it can provide because of the
current capacity limitations of satellite technology. It is, therefore, expected
that DBS companies will offer local broadcast programming only in the larger
U.S. markets for the foreseeable future. The same legislation providing for DBS
carriage of local broadcast stations reduced the compulsory copyright fees paid
by DBS companies and allows them to continue offering distant network signals to
rural customers. America Online Inc., the nation's leading provider of Internet
services has recently announced a plan to invest $1.5 billion in Hughes
Electronics Corp., DirecTV's parent company, and these companies intend to
jointly market America Online's prospective Internet television service to
DirecTV's DBS customers.
- DSL. The deployment of digital subscriber line technology, known as DSL,
will allow Internet access to subscribers at data transmission speeds greater
than those of modems over conventional telephone lines. Several telephone
companies and other companies are introducing DSL service. The Federal
Communications Commission recently released an order in which it mandated that
incumbent telephone companies grant access to the high frequency portion of the
local loop over
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which they provide voice services. This will enable competitive carriers to
provide DSL services over the same telephone lines simultaneously used by
incumbent telephone companies to provide basic telephone service. However, in a
separate order the Federal Communications Commission declined to mandate that
incumbent telephone companies unbundle their internal packet switching
functionality or related equipment for the benefit of competitive carriers. This
functionality or equipment could otherwise have been used by competitive
carriers directly to provide DSL or other high-speed broadband services. We are
unable to predict whether the Federal Communications Commission's decisions will
be sustained upon administrative or judicial appeal, the likelihood of success
of the Internet access offered by our competitors or the impact on our business
and operations of these competitive ventures.
- TRADITIONAL OVERBUILDS. Cable television systems are operated under
non-exclusive franchises granted by local authorities. More than one cable
system may legally be built in the same area. It is possible that a franchising
authority might grant a second franchise to another cable operator and that
franchise might contain terms and conditions more favorable than those afforded
us. In addition, entities willing to establish an open video system, under which
they offer unaffiliated programmers non-discriminatory access to a portion of
the system's cable system may be able to avoid local franchising requirements.
Well financed businesses from outside the cable industry, such as public
utilities which already possess fiber optic and other transmission lines in the
areas they serve may over time become competitors. There has been a recent
increase in the number of cities that have constructed their own cable systems,
in a manner similar to city-provided utility services. Constructing a competing
cable system is a capital intensive process which involves a high degree of
risk. We believe that in order to be successful, a competitor's overbuild would
need to be able to serve the homes and businesses in the overbuilt area on a
more cost-effective basis than us. Any such overbuild operation would require
either significant access to capital or access to facilities already in place
that are capable of delivering cable television programming.
As of September 30, 1999, we are aware of overbuild situations in some of
our cable systems located in Newnan, Columbus and West Point, Georgia; Barron
and Cameron, Wisconsin; Auburn, Rancho Cucamonga and Victorville, California;
and Lanett Valley, Alabama; and Carlton and Addison, Texas. Approximately 56,000
basic customers, approximately 1.4% of our total basic customers, are passed by
these overbuilds. Additionally, we have been notified that franchises have been
awarded, and present potential overbuild situations, in some of our systems
located in Denton, Southlake, Roanoke and Keller, Texas and Willimantic,
Connecticut. These potential overbuild areas service an aggregate of
approximately 54,000 basic customers or approximately 1.6% of our total basic
customers. In response to such overbuilds, these systems have been designated
priorities for the upgrade of cable plant and the launch of new and enhanced
services. We have upgraded each of these systems to at least 750 megahertz
two-way HFC architecture, with the exceptions of our systems in Columbus,
Georgia, and Willimantic, Connecticut. Upgrades to at least 750 megahertz
two-way HFC architecture with respect to these two systems are expected to be
completed by December 31, 2000 and December 31, 2001, respectively.
- TELEPHONE COMPANIES AND UTILITIES. The competitive environment has been
significantly affected by both technological developments and regulatory changes
enacted in The Telecommunications Act of 1996, which were designed to enhance
competition in the cable television and local telephone markets. Federal
cross-ownership restrictions historically limited entry by local telephone
companies into the cable television business. The 1996 Telecom Act modified this
cross-ownership restriction, making it possible for local exchange carriers who
have considerable resources to provide a wide variety of video services
competitive with services offered by cable systems.
As we expand our offerings to include Internet and other telecommunications
services, we will be subject to competition from other telecommunications
providers. The telecommunications industry is
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highly competitive and includes competitors with greater financial and personnel
resources, who have brand name recognition and long-standing relationships with
regulatory authorities. Moreover, mergers, joint ventures and alliances among
franchise, wireless or private cable television operators, local exchange
carriers and others may result in providers capable of offering cable
television, Internet, and telecommunications services in direct competition with
us.
Several telephone companies have obtained or are seeking cable television
franchises from local governmental authorities and are constructing cable
systems. Cross-subsidization by local exchange carriers of video and telephony
services poses a strategic advantage over cable operators seeking to compete
with local exchange carriers that provide video services. Some local exchange
carriers may choose to make broadband services available under the open video
regulatory framework of the Federal Communications Commission. In addition,
local exchange carriers provide facilities for the transmission and distribution
of voice and data services, including Internet services, in competition with our
existing or potential interactive services ventures and businesses, including
Internet service, as well as data and other non-video services. We cannot
predict the likelihood of success of the broadband services offered by our
competitors or the impact on us of such competitive ventures. The entry of
telephone companies as direct competitors in the video marketplace, however, is
likely to become more widespread and could adversely affect the profitability
and valuation of the systems.
Additionally, we are subject to competition from utilities which possess
fiber optic transmission lines capable of transmitting signals with minimal
signal distortion.
- SMATV. Additional competition is posed by satellite master antenna
television systems known as "SMATV systems" serving multiple dwelling units,
referred to in the cable industry as "MDU's", such as condominiums, apartment
complexes, and private residential communities. These private cable systems may
enter into exclusive agreements with such MDUs, which may preclude operators of
franchise systems from serving residents of such private complexes. Such private
cable systems can offer both improved reception of local television stations and
many of the same satellite-delivered program services which are offered by cable
systems. SMATV systems currently benefit from operating advantages not available
to franchised cable systems, including fewer regulatory burdens and no
requirement to service low density or economically depressed communities.
Exemption from regulation may provide a competitive advantage to certain of our
current and potential competitors.
- WIRELESS DISTRIBUTION. Cable television systems also compete with
wireless program distribution services such as multi-channel multipoint
distribution systems or "wireless cable", known as MMDS. MMDS uses low-power
microwave frequencies to transmit television programming over-the-air to paying
customers. Wireless distribution services generally provide many of the
programming services provided by cable systems, and digital compression
technology is likely to increase significantly the channel capacity of their
systems. Both analog and digital MMDS services require unobstructed "line of
sight" transmission paths. Analog MMDS has impacted our customer growth in
Riverside and Sacramento, California and Missoula, Montana. Digital MMDS is a
more significant competitor, presenting potential challenges to us in Los
Angeles, California and Atlanta, Georgia.
PROPERTIES
Our principal physical assets consist of cable television plant and
equipment, including signal receiving, encoding and decoding devices, headend
reception facilities, distribution systems and customer drop equipment for each
of our cable television systems. Our cable television plant and related
equipment are generally attached to utility poles under pole rental agreements
with local public utilities and telephone companies, and in certain locations
are buried in underground ducts or trenches. The physical components of our
cable television systems require maintenance and periodic upgrading to keep pace
with technological advances. We own or lease real property for signal
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reception sites and business offices in many of the communities served by our
systems and for our principal executive offices. We own most of our service
vehicles.
Our subsidiaries own the real property housing our regional data center in
Town & Country, Missouri, as well as the regional office for the Northeast
Region in Newtown, Connecticut and additional real estate located in Hickory,
North Carolina; Hammond, Louisiana; and West Sacramento and San Luis Obispo,
California. Our subsidiaries lease space for our regional data center located in
Dallas, Texas and additional locations for business offices throughout our
operating regions. Our headend locations are generally located on owned or
leased parcels of land, and we generally own the towers on which our equipment
is located.
We believe that our properties are in good operating condition and are
suitable for our business operations.
EMPLOYEES
Charter Communications, Inc. currently has only thirteen employees, all of
whom are senior management and are also executive officers of Charter
Investment, Inc. Pursuant to a services agreement between Charter
Communications, Inc. and Charter Investment, Inc., Charter Investment, Inc. will
provide the necessary personnel and services to manage Charter Communications
Holding Company, Charter Holdings and their subsidiaries. These personnel and
services will be provided to Charter Communications, Inc. on a cost
reimbursement basis. As of December 31, 1999, our subsidiaries had approximately
10,525 full-time equivalent employees of which 350 were represented by the
International Brotherhood of Electrical Workers. We believe we have a good
relationship with our employees and have never experienced a work stoppage. See
"Certain Relationships and Related Transactions."
INSURANCE
We have insurance to cover risks incurred in the ordinary course of
business, including general liability, property coverage, business interruption
and workers' compensation insurance in amounts typical of similar operators in
the cable industry and with reputable insurance providers. As is typical in the
cable industry, we do not insure our underground plant. We believe our insurance
coverage is adequate.
LEGAL PROCEEDINGS
We are involved from time to time in routine legal matters incidental to
our business. We believe that the resolution of such matters will not have a
material adverse impact on our financial position or results of operations.
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REGULATION AND LEGISLATION
The following summary addresses the key regulatory developments and
legislation affecting the cable television industry.
The operation of a cable system is extensively regulated by the Federal
Communications Commission, some state governments and most local governments.
The 1996 Telecom Act has altered the regulatory structure governing the nation's
communications providers. It removes barriers to competition in both the cable
television market and the local telephone market. Among other things, it also
reduces the scope of cable rate regulation and encourages additional competition
in the video programming industry by allowing local telephone companies to
provide video programming in their own telephone service areas.
The 1996 Telecom Act requires the Federal Communications Commission to
undertake a host of implementing rulemakings. Moreover, Congress and the Federal
Communications Commission have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect our
operations, and there have been calls in Congress and at the Federal
Communications Commission to maintain or even tighten cable regulation in the
absence of widespread effective competition.
CABLE RATE REGULATION. The 1992 Cable Act imposed an extensive rate
regulation regime on the cable television industry, which limited the ability of
cable companies to increase subscriber fees. Under that regime, all cable
systems are subject to rate regulation, unless they face "effective competition"
in their local franchise area. Federal law now defines "effective competition"
on a community-specific basis as requiring satisfaction of conditions rarely
satisfied in the current marketplace.
Although the Federal Communications Commission has established the
underlying regulatory scheme, local government units, commonly referred to as
local franchising authorities, are primarily responsible for administering the
regulation of the lowest level of cable -- the basic service tier, which
typically contains local broadcast stations and public, educational, and
government access channels. Before a local franchising authority begins basic
service rate regulation, it must certify to the Federal Communications
Commission that it will follow applicable federal rules. Many local franchising
authorities have voluntarily declined to exercise their authority to regulate
basic service rates. Local franchising authorities 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.
As of December 31, 1999, approximately 18% of our local franchising
authorities were certified to regulate basic tier rates. The 1992 Cable Act
permits communities to certify and regulate rates at any time, so that it is
possible that additional localities served by the systems may choose to certify
and regulate rates in the future.
The Federal Communications Commission historically administered rate
regulation of cable programming service tiers, which is the expanded basic
programming package that offers services other than basic programming and which
typically contains satellite-delivered programming. As of December 31, 1999, we
had cable programming service tier rate complaints relating to approximately
420,000 subscribers pending at the Federal Communications Commission. Under the
1996 Telecom Act, however, the Federal Communications Commission's authority to
regulate cable programming service tier rates sunset on March 31, 1999. The
Federal Communications Commission has taken the position that it will still
adjudicate pending cable programming service tier complaints but will strictly
limit its review, and possible refund orders, to the time period predating the
sunset date. We do not believe any adjudications regarding these pre-sunset
complaints will have a material adverse effect on
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our business. The elimination of cable programming service tier regulation on a
prospective basis affords us substantially greater pricing flexibility.
Under the rate regulations of the Federal Communication Commission, most
cable systems were required to reduce their basic service tier and cable
programming service tier rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The Federal Communications Commission
has modified its rate adjustment regulations to allow for annual rate increases
and to minimize previous problems associated with regulatory lag. Operators also
have the opportunity to bypass this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Cost of service regulation is a traditional form of rate
regulation, under which a utility is allowed to recover its costs of providing
the regulated service, plus a reasonable profit. The Federal Communications
Commission and Congress have provided various forms of rate relief for smaller
cable systems owned by smaller operators. Premium cable services offered on a
per-channel or per-program basis remain unregulated. However, federal law
requires that the basic service tier be offered to all cable subscribers and
limits the ability of operators to require purchase of any cable programming
service tier if a customer seeks to purchase premium services offered on a
per-channel or per-program basis, subject to a technology exception which
sunsets in 2002.
As noted above, Federal Communications Commission regulation of cable
programming service tier rates for all systems, regardless of size, sunset
pursuant to the 1996 Telecom Act on March 31, 1999. As a result, the regulatory
regime just discussed is now essentially applicable only to basic services tier
and cable equipment. Certain legislators, however, have called for new rate
regulations if unregulated cost rates increase dramatically. The 1996 Telecom
Act also relaxes existing "uniform rate" requirements by specifying that uniform
rate requirements do not apply where the operator faces "effective competition,"
and by exempting bulk discounts to multiple dwelling units, although complaints
about predatory pricing still may be made to the Federal Communications
Commission.
CABLE ENTRY INTO TELECOMMUNICATIONS. The 1996 Telecom Act creates a more
favorable environment for us to provide telecommunications services beyond
traditional video delivery. It 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. A cable
operator is authorized under the 1996 Telecom Act to provide telecommunications
services without obtaining a separate local franchise. 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, if the operator provides telecommunications
service, as well as cable service, over its plant. The Federal Communications
Commission recently clarified that a cable operator's favorable pole rates are
not endangered by the provision of Internet access.
Cable entry into telecommunications will be affected by the regulatory
landscape now being developed by the Federal Communications Commission 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. In July
1997, the Eighth Circuit Court of Appeals vacated certain aspects of the Federal
Communications Commission initial interconnection order but most of that
decision was reversed by the U.S. Supreme Court in January 1999. The Supreme
Court effectively upheld most of the Federal Communications Commission
interconnection regulations. Although these regulations should enable new
telecommuni-
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cations entrants to reach viable interconnection agreements with incumbent
carriers, many issues, including which specific network elements the Federal
Communications Commission can mandate that incumbent carriers make available to
competitors, remain subject to administrative and judicial appeal. If the
Federal Communications Commission current list of unbundled network elements is
upheld on appeal, it would make it easier for us to provide telecommunications
service.
INTERNET SERVICE. Although there is at present no significant federal
regulation of cable system delivery of Internet services, and the Federal
Communications Commission recently issued several reports finding no immediate
need to impose such regulation, this situation may change as cable systems
expand their broadband delivery of Internet services. In particular, proposals
have been advanced at the Federal Communications Commission and Congress that
would require cable operators to provide access to unaffiliated Internet service
providers and online service providers. Certain Internet service providers also
are attempting to use existing modes of access that are commercially leased to
gain access to cable system delivery. A petition on this issue is now pending
before the Federal Communications Commission. Finally, some local franchising
authorities are considering the imposition of mandatory Internet access
requirements as part of cable franchise renewals or transfers. A federal
district court in Portland, Oregon recently upheld the legal ability of local
franchising authority to impose such conditions, but an appeal was filed with
the Ninth Circuit Court of Appeals, oral argument has been held and the parties
are awaiting a decision. Other local authorities have imposed or may impose
mandatory Internet access requirements on cable operators. These developments
could, if they become widespread, burden the capacity of cable systems and
complicate our own plans for providing Internet service.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
historic telephone company/ cable cross-ownership ban. Local exchange carriers,
including the regional telephone companies, can now compete with cable operators
both inside and outside their telephone service areas with certain regulatory
safeguards. Because of their resources, local exchange carriers could be
formidable competitors to traditional cable operators. Various local exchange
carriers already are providing video programming services within their telephone
service areas through a variety of distribution methods, including both the
deployment of broadband wire facilities and the use of wireless transmission.
Under the 1996 Telecom Act, local exchange carriers or any other cable
competitor providing video programming to subscribers through broadband wire
should be regulated as a traditional cable operator, subject to local
franchising and federal regulatory requirements, unless the local exchange
carrier or other cable competitor elects to deploy its broadband plant as an
open video system. To qualify for favorable open video system status, the
competitor must reserve two-thirds of the system's activated channels for
unaffiliated entities. The Fifth Circuit Court of Appeals reversed certain of
the Federal Communications Commission's open video system rules, including its
preemption of local franchising. The Federal Communications Commission recently
revised its OVS rules to eliminate this general preemption, thereby leaving
franchising discretion to state and local authorities. It is unclear what effect
this ruling will have on the entities pursuing open video system operation.
Although local exchange carriers and cable operators can now expand their
offerings across traditional service boundaries, the general prohibition remains
on local exchange carrier buyouts of co-located cable systems. Co-located cable
systems are cable systems serving an overlapping territory. Cable operator
buyouts of co-located local exchange carrier systems, and joint ventures between
cable operators and local exchange carriers in the same market are also
prohibited. The 1996 Telecom Act provides a few limited exceptions to this
buyout prohibition, including a carefully circumscribed "rural exemption." The
1996 Telecom Act also provides the Federal Communications Commission with the
limited authority to grant waivers of the buyout prohibition.
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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,
notwithstanding the Public Utility Holding Company Act. Electric utilities must
establish separate subsidiaries, known as "exempt telecommunications companies"
and must apply to the Federal Communications Commission for operating authority.
Like telephone companies, electric utilities have substantial resources at their
disposal, and could be formidable competitors to traditional cable systems.
Several such utilities have been granted broad authority by the Federal
Communications Commission to engage in activities which could include the
provision of video programming.
ADDITIONAL OWNERSHIP RESTRICTIONS. The 1996 Telecom Act eliminates
statutory restrictions on broadcast/cable cross-ownership, including broadcast
network/cable restrictions, but leaves in place existing Federal Communications
Commission regulations prohibiting local cross-ownership between co-located
television stations and cable systems.
Pursuant to the 1992 Cable Act, the Federal Communications Commission
adopted rules precluding a cable system from devoting more than 40% of its
activated channel capacity to the carriage of affiliated national video program
services. Also pursuant to the 1992 Cable Act, the Federal Communications
Commission has adopted rules that preclude any cable operator from serving more
than 30% of all U.S. domestic multichannel video subscribers, including cable
and direct broadcast satellite subscribers. However, this provision has been
stayed pending further judicial review.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains broadcast
signal carriage requirements. Broadcast signal carriage is the transmission of
broadcast television signals over a cable system to cable customers. These
requirements, among other things, allow local commercial television broadcast
stations to elect once every three years between "must carry" status or
"retransmission consent" status. Less popular stations typically elect must
carry, which is the broadcast signal carriage requirement that allows local
commercial television broadcast stations to require a cable system to carry the
station. More popular stations, such as those affiliated with a national
network, typically elect retransmission consent which is the broadcast signal
carriage requirement that allows local commercial television broadcast stations
to negotiate for payments for granting permission to the cable operator to carry
the stations. Must carry requests can dilute the appeal of a cable system's
programming offerings because a cable system with limited channel capacity may
be required to forego carriage of popular channels in favor of less popular
broadcast stations electing must carry. Retransmission consent demands may
require substantial payments or other concessions. Either option has a
potentially adverse effect on our business. The burden associated with must
carry may increase substantially if broadcasters proceed with planned conversion
to digital transmission and the Federal Communications Commission determines
that cable systems must carry all analog and digital broadcasts in their
entirety. This burden would reduce capacity available for more popular video
programming and new internet and telecommunication offerings. A rulemaking is
now pending at the Federal Communications Commission regarding the imposition of
dual digital and analog must carry.
ACCESS CHANNELS. Local franchising authorities can include franchise
provisions requiring cable operators to set aside certain channels for public,
educational and governmental access programming. Federal law also requires cable
systems to designate a portion of their channel capacity, up to 15% in some
cases, for commercial leased access by unaffiliated third parties. The Federal
Communications Commission has adopted rules regulating the terms, conditions and
maximum rates a cable operator may charge for commercial leased access use. We
believe that requests for commercial leased access carriages have been
relatively limited. A new request has been forwarded to the Federal
Communications Commission, however, requesting that unaffiliated Internet
service providers be found eligible for commercial leased access. Although we do
not believe such use is in accord with
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the governing statute, a contrary ruling could lead to substantial leased
activity by Internet service providers and disrupt our own plans for Internet
service.
ACCESS TO PROGRAMMING. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring their cable operators over new 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. There also has been
interest expressed 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, and subjecting
terrestrially delivered programming to the program access requirements.
Terrestrially delivered programming is programming delivered other than by
satellite. These changes should not have a dramatic impact on us, but would
limit potential competitive advantages we now enjoy.
INSIDE WIRING; SUBSCRIBER ACCESS. In an order issued in 1997, the Federal
Communications Commission established rules that require an incumbent cable
operator upon expiration of a multiple dwelling unit service contract to sell,
abandon, or remove "home run" wiring that was installed by the cable operator in
a multiple dwelling unit building. These inside wiring rules are expected to
assist building owners in their attempts to replace existing cable operators
with new programming providers who are willing to pay the building owner a
higher fee, where such a fee is permissible. The Federal Communications
Commission has also proposed abrogating all exclusive multiple dwelling unit
service agreements held by incumbent operators, but allowing such contracts when
held by new entrants. In another proceeding, the Federal Communications
Commission has preempted restrictions on the deployment of private antenna on
rental property within the exclusive use of a tenant, such as balconies and
patios. This Federal Communications Commission ruling may limit the extent to
which we along with multiple dwelling unit owners may enforce certain aspects of
multiple dwelling unit agreements which otherwise prohibit, for example,
placement of digital broadcast satellite receiver antennae in multiple dwelling
unit areas under the exclusive occupancy of a renter. These developments may
make it even more difficult for us to provide service in multiple dwelling unit
complexes.
OTHER REGULATIONS OF THE FEDERAL COMMUNICATIONS COMMISSION. In addition to
the Federal Communications Commission regulations noted above, there are other
regulations of the Federal Communications Commission covering such areas as:
- equal employment opportunity,
- subscriber privacy,
- programming practices, including, among other things,
(1) syndicated program exclusivity, which is a Federal Communications
Commission rule which requires a cable system to delete particular
programming offered by a distant broadcast signal carried on the
system which duplicates the programming for which a local broadcast
station has secured exclusive distribution rights,
(2) network program nonduplication,
(3) local sports blackouts,
(4) indecent programming,
(5) lottery programming,
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(6) political programming,
(7) sponsorship identification,
(8) children's programming advertisements, and
(9) closed captioning,
- registration of cable systems and facilities licensing,
- maintenance of various records and public inspection files,
- aeronautical frequency usage,
- lockbox availability,
- antenna structure notification,
- tower marking and lighting,
- consumer protection and customer service standards,
- technical standards,
- consumer electronics equipment compatibility, and
- emergency alert systems.
The Federal Communications Commission recently ruled that cable customers
must be allowed to purchase cable converters from third parties and established
a multi-year phase-in during which security functions, which would remain in the
operator's exclusive control, would be unbundled from basic converter functions,
which could then be satisfied by third party vendors.
The Federal Communications Commission 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 Federal Communications Commission licenses needed to
operate certain transmission facilities used in connection with cable
operations.
COPYRIGHT. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, that varies depending on the size
of the system, the number of distant broadcast television signals carried, and
the location of the cable system, cable operators can obtain blanket permission
to retransmit copyrighted material included in broadcast signals. The possible
modification or elimination of this compulsory copyright license is the subject
of continuing legislative review and could adversely affect our ability to
obtain desired broadcast programming. We cannot predict the outcome of this
legislative activity. Copyright clearances for nonbroadcast programming services
are arranged through private negotiations.
Cable operators distribute locally originated programming and advertising
that use music controlled by the two principal major music performing rights
organizations, the American Society of Composers, Authors and Publishers and
Broadcast Music, Inc. The cable industry has had a long series of negotiations
and adjudications with both organizations. A prior voluntarily negotiated
agreement with Broadcast Music has now expired, and is subject to further
proceedings. The governing rate court recently set retroactive and prospective
cable industry rates for American Society of Composers music based on the
previously negotiated Broadcast Music rate. Although we cannot predict the
ultimate outcome of these industry proceedings or the amount of any license fees
we may be required to pay for past and future use of association-controlled
music, we do not believe such license fees will be significant to our business
and operations.
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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 local franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
failed to comply with material provisions.
The specific terms and conditions of franchises vary materially between
jurisdictions. Each franchise generally contains provisions governing cable
operations, service rates, franchising fees, system construction and maintenance
obligations, system channel capacity, design and technical performance, customer
service standards, and indemnification protections. A number of states,
including Connecticut, subject cable systems to the jurisdiction of centralized
state governmental agencies, some of which impose regulation of a character
similar to that of a public utility. Although local franchising authorities have
considerable discretion in establishing franchise terms, there are certain
federal limitations. For example, local franchising authorities cannot insist on
franchise fees exceeding 5% of the system's gross cable-related revenues, cannot
dictate the particular technology used by the system, and cannot specify video
programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchising 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 local franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such local franchising authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
consent. Historically, most franchises have been renewed for and consents
granted to cable operators that have provided satisfactory services and have
complied with the terms of their franchise.
Under the 1996 Telecom Act, cable operators are not required to obtain
franchises for the provision of telecommunications services, and local
franchising authorities are prohibited from limiting, restricting, or
conditioning the provision of such services. In addition, local franchising
authorities may not require a cable operator to provide any telecommunications
service or facilities, other than institutional networks under certain
circumstances, as a condition of an initial franchise grant, a franchise
renewal, or a franchise transfer. The 1996 Telecom Act also provides that
franchising fees are limited to an operator's cable-related revenues and do not
apply to revenues that a cable operator derives from providing new
telecommunications services.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Charter Holdings is a holding company with no operations. Charter Capital
is a direct wholly owned finance subsidiary of Charter Holdings that exists
solely for the purpose of serving as co-obligor of the notes and the March 1999
Charter Holdings notes and has no operations. Neither Charter Holdings nor
Charter Capital has any employees. We and our direct and indirect subsidiaries
are managed by Charter Communications, Inc. See "Certain Relationships and
Related Transactions."
The following persons are directors of Charter Communications, Inc.,
Charter Communications Holding Company or an issuer of the notes, as indicated:
<TABLE>
<CAPTION>
DIRECTORS AGE POSITION
--------- --- --------
<S> <C> <C>
Paul G. Allen................................ 47 Chairman of the Board of Directors of
Charter Communications, Inc. and Director of
Charter Communications Holding Company
William D. Savoy............................. 35 Director of Charter Communications, Inc.,
Charter Communications Holding Company and
Charter Holdings
Jerald L. Kent............................... 43 Director of Charter Communications, Inc.,
Charter Communications Holding Company,
Charter Holdings and Charter Capital
Marc B. Nathanson............................ 54 Director of Charter Communications, Inc.
Ronald L. Nelson............................. 47 Director of Charter Communications, Inc.
Nancy B. Peretsman........................... 45 Director of Charter Communications, Inc.
Howard L. Wood............................... 60 Director of Charter Communications, Inc.
</TABLE>
The following persons are executive officers of each of Charter
Communications, Inc., Charter Communications Holding Company and the issuers of
the notes:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AGE POSITION
------------------ --- --------
<S> <C> <C>
Jerald L. Kent............................... 43 President and Chief Executive Officer
David G. Barford............................. 41 Senior Vice President of
Operations -- Western Division
Mary Pat Blake............................... 44 Senior Vice President -- Marketing and
Programming
Eric A. Freesmeier........................... 46 Senior Vice President -- Administration
Thomas R. Jokerst............................ 50 Senior Vice President -- Advanced Technology
Development
Kent D. Kalkwarf............................. 40 Senior Vice President and Chief Financial
Officer
Ralph G. Kelly............................... 42 Senior Vice President -- Treasurer
David L. McCall.............................. 44 Senior Vice President of
Operations -- Eastern Division
John C. Pietri............................... 50 Senior Vice President -- Engineering
Michael E. Riddle............................ 40 Senior Vice President and Chief Information
Officer
Steven A. Schumm............................. 47 Executive Vice President, Assistant to the
President
Curtis S. Shaw............................... 51 Senior Vice President, General Counsel and
Secretary
Stephen E. Silva............................. 39 Senior Vice President -- Corporate
Development and Technology
</TABLE>
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The following sets forth certain biographical information with respect to
the directors, director nominees and executive officers named above.
PAUL G. ALLEN is the Chairman of the board of directors of Charter
Communications, Inc. and of the board of directors of Charter Investment, Inc.,
and a director of Charter Communications Holding Company. Mr. Allen has been a
private investor for more than five years, with interests in a wide variety of
companies, many of which focus on multimedia digital communications. Such
companies include Interval Research Corporation, of which Mr. Allen is a
director, Vulcan Ventures, Inc., of which Mr. Allen is the President, Chief
Executive Officer and Chairman of the board of directors, Vulcan Northwest,
Inc., of which Mr. Allen is the Chairman of the board, Vulcan Programming, Inc.
and Vulcan Cable III Inc. In addition, Mr. Allen is the owner and the Chairman
of the board of directors of the Portland Trail Blazers of the National
Basketball Association, and is the owner and the Chairman of the board of
directors of the Seattle Seahawks of the National Football League. Mr. Allen
currently serves as a director of Microsoft Corporation and USA Networks, Inc.
and also serves as a director of various private corporations.
WILLIAM D. SAVOY is a director of Charter Communications, Inc., Charter
Communications Holding Company, Charter Holdings and Charter Investment, Inc.
Since 1990, Mr. Savoy has been an officer and a director of many affiliates of
Mr. Allen, including Vice President and a director of Vulcan Ventures, President
of Vulcan Northwest, President and a director of Vulcan Programming and
President and director of Vulcan Cable III Inc. From 1987 until November 1990,
Mr. Savoy was employed by Layered, Inc. and became its President in 1988. Mr.
Savoy serves on the Advisory Board of DreamWorks SKG and also serves as a
director of CNET, Inc., Go2Net, Inc., Harbinger Corporation, High Speed Access
Corp., Metricom, Inc., Telescan, Inc., Ticketmaster Online -- CitySearch, Inc.,
USA Networks, Inc. and Value America, Inc. Mr. Savoy holds a B.S. in computer
science, accounting and finance from Atlantic Union College.
JERALD L. KENT is the President, Chief Executive Officer and director of
Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc., and previously held the
position of Chief Financial Officer of Charter Investment, Inc. Prior to
co-founding Charter Investment, Inc. in 1993, Mr. Kent was associated with
Cencom Cable Associates, Inc., where he served as Executive Vice President and
Chief Financial Officer. Mr. Kent also served Cencom as Senior Vice President of
Finance from May 1987, Senior Vice President of Acquisitions and Finance from
July 1988, and Senior Vice President and Chief Financial Officer from January
1989. Prior to that time, Mr. Kent was employed by Arthur Andersen LLP,
certified public accountants, where he attained the position of tax manager. Mr.
Kent is a member of the board of directors of High Speed Access Corp., Cable
Television Laboratories, Inc. and Com21 Inc. Mr. Kent, a certified public
accountant, received his undergraduate and M.B.A. degrees with honors from
Washington University (St. Louis).
MARC B. NATHANSON is a director of Charter Communications, Inc. and has
served in the non-executive position of Vice Chairman of that company since
November 1999. Mr. Nathanson has been Chairman of the board of directors and
Chief Executive Officer of Falcon Holding Group, Inc. and its predecessors since
1975, and prior to September 1995 also served as President of that company.
Prior to 1975, Mr. Nathanson was vice president of marketing for Teleprompter
Corporation, then the largest cable operator in the United States. He also held
executive positions with Warner Cable and Cypress Communications Corporation. He
is a former President of the California Cable Television Association and a
member of Cable Pioneers. He is currently a director of the National Cable
Television Association and chaired its 1999 National Convention. Mr. Nathanson
has served as Chairman of the Board, Chief Executive Officer and President of
Enstar Communications Corporation since October 1988, and is a director of
Digital Entertainment Network, Inc. and an
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Advisory Board member of TVA (Brazil). Mr. Nathanson was appointed by President
Clinton on November 1, 1998 as Chair of the Board of Governors for the
International Bureau of Broadcasting, which oversees Voice of America, Radio/TV
Marti, Radio Free Asia, Radio Free Europe and Radio Liberty. Mr. Nathanson is a
trustee of the Annenberg School of Communications at the University of Southern
California and a member of the Board of Visitors of the Anderson School of
Management at UCLA. In addition, he serves on the Board of the UCLA Foundation
and the UCLA Center for Communications Policy and is on the Board of Governors
of AIDS Project Los Angeles and Cable Positive.
RONALD L. NELSON is a director of Charter Communications, Inc. He is a
founding member of DreamWorks LLC and has been serving as a member of its
executive management team since 1994 with responsibility for overseeing
operations and corporate finance. Prior to joining DreamWorks, Mr. Nelson was
employed for 15 years by Paramount Communications Inc. (formerly Gulf + Western
Inc.), serving in a variety of operating and executive positions. Mr. Nelson was
elected Executive Vice President of Paramount Communications in 1990 and was
appointed to its board of directors in 1992. He also served as Chief Financial
Officer of Paramount Communications from 1987 until 1994. Mr. Nelson serves on
the board of directors of Advanced Tissue Sciences, a biotechnology firm. Mr.
Nelson has a B.S. in biochemistry from the University of California at Berkeley
and a masters degree in business from the University of California at Los
Angeles.
NANCY B. PERETSMAN is a director of Charter Communications, Inc. She has
been a Managing Director and Executive Vice President of Allen & Company
Incorporated, an investment bank unrelated to Mr. Allen, since June 1995. Prior
to joining Allen & Company Incorporated, Ms. Peretsman had been an investment
banker since 1983 at Salomon Brothers Inc, where she was a Managing Director
since 1990. Ms. Peretsman serves on the board of directors of Oxygen Media,
Inc., an Internet and cable television enterprise. Ms. Peretsman also serves on
the board of directors of Priceline.com Incorporated, as well as on the boards
of several privately held companies. Ms. Peretsman received a B.A. from
Princeton in 1973 and an M.P.P.M. degree from Yale in 1979.
HOWARD L. WOOD is a director of Charter Communications, Inc. and has served
as a consultant to that company since November 1999. Mr. Wood is a co-founder of
Charter Investment, Inc. Prior to co-founding Charter Investment, Inc. in 1993,
Mr. Wood was associated with Cencom Cable Associates, Inc. Mr. Wood joined
Cencom as President, Chief Financial Officer and director and assumed the
additional position of Chief Executive Officer effective January 1, 1989. Prior
to that time, Mr. Wood was a partner in Arthur Andersen LLP, certified public
accountants, where he served as Partner-in-Charge of the St. Louis Tax Division
from 1973 until joining Cencom. Mr. Wood is a certified public accountant and a
member of the American Institute of Certified Public Accountants. He also serves
as a director of VanLiner Group, Inc., First State Community Bank, Gaylord
Entertainment Company and Data Research, Inc. Mr. Wood serves as Commissioner
for the Missouri Department of Conservation. He is also a past Chairman of the
board of directors and former director of the St. Louis College of Pharmacy. Mr.
Wood graduated with honors from Washington University (St. Louis) School of
Business.
DAVID G. BARFORD is Senior Vice President of Operations -- Western Division
of Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc. He has primary
responsibility for all cable operations in the Central, North Central,
MetroPlex, Southern California, Northwest, Michigan and National regions. Prior
to joining Charter Investment, Inc. in July 1995, he served as Vice President of
Operations and New Business Development for Comcast Cable Communications, Inc.,
where he held various senior marketing and operating roles since November 1986.
Mr. Barford received a B.A. degree from California State University, Fullerton
and an M.B.A. from National University in La Jolla, California.
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<PAGE> 136
MARY PAT BLAKE is Senior Vice President -- Marketing and Programming of
Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc. and is responsible for
all aspects of marketing, advertising, sales and programming. Prior to joining
Charter Investment, Inc. in August 1995, Ms. Blake was active in the emerging
business sector, and formed Blake Investments, Inc. in September 1993, which
created, operated and sold a branded coffeehouse and bakery. From September 1990
to August 1993, Ms. Blake served as Director -- Marketing for Brown Shoe
Company. Ms. Blake has 18 years of experience with senior management
responsibilities in marketing, sales, finance, systems, and general management
with companies such as The West Coast Group, Pepsico Inc.-Taco Bell Division,
General Mills, Inc. and ADP Network Services, Inc. Ms. Blake received a B.S.
degree from the University of Minnesota, and an M.B.A. degree from the Harvard
Business School.
ERIC A. FREESMEIER is Senior Vice President -- Administration of Charter
Communications, Inc., Charter Communications Holding Company, Charter Holdings,
Charter Capital and Charter Investment, Inc. and is responsible for human
resources, public relations and communications, corporate facilities and
aviation. From 1986 until joining Charter Investment, Inc. in April 1998, he
served in various executive management positions at Edison Brothers Stores,
Inc., a specialty retail company where his most recent position was Executive
Vice President -- Human Resources and Administration. From 1974 to 1986, Mr.
Freesmeier held management and executive positions with Montgomery Ward, a
national mass merchandise retailer, and its various subsidiaries. Mr. Freesmeier
holds Bachelor of Business degrees in marketing and industrial relations from
the University of Iowa and a Masters of Management degree in finance from
Northwestern University's Kellogg Graduate School of Management.
THOMAS R. JOKERST is Senior Vice President -- Advanced Technology
Development of Charter Communications, Inc., Charter Communications Holding
Company, Charter Holdings, Charter Capital and Charter Investment, Inc. Prior to
his appointment as Senior Vice President, Mr. Jokerst held the position of
Senior Vice President -- Engineering of Charter Investment, Inc. since January
1994. From March 1991 to March 1993, Mr. Jokerst served as Vice
President -- Office of Science and Technology for Cable Television Laboratories
in Boulder, Colorado. From June 1976 to March 1991, Mr. Jokerst was Director of
Engineering for the midwest region of Continental Cablevision. Mr. Jokerst
participates in professional activities with the National Cable Television
Association, SCTE and Cable Television Laboratories. Mr. Jokerst is a graduate
of Ranken Technical Institute in St. Louis with a degree in communications
electronics and computer technology and of Southern Illinois University in
Carbondale, Illinois with a degree in electronics technology.
KENT D. KALKWARF is Senior Vice President and Chief Financial Officer of
Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc. From July 1995 to May
1997, Mr. Kalkwarf served as a Vice President of Charter Investment, Inc. Prior
to joining Charter Investment, Inc. in 1995, Mr. Kalkwarf was employed by Arthur
Andersen LLP, from 1982 to July 1995, where he attained the position of senior
tax manager. Mr. Kalkwarf has extensive experience in cable, real estate and
international tax issues. Mr. Kalkwarf has a B.S. degree from Illinois Wesleyan
University and is a certified public accountant.
RALPH G. KELLY is Senior Vice President -- Treasurer of Charter
Communications, Inc., Charter Communications Holding Company, Charter Holdings,
Charter Capital and Charter Investment, Inc. Mr. Kelly joined Charter
Investment, Inc. in 1993 as Vice President -- Finance, a position he held until
early 1994 when he became Chief Financial Officer of CableMaxx, Inc., a wireless
cable television operator. Mr. Kelly returned to Charter Investment, Inc. as
Senior Vice President -- Treasurer in February 1996, and has responsibility for
treasury operations, investor relations and financial reporting. From 1984 to
1993, Mr. Kelly was associated with Cencom Cable Associates, Inc.
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<PAGE> 137
where he held the positions of Controller from 1984 to 1989 and Treasurer from
1990 to 1993. Mr. Kelly is a certified public accountant and was in the audit
division of Arthur Andersen LLP from 1979 to 1984. Mr. Kelly received his
undergraduate degree in accounting from the University of Missouri -- Columbia
and his M.B.A. from Saint Louis University.
DAVID L. MCCALL is Senior Vice President of Operations -- Eastern Division
of Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc. Mr. McCall joined Charter
Investment, Inc. in January 1995 as Regional Vice President Operations and has
primary responsibility for all cable system operations managed by Charter
Communications, Inc. in the Southeast, Mid-South, Northeast, Gulf Coast and
Mid-Atlantic regions. Prior to joining Charter Investment, Inc., Mr. McCall was
associated with Crown Cable and its predecessor company, Cencom Cable
Associates, Inc., from 1983 to 1994. As a Regional Manager of Cencom, Mr.
McCall's responsibilities included supervising all aspects of operations for
systems located in North Carolina, South Carolina and Georgia, consisting of
over 142,000 customers. From 1977 to 1982, Mr. McCall was System Manager of
Coaxial Cable Developers (known as Teleview Cablevision) in Simpsonville, South
Carolina. Mr. McCall has served as a director of the South Carolina Cable
Television Association for the past ten years.
JOHN C. PIETRI is Senior Vice President -- Engineering of Charter
Communications, Inc., Charter Communications Holding Company, Charter Holdings,
Charter Capital and Charter Investment, Inc. Prior to joining Charter
Investment, Inc. in Nov. 1998, Mr. Pietri was with Marcus Cable in Dallas, Texas
for eight years, most recently serving as Senior Vice President and Chief
Technical Officer. Prior to Marcus, Mr. Pietri served as Regional Technical
Operations Manager for West Marc Communications in Denver, Colorado, and before
that he served as Operations Manager with Minnesota Utility Contracting. Mr.
Pietri attended the University of Wisconsin-Oshkosh.
MICHAEL E. RIDDLE is Senior Vice President and Chief Information Officer of
Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings and Charter Capital. From October 1995 to October 1999, Mr. Riddle
served as Director, Applied Technologies of Cox Communications. From January
1991 to October 1995, Mr. Riddle was a member of the Technical Staff of
Southwestern Bell Technology Resources, Inc. From July 1990 to January 1991, Mr.
Riddle served as Area Manager with Southwestern Bell. From 1986 to 1990, Mr.
Riddle was a member of the Technical Staff of Bell Communications Research, Inc.
From 1980 to 1986, Mr. Riddle held various management positions with
Southwestern Bell. Mr. Riddle attended Fort Hays State University.
STEVEN A. SCHUMM is Executive Vice President and Assistant to the President
of Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc. Mr. Schumm joined Charter
Investment, Inc. in December 1998 and currently has overall responsibility for
the MIS, Regulatory and Financial Controls Groups. Prior to joining Charter
Investment, Inc., Mr. Schumm was managing partner of the St. Louis office of
Ernst & Young LLP. Mr. Schumm was with Ernst & Young LLP for 24 years and was a
partner of the firm for 14 of those years. Mr. Schumm held various management
positions with Ernst & Young LLP, including the Director of Tax Services for the
three-city area of St. Louis, Kansas City and Wichita and then National Director
of Industry Tax Services. He served as one of 10 members comprising the firm's
National Tax Committee. Mr. Schumm earned a B.S. degree from Saint Louis
University with a major in accounting.
CURTIS S. SHAW is Senior Vice President, General Counsel and Secretary of
Charter Communications, Inc., Charter Communications Holding Company, Charter
Holdings, Charter Capital and Charter Investment, Inc. and is responsible for
all legal aspects of their businesses, government relations and the duties of
the corporate secretary. Prior to joining Charter Investment, Inc. in February
1997, Mr. Shaw served as Corporate Counsel to NYNEX since 1988.
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From 1983 until 1988, Mr. Shaw served as Associate General Counsel for
Occidental Chemical Corporation, and, from 1986 until 1988, as Vice President
and General Counsel of its largest operating division. Mr. Shaw has over 25
years of experience as a corporate lawyer, specializing in mergers and
acquisitions, joint ventures, public offerings, financings, and federal
securities and antitrust law. Mr. Shaw received a B.A. with honors from Trinity
College and a J.D. from Columbia University School of Law.
STEPHEN E. SILVA is Senior Vice President -- Corporate Development and
Technology of Charter Communications, Inc., Charter Communications Holding
Company, Charter Holdings, Charter Capital and Charter Investment, Inc. and is
responsible for strategic development, testing and initial rollout of new
products and services. From 1983 until joining Charter Investment, Inc. in April
1995, Mr. Silva served in various management positions at U.S. Computer
Services, Inc. (doing business as CableData), a service bureau organization
engaged in customer billing services. Mr. Silva joined Charter Investment, Inc.
as Director of Billing Services, and was promoted to Vice President --
Information Services in January 1997. Mr. Silva became Vice
President -- Corporate Development and Technology in April 1998, and was
promoted to Senior Vice President -- Corporate Development and Technology in
September 1999. Mr. Silva is a member of the board of directors of High Speed
Access Corp.
DIRECTOR COMPENSATION
The directors of Charter Holdings and Charter Capital are not entitled to
any compensation for serving as a director, nor are they paid any fees for
attendance at any meeting of the board of directors. Directors may also be
reimbursed for the actual reasonable costs incurred in connection with
attendance at board meetings.
The employee directors of Charter Communications, Inc. are not entitled to
any compensation for serving as a director, nor are they paid any fees for
attendance at any meeting of the board of directors. Each non-employee director
and director nominee has been issued 40,000 options in connection with joining
or agreeing to join the board of directors and may receive additional
compensation to be determined. Directors may also be reimbursed for the actual
reasonable costs incurred in connection with attendance at board meetings.
EMPLOYMENT AND CONSULTING AGREEMENTS
Effective as of December 23, 1998, Jerald L. Kent entered into an
employment agreement with Mr. Allen for a three-year term with automatic
one-year renewals. The employment agreement was assigned by Mr. Allen to Charter
Investment, Inc. as of December 23, 1998. Charter Investment, Inc. subsequently
assigned Mr. Kent's employment agreement to Charter Communications, Inc. and
Charter Communications, Inc. has assumed all rights and obligations of Charter
Investment, Inc. under the agreement, except with respect to the grant of
options, which will be obligations of Charter Communications Holding Company.
Under this agreement, Mr. Kent agrees to serve as President and Chief
Executive Officer of Charter Communications, Inc., with responsibility for the
nationwide general management, administration and operation of all present and
future business of Charter Communications, Inc. and its subsidiaries. During the
initial term of the agreement, Mr. Kent will receive an annual base salary of
$1,250,000, or such higher rate as may from time to time be determined by
Charter Communications, Inc.'s board of directors in its discretion. In
addition, Mr. Kent will be eligible to receive an annual bonus in an aggregate
amount not to exceed $625,000, to be determined by the board based on an
assessment of the performance of Mr. Kent as well as the achievement of certain
financial targets.
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Under the agreement, Mr. Kent is entitled to participate in any disability
insurance, pension, or other benefit plan afforded to employees generally or
executives of Charter Communications, Inc. Mr. Kent will be reimbursed by
Charter Communications, Inc. for life insurance premiums up to $30,000 per year,
and is granted personal use of the corporate airplane. Mr. Kent was also granted
a car valued at up to $100,000 and the fees and dues for his membership in a
country club of his choice, but has not accepted use of the car as of the date
of this offering circular. He may choose to do so in the future. Also under this
agreement and a related agreement with Charter Communications Holding Company,
Mr. Kent received options to purchase 7,044,127 Charter Communications Holding
Company membership units. The options have a term of ten years and vested 25% on
December 23, 1998. The remaining 75% vest 1/36 on the first day of each of the
36 months commencing on the first day of the thirteenth month following December
23, 1998. The terms of these options provide that immediately following the
issuance of Charter Communications Holding Company membership units, these units
will automatically convert to shares of Class A common stock. This exchange will
occur on a one-for-one basis.
Charter Communications, Inc. agrees to indemnify and hold harmless Mr. Kent
to the maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses in connection with or arising out of the
performance by Mr. Kent of his duties.
If the agreement expires because Charter Communications, Inc. gives Mr.
Kent notice of its intention not to extend the initial term, or if the agreement
is terminated by Mr. Kent for good reason or by Charter Communications, Inc.
without cause:
- Charter Communications, Inc. will pay to Mr. Kent an amount equal to the
aggregate base salary due to Mr. Kent for the remaining term and the
board will consider additional amounts, if any, to be paid to Mr. Kent;
and
- any unvested options of Mr. Kent shall immediately vest.
Effective as of November 12, 1999, Charter Communications, Inc. entered
into a consulting agreement with Howard L. Wood. In connection with this
agreement, Mr. Wood received options to purchase 40,000 membership units of
Charter Communications Holding Company, which vested immediately. The consulting
agreement has a one-year term with automatic one-year renewals. Under this
agreement, Mr. Wood provides consulting services to Charter Communications, Inc.
and will also be responsible for such other duties as the Chief Executive
Officer determines. During the term of this agreement, Mr. Wood will receive
annual cash compensation initially at a rate of $60,000. In addition, Mr. Wood
is entitled to receive disability and health benefits as well as use of an
office and a full-time secretary.
Charter Communications, Inc. will indemnify and hold harmless Mr. Wood to
the maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses incurred in connection with or arising
out of the performance by him of his duties.
Charter Communications, Inc. and Marc B. Nathanson have entered into an
agreement pursuant to which Mr. Nathanson is entitled to receive $125,000 per
year and certain other benefits.
EXECUTIVE COMPENSATION
None of the executive officers listed above has ever received any
compensation from Charter Holdings or Charter Capital, nor do such individuals
expect to receive compensation from Charter Holdings or Charter Capital at any
time in the future. Such executive officers receive their compensation from
Charter Communications, Inc. Pursuant to a mutual services agreement between
Charter Communications, Inc. and Charter Investment, Inc., each of those
entities provides services to each other, including the knowledge and expertise
of their respective officers. See "Certain Relationships and Related
Transactions."
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The following table sets forth information regarding the compensation paid
by Charter Investment, Inc., the previous manager of our cable systems prior to
Charter Communications, Inc. becoming our manager, during the fiscal year ended
December 31, 1998 to the President and Chief Executive Officer and each of the
other four most highly compensated executive officers of Charter Investment,
Inc. as of December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARD
--------------------------------------- ------------
YEAR OTHER SECURITIES
ENDED ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION DEC. 31 SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- ------- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Jerald L. Kent...................... 1998 790,481 641,353 -- 7,044,127(1) 18,821(2)
President and Chief Executive
Officer
Barry L. Babcock(3)................. 1998 575,000 925,000(4) -- -- 41,866(5)
Vice Chairman
Howard L. Wood...................... 1998 575,000 675,000(6) -- -- 15,604(7)
Vice Chairman
David G. Barford.................... 1998 220,000 225,000(8) -- -- 8,395,235(9)
Senior Vice President of
Operations -- Western Division
Curtis S. Shaw...................... 1998 190,000 80,000 -- -- 8,182,303(10)
Senior Vice President, General
Counsel and Secretary
</TABLE>
- -------------------------
(1) Options for membership units in Charter Communications Holding Company
granted pursuant to an employment agreement and a related option agreement.
(2) Includes $4,000 in 401(k) plan matching contribution, $918 in life
insurance premiums, $418 in gasoline reimbursement and $13,485 attributed
to personal use of Charter Investment, Inc.'s airplane.
(3) Mr. Babcock resigned as an executive officer of Charter Communications,
Inc. in October 1999.
(4) Includes $500,000 earned as a one-time bonus upon signing of an employment
agreement.
(5) Includes $4,000 in 401(k) plan matching contributions, $2,493 in life
insurance premiums, $970 in gasoline reimbursement and $34,403 attributed
to personal use of Charter Investment, Inc.'s airplane.
(6) Includes $250,000 earned as a one-time bonus upon signing of an employment
agreement.
(7) Includes $4,000 in 401(k) plan matching contributions, $4,050 in life
insurance premiums, $1,242 in gasoline reimbursement and $6,312 attributed
to personal use of Charter Investment, Inc.'s airplane.
(8) Includes $150,000 received as a one-time bonus after completion of three
years of employment.
(9) Includes $4,000 in 401(k) plan matching contribution, $347 in life
insurance premiums, and $8,390,888 received in March 1999, in connection
with a one-time change of control payment under the terms of a previous
equity appreciation rights plan. This payment was triggered by the
acquisition of us by Mr. Allen on December 23, 1998, but is income for
1999.
(10) Includes $2,529 in 401(k) plan matching contribution, $807 in life
insurance premiums, and $8,178,967 received in March 1999, in connection
with a one-time change of control payment
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under the terms of a previous equity appreciation rights plan. This payment
was triggered by the acquisition of us by Mr. Allen on December 23, 1998,
but is income for 1999.
1998 OPTION GRANTS
The following table shows individual grants of options made to certain
executive officers during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE AT
MEMBERSHIP % OF TOTAL ASSUMED ANNUAL RATES OF
UNITS OPTIONS MEMBERSHIP UNIT PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ----------------------------------
NAME GRANTED IN 1998 PRICE DATE 5% 10%
- ---- ---------- ------------ --------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jerald L. Kent............. 7,044,127(2) 100% $20.00 12/22/08 $88,600,272 $224,530,486
Barry L. Babcock........... -- -- -- -- -- --
Howard L. Wood............. -- -- -- -- -- --
David G. Barford........... -- -- -- -- -- --
Curtis S. Shaw............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) This column shows the hypothetical gains on the options granted based on
assumed annual compound price appreciation of 5% and 10% over the full
ten-year term of the options. The assumed rates of appreciation are mandated
by the SEC and do not represent our estimate or projection of future prices.
(2) Options for membership units in Charter Communications Holding Company
granted pursuant to an employment agreement and a related option agreement
which amends the options granted under the employment agreement. Under these
agreements, Mr. Kent received an option to purchase 3% of the net equity
value of all of the cable systems managed by Charter Investment, Inc. on the
date of the grant. The option has a term of 10 years and vested one fourth
on December 23, 1998, with the remaining portion vesting monthly at a rate
of 1/36th on the first of each month for months 13 through 48. Upon the
exercise of an option, each membership unit received will automatically be
exchanged on a one-for-one basis for shares of Charter Communications, Inc.
Class A common stock.
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1998 AGGREGATED OPTION EXERCISES AND OPTION VALUE TABLE
The following table sets forth for certain executive officers information
concerning the options granted during the fiscal year ended December 31, 1998,
and the value of unexercised options as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerald L. Kent............................ 1,761,032 5,283,095 -- --
Barry L. Babcock.......................... -- -- -- --
Howard L. Wood............................ -- -- -- --
David G. Barford.......................... -- -- -- --
Curtis S. Shaw............................ -- -- -- --
</TABLE>
- ---------------
(1) No options were in-the-money as of December 31, 1998.
1999 OPTION GRANTS
The following table shows individual grants of options made to certain
executive officers during 1999, as of November 30, 1999. All such grants were
made under the option plan.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE VALUE OF OPTIONS TO HOLDER IF
MEMBERSHIP CHARTER COMMUNICATIONS, INC.'S
UNITS COMMON STOCK PRICE PER SHARE AT
UNDERLYING SOME FUTURE DATE IS:
OPTIONS EXERCISE EXPIRATION -------------------------------------------
NAME GRANTED PRICE DATE $19.00 $22.00 $26.00 $30.00
- ---- ---------- -------- ---------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerald L. Kent.............. -- -- -- -- -- -- --
Barry L. Babcock............ 65,000 $20.00 2/9/09 $ 0 $130,000 $ 390,000 $ 650,000
Howard L. Wood.............. 65,000 20.00 2/9/09 0 130,000 390,000 650,000
80,000 19.00 11/8/09 0 240,000 560,000 880,000
David G. Barford............ 200,000 20.00 2/9/09 0 400,000 1,200,000 2,000,000
Curtis S. Shaw.............. 200,000 20.00 2/9/09 0 400,000 1,200,000 2,000,000
</TABLE>
OPTION PLAN
Charter Holdings adopted an option plan on February 9, 1999, which was
assumed by Charter Communications Holding Company on May 25, 1999. This plan
provides for the grant of options to purchase up to 25,009,798 membership units
in Charter Communications Holding Company, which is equal to 10% of the
aggregate equity value of the subsidiaries of Charter Communications Holding
Company as of February 9, 1999, the date of adoption of the plan. The plan
provides for grants of options to current and prospective to employees and
consultants of Charter Communications Holding Company and its affiliates and
current and prospective non-employee directors of Charter Communications, Inc.
The plan is intended to promote the long-term financial interest of Charter
Communications Holding Company and its affiliates by encouraging eligible
individuals to acquire an ownership position in Charter Communications Holding
Company and its affiliates and providing incentives for performance. The options
expire after ten years from the date of grant. As of December 31, 1999, a total
of 13,713,481 options are outstanding under the plan. Of the options granted on
February 9, 1999, there remain outstanding 8,626,081 options with an exercise
price of $20.00. Of the options granted on April 5, 1999, there remain
outstanding 416,600 options with an exercise price of $20.73. Of the options
granted on November 8, 1999, there remain outstanding 4,670,800 options with an
exercise price of $19.00. Of the options granted on February 9, 1999,
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130,000 options have vested. Of the remaining 8,496,081 options granted on that
date, one-fourth vest on April 3, 2000 and the remainder vest 1/45 on each
monthly anniversary following April 3, 2000. One-fourth of the options granted
on April 5, 1999 vest on the 15-month anniversary from April 5, 1999, with the
remainder vesting 1/45 on each monthly anniversary for 45 months following the
15-month anniversary of the date of grant. Of the options granted on November 8,
1999, 200,000 options have vested. Of the remaining 4,470,800 options granted on
that date, one-fourth vest on February 12, 2001, with the remainder vesting 1/45
on each monthly anniversary following the 15-month anniversary of the date of
grant. The options expire after ten years from the date of grant. Under the
plan, the plan administrator has the discretion to accelerate the vesting of any
options.
Under the terms of the plan, each membership unit held as a result of
exercise of options will be exchanged automatically for shares of Class A common
stock of Charter Communications, Inc. on a one-for-one basis.
Any unvested options issued under the plan vest immediately upon a change
of control of Charter Communications Holding Company. Options will not vest upon
a change of control, however, to the extent that any such acceleration of
vesting would result in the disallowance of specified tax deductions that would
otherwise be available to Charter Communications Holding Company or any of its
affiliates or to the extent that any optionee would be liable for any excise tax
under a specified section of the tax code. In the plan, a change of control
includes:
(1) a sale of more than 49.9% of the outstanding membership units in
Charter Communications Holding Company, except where Mr. Allen and his
affiliates retain effective voting control of Charter Communications
Holding Company;
(2) a merger or consolidation of Charter Communications Holding
Company with or into any other corporation or entity, except where Mr.
Allen and his affiliates retain effective voting control of Charter
Communications Holding Company; or
(3) any other transaction or event, including a sale of the assets of
Charter Communications Holding Company, that results in Mr. Allen holding
less than 50.1% of the voting power of the surviving entity, except where
Mr. Allen and his affiliates retain effective voting control of Charter
Communications Holding Company.
The sale of Charter Communications, Inc. Class A common stock in the initial
public offering was not a change of control under the option plan.
If an optionee's employment with or service to Charter Communications
Holding Company or its affiliates is terminated other than for cause, the
optionee has the right to exercise any vested options within sixty days of the
termination of employment. After this sixty-day period, all vested and unvested
options held by the optionee are automatically canceled. If an optionee's
employment or service is terminated for cause, any unexercised options are
automatically canceled. In this case, Mr. Allen, or, at his option, Charter
Communications Holding Company will have the right for ninety days after
termination to purchase all membership units held by the optionee for a purchase
price equal to the exercise price at which the optionee acquired the membership
units, or the optionee's purchase price for the membership units if they were
not acquired on the exercise of an option.
In the event of an optionee's death or disability, all vested options may
be exercised until the earlier of their expiration and one year after the date
of the optionee's death or disability. Any options not so exercised will
automatically be canceled.
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Upon termination for any other reason, all unvested options will
immediately be canceled and the optionee will not be entitled to any payment.
All vested options will be automatically canceled if not exercised within ninety
days after termination.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION MATTERS
The limited liability company agreement of Charter Holdings and the
certificate of incorporation of Charter Capital limit the liability of their
respective directors to the maximum extent permitted by Delaware law. The
Delaware General Corporation Law provides that a limited liability company and a
corporation may eliminate or limit the personal liability of a director for
monetary damages for breach of fiduciary duty as a director, except for
liability for:
(1) any breach of the director's duty of loyalty to the corporation and its
stockholders;
(2) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) unlawful payments of dividends or unlawful stock purchases or
redemptions; or
(4) any transaction from which the director derived an improper personal
benefit.
The limited liability company agreement of Charter Holdings and the by-laws
of Charter Capital provide that directors and officers shall be indemnified for
acts or omissions performed or omitted that are determined, in good faith, to be
in our best interest. No such indemnification is available for actions
constituting bad faith, willful misconduct or fraud.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Charter Holdings
and Charter Capital pursuant to the foregoing provisions, we have been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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PRINCIPAL EQUITY HOLDERS
Charter Holdings is a direct, wholly owned subsidiary of Charter
Communications Holding Company. Charter Communications, Inc. holds a 38%
economic interest and 100% of the voting interest in Charter Communications
Holding Company.
The following table sets forth certain information regarding beneficial
ownership of Charter Communications, Inc. common stock and Charter
Communications Holding Company common membership units as of December 15, 1999
by:
- each person known by us to own beneficially 5% or more of the outstanding
shares of Charter Communications, Inc. common stock and Charter
Communications Holding Company membership units;
- each of our directors who beneficially owns Charter Communications, Inc.
common stock or Charter Communications Holding Company membership units;
- each of our named executive officers who beneficially owns Charter
Communications, Inc. common stock or Charter Communications Holding
Company membership units; and
- all current directors and executive officers as a group.
With respect to the percentage of voting power set forth in the following
table:
- each holder of Class A common stock is entitled to one vote per share;
and
- each holder of Class B common stock is entitled to a number of votes
based on the number of outstanding Class B common stock and outstanding
membership units exchangeable for Class B common stock. For example, Mr.
Allen will be entitled to ten votes for each share of Class B common
stock held by him or his affiliates and ten votes for each membership
unit held by him or his affiliates.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF SHARES BENEFICIALLY SHARES BENEFICIALLY PERCENTAGE OF
BENEFICIAL OWNER OWNED(1) OWNED(1) VOTING POWER(1)
- ------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C>
Paul G. Allen(2)(3)............................... 324,320,544 55.6% 93.6%
Charter Investment, Inc.(4)....................... 217,585,246 37.3% 0.0%
Vulcan Cable III Inc.(2)(5)....................... 106,685,298 18.3% 0.0%
Jerald L. Kent(4)(6).............................. 5,266,032 * *
Barry L. Babcock(4)(7)............................ 2,565,000 * 0.0%
Howard L. Wood(4)(8).............................. 1,145,000 * 0.0%
Marc B. Nathanson(9).............................. 7,401,366 1.3% *
Ronald L. Nelson(10).............................. 40,000 * 0.0%
Nancy B. Peretsman(10)............................ 40,000 * 0.0%
William D. Savoy(11).............................. 429,184 * 0.0%
Curtis S. Shaw(12)................................ 5,000 * *
David G. Barford(12).............................. 2,500 * *
All directors and executive officers as a group
(19 persons).................................... 333,928,442 57.3% 93.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Membership units of Charter Communications Holding Company are exchangeable
for Charter Communications, Inc. common stock on a one-for-one basis. Class
B common stock is convertible into Class A common stock on a one-for-one
basis. In calculating the voting power percentages, we have assumed that
membership units have not been exchanged for Class A or Class B common
stock. In calculating beneficial share ownership and percentages, we have
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assumed that specified sellers in the Bresnan acquisition have received $1
billion of their consideration in Charter Communications Holding Company
membership units rather than in cash and these membership units have not
been exchanged for shares of Class A common stock.
(2) The address of these persons is 110 110th Street, NE, Suite 500, Bellevue,
WA 98004.
(3) Represents 217,585,246 membership units held by Charter Investment, Inc.;
106,685,298 membership units held by Vulcan Cable III Inc.; and 50,000
shares of Class B common stock held directly by Mr. Allen. Of this amount,
389,184 shares of Class A common stock are subject to options to purchase
granted by Vulcan Cable III Inc. to Mr. Savoy that have vested or will vest
within 60 days.
(4) The address of these persons is Charter Communications, Inc., 12444
Powerscourt Drive, St. Louis, MO 63131.
(5) Of this amount, 389,184 shares of Class A common stock are subject to
options to purchase granted by Vulcan Cable III Inc. to Mr. Savoy that have
vested or will vest within 60 days.
(6) Represents 3,500,000 shares of Class A common stock issuable upon the
exchange of membership units attributable to such holder because of his
equity interest in Charter Investment, Inc.; 1,761,032 shares of Class A
common stock issuable upon the exchange of membership units issuable upon
the exercise of options to purchase such membership units that have vested
or will vest within 60 days; and 5,000 shares of Class A common stock.
(7) Represents 2,500,000 shares of Class A common stock issuable upon the
exchange of membership units attributable to such holder because of his
equity interest in Charter Investment, Inc. and 65,000 shares of Class A
common stock issuable upon exchange of membership units issuable upon
exercise of options to purchase such membership units that have vested.
(8) Represents 1,000,000 shares of Class A common stock issuable upon the
exchange of membership units attributable to such holder because of his
equity interest in Charter Investment, Inc. and 145,000 shares of Class A
common stock issuable upon exchange of membership units issuable upon
exercise of options to purchase such membership units that have vested or
will vest within 60 days.
(9) Represents 40,000 shares of Class A common stock issuable upon exchange of
membership units issuable upon exercise of options to purchase such
membership units that have vested and 7,361,366 shares of Class A common
stock attributable to such holder because of his ownership interests in or
control of various entities that hold shares of Class A common stock. The
address of this person is c/o Falcon Communications LP and Affiliates,
10900 Wilshire Blvd., Los Angeles, CA 90024.
(10) Represents 40,000 shares of Class A common stock issuable upon the exchange
of membership units issuable upon exercise of options to purchase such
membership units that have vested or will vest within 60 days.
(11) Represents 40,000 shares of Class A common stock issuable upon the exchange
of membership units issuable upon exercise of options to purchase such
membership units that have vested or will vest within 60 days and 389,184
shares of Class A common stock subject to options to purchase granted to
such holder by Vulcan Cable III Inc. that have vested or will vest within
60 days.
(12) Represents shares of Class A common stock.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following sets forth certain transactions in which we and our
directors, executive officers and affiliates, including the directors and
executive officers of Charter Communications, Inc., Charter Holdings, Charter
Capital and Charter Investment, Inc., are involved. We believe that each of the
transactions described below was on terms no less favorable to us than could
have been obtained from independent third parties.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
MERGER WITH MARCUS
On April 23, 1998, Mr. Allen acquired approximately 99% of the non-voting
economic interests in Marcus Cable, and agreed to acquire the remaining
interests in Marcus Cable. The aggregate purchase price was approximately $1.4
billion, excluding $1.8 billion in debt assumed. On February 22, 1999, Marcus
Holdings was formed, and all of Mr. Allen's interests in Marcus Cable were
transferred to Marcus Holdings on March 15, 1999. On March 31, 1999, Mr. Allen
completed the acquisition of all remaining interests in Marcus Cable.
On December 23, 1998, Mr. Allen acquired approximately 94% of the equity of
Charter Investment, Inc. for an aggregate purchase price of approximately $2.2
billion, excluding $2.0 billion in debt assumed. On February 9, 1999, Charter
Holdings was formed as a wholly owned subsidiary of Charter Investment, Inc. On
February 10, 1999, Charter Operating was formed as a wholly owned subsidiary of
Charter Holdings. In April 1999, Mr. Allen merged Marcus Holdings into Charter
Holdings, and the operating subsidiaries of Marcus Holdings and all of the cable
systems they owned came under the ownership of Charter Holdings, and, in turn,
Charter Operating. On May 25, 1999, Charter Communications Holding Company was
formed as a wholly owned subsidiary of Charter Investment, Inc. All of Charter
Investment, Inc.'s equity interests in Charter Holdings were transferred to
Charter Communications Holding Company.
In March 1999, we paid $20 million to Vulcan Northwest, an affiliate of Mr.
Allen, for reimbursement of direct costs incurred in connection with Mr. Allen's
acquisition of Marcus Cable. Such costs were principally comprised of financial,
advisory, legal and accounting fees.
On April 7, 1999, Mr. Allen merged Marcus Holdings into Charter Holdings.
Charter Holdings survived the merger, and the operating subsidiaries of Marcus
Holdings became subsidiaries of Charter Holdings.
At the time Charter Holdings issued $3.6 billion in principal amount of
notes in March 1999, this merger had not yet occurred. Consequently, Marcus
Holdings was a party to the indentures governing the March 1999 Charter Holdings
notes as a guarantor of Charter Holdings' obligations. Charter Holdings loaned
some of the proceeds from the sale of the March 1999 Charter Holdings notes to
Marcus Holdings, which amounts were used to complete the cash tender offers for
then-outstanding notes of subsidiaries of Marcus Holdings. Marcus Holdings
issued a promissory note in favor of Charter Holdings. The promissory note was
in the amount of $1.7 billion, with an interest rate of 9.92% and a maturity
date of April 1, 2007. Marcus Holdings guaranteed its obligations under the
promissory note by entering into a pledge agreement in favor of Charter Holdings
pursuant to which Marcus Holdings pledged all of its equity interests in Marcus
Cable as collateral for the payment and performance of the promissory note.
Charter Holdings pledged this promissory note to the trustee under the
indentures for the March 1999 Charter Holdings notes as collateral for the equal
and ratable benefit of the holders of the March 1999 Charter Holdings notes.
Upon the closing of the merger, and in accordance with the terms of the March
1999 Charter Holdings notes and the indentures for the March 1999 Charter
Holdings notes:
- the guarantee issued by Marcus Holdings was automatically terminated;
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- the promissory note issued by Marcus Holdings was automatically
extinguished, with no interest having accrued or being paid; and
- the pledge in favor of Charter Holdings of the equity interests in Marcus
Cable as collateral under the promissory note and the pledge in favor of
the trustee of the promissory note as collateral for the March 1999
Charter Holdings notes were automatically released.
MANAGEMENT AGREEMENTS WITH CHARTER COMMUNICATIONS, INC.
PREVIOUS MANAGEMENT AGREEMENTS. Prior to March 18, 1999, pursuant to a
series of management agreements with certain of our subsidiaries, Charter
Investment, Inc. provided management and consulting services to those
subsidiaries. In exchange for these services, Charter Investment, Inc. was
entitled to receive management fees of 3% to 5% of the gross revenues of all of
our systems plus reimbursement of expenses. However, our previous credit
facilities limited such management fees to 3% of gross revenues. The balance of
management fees payable under the previous management agreements was accrued.
Payment is at the discretion of Charter Investment, Inc. Certain deferred
portions of management fees bore interest at the rate of 8% per annum. Following
the closing of Charter Operating's current credit facilities, the previous
management agreements were replaced by a revised management agreement. The
material terms of our previous management agreements are substantially similar
to the material terms of the revised management agreement.
PREVIOUS MANAGEMENT AGREEMENT WITH MARCUS. On October 6, 1998, Marcus
Cable entered into a management consulting agreement with Charter Investment,
Inc. pursuant to which Charter Investment, Inc. agreed to provide certain
management and consulting services to Marcus Cable and its subsidiaries, in
exchange for a fee equal to 3% of the gross revenues of Marcus Cable's systems
plus reimbursement of expenses. Management fees expensed by Marcus Cable during
the period from October 1998 to December 31, 1998 were approximately $3.3
million. Upon Charter Holdings' merger with Marcus Holdings and the closing of
Charter Operating's current credit facilities, this agreement was terminated and
the subsidiaries of Marcus Cable began to receive management and consulting
services from Charter Investment, Inc. under the revised management agreement
described below.
THE REVISED MANAGEMENT AGREEMENT. On February 23, 1999, Charter
Investment, Inc. entered into a revised management agreement with Charter
Operating, which was amended and restated as of March 17, 1999. Upon the closing
of Charter Operating's current credit facilities on March 18, 1999, our previous
management agreements and the management consulting agreement with Marcus Cable
terminated and the revised management agreement became operative. Under the
revised management agreement, Charter Investment, Inc. agreed to manage the
operations of the cable television systems owned by Charter Operating's
subsidiaries, as well as any cable television systems Charter Operating
subsequently acquires. The term of the revised management agreement is ten
years.
The revised management agreement provided that Charter Operating would pay
Charter Investment, Inc. a management fee equal to its actual costs to provide
these services and a management fee of 3.5% of gross revenues. Gross revenues
include all revenues from the operation of Charter Operating's cable systems,
including, without limitation, subscriber payments, advertising revenues, and
revenues from other services provided by Charter Operating's cable systems.
Gross revenues do not include interest income or income from investments
unrelated to our cable systems.
Payment of the management fee to Charter Investment, Inc. is permitted
under Charter Operating's current credit facilities, but ranks below Charter
Operating's payment obligations under its current credit facilities. In the
event any portion of the management fee due and payable is not paid by Charter
Operating, it is deferred and accrued as a liability. Any deferred amount of the
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management fee will bear interest at the rate of 10% per annum, compounded
annually, from the date it was due and payable until the date it is paid. As of
September 30, 1999, no interest had accrued.
Pursuant to the terms of the revised management agreement, Charter
Operating agreed to indemnify and hold harmless Charter Investment, Inc. and its
shareholders, directors, officers and employees. This indemnity extends to any
and all claims or expenses, including reasonable attorneys' fees, incurred by
them in connection with any action not constituting gross negligence or willful
misconduct taken by them in good faith in the discharge of their duties to
Charter Operating.
The total management fees, including expenses, earned by Charter
Investment, Inc. under all management agreements were as follows:
<TABLE>
<CAPTION>
TOTAL FEES
YEAR FEES PAID EARNED
- ---- --------- ----------
(IN THOUSANDS)
<S> <C> <C>
Nine Months Ended September 30, 1999........................ $23,830 $33,095
Year Ended December 31, 1998................................ 17,073 27,500
Year Ended December 31, 1997................................ 14,772 20,290
Year Ended December 31, 1996................................ 11,792 15,443
</TABLE>
As of September 30, 1999, approximately $29.2 million remains unpaid under
all management agreements.
ASSIGNMENT AND AMENDMENT OF REVISED CHARTER OPERATING MANAGEMENT
AGREEMENT. On November 12, 1999, Charter Investment, Inc. assigned to Charter
Communications, Inc. all of its rights and obligations under the revised Charter
Operating management agreement. In connection with the assignment, the revised
Charter Operating management agreement was amended to eliminate the 3.5%
management fee. Under the amended agreement, Charter Communications, Inc. is
entitled to reimbursement from Charter Operating for all of its expenses, costs,
losses, liabilities and damages paid or incurred by it in connection with the
performance of its services under the amended agreement, with no cap on the
amount of reimbursement.
MANAGEMENT AGREEMENT WITH CHARTER COMMUNICATIONS, INC. On November 12,
1999, Charter Communications, Inc. entered into a management agreement with
Charter Communications Holding Company. Under this agreement, Charter
Communications, Inc. manages and operates the cable television systems owned or
to be acquired by Charter Communications Holding Company and its subsidiaries,
to the extent such cable systems are not subject to management agreements
between Charter Communications, Inc. and specific subsidiaries of Charter
Communications Holding Company.
The terms of this management agreement are substantially similar to the
terms of the Charter Operating management agreement. Charter Communications,
Inc. is entitled to reimbursement from Charter Communications Holding Company
for all expenses, costs, losses, liabilities and damages paid or incurred by
Charter Communications, Inc. in connection with the performance of its services,
which expenses will include any fees Charter Communications, Inc. is obligated
to pay under the mutual services agreement described below. There is no cap on
the amount of reimbursement to which Charter Communications, Inc. is entitled.
MUTUAL SERVICES AGREEMENT WITH CHARTER INVESTMENT, INC. Charter
Communications, Inc. has only thirteen employees, all of whom are also executive
officers of Charter Investment, Inc. Effective November 12, 1999, Charter
Communications, Inc. and Charter Investment, Inc. entered into a mutual services
agreement pursuant to which each entity provides services to the other as may be
reasonably requested in order to manage Charter Communications Holding Company
and to manage
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and operate the cable systems owned by its subsidiaries, including Charter
Holdings. In addition, officers of Charter Investment, Inc. also serve as
officers of Charter Communications, Inc. The officers and employees of each
entity are available to the other to provide the services described above. All
expenses and costs incurred with respect to the services provided are paid by
Charter Communications, Inc. Charter Communications, Inc. will indemnify and
hold harmless Charter Investment, Inc. and its directors, officers and employees
from and against any and all claims that may be made against any of them in
connection with the mutual services agreement except due to its or their gross
negligence or willful misconduct. The term of the mutual services agreement is
ten years, commencing on November 12, 1999, and the agreement may be terminated
at any time by either party upon thirty days' written notice to the other.
FALCON MANAGEMENT AGREEMENT. On November 12, 1999, Falcon Cable
Communications, a parent company of the Falcon operating companies, entered into
a management consulting agreement with Charter Communications, Inc. pursuant to
which Charter Communications, Inc. agreed to provide certain management and
consulting services to Falcon and its subsidiaries. The term of the management
agreement is ten years. The management agreement provides that Falcon will pay
Charter Communications, Inc. a management fee equal to its actual costs to
provide these services but limited to 5% of gross revenues.
Gross revenues include all revenues from the operation of Falcon's cable
systems, including, without limitation, subscriber payments, advertising
revenues, and revenues from other services provided by Falcon's cable systems.
Gross revenues do not include interest income or income from investments
unrelated to cable systems.
Payment of the management fee is permitted under Falcon's current credit
facilities, but ranks below Falcon's senior debt and shall not be paid except to
the extent allowed under the Falcon credit facilities. In the event any portion
of the management fee due and payable is not paid by Falcon, it is deferred and
accrued as a liability. Any deferred amount of the management fee will bear
interest at the rate of 10% per annum, compounded annually, from the date it was
due and payable until the date it is paid.
FANCH MANAGEMENT AGREEMENT. On November 12, 1999, CC VI Operating Company,
LLC, the parent company of the Fanch operating companies, entered into a
management consulting agreement with Charter Communications, Inc. pursuant to
which Charter Communications, Inc. agreed to provide certain management and
consulting services to Fanch and its subsidiaries. The term of the management
agreement is ten years. The management agreement provides that Fanch will pay
Charter Communications, Inc. a management fee equal to its actual costs to
provide these services but limited to 5% of gross revenues.
Gross revenues include all revenues from the operation of Fanch's cable
systems, including, without limitation, subscriber payments, advertising
revenues, and revenues from other services provided by Fanch's cable systems.
Gross revenues do not include interest income or income from investments
unrelated to cable systems.
Payment of the management fee is permitted under Fanch's current credit
facilities, but ranks below Fanch's senior debt and shall not be paid except to
the extent allowed under the Fanch credit facilities. In the event any portion
of the management fee due and payable is not paid by Fanch, it is deferred and
accrued as a liability. Any deferred amount of the management fee will bear
interest at the rate of 10% per annum, compounded annually, from the date it was
due and payable until the date it is paid.
AVALON MANAGEMENT ARRANGEMENT. Under the Avalon limited liability company
agreements, Charter Communications, Inc. agreed to provide certain management
and consulting services to CC Michigan, CC New England and their subsidiaries.
Under these arrangements, CC Michigan and
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CC New England will pay Charter Communications, Inc. a management fee equal to
their actual costs to provide these services but limited to 2% of gross
revenues.
Gross revenues include all revenues from the operation of the Avalon cable
systems, including, without limitation, subscriber payments, advertising
revenues, and revenues from other services provided by Avalon's cable systems.
Gross revenues do not include interest income or income from investments
unrelated to cable systems.
Payment of the management fee is permitted under the current credit
facilities of CC Michigan and CC New England, but ranks below the senior debt of
such companies and shall not be paid except to the extent allowed under such
credit facilities. In the event any portion of the management fee due and
payable is not paid by CC Michigan or CC New England, it is deferred and accrued
as a liability. Any deferred amount of the management fee will bear interest at
the rate of 10% per annum, compounded annually, from the date it was due and
payable until the date it is paid.
BRESNAN MANAGEMENT AGREEMENT. It is anticipated that upon closing of the
Bresnan acquisition, Charter Communications, Inc. will enter into a management
agreement with Bresnan similar to those described above.
CONSULTING AGREEMENT
On March 10, 1999, Charter Holdings entered into a consulting agreement
with Vulcan Northwest and Charter Investment, Inc. Pursuant to the terms of the
consulting agreement, Charter Holdings retained Vulcan Northwest and Charter
Investment, Inc. to provide advisory, financial and other consulting services
with respect to acquisitions of the business, assets or stock of other companies
by Charter Holdings or by any of its affiliates. Such services include
participation in the evaluation, negotiation and implementation of these
acquisitions. The agreement expires on December 31, 2000, and automatically
renews for successive one-year terms unless otherwise terminated.
All reasonable out-of-pocket expenses incurred by Vulcan Northwest and
Charter Investment, Inc. are Charter Holdings' responsibility and must be
reimbursed. Charter Holdings must also pay Vulcan Northwest and Charter
Investment, Inc. a fee for their services rendered for each acquisition made by
Charter Holdings or any of its affiliates. This fee equals 1% of the aggregate
value of such acquisition. Neither Vulcan Northwest nor Charter Investment, Inc.
received or will receive a fee in connection with the American Cable,
Renaissance, Greater Media, Helicon, Vista, Cable Satellite, InterMedia, Rifkin,
Avalon, Falcon and Fanch acquisitions. No such fee is or will be payable to
either Vulcan Northwest or Charter Investment, Inc. in connection with the
Bresnan acquisition or the Swap Transaction. Charter Holdings has also agreed to
indemnify and hold harmless Vulcan Northwest and Charter Investment, Inc., and
their respective officers, directors, stockholders, agents, employees and
affiliates, for all claims, actions, demands and expenses that arise out of this
consulting agreement and the services they provide to Charter Holdings.
Mr. Allen owns 100% of Vulcan Northwest and is the Chairman of the board.
William D. Savoy, another of Charter Communications, Inc.'s directors, is the
President and a director of Vulcan Northwest.
TRANSACTIONS WITH MR. ALLEN
On December 21, 1998, Mr. Allen contributed approximately $431 million to
Charter Investment, Inc. and received non-voting common stock of Charter
Investment, Inc. Such non-voting common stock was converted to voting common
stock on December 23, 1998.
On December 23, 1998, Mr. Allen contributed approximately $1.3 billion to
Charter Investment, Inc. and received voting common stock of Charter Investment,
Inc. Additionally, Charter Investment,
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Inc. borrowed approximately $6.2 million in the form of a bridge loan from Mr.
Allen. This bridge loan was contributed by Mr. Allen to Charter Investment, Inc.
in March 1999. No interest on such bridge loan was accrued or paid by Charter
Investment, Inc. On the same date, Mr. Allen also contributed approximately
$223.5 million to Vulcan Cable II, Inc., a company owned by Mr. Allen. Vulcan II
was merged with and into Charter Investment, Inc.
On January 5, 1999, Charter Investment, Inc. borrowed approximately $132.2
million in the form of a bridge loan from Mr. Allen. This bridge loan was
contributed by Mr. Allen to Charter Investment, Inc. in March 1999. No interest
on such bridge loan was accrued or paid by Charter Investment, Inc. On the same
date, Mr. Allen also acquired additional voting common stock of Charter
Investment, Inc. from Jerald L. Kent, Howard L. Wood and Barry L. Babcock for an
aggregate purchase price of approximately $176.7 million.
On January 11, 1999, Charter Investment, Inc. borrowed $25 million in the
form of a bridge loan from Mr. Allen. This bridge loan was contributed by Mr.
Allen to Charter Investment, Inc. in March 1999. No interest on such bridge loan
was accrued or paid by Charter Investment, Inc.
On March 16, 1999, Charter Investment, Inc. borrowed approximately $124.8
million in the form of a bridge loan from Mr. Allen. This bridge loan was
contributed by Mr. Allen to Charter Investment, Inc. in March 1999. No interest
on such bridge loan was accrued or paid by Charter Investment, Inc.
The $431 million contribution was used to redeem stock of certain
shareholders in Charter Investment, Inc. The $1.3 billion and $223.5 million
contributions by Mr. Allen were used by Charter Investment, Inc. to purchase the
remaining interest in CCA Group and CharterComm Holdings. All other
contributions to Charter Investment, Inc. by Mr. Allen were used in operations
of Charter Investment, Inc. and were not contributed to Charter Holdings.
On August 10, 1999, Vulcan Cable III Inc. purchased 24.1 million Charter
Communications Holding Company membership units for $500 million. On September
22, 1999, Mr. Allen, through Vulcan Cable III Inc., contributed an additional
$825 million, consisting of approximately $644.3 million in cash and
approximately $180.7 million in equity interests in Rifkin that Vulcan Cable III
Inc. had acquired in the Rifkin acquisition in exchange for 39.8 million Charter
Communications Holding Company membership units. Charter Communications Holding
Company in turn contributed the cash and equity interests to Charter Holdings.
As part of the membership interests purchase agreement, Vulcan Ventures
Incorporated, Charter Communications, Inc., Charter Investment, Inc. and Charter
Communications Holding Company entered into an agreement on September 21, 1999
regarding the right of Vulcan Ventures to use up to eight of our digital cable
channels. Specifically, we will provide Vulcan Ventures with exclusive rights
for carriage of up to eight digital cable television programming services or
channels on each of the digital cable television systems with local control of
the digital product now or hereafter owned, operated, controlled or managed by
us of 550 megahertz or more. If the system offers digital services but has less
than 550 megahertz of capacity, then the programming services will be equitably
reduced. The programming services will consist of any designated by Vulcan
Ventures. Upon request of Vulcan Ventures, we will attempt to reach a
comprehensive programming agreement pursuant to which we will pay the
programmer, if possible, a fee per digital subscriber. If such fee arrangement
is not achieved, then we and the programmer shall enter into a standard
programming agreement. We believe that this transaction is on terms at least as
favorable to us as Mr. Allen would negotiate with other cable operators.
In November 1999, in connection with Charter Communications, Inc.'s initial
public offering, Mr. Allen, through Vulcan Cable III Inc., purchased $750
million of membership units of Charter
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Communications Holding Company at a per membership unit price equal to the net
initial public offering price.
During the second and third quarters of 1999, one of our subsidiaries sold
shared interests in several airplanes to Mr. Allen for approximately $8 million.
We believe that the purchase price paid by Mr. Allen for these interests was the
fair market price.
ALLOCATION OF BUSINESS OPPORTUNITIES WITH MR. ALLEN
As described under "-- Business Relationships," Mr. Allen and a number of
his affiliates have interests in various entities that provide services or
programming to a number of our subsidiaries. Given the diverse nature of Mr.
Allen's investment activities and interests, and to avoid the possibility of
future disputes as to potential business, Charter Communications Holding Company
and Charter Communications, Inc., under the terms of their respective
organizational documents, may not, and may not allow their subsidiaries to,
engage in any business transaction outside the cable transmission business
except for the joint venture with Broadband Partners and incidental businesses
engaged in as of the closing of the initial public offering of Charter
Communications, Inc. This restriction will remain in effect until all of the
shares of Charter Communications, Inc.'s high-vote Class B common stock have
been converted into shares of Class A common stock due to Mr. Allen's equity
ownership falling below specified threshholds.
Should Charter Communications, Inc. or Charter Communications Holding
Company wish to pursue, or allow their subsidiaries to pursue, a business
transaction outside of this scope, it must first offer Mr. Allen the opportunity
to pursue the particular business transaction. If he decides not to do so and
consents to Charter Communications, Inc., Charter Communications Holding Company
or any of their subsidiaries engaging in the business transaction, it will be
able to do so. In any such case, the restated certificate of incorporation and
the limited liability company agreement of Charter Communications, Inc. and
Charter Communications Holding Company would be amended accordingly to
appropriately modify the current restrictions on their ability to engage in any
business other than the cable transmission business. The cable transmission
business means the business of transmitting video, audio, including telephony,
and data over cable television systems owned, operated or managed by us from
time to time. The businesses of RCN Corporation, a company in which Mr. Allen
has made a significant investment, are not considered cable transmission
businesses under these provisions. See "-- Business Relationships -- RCN
Corporation."
Under Delaware corporate law, each director of Charter Communications,
Inc., including Mr. Allen, is generally required to present to Charter
Communications, Inc. any opportunity he or she may have to acquire any cable
transmission business or any company whose principal business is the ownership,
operation or management of cable transmission businesses so that we may
determine whether we wish to pursue such opportunities. However, Mr. Allen and
the other directors generally will not have an obligation to present to Charter
Communications, Inc. other business opportunities and they may exploit such
opportunities for their own account.
ASSIGNMENTS OF ACQUISITIONS
On January 1, 1999, Charter Investment, Inc. entered into a membership
purchase agreement with ACEC Holding Company, LLC for the acquisition of
American Cable. On February 23, 1999, Charter Investment, Inc. assigned its
rights and obligations under this agreement to one of our subsidiaries, Charter
Communications Entertainment II, LLC, effective as of March 8, 1999, or such
earlier date as mutually agreed to by the parties. The acquisition of American
Cable was completed in May 1999.
On February 17, 1999, Charter Investment, Inc. entered into an asset
purchase agreement with Greater Media, Inc. and Greater Media Cablevision, Inc.
for the acquisition of the Greater Media
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systems. On February 23, 1999, Charter Investment, Inc. assigned its rights and
obligations under this agreement to one of our subsidiaries, Charter
Communications Entertainment I, LLC. The acquisition of the Greater Media
systems was completed in June 1999.
On April 26, 1999, Charter Investment, Inc. entered into a purchase and
sale agreement with InterLink Communications Partners, LLLP and the other
sellers listed on the signature pages of the agreement. On June 30, 1999,
Charter Investment, Inc. assigned its rights and obligations under this
agreement to Charter Operating. The acquisition contemplated by these agreements
was completed in September 1999.
On April 26, 1999, Charter Investment, Inc. entered into a purchase and
sale agreement with Rifkin Acquisition Partners L.L.L.P and the other sellers
listed on the signature pages of the agreement. On June 30, 1999, Charter
Investment, Inc. assigned its rights and obligations under this agreement to
Charter Operating. The acquisition contemplated by these agreements was
completed in September 1999.
On April 26, 1999, Charter Investment, Inc. entered into the RAP indemnity
agreement with InterLink Communications Partners, LLLP and the other sellers and
InterLink partners listed on the signature pages of the agreement. On June 30,
1999, Charter Investment, Inc. assigned its rights and obligations under this
agreement to Charter Operating.
In May 1999, Charter Investment, Inc. entered into the Falcon purchase
agreement. As of June 22, 1999, pursuant to the first amendment to the Falcon
purchase agreement, Charter Investment, Inc. assigned its rights under the
Falcon purchase agreement to Charter LLC, a subsidiary of Charter Communications
Holding Company.
In May 1999, Charter Investment, Inc. entered into the Fanch purchase
agreement. On September 21, 1999, Charter Investment, Inc. assigned its rights
and obligations to purchase stock interests under this agreement to Charter
Communications Holding Company and its rights and obligations to purchase
partnership interests and assets under this agreement to Charter Communications
VI, LLC, an indirect wholly owned subsidiary of Charter Communications Holding
Company.
INTERCOMPANY LOANS
In November 1999, Charter Communications Holding Company loaned $856
million to Charter Operating, maturing March 18, 2009. As of November 30, 1999,
the loan bore interest at a rate of 7.75% per year. The funds were used by
Charter Operating to pay down amounts outstanding under the Charter Operating
credit facilities.
In November 1999, Charter Communications Holding Company loaned $20 million
to CC VI Operating Company, LLC, maturing November 30, 2009. As of November 30,
1999, the loan bore interest at a rate of 8.00% per year. The funds were used by
CC VI Operating Company to pay down a portion of amounts outstanding under the
Fanch credit facilities.
In November 1999, Charter Communications Holding Company loaned $173.0
million to Falcon Cable Communications, LLC, maturing December 31, 2008. As of
November 30, 1999, the loan bore interest at a rate of 7.75% per year. The funds
were used by Falcon Cable Communications to pay down a portion of the debt under
the Falcon credit facilities.
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Kent has entered into an employment agreement with Charter
Communications, Inc. We have summarized this agreement in
"Management -- Employment and Consulting Agreements."
Effective as of December 23, 1998, Barry L. Babcock entered into an
employment agreement with Charter Investment, Inc. for a one-year term with
automatic one-year renewals. Under this
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agreement, Mr. Babcock agreed to serve as Vice Chairman of Charter Investment,
Inc. with responsibilities including the government and public relations of
Charter Investment, Inc. During the initial term of the agreement, Mr. Babcock
was entitled to receive a base salary of $625,000, or such higher rate as may
have been determined by the Chief Executive Officer in his discretion.
This employment agreement has ceased to be effective. Mr. Babcock received
an amount equal to his base salary plus a $312,500 bonus. In addition, the
options held by Mr. Babcock vested in full.
Effective as of November 12, 1999, Charter Communications, Inc. entered
into a consulting agreement with Mr. Babcock. Under this agreement, which will
expire in March 2000, Mr. Babcock provides consulting services to Charter
Communications, Inc. and will be responsible for such other duties as the Chief
Executive Officer determines. During the term of this agreement, Mr. Babcock
will receive monthly cash compensation at a rate of $10,000 per month. In
addition, Mr. Babcock is entitled to receive disability and health benefits as
well as the use of an office and secretarial services, upon request.
Charter Communications, Inc. will indemnify and hold harmless Mr. Babcock
to the maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses incurred in connection with or arising
out of the performance by Mr. Babcock of his duties.
Effective as of December 23, 1998, Howard L. Wood entered into an
employment agreement with Charter Investment, Inc. for a one-year term with
automatic one-year renewals. Under this agreement, Mr. Wood agreed to serve as
an officer of Charter Investment, Inc. During the initial term of the agreement,
Mr. Wood was entitled to receive a base salary of $312,500, or such higher rate
as determined by the Chief Executive Officer in his discretion. In addition, Mr.
Wood was eligible to receive an annual bonus to be determined by the board of
directors in its discretion. Mr. Wood received a one-time payment as part of his
employment agreement of $250,000. Under the agreement, Mr. Wood was entitled to
participate in any disability insurance, pension or other benefit plan afforded
to employees generally or executives of Charter Investment, Inc.
Charter Investment, Inc. agreed to indemnify and hold harmless Mr. Wood to
the maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses incurred in connection with or arising
out of the performance by Mr. Wood of his duties.
Effective on November 12, 1999, this employment agreement ceased to be
effective. Mr. Wood received an amount equal to his base salary plus a bonus of
$312,500. In addition, the options held by Mr. Wood vested in full.
Mr. Wood has entered into a consulting agreement with Charter
Communications, Inc. We have summarized this agreement in
"Management -- Employment and Consulting Agreements."
Effective as of May 25, 1999, Marc B. Nathanson entered into an employment
agreement with Charter Communications, Inc. for a three-year term. Under this
agreement, Mr. Nathanson agreed to serve as Vice-Chairman and as a director of
Charter Communications, Inc. During the term of this agreement, Mr. Nathanson is
entitled to the rights and benefits provided to other directors of Charter
Communications, Inc.
Charter Communications, Inc. will indemnify and hold harmless Mr. Nathanson
to the maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses incurred in connection with or arising
out of the performance by Mr. Nathanson of his duties.
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INSURANCE
We receive insurance and workers' compensation coverage through Charter
Investment, Inc. Charter Investment, Inc.'s insurance policies provide coverage
for Charter Investment, Inc. and its
- subsidiaries, and associated, affiliated and inter-related companies,
- majority (51% or more) owned partnerships and joint ventures,
- interest in (or its subsidiaries' interest in) any other partnerships,
joint ventures or limited liability companies,
- interest in (or its subsidiaries' interest in) any company or
organization coming under its active management or control, and
- any entity or party required to be insured under any contract or
agreement, which may now exist, may have previously existed, or may
hereafter be created or acquired.
Charter Holdings expensed approximately $13,740,000 for the year ended
December 31, 1999, approximately $603,000 for the year ended December 31, 1998,
approximately $172,100 for the year ended December 31, 1997, and approximately
$108,000, for the year ended December 31, 1996, relating to insurance
allocations.
OTHER RELATIONSHIPS
David L. McCall, Senior Vice President of Operations -- Eastern Division,
is a partner in a partnership that leases office space to us. The partnership
has received approximately $138,000 pursuant to such lease for the nine months
ended September 30, 1999.
In January 1999, Charter Investment, Inc. issued bonuses to executive
officers in the form of three-year promissory notes. One-third of the original
outstanding principal amount of each of these notes is forgiven, as long as the
employee is still employed by Charter Investment, Inc. or any of its affiliates,
at the end of each of the first three anniversaries of the issue date. The
promissory notes bear interest at 7% per year. Outstanding balances as of
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
INDIVIDUAL AMOUNT
---------- --------
<S> <C>
David G. Barford.................................. $450,000
Mary Pat Blake.................................... $450,000
Eric A. Freesmeier................................ $450,000
Thomas R. Jokerst................................. $450,000
Kent D. Kalkwarf.................................. $450,000
Ralph G. Kelly.................................... $450,000
David L. McCall................................... $450,000
John C. Pietri.................................... $225,000
Steven A. Schumm.................................. $900,000
Curtis S. Shaw.................................... $450,000
Stephen E. Silva.................................. $300,000
</TABLE>
An affiliate of Mr. Wood has agreed to lease, from time to time, to Charter
Communications, Inc. and its subsidiaries and affiliates an airplane owned by
such affiliate of Mr. Wood for business travel. Charter Communications, Inc. or
its subsidiaries or affiliates, as applicable, would, in turn, pay such
affiliate of Mr. Wood market rates for such use. When Mr. Wood uses the plane
for personal matters, Charter Communications, Inc. has agreed to provide, if
available, Charter-employed airplane operating personnel. This agreement with
Mr. Wood is not in writing.
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Marc B. Nathanson was the Chairman of the board of directors of Falcon
Holding Group, Inc., which was the general partner of Falcon Holding Group, L.P.
from whom the Falcon cable systems were acquired.
BUSINESS RELATIONSHIPS
Paul G. Allen or certain affiliates of Mr. Allen own equity interests or
warrants to purchase equity interests in various entities which provide a number
of our affiliates with services or programming. Among these entities are High
Speed Access Corp., WorldGate Communications, Inc., Wink Communications, Inc.,
ZDTV, L.L.C., USA Networks, Oxygen Media, Inc., Broadband Partners LLC, Go2Net,
Inc. and RCN Corporation. These affiliates include Charter Investment, Inc. and
Vulcan Ventures, Inc. Mr. Allen owns 100% of the equity of Vulcan Ventures, and
is its Chief Executive Officer. Mr. Savoy is also a Vice President and a
director of Vulcan Ventures. The various cable, Internet and telephony companies
that Mr. Allen has invested in may mutually benefit one another. The recently
announced Broadband Partners Internet portal joint venture is an example of a
cooperative business relationship among his affiliated companies. We can give no
assurance, nor should you expect, that this joint venture will be successful,
that we will realize any benefits from this or other relationships with Mr.
Allen's affiliated companies or that we will enter into any joint ventures or
business relationships in the future with Mr. Allen's affiliated companies.
Mr. Allen and his affiliates have made, and in the future likely will make,
numerous investments outside of us and our business. We cannot assure you that,
in the event that we or any of our subsidiaries enter into transactions in the
future with any affiliate of Mr. Allen, such transactions will be on terms as
favorable to us as terms we might have obtained from an unrelated third party.
Also, conflicts could arise with respect to the allocation of corporate
opportunities between us and Mr. Allen and his affiliates.
We have not instituted any formal plan or arrangement to address potential
conflicts of interest.
HIGH SPEED ACCESS. High Speed Access is a provider of high-speed Internet
access over cable modems. In November 1998, Charter Investment, Inc. entered
into a systems access and investment agreement with Vulcan Ventures and High
Speed Access and a related network services agreement with High Speed Access.
Additionally, Vulcan Ventures and High Speed Access entered into a programming
content agreement. Charter Investment Inc.'s rights and obligations under these
agreements were assigned by Charter Investment, Inc. to Charter Communications
Holding Company upon closing of Charter Communications, Inc's initial public
offering. Under these agreements, High Speed Access will have exclusive access
to at least 750,000 of our homes with an installed cable drop from our cable
system or which is eligible for a cable drop by virtue of our cable system
passing the home. The term of the systems access and investment agreement
continues until midnight of the day High Speed Access ceases to provide High
Speed Access services to cable subscribers in any geographic area or region. The
term of the network services agreement is, as to a particular cable system, five
years from the date revenue billing commences for that cable system. Following
the five year initial term, the network services agreement automatically renews
itself on a year-to-year basis. Additionally, Charter Communications Holding
Company can terminate High Speed Access' exclusivity rights, on a
system-by-system basis, if High Speed Access fails to meet performance
benchmarks or otherwise breaches the agreements including their commitment to
provide content designated by Vulcan Ventures. The programming content agreement
is effective until terminated for any breach and will automatically terminate
upon the expiration of the systems access and investment agreement. During the
term of the agreements, High Speed Access has agreed not to deploy WorldGate,
Web TV, digital television or related products in the market areas of any
committed system or in any area in which we operate a cable system. All of
Charter Communications Holding Company's operations take place at the subsidiary
level and it is as subsidiaries of Charter
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Communications Holding Company that we derive our rights and obligations with
respect to High Speed Access. Under the terms of the network services agreement,
we split revenue with High Speed Access based on set percentages of gross
revenues in each category of service. The programming content agreement provides
each of Vulcan Ventures and High Speed Access with a license to use certain
content and materials of the other on a non-exclusive, royalty-free basis.
Operations began in the first quarter of 1999. Net receipts from High Speed
Access for the nine months ended September 30, 1999 were approximately $461,000.
Concurrently with entering into these agreements, High Speed Access issued
8 million shares of series B convertible preferred stock to Vulcan Ventures at a
purchase price of $2.50 per share. Vulcan Ventures also subscribed to purchase
2.5 million shares of series C convertible preferred stock, at a purchase price
of $5.00 per share on or before November 25, 2000, and received an option to
purchase an additional 2.5 million shares of series C convertible preferred
stock at a purchase price of $5.00 per share. In April 1999, Vulcan Ventures
purchased the entire 5 million shares of series C convertible preferred stock
for $25 million in cash. The shares of series B and series C convertible
preferred stock issued to Vulcan Ventures automatically converted at a price of
$3.23 per share into 20.15 million shares of common stock upon completion of
High Speed Access' initial public offering in June 1999.
Additionally, High Speed Access granted Vulcan Ventures warrants to
purchase up to 5,006,500 shares of common stock at a purchase price of $5.00 per
share. These warrants were converted to warrants to purchase up to 7,750,000
shares of common stock at a purchase price of $3.23 per share upon completion of
High Speed Access' initial public offering. The warrants were subsequently
assigned to Charter Communications Holding Company. The warrants are exercisable
at the rate of 1.55 shares of common stock for each home passed in excess of
750,000. 3.875 million warrants may be earned on or before July 31, 2001 and
must be exercised on or before July 31, 2002. 3.875 million warrants may be
earned on or before July 31, 2003 and must be exercised on or before July 31,
2004. The warrants may be forfeited in certain circumstances, generally if the
number of homes passed in a committed system is reduced.
In May 1999, Charter Investment, Inc. and High Speed Access entered into a
limited service agreement which reduced the number of warrants issued per home
passed in exchange for a reduction in the revenue share per end user and a more
beneficial cost sharing arrangement for High Speed Access in certain specified
cable systems. Under the terms of this limited service agreement, Charter
Communications Holding Company will earn only one warrant per every three homes
passed if it commits systems totaling less than 1 million homes passed, and one
warrant for every two homes passed if the systems total 1 million or more homes
passed.
Jerald L. Kent, our President and Chief Executive Officer and a director of
the issuers of the notes and of Charter Communications Holding Company and
Charter Communications, Inc. Stephen E. Silva, our Senior Vice
President -- Corporate Development and Technology, and Mr. Savoy, a member of
the boards of directors of Charter Holdings, Charter Communications Holding
Company and Charter Communications, Inc. are all members of the board of
directors of High Speed Access Corp.
WORLDGATE. WorldGate is a provider of Internet access through cable
television systems. On November 7, 1997, Charter Investment, Inc. signed an
affiliation agreement with WorldGate pursuant to which WorldGate's services will
be offered to some of our customers. This agreement was assigned by Charter
Investment, Inc. to Charter Communications Holding Company upon the closing of
Charter Communications, Inc.'s initial public offering. The term of the
agreement is five years unless terminated by either party for failure of the
other party to perform any of its obligations or undertakings required under the
agreement. The agreement automatically renews for additional successive two-year
periods upon expiration of the initial five-year term. All of Charter
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Communications Holding Company's operations take place at the subsidiary level
and it is as subsidiaries of Charter Communications Holding Company that we
derive our rights and obligations with respect to WorldGate. Pursuant to the
agreement, we have agreed to use our reasonable best efforts to deploy the
WorldGate Internet access service within a portion of our cable television
systems and to install the appropriate headend equipment in all of our major
markets in those systems. Major markets for purposes of this agreement include
those in which we have more than 25,000 customers. We incur the cost for the
installation of headend equipment. In addition, we have agreed to use our
reasonable best efforts to deploy such service in all non-major markets that are
technically capable of providing interactive pay-per-view service, to the extent
we determine that it is economically practical. When WorldGate has a telephone
return path service available, we will, if economically practical, use all
reasonable efforts to install the appropriate headend equipment and deploy the
WorldGate service in our remaining markets. Telephone return path service is the
usage of telephone lines to connect to the Internet to transmit data or receive
data. We have also agreed to market the WorldGate service within our market
areas. We pay a monthly subscriber access fee to WorldGate based on the number
of subscribers to the WorldGate service. We have the discretion to determine
what fees, if any, we will charge our subscribers for access to the WorldGate
service. We started offering WorldGate service in 1998. For the year ended
December 31, 1999, we paid to WorldGate approximately $1,661,000. For the year
ended December 31, 1998, we paid to WorldGate approximately $276,000. We charged
our subscribers approximately $263,000 for the nine months ended September 30,
1999, and approximately $22,000 for the year ended December 31, 1998.
On November 24, 1997, Charter Investment, Inc. acquired 70,423 shares of
WorldGate's series B preferred stock at a purchase price of $7.10 per share.
These shares of WorldGate's series B preferred stock were assigned to Charter
Communications Holding Company upon the closing of Charter Communications Inc.'s
initial public offering. On February 3, 1999, a subsidiary of Charter Holdings
acquired 90,909 shares of series C preferred stock at a purchase price of $11.00
per share. As a result of a stock split and WorldGate's initial public offering,
each share of series B preferred stock converted into two-thirds of a share of
WorldGate's common stock, and each share of series C preferred stock converted
into two-thirds of a share of WorldGate's common stock.
WINK. Wink offers an enhanced broadcasting system that adds interactivity
and electronic commerce opportunities to traditional programming and
advertising. Viewers can, among other things, find news, weather and sports
information on-demand and order products through use of a remote control. On
October 8, 1997, Charter Investment, Inc. signed a cable affiliation agreement
with Wink to deploy this enhanced broadcasting technology in our systems.
This agreement was assigned by Charter Investment, Inc. to Charter
Communications Holding Company upon the closing of Charter Communications,
Inc.'s initial public offering. The term of the agreement is three years. Either
party has the right to terminate the agreement for the other party's failure to
comply with any of its respective material obligations under the agreement. All
of Charter Communications Holding Company's operations take place at the
subsidiary level and it is as subsidiaries of Charter Communications Holding
Company that we derive our rights and obligations with respect to Wink. Pursuant
to the agreement, Wink granted us the non-exclusive license to use their
software to deliver the enhanced broadcasting to all of our cable systems. We
pay a fixed monthly license fee to Wink. We also supply all server hardware
required for deployment of Wink services. In addition, we agreed to promote and
market the Wink service to our customers within the area of each system in which
such service is being provided. We share in the revenue Wink generates from all
fees collected by Wink for transactions generated by our customers. The amount
of revenue shared is based on the number of transactions per month. As of
December 31, 1999, no revenue or expenses have been recognized as a result of
this agreement.
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On November 30, 1998, Vulcan Ventures acquired 1,162,500 shares of Wink's
series C preferred stock for approximately $9.3 million. In connection with such
acquisition, Wink issued to Vulcan Ventures warrants to purchase shares of
common stock. Additionally, Microsoft Corporation, of which Mr. Allen is a
director, owns an equity interest in Wink.
ZDTV. ZDTV operates a cable television channel which broadcasts shows
about technology and the Internet. Pursuant to a carriage agreement which
Charter Communications Holding Company intends to enter into with ZDTV, ZDTV has
agreed to provide us with programming for broadcast via our cable television
systems at no cost. The term of the proposed carriage agreement, with respect to
each of our cable systems, is from the date of launch of ZDTV on that cable
system until April 30, 2008. The carriage agreement grants us a limited
non-exclusive right to receive and to distribute ZDTV to our subscribers in
digital or analog format. The carriage agreement does not grant us the right to
distribute ZDTV over the Internet. We pay a monthly subscriber fee to ZDTV for
the ZDTV programming based on the number of our subscribers subscribing to ZDTV.
Additionally, we agreed to use commercially reasonable efforts to publicize the
programming schedule of ZDTV in each of our cable systems that offers or will
offer ZDTV. Upon reaching a specified threshold number of ZDTV subscribers,
then, in the event ZDTV inserts any informercials, advertorials and/or home
shopping into in the ZDTV programming, we receive from ZDTV a percentage of net
product revenues resulting from our distribution of these services. ZDTV may not
offer its services to any other cable operator which serves the same or fewer
number of subscribers at a more favorable rate or on more favorable carriage
terms.
On February 5, 1999, Vulcan Programming acquired an approximate one-third
interest in ZDTV. Mr. Allen owns 100% of Vulcan Programming. Mr. Savoy is the
president and director of Vulcan Programming. The remaining approximate
two-thirds interest in ZDTV is owned by Ziff-Davis Inc. Vulcan Ventures owns
approximately 3% of the interests in Ziff-Davis. The total current investment
made by Vulcan Programming and Vulcan Ventures is $104 million. On November 19,
1999, Vulcan Ventures announced that it would acquire an additional 64% in ZDTV
for $204.8 million bringing its interest in ZDTV to 97%. The remaining 3% of
ZDTV would be owned by its management and employees. The purchase was completed
on January 21, 2000.
USA NETWORKS. USA Networks operates USA Network and The Sci-Fi Channel,
which are cable television networks. USA Networks also operates Home Shopping
Network, which is a retail sales program available via cable television systems.
On May 1, 1994, Charter Investment, Inc. signed an affiliation agreement with
USA Networks.
This agreement was assigned by Charter Investment, Inc. to Charter
Communications Holding Company upon the closing of Charter Communications,
Inc.'s initial public offering. Pursuant to this affiliation agreement, USA
Networks has agreed to provide their programming for broadcast via our cable
television systems. The term of the affiliation agreement is until December 30,
1999. The affiliation agreement grants us the nonexclusive right to cablecast
the USA Network programming service. We pay USA Networks a monthly fee for the
USA Network programming service based on the number of subscribers in each of
our systems and the number and percentage of such subscribers receiving the USA
Network programming service. Additionally, we agreed to use best efforts to
publicize the schedule of the USA Network programming service in the television
listings and program guides which we distribute. We have paid to USA Networks
for programming approximately $16,740,000 for the nine months ended September
30, 1999, approximately $556,000 for the year ended December 31, 1998,
approximately $204,000 for the year ended December 31, 1997, and approximately
$134,000 for the year ended December 31, 1996. In addition, we received
commissions from Home Shopping Network for sales generated by our customers
totaling approximately $1,556,000 for the eleven months ended November 30, 1999,
approximately $121,000 for the year
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ended December 31, 1998, approximately $62,000 for the year ended December 31,
1997, and approximately $35,000 for the year ended December 31, 1996.
Mr. Allen and Mr. Savoy are also directors of USA Networks. As of August
1999, Mr. Allen owned approximately 9.4% and Mr. Savoy owned less than 1% of the
capital stock of USA Networks.
OXYGEN MEDIA, INC. Oxygen Media provides content aimed at the female
audience for distribution over the Internet and cable television systems. Vulcan
Ventures invested $50 million in 1999 in Oxygen Media. In addition, Charter
Communications Holding Company plans to enter into a carriage agreement with
Oxygen Media pursuant to which we will carry Oxygen Media programming content on
certain of our cable systems. Nancy B. Peretsman, a director of Charter
Communications, Inc., serves on the board of directors of Oxygen Media.
BROADBAND PARTNERS, LLC. Charter Communications, Inc. has entered into a
joint venture with Vulcan Ventures and Go2Net to provide broadband portal
services. See "Business -- Products and Services." Mr. Allen owns approximately
33% of the outstanding equity of Go2Net. Mr. Savoy, a director of Charter
Communications, Inc., is also a director of Go2Net.
RCN CORPORATION. On October 1, 1999, Vulcan Ventures entered into an
agreement to purchase shares of convertible preferred stock of RCN Corporation
for an aggregate purchase price of approximately $1.65 billion. If Vulcan
Ventures immediately converts the RCN preferred stock it has agreed to purchase
into common stock, it will own 27.4% of RCN when combined with the common stock
that Vulcan Ventures already owns. None of Charter Communications, Inc., Charter
Communications Holding Company, Charter Holdings or their respective
stockholders, members or subsidiaries, other than Vulcan Ventures, has any
interest in the RCN investment and none of them is expected to have any interest
in any subsequent investment in RCN that Vulcan Ventures may make. Charter
Communications, Inc.'s certificate of incorporation and Charter Communications
Holding Company's limited liability company agreement provide that the
businesses of RCN are not deemed to be "cable transmission businesses."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following description of our indebtedness is qualified in its entirety
by reference to the relevant credit facilities, indentures and related documents
governing the debt.
EXISTING CREDIT FACILITIES
CHARTER OPERATING CREDIT FACILITIES. On March 18, 1999, Charter Operating
entered into senior secured credit facilities arranged by Chase Securities Inc.,
NationsBanc Montgomery Securities LLC and TD Securities (USA) Inc. Obligations
under the Charter Operating credit facilities are guaranteed by Charter
Operating's parent, Charter Holdings, and by Charter Operatings' subsidiaries.
The obligations under the Charter Operating credit facilities are secured by
pledges by Charter Operating of intercompany obligations and the ownership
interests of Charter Operating and its subsidiaries, but are not secured by the
other assets of Charter Operating or its subsidiaries. The obligations under the
Charter Operating credit facilities are also secured by pledges of intercompany
obligations and the ownership interests of Charter Holdings in Charter
Operating, but are not secured by the other assets of Charter Holdings or
Charter Operating.
The Charter Operating credit facilities provide for borrowings of up to
$4.1 billion consisting of:
- an eight and one-half year reducing revolving loan in the amount of $1.25
billion;
- an eight and one-half year Tranche A term loan in the amount of $1.0
billion; and
- a nine-year Tranche B term loan in the amount of $1.85 billion.
The Charter Operating credit facilities provide for the amortization of the
principal amount of the Tranche A term loan facility and the reduction of the
revolving loan facility beginning on June 30, 2002 with respect to the Tranche A
term loan and on March 31, 2004 with respect to the revolving credit facility,
with a final maturity date, in each case, of September 18, 2007. The
amortization of the principal amount of the Tranche B term loan facility is
substantially "back-ended," with more than 90% of the principal balance due in
the year of maturity. The final maturity date of the Tranche B term loan
facility is March 18, 2008. The Charter Operating credit facilities also provide
for an incremental term facility of up to $500 million which is conditioned upon
receipt of additional new commitments from lenders. If the incremental term
facility becomes available, up to 50% of the borrowings under it may be repaid
on terms substantially similar to that of the Tranche A term loan and the
remaining portion on terms substantially similar to that of the Tranche B term
loan.
The Charter Operating credit facilities also contain provisions requiring
mandatory loan prepayments under some circumstances, such as when significant
amounts of assets are sold and the proceeds are not promptly reinvested in
assets useful in the business of Charter Operating. In the event that any
Existing 8.250% Charter Holdings Notes remain outstanding on the date which is
six months prior to the scheduled final maturity, the term loans under the
Charter Operating credit facility will mature and the revolving credit facility
will terminate on such date.
The Charter Operating credit facilities provide Charter Operating with two
interest rate options, to which a margin is added: a base rate option, generally
the "prime rate" of interest; and an interest rate option based on the interbank
eurodollar rate. Interest rate margins for the Charter Operating credit
facilities depend upon performance measured by a leverage ratio, which is the
ratio of indebtedness to annualized operating cash flow. This leverage ratio is
based on the debt of Charter Operating and its subsidiaries, exclusive of
outstanding notes and other debt for money borrowed,
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including guarantees by Charter Operating and by Charter Holdings. The interest
rate margins for the Charter Operating credit facilities are as follows:
- with respect to the revolving loan and the Tranche A term loan, the
margin ranges from 1.5% to 2.25% for eurodollar loans and from 0.5% to
1.25% for base rate loans; and
- with respect to the Tranche B term loan, the margin ranges from 2.25% to
2.75% for eurodollar loans and from 1.25% to 1.75% for base rate loans.
The Charter Operating credit facilities contain representations and
warranties, affirmative and negative covenants, information requirements, events
of default and financial covenants. The events of default include a
cross-default provision that is triggered by the failure of Charter Operating,
Charter Holdings or Charter Operating's subsidiaries to make payment on debt
with an outstanding total principal amount exceeding $50 million, the
acceleration of debt of this amount prior to its maturity or the failure to
comply with specified covenants. The financial covenants, which are generally
tested on a quarterly basis, measure performance against standards set for
leverage, debt service coverage, and operating cash flow coverage of cash
interest expense.
The Charter Operating credit facilities also contain a change of control
provision, making it an event of default, and permitting acceleration of the
debt, in the event that either:
- Mr. Allen, including his estate, heirs and other related entities, fails
to maintain a 25% direct or indirect voting and economic interest in
Charter Operating; or
- a change of control occurs under the indentures governing the March 1999
Charter Holdings notes or the notes.
The various negative covenants place limitations on the ability of Charter
Holdings, Charter Operating and their subsidiaries to, among other things:
- incur debt;
- pay dividends or make other distributions;
- incur liens;
- make acquisitions;
- make investments or asset sales; or
- enter into transactions with affiliates.
Distributions under the Charter Operating credit facilities to Charter
Holdings to pay interest on the March 1999 Charter Holdings notes are generally
permitted. Distributions under the Charter Operating credit facilities to
Charter Holdings to pay interest on the notes are generally permitted, provided
Charter Operating's cash flow for the four complete quarters preceding the
distribution exceeds 1.75 times its cash interest expense, including the amount
of such distribution. In each case, such distributions to Charter Holdings are
not permitted during the existence of a default under the Charter Operating
credit facilities.
As of December 31, 1999, $2.91 billion was outstanding and $1.19 billion
was available for borrowing under the Charter Operating credit facilities.
FALCON CREDIT FACILITIES. In connection with the Falcon acquisition, the
required percentage of lenders under the senior secured credit facilities of
Falcon Cable Communications agreed to amend and restate the Falcon credit
agreement, which amendment and restatement was effective as of November 12,
1999, the date that we closed the Falcon acquisition. The obligations under the
Falcon credit facilities are guaranteed by the direct parent of Falcon Cable
Communications, Charter Communications VII, LLC, and by the subsidiaries of
Falcon Cable Communications. The
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obligations under the Falcon credit facilities are secured by pledges of the
ownership interests and intercompany obligations of Falcon Cable Communications
and its subsidiaries, but are not secured by other assets of Falcon Cable
Communications or its subsidiaries.
The Falcon credit facilities have maximum borrowing availability of $1.25
billion consisting of the following:
- a revolving facility in the amount of approximately $646.0 million;
- a term loan B in the amount of approximately $198.0 million;
- a term loan C in the amount of approximately $297.0 million; and
- a supplemental revolving facility of $110.0 million.
The revolving facility and the supplemental revolving facility amortize
beginning in 2001 and 2003, respectively, and ending on December 29, 2006 and
December 31, 2007, respectively. The term loan B and term loan C facilities
amortize beginning in 1999 and ending on June 29, 2007 and December 31, 2007,
respectively.
The Falcon credit facilities also contain provisions requiring mandatory
loan prepayments under certain circumstances, such as when significant amounts
of assets are sold and the proceeds are not promptly reinvested in assets useful
in the business of Falcon Cable Communications.
The Falcon credit facilities provide Falcon Cable Communications with two
interest rate options, to which a margin is added: a base rate option, generally
the "prime rate" of interest; and an interest rate option based on the interbank
eurodollar rate. Interest rates for these credit facilities, as well as a fee
payable on unborrowed amounts available thereunder, depend upon performance
measured by a "leverage ratio" which is the ratio of indebtedness to annualized
operating cash flow. This leverage ratio is based on the debt of Falcon Cable
Communications and its subsidiaries, exclusive of the Falcon debentures
described below. The interest rate margins for the Falcon credit facilities are
as follows:
- with respect to the revolving loan facility, the margin ranges from 1.0%
to 2.0% for eurodollar loans and from 0.0% to 1.0% for base rate loans;
- with respect to Term Loan B, the margin ranges from 1.75% to 2.25% for
eurodollar loans and from 0.75% to 1.25% for base rate loans; and
- with respect to Term Loan C, the margin ranges from 2.0% to 2.5% for
eurodollar loans and from 1.0% to 1.5% for base rate loans.
The Falcon credit facilities contain representations and warranties,
affirmative and negative covenants, information requirements, events of default
and financial covenants. The events of default for the Falcon credit facilities
include a cross-default provision that is triggered by, among other things, the
failure to make payment relating to specified outstanding debt of Falcon Cable
Communications, its direct and indirect parent companies, CC VII Holdings, LLC
and Charter Communications VII, LLC, or specified subsidiary guarantors in a
total amount of principal and accrued interest exceeding $10 million, the
acceleration of debt of this amount prior to its maturity or the failure to
comply with specified covenants. The financial covenants, which are generally
tested on a quarterly basis, measure performance against standards set for
leverage, debt service coverage, and operating cash flow coverage of cash
interest expense.
The Falcon credit facilities also contain a change of control provision,
making it an event of default, and permitting acceleration of the debt, in the
event that either:
- Mr. Allen, including his estate, heirs and other related entities, fails
to maintain a 25% direct or indirect voting and economic interest in
Falcon Cable Communications; or
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- a change of control occurs under the indentures governing the Falcon
debentures or under the terms of other specified debt of Falcon.
The various negative covenants place limitations on the ability of Falcon
Cable Communications and its subsidiaries to, among other things:
- incur debt;
- pay dividends or make other distributions;
- incur liens;
- make acquisitions;
- make investments or asset sales; or
- enter into transactions with affiliates.
Distributions under the Falcon credit facilities to pay interest on the
Falcon debentures are generally permitted, except during the existence of a
default under the Falcon credit facilities.
Distributions under the Falcon credit facilities to Charter Holdings to pay
interest on the notes and the March 1999 Charter Holdings notes will not be
permitted until CC VII Holdings, LLC is merged with and into Charter Holdings,
which merger Charter Holdings intends to effect on or about the time of the
closing of the Falcon change of control offers. After the merger, distributions
to Charter Holdings to pay interest on the notes and the March 1999 Charter
Holdings notes will generally be permitted, provided Falcon Cable
Communications' cash flow for the most recent fiscal quarter preceding the
distribution exceeds 1.75 times its cash interest expense, including the amount
of such distribution. Distributions to Charter Holdings will also be permitted
if Falcon Cable Communications meets specified financial ratios. In each case,
such distributions to Charter Holdings are not permitted during the existence of
a default under the Falcon credit facilities.
As of December 31, 1999, $865.5 million was outstanding and $385.5 million
was available for borrowing under the Falcon credit facilities.
FANCH CREDIT FACILITIES. On November 12, 1999, the Fanch acquisition was
closed and CC VI Operating Company, LLC, the parent company of the Fanch cable
systems, entered into senior secured credit facilities arranged by Chase
Securities Inc. and Banc of America Securities LLC. The obligations under the
Fanch credit facilities are guaranteed by CC VI Operating's parent, CC VI
Holdings, LLC, and by the subsidiaries of CC VI Operating. The obligations under
the Fanch credit facilities are secured by pledges of the ownership interests
and intercompany obligations of CC VI Operating and its subsidiaries, but are
not secured by other assets of CC VI Operating or its subsidiaries.
The Fanch credit facilities have maximum borrowings of $1.2 billion,
consisting of:
- a revolving facility in the amount of approximately $350 million;
- a term loan A in the amount of approximately $450 million; and
- a term loan B in the amount of approximately $400 million.
The revolving facility amortizes beginning in 2004 and ending in May 2008.
The term loan A and term loan B facilities amortize beginning in 2003 and ending
in May 2008 and November 2008, respectively.
In addition to the foregoing, the Fanch credit facilities provide for
supplemental credit facilities in the maximum amount of $300 million. These
supplemental credit facilities may be in the form of an additional term loan or
an aggregate increase in the amount of the term loan A or the revolving
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facility. These supplemental credit facilities are available, subject to the
borrower's ability to obtain additional commitments from lenders. The
amortization of the additional term loans under the supplemental credit
facilities prior to May 2009 is limited to 1% per annum of the aggregate
principal amount of such additional term loans.
The Fanch credit facilities also contain provisions requiring mandatory
loan prepayments under specific circumstances, including when significant
amounts of assets are sold and the proceeds are not promptly reinvested in
assets useful in the business of CC VI Operating.
The Fanch credit facilities provide CC VI Operating with the following two
interest rate options, to which a margin is added: a base rate option, generally
the prime rate of interest; and an interest rate option rate based on the
interbank Eurodollar rate. Interest rates for the Fanch credit facilities, as
well as a fee payable on unborrowed amounts available thereunder, depend upon
performance measured by a leverage ratio, which is the ratio of indebtedness to
annualized operating cash flow. This leverage ratio is based on the debt of CC
VI Operating and its subsidiaries. The interest rate margins for the Fanch
credit facilities are as follows:
- with respect to the revolving loan facility and term loan A, the margin
ranges from 1.0% to 2.25% for eurodollar loans and from 0.0% to 1.25% for
base rate loans; and
- with respect to term loan B, the margin ranges from 2.50% to 3.00% for
eurodollar loans and from 1.50% to 2.00% for base rate loans.
The Fanch credit facilities contain representations and warranties,
affirmative and negative covenants, information requirements, events of default
and financial covenants. The events of default for the Fanch credit facilities
include a cross-default provision that is triggered by the failure to make
payment on debt of CC VI Operating, CC VI Holdings and the subsidiaries of CC VI
Operating in a total amount of $25 million, the acceleration of debt of this
amount prior to its maturity or the failure to comply with specified covenants.
The financial covenants, which are generally tested on a quarterly basis,
measure performance against standards set for leverage, debt service coverage,
and operating cash flow coverage of cash interest expense.
The Fanch credit facilities also contain a change of control provision,
making it an event of default, and permitting acceleration of the debt, in the
event of any of the following:
- Mr. Allen, including his estate, heirs and other related entities, fails
to maintain a 25% direct or indirect voting and economic interest in CC
VI Operating;
- CC VI Operating is no longer a direct or indirect subsidiary of Charter
Communications Holding Company; or
- A change of control occurs under specified indebtedness of CC VI
Holdings, CC VI Operating or CC VI Operating's subsidiaries.
Various negative covenants place limitations on the ability of CC VI
Operating and its subsidiaries to, among other things:
- incur debt;
- pay dividends or make other distributions;
- incur liens;
- make acquisitions;
- make investments or asset sales; or
- enter into transactions with affiliates.
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Distributions under the Fanch credit facilities to Charter Holdings to pay
interest on the notes and the March 1999 Charter Holdings notes are generally
permitted, provided CC VI Operating's cash flow for the four complete quarters
preceding the distribution exceeds 1.75 times its cash interest expense,
including the amount of such distribution. Distributions to Charter Holdings
will also be permitted if CC VI Operating meets specified financial ratios. In
each case, such distributions to Charter Holdings are not permitted during the
existence of a default under the Fanch credit facilities.
As of December 31, 1999, approximately $850 million was outstanding and
$350 million was available for borrowing under the Fanch credit facilities.
AVALON CREDIT FACILITIES. On November 15, 1999 the Avalon acquisition was
closed and CC Michigan, LLC and CC New England, LLC (formerly Avalon Cable of
Michigan, Inc. and Avalon Cable of New England LLC, respectively) entered into
senior secured credit facilities arranged by Bank of Montreal. The obligations
under the Avalon credit facilities are guaranteed by the parent of the Avalon
borrowers, CC V Holdings, LLC (formerly Avalon Cable LLC) and by the
subsidiaries of the Avalon borrowers. The obligations under the Avalon credit
facilities are secured by pledges of the ownership interests and intercompany
obligations of the Avalon borrowers and their subsidiaries, but are not secured
by other assets of the Avalon borrowers or their subsidiaries. The Avalon credit
facilities are also secured by a pledge of CC V Holdings' equity interest in the
Avalon borrowers and intercompany obligations with respect to the Avalon
borrowers.
The Avalon credit facilities have maximum borrowings of $300 million,
consisting of:
- a revolving facility in the amount of approximately $175 million; and
- a term loan B in the amount of approximately $125 million.
We borrowed $165 million under the Avalon credit facilities to fund a
portion of the Avalon purchase price.
Amounts available under the revolving facility reduce annually in specified
percentages beginning in the fourth year following the closing date of the
facility. The term loan B facility amortizes beginning in the fourth year
following the closing date.
In addition to the foregoing, the Avalon credit facilities provide for
supplemental credit facilities in the maximum amount of $75 million. These
supplemental credit facilities may be in the form of an additional term loan or
an aggregate increase in the amount of the revolving facility. These
supplemental credit facilities will be available, subject to the borrowers'
ability to obtain additional commitments from lenders. These supplemental credit
facilities are available to the Avalon borrowers until December 31, 2003, and,
if borrowed, the weighted average life and final maturity will not be less than
that of the revolving facility.
The Avalon credit facilities also contain provisions requiring mandatory
loan prepayments under specific circumstances, including when significant
amounts of assets are sold and the proceeds are not promptly reinvested in
assets useful in the business of the Avalon borrowers.
The Avalon credit facilities provide the following two interest rate
options, to which a margin is added: a base rate option, generally the "prime
rate" of interest; and an interest rate option based on the interbank eurodollar
rate. Interest rates for the Avalon credit facilities, as well as a fee payable
on unborrowed amounts available thereunder, will depend upon performance
measured by a leverage ratio, which is the ratio of indebtedness to annualized
operating cash flow. This leverage ratio is based on the debt of the Avalon
borrowers and their subsidiaries. The interest rate margins for the Avalon
credit facilities are as follows:
- with respect to the revolving loan facility, the margin ranges from 1.0%
to 1.875% for eurodollar loans and from 0.0% to 0.875% for base rate
loans; and
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- with respect to term loan B, the margin ranges from 2.50% to 2.75% for
eurodollar loans and from 1.50% to 1.750% for base rate loans.
The Avalon credit facilities contain representations and warranties,
affirmative and negative covenants, information requirements, events of default
and financial covenants. The events of default for the Avalon credit facilities
include a cross-default provision that is triggered by the failure to make
payment on debt of the Avalon borrowers, CC V Holdings and specified
subsidiaries of the Avalon borrowers in a total amount of $20 million, the
acceleration of debt of this amount prior to its maturity or the failure to
comply with specified covenants. The financial covenants, which are generally
tested on a quarterly basis, measure performance against standards set for
leverage, debt service coverage, and operating cash flow coverage of cash
interest expense.
The Avalon credit facilities also contain a change of control provision,
making it an event of default, and permitting acceleration of the debt, in the
event that Mr. Allen, including his estate, heirs and other related entities,
fails to maintain a 25% direct or indirect voting and economic interest in the
Avalon borrowers.
Various negative covenants place limitations on the ability of the Avalon
borrowers and their subsidiaries to, among other things:
- incur debt;
- pay dividends or make other distributions;
- incur liens;
- make acquisitions;
- make investments or asset sales; or
- enter into transactions with affiliates.
Distributions under the Avalon credit facilities to pay interest on certain
indebtedness of CC V Holdings are generally permitted, except during the
existence of a default under the Avalon credit facilities.
Distributions under the Avalon credit facilities to Charter Holdings to pay
interest on the notes and the March 1999 Charter Holdings notes are generally
permitted, provided the Avalon borrowers' consolidated cash flow for the four
complete quarters preceding the distribution exceeds 2.1 times their combined
cash interest expense, including the amount of such distribution. Distributions
to Charter Holdings will also be permitted if the Avalon borrowers meet
specified financial ratios. In each case, such distributions to Charter Holdings
are not permitted during the existence of a default under the Avalon credit
facilities.
As of December 31, 1999, approximately $170 million was outstanding and
$130 million was available for borrowing under the Avalon credit facilities.
CREDIT FACILITIES TO BE ASSUMED OR ARRANGED IN CONNECTION WITH THE BRESNAN
ACQUISITION
In connection with the Bresnan acquisition, we intend to amend and assume
the existing senior secured credit facilities entered into by Bresnan
Telecommunications Company LLC, including by increasing the available borrowings
thereunder. We cannot assure you that we will be able to do this. If we amend
and assume the Bresnan credit facilities, we will attempt, as we have succeeded
with respect to the Falcon credit facilities, to renegotiate the terms of such
indebtedness on terms substantially similar or identical to the terms of the
Charter Operating credit facilities and increase borrowing availability. In the
event we are unable to do so, we will refinance such indebtedness and repay all
borrowings outstanding under the Bresnan credit facilities. However, we cannot
assure you
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that we will be successful in our effort to amend and assume or to refinance the
Bresnan credit facilities.
The obligations under the Bresnan credit facilities are guaranteed by
Bresnan Telecommunications Company's parent company, Bresnan Communications
Group LLC, and by the restricted subsidiaries of Bresnan Telecommunications
Company. The obligations under the Bresnan credit facilities are secured by
pledges of the ownership interests and intercompany obligations of Bresnan
Telecommunications Company and its subsidiaries, but are not secured by other
assets of Bresnan Telecommunications Company or its subsidiaries.
The Bresnan credit facilities provide for borrowings of up to $650 million,
consisting of:
- a reducing revolving loan facility in the amount of $150 million;
- a term loan A facility in the amount of $328 million; and
- a term loan B facility in the amount of $172 million.
The Bresnan credit facilities provide for the amortization of the principal
amount of the term loan A facility and the reduction of the revolving loan
facility beginning March 31, 2002, with a final maturity date of June 30, 2007.
The amortization of the term loan B facility is substantially "back-ended", with
more than ninety percent of the principal balance due on the final maturity date
of February 2, 2008. The Bresnan credit facilities also provide for an
incremental facility of up to $200 million, which is conditioned upon receipt of
additional commitments from lenders. If the incremental facility becomes
available, it may be in the form of revolving loans or term loans, but may not
amortize more quickly than the reducing revolving loan facility or the term loan
A facility, and may not have a final maturity date earlier than six calendar
months after the maturity date of the term loan B facility.
The Bresnan credit facilities provide Bresnan Telecommunications Company
with two interest rate options, to which a margin is added: a base rate,
generally the "prime rate" of interest; and an interest rate option based on the
interbank eurodollar rate. Interest rate margins for the Bresnan credit
facilities depend upon performance measured by a leverage ratio, that is, the
ratio of total debt to annualized operating cash flow of Bresnan
Telecommunications Company and its restricted subsidiaries. The interest rate
margins for the Bresnan credit facilities are as follows:
- with respect to the term loan A facility and the revolving loan facility,
the margin ranges from 0.75% to 2.25% for eurodollar loans and from 0.0%
to 1.25% for base rate loans; and
- with respect to the term loan B facility, the margin ranges from 2.5% to
2.75% for eurodollar loans and from 1.5% to 1.75% for base rate loans.
The Bresnan credit facilities contain various representations and
warranties, affirmative and negative covenants, information requirements, events
of default and financial covenants. The events of default for the Bresnan credit
facilities include a cross-default provision that is triggered by, among other
things, the failure to make payment on the debt of Bresnan Telecommunications
Company in a total amount of $5 million or more or the acceleration of debt of
Bresnan Telecommunications Company or its parent companies, Bresnan
Communications Group LLC and Bresnan Communications Company Limited Partnership,
in a total amount of at least $15 million prior to its maturity. The financial
covenants, which are generally tested on a quarterly basis, measure performance
against standards set for leverage, debt service coverage, and operating cash
flow coverage of cash interest expense. Certain negative covenants place
limitations on the ability of Bresnan Telecommunications Company and its
restricted subsidiaries to, among other things:
- incur debt;
- pay dividends or make other distributions;
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- incur liens;
- make acquisitions;
- make investments or asset sales; or
- enter into transactions with affiliates.
The Bresnan credit facilities contain a change of control provision, making
it an event of default, and permitting acceleration of the debt, in the event of
any of the following:
- TCI Communications, including its affiliates, fails to own at least 25%
of the membership interests of Bresnan Telecommunications Company;
- entities affiliated with the Blackstone Funds fail to own at least 20% of
the membership interest in Bresnan Telecommunications Company prior to
January 29, 2002; or
- after January 29, 2002, if the entities affiliated with the Blackstone
Funds fail to own at least 20% of the membership interests in Bresnan
Telecommunications Company, any party(other than Bresnan Communications,
Inc. or its affiliates), owns a greater percentage interest in Bresnan
Telecommunications Company than the percentage interest held by TCI
Communications and its affiliates.
The foregoing provisions, among others, will require material amendments
to, or a refinancing of, the Bresnan credit facilities upon the Bresnan
acquisition.
As of December 31, 1999, there was $534.2 million total principal amount
outstanding under the Bresnan credit facilities.
EXISTING PUBLIC DEBT
THE MARCH 1999 CHARTER HOLDINGS NOTES. The March 1999 Charter Holdings
notes were issued under three separate indentures, each dated as of March 17,
1999, among Charter Holdings and Charter Capital, as the issuers, and Harris
Trust and Savings Bank, as trustee. Charter Holdings and Charter Capital
recently exchanged these notes for new March 1999 Charter Holdings notes with
substantially similar terms, except that the new March 1999 Charter Holdings
notes are registered under the Securities Act and, therefore, do not bear
legends restricting their transfer.
The March 1999 Charter Holdings notes are general unsecured obligations of
the issuers. The March 1999 8.250% Charter Holdings notes mature on April 1,
2007 and as of November 30, 1999, there was $600.0 million in total principal
amount outstanding. The March 1999 8.625% Charter Holdings notes mature on April
1, 2009 and as of November 30, 1999, there was $1.5 billion in total principal
amount outstanding. The March 1999 9.920% Charter Holdings notes mature on April
1, 2011 and as of November 30, 1999, the total accreted value was $969.4
million. Cash interest on the March 1999 9.920% Charter Holdings notes will not
accrue prior to April 1, 2004.
The March 1999 Charter Holdings notes are senior debts of Charter Holdings
and Charter Capital. They rank equally with the current and future unsecured and
unsubordinated debt of Charter Holdings, including the notes.
The issuers will not have the right to redeem the March 1999 8.250% Charter
Holdings notes prior to their maturity date on April 1, 2007. Before April 1,
2002, the issuers may redeem up to 35% of each of the March 1999 8.625% Charter
Holdings notes and the March 1999 9.920% Charter Holdings notes, in each case,
at a premium with the proceeds of certain offerings of equity securities. In
addition, on or after April 1, 2004, the issuers may redeem some or all of the
March 1999 8.625% Charter Holdings notes and the March 1999 9.920% Charter
Holdings notes at any time, in each case, at a premium. The optional redemption
price declines to 100% of the principal amount of
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March 1999 Charter Holdings notes redeemed, plus accrued and unpaid interest, if
any, for redemption on or after April 1, 2007.
In the event of a specified change of control event, the issuers must offer
to repurchase any then outstanding March 1999 Charter Holdings notes at 101% of
their principal amount or accreted value, as applicable, plus accrued and unpaid
interest, if any.
The indentures governing the March 1999 Charter Holdings notes contain
substantially identical events of default, affirmative covenants and negative
covenants as those contained in the indentures governing the notes.
RENAISSANCE NOTES. The 10% senior discount notes due 2008 were issued by
Renaissance Media (Louisiana) LLC, Renaissance Media (Tennessee) LLC and
Renaissance Media Capital Corporation, with Renaissance Media Group LLC as
guarantor and the United States Trust Company of New York as trustee.
Renaissance Media Group LLC, which is the direct or indirect parent company of
these issuers, is now a subsidiary of Charter Operating. The Renaissance 10%
notes and the Renaissance guarantee are unsecured, unsubordinated debt of the
issuers and the guarantor, respectively. In October 1998, the issuers exchanged
$163.175 million of the original issued and outstanding Renaissance 10% notes
for an equivalent value of new Renaissance 10% notes. The form and terms of the
new Renaissance 10% notes are the same in all material respects as the form and
terms of the original Renaissance 10% notes except that the issuance of the new
10% Renaissance notes was registered under the Securities Act.
There will not be any payment of interest in respect of the Renaissance 10%
notes prior to October 15, 2003. Interest on the Renaissance 10% notes shall be
paid semi-annually in cash at a rate of 10% per annum beginning on October 15,
2003. The Renaissance 10% notes are redeemable at the option of the issuer, in
whole or in part, at any time on or after April 15, 2003, initially at 105% of
their principal amount at maturity, plus accrued interest, declining to 100% of
the principal amount at maturity, plus accrued interest, on or after April 15,
2006. In addition, at any time prior to April 15, 2001, the issuers may redeem
up to 35% of the original total principal amount at maturity of the Renaissance
10% notes with the proceeds of one or more sales of equity interests at 110% of
their accreted value on the redemption date, provided that after any such
redemption at least $106 million total principal amount at maturity of
Renaissance 10% notes remains outstanding.
Our acquisition of Renaissance triggered change of control provisions of
the Renaissance 10% notes that required us to offer to purchase the Renaissance
10% notes at a purchase price equal to 101% of their accreted value on the date
of the purchase, plus accrued interest, if any. In May 1999, we made an offer to
repurchase the Renaissance 10% notes, and holders of Renaissance 10% notes
representing 30% of the total principal amount outstanding at maturity tendered
their Renaissance 10% notes for repurchase.
The indenture governing the Renaissance 10% notes contains certain
covenants that restrict the ability of the issuers and their restricted
subsidiaries to:
- incur additional debt;
- create liens;
- engage in sale-leaseback transactions;
- pay dividends or make other distributions in respect of their equity
interests;
- redeem capital stock;
- make investments or certain other restricted payments;
- sell assets;
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- issue or sell capital stock of restricted subsidiaries;
- enter into transactions with stockholders or affiliates; and
- effect a consolidation or merger.
The Renaissance 10% notes contain events of default that include a
cross-default provision triggered by the failure of Renaissance Media Group LLC
or any of its specified subsidiaries to make payment on debt at maturity with a
total principal amount of $10 million or more or the acceleration of debt of
this amount prior to maturity.
As of December 31, 1999, there was outstanding $114.4 million total
principal amount at maturity of Renaissance 10% notes, with an accreted value of
$83.0 million.
THE FALCON DEBENTURES. The Falcon debentures, consisting of 8.375% series A
senior debentures due 2010 and 9.285% Series A senior discount debentures due
2010, were issued by CC VII Holdings, LLC, formerly known as Falcon
Communications, L.P., and Falcon Funding Corporation on April 3, 1998. On August
5, 1998, the issuers commenced an exchange offer whereby the outstanding $375
million Falcon 8.375% debentures and $435.3 million Falcon 9.285% debentures
were exchanged for an equivalent value of series B senior debentures and series
B senior discount debentures. The form and terms of the new Falcon debentures
are the same as the form and terms of the corresponding original Falcon
debentures, except that the issuance of the new Falcon debentures was registered
under the Securities Act and, therefore, the new Falcon debentures do not bear
legends restricting their transfer.
The Falcon debentures mature on April 15, 2010. Interest on the Falcon
debentures accrues from the issue date or from the most recent interest payment
date to which interest has been paid or commenced for, payable semiannually on
April 15 and October 15 of each year. No interest on the Falcon 9.285%
debentures will be paid prior to April 15, 2003. The issuers may, however, elect
to commence accrual of cash interest on any payment date, in which case the
outstanding principal amount at maturity of Falcon 9.285% debenture will be
reduced to the accreted value of such Falcon 9.285% debenture as of such
interest payment date and the interest will be payable semiannually in cash on
each interest payment date thereafter.
The Falcon debentures will be redeemable at the option of the issuers, in
whole or in part, at any time on or after April 15, 2003, at a premium and, in
each case, plus accrued and unpaid interest, if any, to the date of redemption.
The optional redemption price declines over time to 100% of their principal
amount, plus accrued and unpaid interest, if any, on or after April 15, 2006. In
addition, at any time prior to April 15, 2001, the issuers may redeem, at a
premium, up to 35% of the total principal amount or accreted value, as
applicable, of the Falcon debentures with the net cash proceeds of specified
equity issuances, in each case plus accrued and unpaid interest, if any, to the
date of redemption. Following a redemption, at least 65% in total principal
amount at maturity of the Falcon 9.285% debentures and $195 million of the total
principal amount of Falcon 8.375% debentures must remain outstanding.
In the event of specified change of control events, the holders of the
Falcon debentures have the right to require the issuers to purchase their Falcon
debentures at a price equal to 101% of their principal amount or accreted value,
as applicable, plus accrued and unpaid interest, if any, to the date of
purchase. The Falcon acquisition gave rise to this right. On December 10, 1999,
we commenced the Falcon change of control offers and have offered to repurchase
the Falcon debentures at purchase prices of 101% of principal amount or accreted
value, as applicable. Because the Falcon debentures are trading at or near the
change of control repurchase price, we expect that the Falcon debentures will be
put to us. The Falcon change of control offers will remain open until February
3, 2000. We
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intend to finance the Falcon change of control offers with a portion of the
proceeds of the sale of the original notes.
The Falcon debentures are joint and several senior unsecured obligations of
the issuers. The Falcon debentures are the obligations of the issuers only, and
the issuers' subsidiaries do not have any obligation to pay any amounts due
under the Falcon debentures. Therefore, the Falcon debentures are effectively
subordinated to all existing and future liabilities of the issuers'
subsidiaries.
Among other restrictions, the indentures governing the Falcon debentures
contain certain limitations on the issuers' and their specified subsidiaries'
ability to:
- incur additional debt;
- make restricted payments or certain investments;
- create certain liens;
- create or permit to exist dividend or payment restrictions on restricted
subsidiaries;
- sell all or substantially all of their assets or merge with or into other
companies;
- engage in sale-leaseback transactions;
- invest in unrestricted subsidiaries and affiliates;
- issue or sell equity interests of restricted subsidiaries;
- pay dividends or make any other distributions on any equity interests;
- redeem equity interests; and
- guarantee any debt which is equal or subordinate in right of payment to
the Falcon debentures.
The Falcon debentures contain events of default that include a
cross-default provision triggered by the failure of CC VII Holdings, LLC or any
specified subsidiary to make payment on debt with a total amount in excess of
$25 million or the acceleration of debt of this amount prior to maturity.
As of December 31, 1999, there was $375 million total principal amount
outstanding on the Falcon 8.375% debentures, and the accreted value of the
Falcon 9.285% debentures was $323.0 million.
THE AVALON 11.875% NOTES. On December 10, 1998, CC V Holdings, LLC,
formerly known as Avalon Cable LLC, and CC V Holdings Finance, Inc. (formerly
Avalon Cable Holdings Finance, Inc.) jointly issued $196 million total principal
amount at maturity of 11.875% senior discount notes due 2008. On July 22, 1999,
the issuers exchanged $196 million of the original issued and outstanding Avalon
11.875 % notes for an equivalent amount of new Avalon 11.875% notes. The form
and terms of the new Avalon 11.875% notes are substantially identical to the
original Avalon 11.875% notes except that they are registered under the
Securities Act and, therefore, are not subject to the same transfer
restrictions.
The Avalon 11.875% notes are guaranteed by certain subsidiaries of CC V
Holdings.
There will be no current payments of cash interest on the Avalon 11.875%
notes before December 1, 2003. The Avalon 11.875% notes accrete in value at a
rate of 11.875% per annum,
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compounded semi-annually, to an aggregate principal amount of $196 million on
December 1, 2003. After December 1, 2003, cash interest on the Avalon 11.875%
notes:
- will accrue at the rate of 11.875% per year on the principal amount at
maturity; and
- will be payable semi-annually in arrears on June 1 and December 1 of each
year, commencing June 1, 2004.
On December 1, 2003, the issuers will be required to redeem an amount equal
to $369.79 per $1,000 in principal amount at maturity of each Avalon 11.875%
note, on a pro rata basis, at a redemption price of 100% of the principal amount
then outstanding at maturity of the Avalon 11.875% notes so redeemed.
On or after December 1, 2003, the issuers may redeem the Avalon 11.875%
notes, in whole or in part, at a specified premium. The optional redemption
price declines to 100% of the principal amount of the Avalon 11.875% notes
redeemed, plus accrued and unpaid interest, if any, for redemptions on or after
December 1, 2006. Before December 1, 2001, the issuers may redeem up to 35% of
the total principal amount at maturity of the Avalon 11.875% notes with the
proceeds of one or more equity offerings and/or equity investments.
In the event of specified change of control events, holders of the Avalon
11.875% notes have the right to sell their Avalon 11.875% notes to the issuers
at 101% of:
- the accreted value of the Avalon 11.875% notes in the case of repurchases
of Avalon 11.875% notes prior to December 1, 2003; or
- the total principal amount of the Avalon 11.875% notes in the case of
repurchases of Avalon 11.875% notes on or after December 1, 2003, plus
accrued and unpaid interest and liquidated damages, if any, to the date
of purchase.
Our acquisition of Avalon triggered this right. On December 3, 1999, we
commenced a change of control repurchase offer with respect to the Avalon
11.875% notes. Because the Avalon 11.875% notes are trading above the change of
control repurchase price, we do not expect these notes to be put to us. The
change of control repurchase offer will remain open until January 26, 2000.
Among other restrictions, the indenture governing the Avalon 11.875% notes
limits the ability of the issuers and their specified subsidiaries to:
- incur additional debt;
- pay dividends or make specified other restricted payments;
- enter into transactions with affiliates;
- make certain investments;
- sell assets or subsidiary stock;
- engage in sale-leaseback transactions;
- create liens;
- create or permit to exist restrictions dividends or other payments from
restricted subsidiaries;
- redeem equity interests;
- merge, consolidate or sell all or substantially all of their combined
assets; and
- with respect to restricted subsidiaries, issue capital stock.
The Avalon 11.875% notes contain events of default that include a
cross-default provision triggered by the failure of CC V Operating, CC V
Holdings Finance, Inc. or any specified subsidiary to make payment on debt with
a total principal amount of $5 million or more or the acceleration of debt of
this amount prior to maturity.
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As of December 31, 1999, the total accreted value of the outstanding Avalon
11.875% notes was $124.8 million.
THE AVALON 9.375% NOTES. On December 10, 1998, CC New England, LLC,
formerly known as Avalon Cable of New England LLC, and CC V Finance Inc.,
formerly known as Avalon Cable Finance, Inc., jointly issued $150 million total
principal amount of 9.375% senior subordinated notes due December 1, 2008. On
July 22, 1999, the issuers exchanged $150 million of the Avalon 9.375% notes for
an equivalent amount of new Avalon 9.375% notes. The form and terms of the new
Avalon 9.375% notes are substantially the same as the form and terms of the
original Avalon 9.375% notes except that the new Avalon 9.375% notes are
registered under the Securities Act and do not bear a legend restricting the
transfer thereof.
The Avalon 9.375% notes are guaranteed by the issuers' parent company, CC
Michigan, LLC, formerly known as Avalon Cable of Michigan, Inc.
Interest on the Avalon 9.375% notes accrues at a rate of 9.375% per annum
from the date of issuance and is payable semiannually in arrears on June 1 and
December 1.
On or after December 1, 2003, the issuers may redeem the Avalon 9.375%
notes in whole or in part at a specified premium. The optional redemption price
declines to 100% of the principal amount of the Avalon 9.375% notes redeemed,
plus accrued and unpaid interest, if any, for redemptions on or after December
1, 2006. Before December 1, 2001, the issuers may redeem up to 35% of the total
principal amount of the Avalon 9.375% notes at a redemption price equal to
109.375% of the principal amount thereof, plus accrued and unpaid interest, if
any, and liquidated damages, if any, with the net cash proceeds of a equity
investment and/or an equity offering. Following the redemption, at least 65% of
the total principal amount of the Avalon 9.375% notes must remain outstanding
after each redemption.
Upon the occurrence of specified change of control events or the sale of
certain assets, holders of the Avalon 9.375% notes will have the opportunity to
sell their Avalon 9.375% notes to the issuers at 101% of their face amount, plus
accrued and unpaid interest and liquidated damages, if any, to the date of
purchase. Our acquisition of Avalon triggered this right. On December 3, 1999,
we commenced the Avalon change of control offer with respect to the Avalon
9.375% notes. Because the Avalon 9.375% notes are trading at or near the change
of control repurchase price, we expect these notes to be put to us. The Avalon
change of control offer will remain open until January 26, 2000. We intend to
finance the Avalon change of control offer with a portion of the proceeds of the
sale of the original notes.
The Avalon 9.375% notes are general unsecured obligations of the issuers
and are subordinate in right of payment to all existing and future senior debt
of the issuers. The Avalon 9.375% notes rank equal in right of payment to any
senior subordinated debt of the issuers and rank senior in the right of payment
to all subordinated debt of the issuers.
Among other restrictions, the indenture governing the Avalon 9.375% notes
limits the activities of the issuers and of their specified subsidiaries to:
- incur additional debt;
- pay dividends or make other restricted payments;
- enter into transactions with affiliates;
- engage in sale-leaseback transactions;
- sell assets or subsidiary stock;
- make certain investments;
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- create liens;
- create or permit to exist dividend or payment restrictions on restricted
subsidiaries;
- merge, consolidate or sell all or substantially all of their combined
assets;
- incur debt that is senior to the Avalon 9.375% notes but junior to senior
debt; and
- issue capital stock.
The Avalon 9.375% notes contain events of default that include a
cross-default provision triggered by the failure of CC New England, LLC, CC V
Finance, Inc., CC Michigan, LLC or any specified subsidiary to make payment on
debt with an aggregate principal amount of $5 million or more or the
acceleration of debt of this amount prior to maturity.
As of November 30, 1999, there was $150 million total principal outstanding
on the Avalon 9.375% notes.
PUBLIC DEBT TO BE ASSUMED OR REPURCHASED IN CONNECTION WITH THE BRESNAN
ACQUISITION
On February 2, 1999, Bresnan Communications Group LLC and Bresnan Capital
Corporation jointly issued $170 million total principal amount of 8% series A
senior notes due 2009 and $275 million total principal amount at maturity of
9.25% series A senior discount notes due 2009. In September 1999, the issuers of
the Bresnan notes completed an exchange offer in which the Bresnan 8% notes and
the Bresnan 9.25% notes representing 100% of the principal amount of all Bresnan
notes outstanding were exchanged for new Bresnan notes. The form and terms of
the new Bresnan notes are the same in all material respects as the form and
terms of the original Bresnan notes except that the new Bresnan notes have been
registered under the Securities Act and do not bear a legend restricting their
transfer.
The Bresnan 8% notes bear interest at 8% per year from the original issue
date or from the most recent date to which interest has been paid or provided
for, payable semiannually on February 1 and August 1 of each year, commencing on
August 1, 1999. The Bresnan 9.25% notes accrete interest at a rate of 9.25% per
year, compounded semiannually, to a total principal amount of $275 million by
February 1, 2004, unless the issuers elect to accrue interest on or after
February 1, 2002. On and after August 1, 2004, interest on the Bresnan 9.25%
notes will accrete at a rate of 9.25% per year and will be payable in cash
semiannually in arrears on February 1 and August 1.
The Bresnan 8% notes are not redeemable prior to February 1, 2004. During
the year 2004, the Bresnan 8% notes are redeemable at 104% of the principal
amount plus accrued and unpaid interest. The premium decreases to 102.667% in
2005, 101.333% in 2006 and 100% on or after February 1, 2007.
The Bresnan 9.25% notes are not redeemable prior to February 1, 2004.
During the year 2004, the Bresnan 9.25% notes will be redeemable at 104.625% of
their accreted value plus accrued and unpaid interest. The premium decreases to
103.083% in 2005, 101.542% in 2006 and 100% in 2007.
At any time prior to February 1, 2002, the issuers may redeem up to 35% of
the total principal amount of the Bresnan 8% notes at a redemption price equal
to 108% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of redemption with the net cash proceeds of one or more equity
offerings. Following such redemption, at least 65% of the total principal amount
of the Bresnan 8% notes must remain outstanding.
At any time prior to February 1, 2002, the issuers may also redeem up to
35% of the total principal amount at maturity of the Bresnan 9.25% notes at a
redemption price equal to 109.250% of the accreted value thereof plus accrued
and unpaid interest, if any, to the date of redemption, with
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the net cash proceeds of one or more equity offerings. Following such
redemption, at least 65% of the total principal amount of the Bresnan 9.25%
notes must remain outstanding.
Upon the occurrence of specified change of control events, each holder of
Bresnan notes shall have the right to require the issuers to purchase all or any
part of such holder's notes at a purchase price of 101% of the principal amount,
plus accrued and unpaid interest, if any, to the purchase date, in the case of
the Bresnan 8% notes, and 101% of the accreted value thereof in the case of the
Bresnan 9.25% notes. The Bresnan acquisition will trigger this right. We expect
that the Bresnan notes will be tendered and we intend to fund the repurchase of
a portion of the Bresnan notes with a portion of the net proceeds of the sale of
the original notes.
Among other restrictions, the indenture governing the Bresnan notes limits
the ability of Bresnan Communications Group LLC and its specified subsidiaries
to:
- incur additional debt;
- pay dividends or make other specified restricted payments;
- create liens;
- make certain investments;
- create or permit any restrictions on the payment of dividends or
other distributions to Bresnan Communications Group LLC;
- redeem equity interests;
- guarantee debt;
- issue or sell equity interests of equity interests;
- consolidate with, merge into or transfer all or substantially all of
their assets;
- engage in sale-leaseback transactions;
- sell assets; and
- transact business with their affiliates.
The Bresnan notes contain events of default that include a cross-default
provision triggered by any acceleration of the maturity of debt of Bresnan
Telecommunications Company or its specified subsidiaries in a total amount in
excess of $15 million or the failure to pay debt in this amount at final
maturity.
As of December 31, 1999, there was $170 million total principal outstanding
on the Bresnan 8% notes and the accreted value of the outstanding Bresnan 9.25%
notes was $190.1 million.
INTERCOMPANY LOANS
For a description of certain intercompany loans made by Charter
Communications Holding Company to certain of its subsidiaries, see "Certain
Relationships and Related Transactions -- Transactions with Management and
Others -- Intercompany Loans."
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions."
The original notes were issued, and the new notes will be issued, under
three separate indentures, each dated as of January 12, 2000, among the issuers
and Harris Trust and Savings Bank, as trustee. The terms of the notes include
those stated in the indentures and those made part of the indentures by
reference to the Trust Indenture Act of 1939, as amended.
The form and terms of the new notes are the same in all material respects
to the form and terms of the original notes, except that the new notes will have
been registered under the Securities Act of 1933 and, therefore, will not bear
legends restricting the transfer thereof. The original notes have not been
registered under the Securities Act of 1933 and are subject to certain transfer
restrictions.
The following description is a summary of the material provisions of the
indentures. It does not restate the indentures in their entirety. We urge you to
read the indentures because they, and not this description, define your rights
as holders of the new notes. Copies of the indentures are available as set forth
under "Business -- Additional Information."
BRIEF DESCRIPTION OF THE NOTES
The notes:
- are general unsecured obligations of the issuers;
- are effectively subordinated in right of payment to all existing and
future secured Indebtedness of the issuers to the extent of the value of
the assets securing such Indebtedness and to all liabilities, including
trade payables, of Charter Holdings' Subsidiaries, other than Charter
Capital;
- are equal in right of payment to all existing and future unsubordinated,
unsecured Indebtedness of the issuers; and
- are senior in right of payment to any future subordinated Indebtedness of
the issuers.
At September 30, 1999, on a pro forma basis giving effect to the offering
of the notes, acquisitions closed since that date, the recent transfer to us of
the Fanch, Falcon and Avalon cable systems and the Pending Transactions, the
outstanding Indebtedness of Charter Holdings and its Subsidiaries would have
totaled approximately $10.7 billion, $6.4 billion of which would have been
Indebtedness of our Subsidiaries and effectively senior to the notes.
The notes will rank equally with the senior notes and senior discount notes
of the issuers which were issued in March 1999.
As of the date of the indentures, all the Subsidiaries of Charter Holdings
will be "Restricted Subsidiaries." However, under the circumstances described
below under "-- Certain Covenants -- Investments," we will be permitted to
designate certain of our Subsidiaries as "Unrestricted Subsidiaries."
Unrestricted Subsidiaries will generally not be subject to the restrictive
covenants in the indentures.
PRINCIPAL, MATURITY AND INTEREST OF NOTES
10.00% NOTES
The 10.00% notes are limited in aggregate principal amount to $675 million,
and will be issued in denominations of $1,000 and integral multiples of $1,000.
The 10.00% notes will mature on April 1, 2009.
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Interest on the 10.00% notes will accrue at the rate of 10.00% per annum
and will be payable semi-annually in arrears on April 1 and October 1,
commencing on April 1, 2000. The issuers will make each interest payment to the
holders of record of the 10.00% notes on the immediately preceding March 15 and
September 15.
Interest on the 10.00% notes will accrue from the date of issuance of the
original notes or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
10.25% NOTES
The 10.25% notes are limited in aggregate principal amount to $325 million,
and will be issued in denominations of $1,000 and integral multiples of $1,000.
The 10.25% notes will mature on January 15, 2010.
Interest on the 10.25% notes will accrue at the rate of 10.25% per annum
and will be payable semi-annually in arrears on January 15 and July 15,
commencing on July 15, 2000. The issuers will make each interest payment to the
holders of record of the 10.25% notes on the immediately preceding January 1 and
July 1.
Interest on the 10.25% notes will accrue from the date of issuance of the
original notes or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
11.75% NOTES
The 11.75% notes are limited in aggregate principal amount at maturity to
$532 million and originally were issued at an issue price of $564.48 per $1,000
principal amount at maturity, representing a yield to maturity of 11.75%,
calculated on a semi-annual bond equivalent basis, calculated from January 12,
2000. The issuers will issue 11.75% notes, in denominations of $1,000 principal
amount at maturity and integral multiples of $1,000 principal amount at
maturity. The 11.75% notes will mature on January 15, 2010.
Cash interest on the 11.75% notes will not accrue prior to January 15,
2005. Thereafter, cash interest on the 11.75% notes will accrue at a rate of
11.75% per annum and will be payable semi-annually in arrears on January 15 and
July 15, commencing on July 15, 2005. The issuers will make each interest
payment to the holders of record of the 11.75% notes on the immediately
preceding January 1 and July 1. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
The 11.75% notes will accrete at a rate of 11.75% per year to an aggregate
amount of $532 million as of January 15, 2005. For United States federal income
tax purposes, holders of the 11.75% notes will be required to include amounts in
gross income in advance of the receipt of the cash payments to which the income
is attributable. See "Certain United States Federal Tax Considerations."
OPTIONAL REDEMPTION
10.00% NOTES
The 10.00% notes will not be redeemable at the issuers' option prior to
maturity.
10.25% NOTES
At any time prior to January 15, 2003, the issuers may, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of the 10.25%
notes on a pro rata basis or nearly as pro
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rata as practicable, at a redemption price of 110.25% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount of 10.25% notes
remains outstanding immediately after the occurrence of such redemption
excluding 10.25% notes held by Charter Holdings and its Subsidiaries; and
(2) the redemption must occur within 60 days of the date of the
closing of such Equity Offering.
Except pursuant to the preceding paragraph, the 10.25% notes will not be
redeemable at the issuers' option prior to January 15, 2005.
On or after January 15, 2005, the issuers may redeem all or a part of the
10.25% notes upon not less than 30 nor more than 60 days notice, at the
redemption prices, expressed as percentages of principal amount, set forth below
plus accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on January 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2005........................................................ 105.125%
2006........................................................ 103.417%
2007........................................................ 101.708%
2008 and thereafter......................................... 100.000%
</TABLE>
11.75% NOTES
At any time prior to January 15, 2003, the issuers may, on any one or more
occasions, redeem up to 35% of the aggregate principal amount at maturity of the
11.75% notes on a pro rata basis or nearly as pro rata as practicable, at a
redemption price of 111.75% of the Accreted Value thereof, with the net cash
proceeds of one or more Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount at maturity of
11.75% notes remains outstanding immediately after the occurrence of such
redemption, excluding 11.75% notes held by Charter Holdings and its
Subsidiaries; and
(2) the redemption must occur within 60 days of the date of the
closing of such Equity Offering.
Except pursuant to the preceding paragraph, the 11.75% notes will not be
redeemable at the issuers' option prior to January 15, 2005.
On or after January 15, 2005, the issuers may redeem all or a part of the
11.75% notes upon not less than 30 nor more than 60 days notice, at the
redemption prices, expressed as percentages of principal amount, set forth below
plus accrued and unpaid interest thereon, if any, to the applicable
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redemption date, if redeemed during the twelve-month period beginning on January
15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2005........................................................ 105.875%
2006........................................................ 103.917%
2007........................................................ 101.958%
2008 and thereafter......................................... 100.000%
</TABLE>
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of new notes will have the right
to require the issuers to repurchase all or any part, equal to $1,000 or an
integral multiple thereof, of that holder's new notes pursuant to a "Change of
Control Offer." In the Change of Control Offer, the issuers will offer a "Change
of Control Payment" in cash equal to
(x) with respect to the 10.00% notes and the 10.25% notes, 101% of the
aggregate principal amount thereof repurchased plus accrued and unpaid interest
thereon, if any, to the date of purchase and
(y) with respect to the 11.75% notes, 101% of the Accreted Value plus, for
any Change of Control offer occurring after the Full Accretion Date, accrued and
unpaid interest, if any, on the date of purchase.
Within ten days following any Change of Control, the issuers will mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase notes on a certain date, the
"Change of Control Payment Date", specified in such notice, pursuant to the
procedures required by the indentures and described in such notice. The issuers
will comply with the requirements of Rule 14e-1 under the Securities Exchange
Act of 1934 or any successor rules, and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the notes as a result of a Change of Control.
On the Change of Control Payment Date, the issuers will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions thereof being purchased by the
issuers.
The paying agent will promptly mail to each holder of notes so tendered the
Change of Control payment for such notes, and the trustee will promptly
authenticate and mail, or cause to be transferred by book entry, to each holder
a new note equal in principal amount or principal amount at maturity, as
applicable, to any unpurchased portion of the notes surrendered, if any;
provided that each such new note will be in a principal amount or principal
amount at maturity, as applicable, of $1,000 or an integral multiple thereof.
The provisions described above that require the issuers to make a Change of
Control offer following a Change of Control will be applicable regardless of
whether or not any other provisions of
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the indentures are applicable. Except as described above with respect to a
Change of Control, the indentures do not contain provisions that permit the
holders of the notes to require that the issuers repurchase or redeem the notes
in the event of a takeover, recapitalization or similar transaction.
The issuers will not be required to make a Change of Control offer upon a
Change of Control if a third party makes the Change of Control offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indentures applicable to a Change of Control offer made by the issuers
and purchases all notes validly tendered and not withdrawn under such Change of
Control offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Charter Holdings and its Subsidiaries, taken as a whole, or of
a Parent and its Subsidiaries, taken as a whole. Although there is a limited
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
the ability of a holder of notes to require the issuers to repurchase such notes
as a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of Charter Holdings and its Subsidiaries, taken as a
whole, or of a Parent and its Subsidiaries, taken as a whole, to another Person
or group may be uncertain.
ASSET SALES
Charter Holdings will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Charter Holdings or a Restricted Subsidiary of Charter Holdings
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by Charter Holdings' board of
directors and evidenced by a resolution of such board of directors set
forth in an officers' certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Charter
Holdings or such Restricted Subsidiary is in the form of cash, Cash
Equivalents or readily marketable securities.
For purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities, as shown on Charter Holdings' or such Restricted
Subsidiary's most recent balance sheet, other than contingent liabilities
and liabilities that are by their terms subordinated to the notes, that are
assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases Charter Holdings or such Restricted
Subsidiary from further liability;
(b) any securities, notes or other obligations received by Charter
Holdings or any such Restricted Subsidiary from such transferee that are
converted by Charter Holdings or such Restricted Subsidiary into cash, Cash
Equivalents or readily marketable securities within 60 days after receipt
thereof, to the extent of the cash, Cash Equivalents or readily marketable
securities received in that conversion; and
(c) Productive Assets.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Charter Holdings or a Restricted Subsidiary of Charter Holdings may apply such
Net Proceeds at its option:
(1) to repay debt under the Credit Facilities or any other
Indebtedness of the Restricted Subsidiaries, other than Indebtedness
represented by a guarantee of a Restricted Subsidiary of Charter Holdings;
or
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(2) to invest in Productive Assets; provided that any Net Proceeds
which Charter Holdings or a Restricted Subsidiary of Charter Holdings has
committed to invest in Productive Assets within 365 days of the applicable
Asset Sale may be invested in Productive Assets within two years of such
Asset Sale.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $25 million, the issuers will make
an Asset Sale Offer to all holders of notes and all holders of other
Indebtedness that is of equal priority with the notes containing provisions
requiring offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of notes and such other Indebtedness of
equal priority that may be purchased out of the Excess Proceeds, which amount
includes the entire amount of the Net Proceeds. The offer price in any Asset
Sale Offer will be payable in cash and equal to:
(x) with respect to the 10.00% notes and the 10.25% notes, 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase; and
(y) with respect to the 11.75% notes, 100% of the Accreted Value thereof
plus, after the Full Accretion Date, accrued and unpaid interest, if any, to the
date of purchase.
If any Excess Proceeds remain after consummation of an Asset Sale Offer,
Charter Holdings may use such Excess Proceeds for any purpose not otherwise
prohibited by the indentures. If the aggregate principal amount of notes and
such other Indebtedness of equal priority tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the applicable trustee shall select the
Notes and such other Indebtedness of equal priority to be purchased on a pro
rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of
the principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
such method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on, or the Accreted Value ceases to increase on, as the case may be,
notes or portions of them called for redemption.
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CERTAIN COVENANTS
Set forth in this section are summaries of certain covenants contained in
the indentures. The covenants summarized are the following:
- Limitations on restricted payments by Charter Holdings and its Restricted
Subsidiaries. Restricted payments include
- dividends and other distributions on equity interests,
- purchases, redemptions on other acquisitions of equity interests, and
- purchases, redemptions, defeasance or other acquisitions of
subordinated debt.
- Limitations on restricted investments by Charter Holdings or its
Restricted Subsidiaries. Restricted investments include investments other
than
- investments in Restricted Subsidiaries, cash equivalents,
- non-cash consideration from an asset sale made in compliance with the
indenture,
- investments with the net cash proceeds of the issuance and sale of
equity interests,
- investments in productive assets not to exceed in the $150 million,
- other investments not exceeding $50 million in any person,
- investments in customers and suppliers which either generate accounts
receivable or are accepted in settlement of bona fide disputes, and
- the investment in Marcus Cable Holdings, LLC.
This covenant also limits Charter Holdings from allowing any Restricted
Subsidiary from becoming an Unrestricted Subsidiary.
- Limitations on the occurrence of Indebtedness and issuance of preferred
stock generally unless the leverage ratio is not greater than 8.75 to 1.0
on a pro forma basis. This does not prohibit the incurrence of permitted
debt which includes:
- borrowings up to $3.5 billion under the credit facilities,
- existing indebtedness,
- capital lease obligations, mortgage financings or purchase money
obligations in an aggregate amount of up to $25 million at any one
time outstanding for the purchase, construction or improvement of
productive assets,
- permitted refinancing indebtedness,
- intercompany indebtedness,
- hedging obligations,
- up to $300 million of additional indebtedness,
- additional indebtedness not exceeding 200% of the net cash proceeds
from the sale of equity interests to the extent not used to make
restricted payments or permitted investments, and
- the accretion or amortization of original issue discount and the write
up of indebtedness in accordance with purchase accounting.
- Prohibitions against the creation of liens except permitted liens.
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- Prohibitions against restrictions on the ability of any Restricted
Subsidiary to pay dividends or make other distributions on its capital
stock to Charter Holdings or any Restricted Subsidiary, make loans or
advances to Charter Holdings or its Restricted Subsidiaries or transfer
properties or assets to Charter Holdings or any of its Restricted
Subsidiaries. This covenant, however, does not prohibit restrictions
under
- existing indebtedness,
- the notes and the indentures,
- applicable law,
- the terms of indebtedness or capital stock of a person acquired by
Charter Holdings or any of its Restricted Subsidiaries,
- customary non-assignment provisions in leases,
- purchase money obligations,
- agreements for the sale or other disposition of a Restricted
Subsidiary restricting distributions pending its sale,
- permitted refinancing indebtedness,
- liens securing indebtedness permitted under the indentures,
- joint venture agreements,
- under ordinary course contracts with customers that restrict cash,
other deposits or net worth,
- indebtedness permitted under the indentures, and
- restrictions that are not materially more restrictive than customary
provisions in comparable financings which management determines will
not materially impair Charter Holdings' ability to make payments
required under the notes.
- Prohibitions against mergers, consolidations or the sale of all or
substantially all of an issuer's assets unless
- the issuer is the surviving corporation or the person formed by the
merger or consolidation or acquiring the assets is organized under the
law of the United States, any state or the District of Columbia,
- such person assumes all obligations under the notes and the
indentures,
- no default or event of default exists, and
- Charter Holdings or the person formed by the merger or consolidation
or acquiring all or substantially all the assets could incur at least
$1.00 of additional indebtedness under the leverage ratio or have a
leverage ratio after giving effect to the transaction no greater than
the leverage ratio of the issuer immediately prior to the transaction.
- Prohibitions against transactions with affiliates, unless Charter
Holdings delivers to the trustee:
- for transactions exceeding $15.0 million a resolution approved by a
majority of the board of directors certifying that the transaction
complies with the covenant; and
- for transactions exceeding $50.0 million a fairness opinion of an
accounting, appraisal or investment banking firm of national
standing.
Certain transactions are not subject to the covenant including:
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- existing employment agreements and new employment agreements
entered into in the ordinary course of business and consistent with
past practice; and
- management fees under agreements existing as of March 17, 1999 or
after March 17, 1999 if the percentage fees are not higher than
those under agreements existing on March 17, 1999.
- Limitations on sale and leaseback transactions exceeding three years.
- Limitations on issuances of guarantees of indebtedness.
- Prohibitions against consent payments to holders of notes unless paid to
all consenting holders.
During any period of time that
(a) either the 10.00% notes, the 10.25% notes or the 11.75% notes have
Investment Grade Ratings from both Rating Agencies, and
(b) no Default or Event of Default has occurred and is continuing under the
applicable indenture,
Charter Holdings and its Restricted Subsidiaries will not be subject to the
provisions of the indenture described under
- "-- Incurrence of Indebtedness and Issuance of preferred stock,"
- "-- Restricted Payments,"
- "-- Asset Sales,"
- "-- Sale and Leaseback Transactions,"
- "-- Dividend and Other Payment Restrictions Affecting Subsidiaries,"
- "-- Transactions with Affiliates,"
- "-- Investments" and
- clause (4) of the first paragraph of "-- Merger, Consolidation and
Sale of Assets."
If Charter Holdings and its Restricted Subsidiaries are not subject to
these covenants for any period of time as a result of the previous sentence and,
subsequently, one, or both, of the Rating Agencies withdraws its ratings or
downgrades the ratings assigned to the applicable notes below the required
Investment Grade Ratings or a Default or Event of Default occurs and is
continuing, then Charter Holdings and its Restricted Subsidiaries will
thereafter again be subject to these covenants. Compliance with the covenant
with respect to Restricted Payments made after the time of such withdrawal,
downgrade, Default or Event of Default will be calculated as if such covenant
had been in effect during the entire period of time from the Issue Date.
The new notes will not have Investment Grade Ratings from the Rating
Agencies when they are issued. Consequently, the covenants listed above remain
applicable to Charter Holdings and its Restricted Subsidiaries.
RESTRICTED PAYMENTS
Charter Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Charter Holdings' or any of its Restricted
Subsidiaries' Equity Interests, including, without limitation, any payment
in connection with any merger or consolidation involving Charter
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Holdings or any of its Restricted Subsidiaries, or to the direct or
indirect holders of Charter Holdings' or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such, other than
dividends or distributions payable in Equity Interests, other than
Disqualified Stock, of Charter Holdings or, in the case of Charter Holdings
and its Restricted Subsidiaries, to Charter Holdings or a Restricted
Subsidiary of Charter Holdings;
(2) purchase, redeem or otherwise acquire or retire for value,
including, without limitation, in connection with any merger or
consolidation involving Charter Holdings, any Equity Interests of Charter
Holdings or any direct or indirect parent of Charter Holdings or any
Restricted Subsidiary of Charter Holdings, other than, in the case of
Charter Holdings and its Restricted Subsidiaries, any such Equity Interests
owned by Charter Holdings or any Restricted Subsidiary of Charter Holdings;
or
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness that is
subordinated to the notes, other than the notes, except a payment of
interest or principal at the Stated Maturity thereof.
All such payments and other actions set forth in clauses (1) through (3)
above are collectively referred to as "Restricted Payments," unless, at the time
of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) Charter Holdings would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Leverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of preferred stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Charter Holdings and each of its
Restricted Subsidiaries after the date of the indenture, excluding
Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7) and
(8) of the next succeeding paragraph, shall not exceed, at the date of
determination, the sum of:
(a) an amount equal to 100% of the Consolidated EBITDA of Charter
Holdings since the date of the indenture to the end of Charter Holdings'
most recently ended full fiscal quarter for which internal financial
statements are available, taken as a single accounting period, less the
product of 1.2 times the combined Consolidated Interest Expense of
Charter Holdings since the date of the indenture to the end of Charter
Holdings' most recently ended full fiscal quarter for which internal
financial statements are available, taken as a single accounting period,
plus
(b) an amount equal to 100% of Capital Stock Sale Proceeds less any
such Capital Stock Sale Proceeds used in connection with
(i) an Investment made pursuant to clause (6) of the definition
of "Permitted Investments" or
(ii) the incurrence of Indebtedness pursuant to clause (10) of
the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of preferred stock," plus
(c) $100 million.
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So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indentures;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Charter Holdings in
exchange for, or out of the net proceeds of, the substantially concurrent
sale, other than to a Subsidiary of Charter Holdings, of Equity Interests
of Charter Holdings, other than Disqualified Stock; provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Charter Holdings or any of its Restricted
Subsidiaries with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) regardless of whether a Default then exists, the payment of any
dividend or distribution to the extent necessary to permit direct or
indirect beneficial owners of shares of Capital Stock of Charter Holdings
to pay federal, state or local income tax liabilities that would arise
solely from income of Charter Holdings or any of its Restricted
Subsidiaries, as the case may be, for the relevant taxable period and
attributable to them solely as a result of Charter Holdings, and any
intermediate entity through which the holder owns such shares or any of its
Restricted Subsidiaries being a limited liability company, partnership or
similar entity for federal income tax purposes;
(5) regardless of whether a Default then exists, the payment of any
dividend by a Restricted Subsidiary of Charter Holdings to the holders of
its common Equity Interests on a pro rata basis;
(6) the payment of any dividend on the Helicon Preferred Stock or the
redemption, repurchase, retirement or other acquisition of the Helicon
Preferred Stock in an amount not in excess of its aggregate liquidation
value;
(7) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Charter Holdings held by any member of
Charter Holdings' management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the
indenture; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $10 million
in any fiscal year of Charter Holdings; and
(8) payment of fees in connection with any acquisition, merger or
similar transaction in an amount that does not exceed an amount equal to
1.25% of the transaction value of such acquisition, merger or similar
transaction.
The amount of all Restricted Payments, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Charter Holdings or any of its
Restricted Subsidiaries pursuant to the Restricted Payment. The fair market
value of any assets or securities that are required to be valued by this
covenant shall be determined by the board of directors of Charter Holdings whose
resolution with respect thereto shall be delivered to the trustee. Such board of
directors' determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $100 million.
Not later than the date of making any Restricted Payment, Charter Holdings
shall deliver to the trustee an officers' certificate stating that such
Restricted Payment is permitted and setting forth the
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basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indentures.
INVESTMENTS
Charter Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) make any Restricted Investment; or
(2) allow any Restricted Subsidiary of Charter Holdings to become an
Unrestricted Subsidiary, unless, in each case:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Charter Holdings would, at the time of, and after giving effect
to, such Restricted Investment or such designation of a Restricted
Subsidiary as an unrestricted Subsidiary, have been permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Leverage Ratio
test set forth in the first paragraph of the covenant described below
under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock."
An Unrestricted Subsidiary may be redesignated as a Restricted Subsidiary
if such redesignation would not cause a Default.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
(a) Charter Holdings will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness, including Acquired
Debt, and Charter Holdings will not issue any Disqualified Stock and will not
permit any of its Restricted Subsidiaries to issue any shares of preferred stock
unless the Leverage Ratio would have been not greater than 8.75 to 1.0
determined on a pro forma basis, including a pro forma application of the net
proceeds therefrom, as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of the
most recently ended fiscal quarter.
So long as no Default shall have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by Charter Holdings and its Restricted Subsidiaries
of Indebtedness under Credit Facilities; provided that the aggregate
principal amount of all Indebtedness of Charter Holdings and its Restricted
Subsidiaries outstanding under all Credit Facilities, after giving effect
to such incurrence, does not exceed an amount equal to $3.5 billion less
the aggregate amount of all Net Proceeds of Asset Sales applied by Charter
Holdings or any of its Subsidiaries in the case of an Asset Sale since the
date of the indenture to repay Indebtedness under a Credit Facility
pursuant to the covenant described above under the caption "-- Asset
Sales";
(2) the incurrence by Charter Holdings and its Restricted Subsidiaries
of Existing Indebtedness, other than the Credit Facilities;
(3) the incurrence on the January 12, 2000 by Charter Holdings and its
Restricted Subsidiaries of Indebtedness represented by the notes;
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(4) the incurrence by Charter Holdings or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement, including, without limitation, the cost of
design, development, construction, acquisition, transportation,
installation, improvement, and migration, of Productive Assets of Charter
Holdings or any of its Restricted Subsidiaries in an aggregate principal
amount not to exceed $75 million at any time outstanding;
(5) the incurrence by Charter Holdings or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace, in whole or
in part, Indebtedness, other than intercompany Indebtedness, that was
permitted by the indentures to be incurred under the first paragraph of
this covenant or clauses (2) or (3) of this paragraph;
(6) the incurrence by Charter Holdings or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Charter Holdings
and any of its Wholly Owned Restricted Subsidiaries; provided that this
clause does not permit Indebtedness between Charter Holdings or any of its
Restricted Subsidiaries, as creditor or debtor, as the case may be, unless
otherwise permitted by the indentures; provided, further, that:
(a) if Charter Holdings is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in full
in cash of all obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Charter Holdings or a Wholly Owned Restricted Subsidiary thereof and
(ii) any sale or other transfer of any such Indebtedness to a Person
that is not either Charter Holdings or a Wholly Owned Restricted
Subsidiary thereof, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by Charter Holdings or any of its
Restricted Subsidiaries that was not permitted by this clause (6);
(7) the incurrence by Charter Holdings or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the indentures to be
outstanding;
(8) the guarantee by Charter Holdings of Indebtedness of a Restricted
Subsidiary of Charter Holdings that was permitted to be incurred by another
provision of this covenant;
(9) the incurrence by Charter Holdings or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at
any time outstanding, not to exceed $300 million;
(10) the incurrence by Charter Holdings or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at
any time outstanding not to exceed 200% of the net cash proceeds received
by Charter Holdings from the sale of its Equity Interests, other than
Disqualified Stock, after the date of the indentures to the extent such net
cash proceeds have not been applied to make Restricted Payments or to
effect other transactions pursuant to the covenant described above under
the subheading "-- Restricted Payments" or to make Permitted Investments
pursuant to clause (6) of the definition thereof; and
(11) the accretion or amortization of original issue discount and the
write up of Indebtedness in accordance with purchase accounting.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness
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(a) meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (11) above, or
(b) is entitled to be incurred pursuant to the first paragraph of this
covenant,
Charter Holdings will be permitted to classify and from time to time to
reclassify such item of Indebtedness on the date of its incurrence in any manner
that complies with this covenant. For avoidance of doubt, Indebtedness incurred
pursuant to a single agreement, instrument, program, facility or line of credit
may be classified as Indebtedness arising in part under one of the clauses
listed above, and in part under any one or more of the clauses listed above, to
the extent that such Indebtedness satisfies the criteria for such clauses.
(b) Notwithstanding the foregoing, in no event shall any Restricted
Subsidiary of Charter Holdings consummate a Subordinated Debt Financing or a
preferred stock Financing. A "Subordinated Debt Financing" or a "preferred stock
Financing", as the case may be, with respect to any Restricted Subsidiary of
Charter Holdings shall mean a public offering or private placement, whether
pursuant to Rule 144A under the Securities Act or otherwise, of Subordinated
Notes or preferred stock, whether or not such preferred stock constitutes
Disqualified Stock, as the case may be, of such Restricted Subsidiary to one or
more purchasers, other than to one or more Affiliates of Charter Holdings.
"Subordinated Notes" with respect to any Restricted Subsidiary of Charter
Holdings shall mean Indebtedness of such Restricted Subsidiary that is
contractually subordinated in right of payment to any other Indebtedness of such
Restricted Subsidiary, including, without limitation, Indebtedness under the
Credit Facilities. The foregoing limitation shall not apply to
(i) any Indebtedness or preferred stock of any Person existing at the
time such Person is merged with or into or became a Subsidiary of Charter
Holdings; provided that such Indebtedness or preferred stock was not
incurred or issued in connection with, or in contemplation of, such Person
merging with or into, or becoming a Subsidiary of, Charter Holdings, and
(ii) any Indebtedness or preferred stock of a Restricted Subsidiary
issued in connection with, and as part of the consideration for, an
acquisition, whether by stock purchase, asset sale, merger or otherwise, in
each case involving such Restricted Subsidiary, which Indebtedness or
preferred stock is issued to the seller or sellers of such stock or assets;
provided that such Restricted Subsidiary is not obligated to register such
Indebtedness or preferred stock under the Securities Act or obligated to
provide information pursuant to Rule 144A under the Securities Act.
LIENS
Charter Holdings will not, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or
trade payables on any asset now owned or hereafter acquired, except Permitted
Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Charter Holdings will not, directly or indirectly, create or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of Charter Holdings to:
(1) pay dividends or make any other distributions on its Capital Stock
to Charter Holdings or any of its Restricted Subsidiaries, or with respect
to any other interest or participation in, or measured by, its profits, or
pay any Indebtedness owed to Charter Holdings or any of its Restricted
Subsidiaries;
(2) make loans or advances to Charter Holdings or any of its
Restricted Subsidiaries; or
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(3) transfer any of its properties or assets to Charter Holdings or
any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indentures,
including, without limitation, the Credit Facilities, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole,
with respect to such dividend and other payment restrictions than those
contained in such Existing Indebtedness, as in effect on the date of the
indentures;
(2) the indentures and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Charter Holdings or any of its Restricted Subsidiaries as in
effect at the time of such acquisition, except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired; provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
indentures to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary of Charter Holdings that restricts distributions by such
Restricted Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "-- Liens" that limit the right of Charter Holdings or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) restrictions contained in the terms of Indebtedness permitted to
be incurred under the covenant described under the caption "-- Incurrence
of Indebtedness and Issuance of preferred stock"; provided that such
restrictions are no more restrictive than the terms contained in the Credit
Facilities as in effect on January 12, 2000; and
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(13) restrictions that are not materially more restrictive than
customary provisions in comparable financings and the management of Charter
Holdings determines that such restrictions will not materially impair
Charter Holdings' ability to make payments as required under the notes.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
Neither of the issuers may, directly or indirectly:
(1) consolidate or merge with or into another Person, whether or not
such Issuer is the surviving corporation; or
(2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(A) either:
(1) such issuer is the surviving corporation; or
(2) the Person formed by or surviving any such consolidation or
merger, if other than such Issuer, or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made is a
Person organized or existing under the laws of the United States, any
state thereof or the District of Columbia, provided that if the Person
formed by or surviving any such consolidation or merger with either
Issuer is a limited liability company or other Person other than a
corporation, a corporate co-issuer shall also be an obligor with respect
to the notes;
(B) the Person formed by or surviving any such consolidation or
merger, if other than Charter Holdings, or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall have
been made assumes all the obligations of Charter Holdings under the
notes and the indentures pursuant to agreements reasonably satisfactory
to the trustee;
(C) immediately after such transaction no Default or Event of
Default exists; and
(D) Charter Holdings or the Person formed by or surviving any such
consolidation or merger, if other than Charter Holdings, will, on the
date of such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, either
(1) be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of preferred stock" or
(2) have a Leverage Ratio immediately after giving effect to
such consolidation or merger no greater than the Leverage Ratio
immediately prior to such consolidation or merger.
In addition, Charter Holdings may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation, or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among Charter Holdings and any of its
Wholly Owned Subsidiaries.
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TRANSACTIONS WITH AFFILIATES
Charter Holdings will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Charter Holdings or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by Charter Holdings or
such Restricted Subsidiary with an unrelated Person; and
(2) Charter Holdings delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$15 million, a resolution of the board of directors of Charter Holdings
set forth in an officers' certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the members of the board
of directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$50 million, an opinion as to the fairness to the holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any existing employment agreement entered into by Charter Holdings
or any of its Subsidiaries and any employment agreement entered into by
Charter Holdings or any of its Restricted Subsidiaries in the ordinary
course of business and consistent with the past practice of Charter
Holdings or such Restricted Subsidiary;
(2) transactions between or among Charter Holdings and/or its
Restricted Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of Charter Holdings, and customary indemnification and
insurance arrangements in favor of directors, regardless of affiliation
with Charter Holdings or any of its Restricted Subsidiaries;
(4) payment of management fees pursuant to management agreements
either
(A) existing on January 12, 2000 or
(B) entered into after January 12, 2000,
to the extent that such management agreements provide for percentage
fees no higher than the percentage fees existing under the management
agreements existing on January 12, 2000;
(5) Restricted Payments that are permitted by the provisions of the
covenant described above under the caption "-- Restricted Payments" and
Restricted Investments that are permitted by the provisions of the
indentures described above under the caption "Restricted Payments --
Investments"; and
(6) Permitted Investments.
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SALE AND LEASEBACK TRANSACTIONS
Charter Holdings will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Charter Holdings may enter into a sale and leaseback transaction if:
(1) Charter Holdings could have
(a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction under the Leverage
Ratio test in the first paragraph of the covenant described above under
the caption "-- Incurrence of Additional Indebtedness and Issuance of
preferred stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "-- Liens"; and
(2) the transfer of assets in that sale and leaseback transaction is
permitted by, and Charter Holdings applies the proceeds of such transaction
in compliance with, the covenant described above under the caption
"-- Asset Sales."
The foregoing restrictions do not apply to a sale and leaseback transaction
if the lease is for a period, including renewal rights, of not in excess of
three years.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
Charter Holdings will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of Charter Holdings, except in respect of the Credit
Facilities (the "Guaranteed Indebtedness") unless
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for the Guarantee (a "Subsidiary Guarantee") of
the payment of the notes by such Restricted Subsidiary, and
(2) until one year after all the notes have been paid in full in cash, such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against Charter Holdings or any other Restricted
Subsidiary of Charter Holdings as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall
not be applicable to any Guarantee or any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary.
If the Guaranteed Indebtedness is subordinated to the notes, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the notes.
PAYMENTS FOR CONSENT
Charter Holdings will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indentures or the notes
unless such consideration is offered to be paid and is paid to all holders of
the notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
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REPORTS
Whether or not required by the Securities and Exchange Commission, so long
as any notes are outstanding, Charter Holdings will furnish to the holders of
notes, within the time periods specified in the Securities and Exchange
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if Charter Holdings were required to file
such forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section and, with respect to the
annual information only, a report on the annual financial statements by
Charter Holdings' independent public accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if Charter Holdings were
required to file such reports.
If Charter Holdings has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Charter
Holdings and its Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of Charter Holdings.
In addition, whether or not required by the Securities and Exchange
Commission, Charter Holdings will file a copy of all of the information and
reports referred to in clauses (1) and (2) above with the Securities and
Exchange Commission for public availability within the time periods specified in
the Securities and Exchange Commission's rules and regulations, unless the
Securities and Exchange Commission will not accept such a filing, and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default with respect to the notes of
each series:
(1) default for 30 days in the payment when due of interest on the
notes;
(2) default in payment when due of the principal of or premium, if
any, on the notes;
(3) failure by Charter Holdings or any of its Restricted Subsidiaries
to comply with the provisions described under the captions "-- Change of
Control" or "-- Merger, Consolidation, or Sale of Assets";
(4) failure by Charter Holdings or any of its Restricted Subsidiaries
for 30 days after written notice thereof has been given to Charter Holdings
by the trustee or to Charter Holdings and the trustee by holders of at
least 25% of the aggregate principal amount of the notes outstanding to
comply with any of their other covenants or agreements in the indentures;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Charter Holdings or any of its
Restricted Subsidiaries, or the payment of which is guaranteed by Charter
Holdings or any of its Restricted Subsidiaries, whether such Indebtedness
or guarantee now exists, or is created after the date of the indentures, if
that default:
(a) is caused by a failure to pay at final stated maturity the
principal amount on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default
(a "Payment Default"); or
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(b) results in the acceleration of such Indebtedness prior to its
express maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $100 million or
more;
(6) failure by Charter Holdings or any of its Restricted Subsidiaries
to pay final judgments which are non-appealable aggregating in excess of
$100 million, net of applicable insurance which has not been denied in
writing by the insurer, which judgments are not paid, discharged or stayed
for a period of 60 days; and
(7) Charter Holdings or any of its Significant Subsidiaries pursuant
to or within the meaning of bankruptcy law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a custodian of it or for all or
substantially all of its property, or
(d) makes a general assignment for the benefit of its creditors; or
(8) a court of competent jurisdiction enters an order or decree under
any bankruptcy law that:
(a) is for relief against Charter Holdings or any of its
Significant Subsidiaries in an involuntary case;
(b) appoints a custodian of Charter Holdings or any of its
Significant Subsidiaries or for all or substantially all of the property
of Charter Holdings or any of its Significant Subsidiaries; or
(c) orders the liquidation of Charter Holdings or any of its
Significant Subsidiaries;
and the order or decree remains unstayed and in effect for 60 consecutive
days.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Charter Holdings, all outstanding
notes will become due and payable immediately without further action or notice.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes of
each series may declare their respective notes to be due and payable
immediately.
Holders of the notes may not enforce the indentures or the notes except as
provided in the indentures. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes of each series may
direct the trustee in its exercise of any trust or power. The trustee may
withhold from holders of the notes notice of any continuing Default or Event of
Default, except a Default or Event of Default relating to the payment of
principal or interest, if it determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the notes of
each series then outstanding by notice to the trustee may on behalf of the
holders of all of the notes waive any existing Default or Event of Default and
its consequences under the indentures except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the notes.
Charter Holdings will be required to deliver to the trustee annually a
statement regarding compliance with the indentures. Upon becoming aware of any
Default or Event of Default, Charter Holdings will be required to deliver to the
trustee a statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, MEMBERS AND
STOCKHOLDERS
No director, officer, employee, incorporator, member or stockholder of
Charter Holdings, as such, shall have any liability for any obligations of
Charter Holdings under the notes or the indentures, 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 will be part of the consideration for issuance of the notes. The
waiver may not be effective to waive liabilities under the federal securities
laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Charter Holdings may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding Notes to receive payments in
respect of the Accreted Value or principal of, premium, if any, and
interest on such Notes when such payments are due from the trust referred
to below;
(2) Charter Holdings' obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and Charter Holdings' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indentures.
In addition, Charter Holdings may, at its option and at any time, elect to
have the obligations of Charter Holdings released with respect to certain
covenants that are described in the indentures ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events, not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events, described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Charter Holdings must irrevocably deposit with the trustee, in
trust, for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding notes on the stated maturity or on
the applicable redemption date, as the case may be, and Charter Holdings
must specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of Legal Defeasance, Charter Holdings shall have
delivered to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that
(a) Charter Holdings has received from, or there has been published
by, the Internal Revenue Service a ruling or
(b) since the date of the indentures, there has been a change in
the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on
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the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Charter Holdings shall have
delivered to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either:
(a) on the date of such deposit, other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit; or
(b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the indentures, to which Charter
Holdings or any of its Restricted Subsidiaries is a party or by which
Charter Holdings or any of its Restricted Subsidiaries is bound;
(6) Charter Holdings must have delivered to the trustee an opinion of
counsel to the effect that after the 91st day, assuming no intervening
bankruptcy, that no holder is an insider of Charter Holdings following the
deposit and that such deposit would not be deemed by a court of competent
jurisdiction a transfer for the benefit of either issuer in its capacity as
such, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(7) Charter Holdings must deliver to the trustee an officers'
certificate stating that the deposit was not made by Charter Holdings with
the intent of preferring the holders of notes over the other creditors of
Charter Holdings with the intent of defeating, hindering, delaying or
defrauding creditors of Charter Holdings or others; and
(8) Charter Holdings must deliver to the trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have
been complied with.
Notwithstanding the foregoing, the opinion of counsel required by clause
(2) above with respect to a Legal Defeasance need not be delivered if all notes
not theretofore delivered to the trustee for cancellation
(a) have become due and payable or
(b) will become due and payable on the maturity date within one year under
arrangements satisfactory to the trustee for the giving of notice of redemption
by the trustee in the name, and at the expense, of the issuers.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the indentures or the notes of each series may be
amended or supplemented with the consent of the holders of at least a majority
in aggregate principal amount, in the case of the 10.00% notes and the 10.25%
notes, and aggregate principal amount at maturity, in the case of the 11.75%
notes, of the then outstanding notes of each series. This includes consents
obtained in connection with a purchase of notes, a tender offer for notes, or an
exchange offer for notes. Any existing Default or compliance with any provision
of the indentures or the notes may be
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waived with the consent of the holders of a majority in aggregate principal
amount, in the case of the 10.00% notes and the 10.25% notes, and aggregate
principal amount at maturity, in the case of the 11.75% notes, of the then
outstanding notes of each series. This includes consents obtained in connection
with a purchase of notes, a tender offer for notes, or an exchange offer for
notes. Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder:
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the payment provisions with respect to the redemption of the
notes, other than provisions relating to the covenants described above
under the caption "-- Repurchase at the Option of Holders";
(3) reduce the rate of or extend the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes, except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration;
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the indentures relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of Accreted Value or principal of, or premium, if any, or interest
on the notes;
(7) waive a redemption payment with respect to any note, other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders";
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
the issuers and the trustee may amend or supplement the indentures or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of either issuer's obligations to
holders of notes in the case of a merger or consolidation or sale of all or
substantially all of such issuer's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indentures of any such holder; or
(5) to comply with requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
indentures under the Trust Indenture Act or otherwise as necessary to
comply with applicable law.
GOVERNING LAW
The indentures and the notes will be governed by the laws of the State of
New York.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Charter Holdings, the indentures limit
its right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such
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claim as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Securities and Exchange Commission
for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indentures provide that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indentures at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indentures
without charge by writing to Charter Communications Holdings, LLC, 12444
Powerscourt Drive, Suite 100, St. Louis, Missouri 63131, Attention: Corporate
Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The notes will initially be issued in the form of global securities held in
book-entry form. The notes will be deposited with the trustee as custodian for
the Depository Trust Company, and the Depository Trust Company or its nominee
will initially be the sole registered holder of the notes for all purposes under
the indentures. Unless it is exchanged in whole or in part for debt securities
in definitive form as described below, a global security may not be transferred.
However, transfers of the whole security between the Depository Trust Company
and its nominee or their respective successors are permitted.
Upon the issuance of a global security, the Depository Trust Company or its
nominee will credit on its internal system the principal amount at maturity of
the individual beneficial interest represented by the global security acquired
by the persons in sale of the original notes. Ownership of beneficial interests
in a global security will be limited to persons that have accounts with the
Depository Trust Company or persons that hold interests through participants.
Ownership of beneficial interests will be shown on, and the transfer of that the
Depository Trust Company or its nominee relating to interests of participants
and the records of participants relating to interests of persons other than
participants. The laws of some jurisdictions require that some purchasers of
securities take physical delivery of the securities in definitive form. These
limits and laws may impair the ability to transfer beneficial interests in a
global security.
Principal and interest payments on global securities registered in the name
of the Depository Trust Company's nominee will be made in immediate available
funds to the Depository Trust Company's nominee as the registered owner of the
global securities. The issuers and the trustee will treat the Depository Trust
Company's nominee as the owner of the global securities for all other purposes
as well. Accordingly, the issuers, the trustee, any paying agent and the initial
purchasers will have no direct responsibility or liability for any aspect of the
records relating to payments made on account of beneficial interests in the
global securities or for maintaining, supervising or reviewing any records
relating to these beneficial interests. It is the Depository Trust Company's
current practice, upon receipt of any payment of principal or interest, to
credit direct participants' accounts on the payment date according to their
respective holdings of beneficial interests in the global securities. These
payments will be the responsibility of the direct and indirect participants and
not of the Depository Trust Company, the issuers, the trustee or the initial
purchasers.
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So long as the Depository Trust Company or its nominee is the registered
owner or holder of the global security, the Depository Trust Company or its
nominee, as the case may be, will be considered the sole owner or holder of the
notes represented by the global security for the purposes of:
(1) receiving payment on the notes;
(2) receiving notices; and
(3) for all other purposes under the indentures and the notes.
Beneficial interests in the notes will be evidenced only by, and transfers of
the notes will be effected only through, records maintained by the Depository
Trust Company and its participants.
Except as described above, owners of beneficial interests in a global
security will not be entitled to receive physical delivery of certificated notes
in definitive form and will not be considered the holders of the global security
for any purposes under the indentures. Accordingly, each person owning a
beneficial interest in a global security must rely on the procedures of the
Depository Trust Company. And, if that person is not a participant, the person
must rely on the procedures of the participant through which that person owns
its interest, to exercise any rights of a holder under the indentures. Under
existing industry practices, if the issuers request any action of holders or an
owner of a beneficial interest in a global security desires to take any action
under the indentures, the Depository Trust Company would authorize the
participants holding the relevant beneficial interest to take that action. The
participants then would authorize beneficial owners owning through the
participants to take the action or would otherwise act upon the instructions of
beneficial owners owning through them.
The Depository Trust Company has advised the issuers that it will take any
action permitted to be taken by a holder of notes only at the direction of one
or more participants to whose account with the Depository Trust Company
interests in the global security are credited. Further, the Depository Trust
Company will take action only as to the portion of the aggregate principal
amount at maturity of the notes as to which the participant or participants has
or have given the direction.
Although the Depository Trust Company has agreed to the procedures
described above in order to facilitate transfers of interests in global
securities among participants of the Depository Trust Company, it is under no
obligation to perform these procedures, and the procedures may be discontinued
at any time. None of the issuers, the trustee, any agent of the issuers or the
initial purchasers will have any responsibility for the performance by the
Depository Trust Company or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
The Depository Trust Company has provided the following information to us.
The Depository Trust Company is a:
(1) limited-purpose trust company organized under the New York Banking Law;
(2) a banking organization within the meaning of the New York Banking Law;
(3) a member of the United States Federal Reserve System;
(4) a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
(5) a clearing agency registered under the provisions of Section 17A of the
Securities Exchange Act.
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CERTIFICATED NOTES
Notes represented by a global security are exchangeable for certificated
notes only if:
(1) the Depository Trust Company notifies the issuers that it is unwilling
or unable to continue as depository or if the Depository Trust Company
ceases to be a registered clearing agency, and a successor depository
is not appointed by the issuers within 90 days;
(2) the issuers determine not to require all of the notes to be represented
by a global security and notifies the trustee of its decision; or
(3) an Event of Default or an event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default relating
to the notes represented by the global security has occurred and is
continuing.
Any global security that is exchangeable for certificated notes in
accordance with the preceding sentence will be transferred to, and registered
and exchanged for, certificated notes in authorized denominations and registered
in the names as the Depository Trust Company or its nominee may direct. However,
a global security is only exchangeable for a global security of like
denomination to be registered in the name of the Depository Trust Company or its
nominee. If a global security becomes exchangeable for certificated notes:
(1) certificated notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples of $1,000;
(2) payment of principal, premium, if any, and interest on the certificated
notes will be payable, and the transfer of the certificated notes will
be registrable, at the office or agency of the issuers maintained for
these purposes; and
(3) no service charge will be made for any issuance of the certificated
notes, although the issuers may require payment of a sum sufficient to
cover any tax or governmental charge imposed in connection with the
issuance.
CERTAIN DEFINITIONS
This section sets forth certain defined terms used in the indentures.
Reference is made to the indentures for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
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"ACCRETED VALUE" is defined to mean, for any Specific Date, the amount
calculated pursuant to (1), (2), (3) or (4) for each $1,000 of principal amount
at maturity of the 11.75% notes:
(1) if the Specified Date occurs on one or more of the following dates
(each a "Semi-Annual Accrual Date") the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL
ACCRUAL DATE ACCRETED VALUE
- ------------ --------------
<S> <C>
Issue Date............................................... $ 564.48
January 15, 2000......................................... 565.02
July 15, 2000............................................ 598.21
January 15, 2001......................................... 633.36
July 15, 2001............................................ 670.57
January 15, 2002......................................... 709.96
July 15, 2002............................................ 751.67
January 15, 2003......................................... 795.84
July 15, 2003............................................ 842.59
January 15, 2004......................................... 892.09
July 15, 2004............................................ 944.51
January 15, 2005......................................... $1,000.00
</TABLE>
(2) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of
(a) $564.48 and
(b) an amount equal to the product of
(x) the Accreted Value for the first Semi-Annual Accrual Date
less $564.48 multiplied by
(y) a fraction, the numerator of which is the number of days
from the Issue Date to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of which is the number of
days elapsed from the Issue Date to the first Semi-Annual Accrual
Date, using a 360-day year of twelve 30-day months;
(3) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of
(a) the Accreted Value for the Semi-Annual Accrual Date immediately
preceding such Specified Date and
(b) an amount equal to the product of
(1) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date multiplied by
(2) a fraction, the numerator of which is the number of days
from the immediately preceding Semi-Annual Accrual Date to the
Specified Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
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(4) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control",
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"ASSET ACQUISITION" means
(a) an Investment by Charter Holdings or any of its Restricted Subsidiaries
in any other Person pursuant to which such Person shall become a Restricted
Subsidiary of Charter Holdings or any of its Restricted Subsidiaries or shall be
merged with or into Charter Holdings or any of its Restricted Subsidiaries, or
(b) the acquisition by Charter Holdings or any of its Restricted
Subsidiaries of the assets of any Person which constitute all or substantially
all of the assets of such Person, any division or line of business of such
Person or any other properties or assets of such Person other than in the
ordinary course of business.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Charter Holdings
and its Subsidiaries, taken as a whole, will be governed by the provisions
of the indentures described above under the caption "-- Change of Control"
and/or the provisions described above under the caption "-- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance of Equity Interests by any of Charter Holdings'
Restricted Subsidiaries or the sale of Equity Interests in any of Charter
Holdings' Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that:
(a) involves assets having a fair market value of less than $100
million; or
(b) results in net proceeds to Charter Holdings and its Restricted
Subsidiaries of less than $100 million;
(2) a transfer of assets between or among Charter Holdings and its
Restricted Subsidiaries;
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(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of Charter Holdings to Charter Holdings or to another Wholly
Owned Restricted Subsidiary of Charter Holdings;
(4) a Restricted Payment that is permitted by the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments" and a
Restricted Investment that is permitted by the covenant described above
under the caption "-- Certain Covenants -- Investments"; and
(5) the incurrence of Permitted Liens and the disposition of assets
related to such Permitted Liens by the secured party pursuant to a
foreclosure.
"ASSET SALE OFFER" means a situation in which the issuers commence an offer
to all holders to purchase notes pursuant to Section 4.11 of the indentures.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessee, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person," as such term is used in Section 13(d)(3)
of the Exchange Act, such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"CABLE RELATED BUSINESS" means the business of owning cable television
systems and businesses ancillary, complementary and related thereto.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests, whether general or limited; and
(4) any other interest, other than any debt obligation, or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CAPITAL STOCK SALE PROCEEDS" means the aggregate net cash proceeds,
including the fair market value of the non-cash proceeds, as determined by an
independent appraisal firm, received by Charter Holdings since the date of the
indentures
(x) as a contribution to the common equity capital or from the issue
or sale of Equity Interests of Charter Holdings, other than Disqualified
Stock or
(y) from the issue or sale of convertible or exchangeable Disqualified
Stock or convertible or exchangeable debt securities of Charter Holdings
that have been converted into or exchanged
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for such Equity Interests other than Equity Interests, or Disqualified
Stock or debt securities, sold to a Subsidiary of Charter Holdings.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof,
provided that the full faith and credit of the United States is pledged in
support thereof, having maturities of not more than twelve months from the
date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of twelve 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 having combined
capital and surplus in excess of $500 million and a Thompson Bank Watch
Rating at the time of acquisition of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having a rating of at least "P-1" from Moody's or
at least "A-1" from S&P and in each case maturing within twelve months
after the date of acquisition;
(6) corporate debt obligations maturing within twelve months after the
date of acquisition thereof, rated at the time of acquisition at least
"Aaa" or "P-1" by Moody's or "AAA" or "A-1" by S&P;
(7) auction-rate preferred stocks of any corporation maturing not
later than 45 days after the date of acquisition thereof, rated at the time
of acquisition at least "Aaa" by Moody's or "AAA" by S&P;
(8) securities issued by any state, commonwealth or territory of the
United States, or by any political subdivision or taxing authority thereof,
maturing not later than six months after the date of acquisition thereof,
rated at the time of acquisition at least "A" by Moody's or S&P; and
(9) money market or mutual funds at least 90% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through
(8) of this definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition, other than by
way of merger or consolidation, in one or a series of related transactions,
of all or substantially all of the assets of Charter Holdings and its
Subsidiaries, taken as a whole, or of a Parent and its Subsidiaries, taken
as a whole, to any "person," as such term is used in Section 13(d)(3) of
the Exchange Act, other than Paul G. Allen or a Related Party;
(2) the adoption of a plan relating to the liquidation or dissolution
of Charter Holdings or a Parent;
(3) the consummation of any transaction, including, without
limitation, any merger or consolidation, the result of which is that any
"person," as defined above, other than Paul G. Allen and Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 35% of
the Voting Stock of Charter Holdings or a Parent, measured by voting power
rather than the number of shares, unless Paul G. Allen or a Related Party
Beneficially Owns, directly or indirectly, a greater percentage of Voting
Stock of Charter Holdings or such Parent, as the case may be, measured by
voting power rather than the number of shares, than such person;
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(4) after the date of the indentures, the first day on which a
majority of the members of the board of directors of Charter Holdings or a
Parent are not Continuing Directors; or
(5) Charter Holdings or a Parent consolidates with, or merges with or
into, any Person, or any Person consolidates with, or merges with or into,
Charter Holdings or a Parent, in any such event pursuant to a transaction
in which any of the outstanding Voting Stock of Charter Holdings or such
Parent is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of Charter
Holdings or such Parent outstanding immediately prior to such transaction
is converted into or exchanged for Voting Stock, other than Disqualified
Stock, of the surviving or transferee Person constituting a majority of the
outstanding shares of such Voting Stock of such surviving or transferee
Person immediately after giving effect to such issuance.
"CONSOLIDATED EBITDA" means with respect to any Person, for any period, the
net income of such Person and its Restricted Subsidiaries for such period plus,
to the extent such amount was deducted in calculating such net income:
(1) Consolidated Interest Expense;
(2) income taxes;
(3) depreciation expense;
(4) amortization expense;
(5) all other non-cash items, extraordinary items, nonrecurring and
unusual items and the cumulative effects of changes in accounting
principles reducing such net income, less all non-cash items, extraordinary
items, nonrecurring and unusual items and cumulative effects of changes in
accounting principles increasing such net income, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in
conformity with GAAP;
(6) amounts actually paid during such period pursuant to a deferred
compensation plan; and
(7) for purposes of the covenant described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" only, Management Fees;
provided that Consolidated EBITDA shall not include:
(x) the net income, or net loss, of any Person that is not a
Restricted Subsidiary ("Other Person"), except
(i) with respect to net income, to the extent of the amount of
dividends or other distributions actually paid to such Person or any
of its Restricted Subsidiaries by such Other Person during such
period and
(ii) with respect to net losses, to the extent of the amount of
investments made by such Person or any Restricted Subsidiary of such
Person in such Other Person during such period;
(y) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (3) of the covenant
described under the subheading "-- Certain Covenants -- Restricted
Payments," and in such case, except to the extent includable pursuant to
clause (x) above, the net income, or net loss, of any Other Person
accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with such Person or any Restricted
Subsidiaries or all or substantially all of the property and assets of
such Other Person are acquired by such Person or any of its Restricted
Subsidiaries; and
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(z) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary, other than any agreement or
instrument evidencing Indebtedness or preferred stock outstanding on the
date of the indentures or incurred or issued thereafter in compliance
with the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of preferred
stock," provided that
(a) the terms of any such agreement restricting the declaration
and payment of dividends or similar distributions apply only in the
event of a default with respect to a financial covenant or a covenant
relating to payment, beyond any applicable period of grace, contained
in such agreement or instrument,
(b) such terms are determined by such Person to be customary in
comparable financings and
(c) such restrictions are determined by the Charter Holdings not
to materially affect the issuers' ability to make principal or
interest payments on the notes when due.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person as of any
date of determination, the sum, without duplication, of:
(1) the total amount of outstanding Indebtedness of such Person and
its Restricted Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person, that has
been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus
(3) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Restricted Subsidiaries of such Person,
in each case, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, without duplication, the sum of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization or original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments, if any, pursuant to Hedging Obligations; and
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, and
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon;
excluding, however, any amount of such interest of any Restricted Subsidiary if
the net income of such Restricted Subsidiary is excluded in the calculation of
Consolidated EBITDA pursuant to clause (z) of the definition thereof, but only
in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Consolidated EBITDA pursuant to clause (z) of
the definition thereof, in each case, on a consolidated basis and in accordance
with GAAP.
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"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the board of directors of Charter Holdings who:
(1) was a member of such board of directors on the date of the
indentures; or
(2) was nominated for election or elected to such board of directors
with the approval of a majority of the Continuing Directors who were
members of such board of directors at the time of such nomination or
election or whose election or appointment was previously so approved.
"CREDIT FACILITIES" means, with respect to Charter Holdings and/or its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing, including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables, or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DISPOSITION" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person, whether or not such Person
is the Surviving Person, or the sale, assignment, or transfer, lease conveyance
or other disposition of all or substantially all of such Person's assets or
Capital Stock.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require Charter Holdings to repurchase such
Capital Stock upon the occurrence of a change of control or an asset sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that Charter Holdings may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "-- Certain Covenants --
Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock.
"EQUITY OFFERING" means any private or underwritten public offering of
Qualified Capital Stock of Charter Holdings of which the gross proceeds to
Charter Holdings are at least $25 million.
"EXISTING INDEBTEDNESS" means Indebtedness of Charter Holdings and its
Restricted Subsidiaries in existence on the date of the indentures, until such
amounts are repaid.
"FULL ACCRETION DATE" means January 15, 2005, the first date on which the
Accreted Value of the 11.75% notes has accreted to an amount equal to the
principal amount at maturity of the 11.75% notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on January 12, 2000.
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"GUARANTEE" or "GUARANTEE" means a guarantee other than by endorsement of
negotiable instruments for collection in the ordinary course of business, direct
or indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness, measured as the lesser of the
aggregate outstanding amount of the Indebtedness so guaranteed and the face
amount of the guarantee.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) interest rate option agreements, foreign currency exchange
agreements, foreign currency swap agreements; and
(3) other agreements or arrangements designed to protect such Person
against fluctuations in interest and currency exchange rates.
"HELICON PREFERRED STOCK" means the preferred limited liability company
interest of Charter-Helicon LLC with an aggregate liquidation value of $25
million.
"INDEBTEDNESS" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or reimbursement agreements in respect thereof;
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing the notional amount of any Hedging Obligations,
if and to the extent any of the preceding items, other than letters of credit
and Hedging Obligations, would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person, whether or not such Indebtedness is assumed by
the specified Person, and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"INVESTMENT GRADE RATING" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business, and
purchases or
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other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"LEVERAGE RATIO" means, as of any date, the ratio of:
(1) the Consolidated Indebtedness of Charter Holdings on such date to
(2) the aggregate amount of Consolidated EBITDA for Charter Holdings
for the most recently ended fiscal quarter for which internal financial
statements are available multiplied by four (the "Reference Period").
In addition to the foregoing, for purposes of this definition,
"Consolidated EBITDA" shall be calculated on a pro forma basis after giving
effect to
(1) the issuance of the notes;
(2) the incurrence of the Indebtedness or the issuance of the
Disqualified Stock or other preferred stock of a Restricted Subsidiary, and
the application of the proceeds therefrom, giving rise to the need to make
such calculation and any incurrence or issuance, and the application of the
proceeds therefrom, or repayment of other Indebtedness or Disqualified
Stock or other preferred stock of a Restricted Subsidiary, other than the
incurrence or repayment of Indebtedness for ordinary working capital
purposes, at any time subsequent to the beginning of the Reference Period
and on or prior to the date of determination, as if such incurrence, and
the application of the proceeds thereof, or the repayment, as the case may
be, occurred on the first day of the Reference Period;
(3) any Dispositions or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries, including any person that becomes a Restricted Subsidiary as
a result of such Asset Acquisition, incurring, assuming or otherwise
becoming liable for or issuing Indebtedness, Disqualified Stock or
preferred stock, made on or subsequent to the first day of the Reference
Period and on or prior to the date of determination, as if such Disposition
or Asset Acquisition, including the incurrence, assumption or liability for
any such Indebtedness, Disqualified Stock or preferred stock and also
including any Consolidated EBITDA associated with such Asset Acquisition,
including any cost savings adjustments in compliance with Regulation S-X
promulgated by the Securities and Exchange Commission, had occurred on the
first day of the Reference Period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code, or equivalent statutes, of any jurisdiction.
"MANAGEMENT FEES" means the fees payable to Charter Communications, Inc.
pursuant to the management agreements between Charter Communications, Inc. and
Charter Communications Operating, LLC and between Charter Communications, Inc.
and Restricted Subsidiaries of Charter Holdings, including any Person that
becomes a Restricted Subsidiary of Charter Holdings in connection with the
acquisition of Bresnan Communications Company Limited Partnership, as such
agreements exist on the January 12, 2000, or on the date of such acquisition in
the case of the aforementioned Bresnan acquisition, including any amendment or
replacement thereof, provided that any such amendment or replacement is not more
disadvantageous to the holders of the notes in any material respect from such
management agreements existing on the January 12, 2000.
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"MARCH 1999 NOTES ISSUE DATE" means March 17, 1999.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"NET PROCEEDS" means the aggregate cash proceeds received by Charter
Holdings or any of its Restricted Subsidiaries in respect of any Asset Sale,
including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, net of the
direct costs relating to such Asset Sale, including, without limitation, legal,
accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof or taxes paid or payable as a
result thereof, including amounts distributable in respect of owners', partners'
or members' tax liabilities resulting from such sale, in each case after taking
into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of
Indebtedness.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Charter Holdings nor any of its Restricted
Subsidiaries
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness,
(b) is directly or indirectly liable as a guarantor or otherwise,
or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any holder of
any other Indebtedness, other than the notes, of Charter Holdings or any of
its Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of Charter Holdings or
any of its Restricted Subsidiaries.
"PARENT" means Charter Communications, Inc. and/or Charter Communications
Holding Company, LLC, as applicable, and any successor Person or any Person
succeeding to the direct or indirect ownership of Charter Holdings.
"PERMITTED INVESTMENTS" means:
(1) any Investment by Charter Holdings in a Restricted Subsidiary of
Charter Holdings or any Investment by a Restricted Subsidiary of Charter
Holdings in Charter Holdings;
(2) any Investment in Cash Equivalents;
(3) any Investment by Charter Holdings or any Restricted Subsidiary of
Charter Holdings in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Charter
Holdings; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Charter Holdings or a Restricted Subsidiary of Charter
Holdings;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
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(5) any Investment made out of the net cash proceeds of the issue and
sale since the Existing Notes Issue Date, other than to a Subsidiary of
Charter Holdings, of Equity Interests, other than Disqualified Stock, of
Charter Holdings to the extent that
(a) such net cash proceeds have not been applied to make a
Restricted Payment or to effect other transactions pursuant to the
covenant described above under the caption "--Restricted Payments," or
(b) such net cash proceeds have not been used to incur Indebtedness
pursuant to clause (10) of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of preferred stock";
(6) Investments in Productive Assets having an aggregate fair market
value, measured on the date each such Investment was made and without
giving effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (6) since the March 1999
Charter Holdings notes issue date, not to exceed $150 million; provided
that either Charter Holdings or any of its Restricted Subsidiaries, after
giving effect to such Investments, will own at least 20% of the Voting
Stock of such Person;
(7) other Investments in any Person having an aggregate fair market
value, measured on the date each such Investment was made and without
giving effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (7) since the March 1999
Charter Holdings notes issue date, not to exceed $50 million; and
(8) Investments in customers and suppliers in the ordinary course of
business which either
(A) generate accounts receivable, or
(B) are accepted in settlement of bona fide disputes.
"PERMITTED LIENS" means:
(1) Liens on the assets of Charter Holdings securing Indebtedness and
other Obligations under clause (1) of the covenant "--Incurrence of
Indebtedness and Issuance of preferred stock";
(2) Liens in favor of Charter Holdings;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Charter Holdings; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with Charter Holdings;
(4) Liens on property existing at the time of acquisition thereof by
Charter Holdings; provided that such Liens were in existence prior to the
contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) purchase money mortgages or other purchase money liens, including
without limitation any Capitalized Lease Obligations, incurred by Charter
Holdings upon any fixed or capital assets acquired after the Issue Date or
purchase money mortgages, including without limitation Capitalized Lease
Obligations, on any such assets, whether or not assumed, existing at the
time of acquisition of such assets, whether or not assumed, so long as
(a) such mortgage or lien does not extend to or cover any of the
assets of Charter Holdings, except the asset so developed, constructed,
or acquired, and directly related assets
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such as enhancements and modifications thereto, substitutions,
replacements, proceeds, including insurance proceeds, products, rents
and profits thereof, and
(b) such mortgage or lien secures the obligation to pay the
purchase price of such asset, interest thereon and other charges, costs
and expenses, including, without limitation, the cost of design,
development, construction, acquisition, transportation, installation,
improvement, and migration, and incurred in connection therewith, or the
obligation under such Capitalized Lease Obligation, only;
(7) Liens existing on the date of the indentures, other than in
connection with the Credit Facilities;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
(10) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(11) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligation, bankers'
acceptance, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business, exclusive of obligations for the payment
of borrowed money;
(12) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of Charter
Holdings or any of its Restricted Subsidiaries;
(13) Liens of franchisors or other regulatory bodies arising in the
ordinary course of business;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases or other Uniform Commercial Code financing
statements for precautionary purposes relating to arrangements not
constituting Indebtedness;
(15) Liens arising from the rendering of a final judgment or order
against Charter Holdings or any of its Restricted Subsidiaries that does
not give rise to an Event of Default;
(16) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(17) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Hedging Obligations and forward contracts,
options, future contracts, future options or similar agreements or
arrangements designed solely to protect Charter Holdings or any of its
Restricted Subsidiaries from fluctuations in interest rates, currencies or
the price of commodities;
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(18) Liens consisting of any interest or title of licensor in the
property subject to a license;
(19) Liens on the Capital Stock of Unrestricted Subsidiaries;
(20) Liens arising from sales or other transfers of accounts
receivable which are past due or otherwise doubtful of collection in the
ordinary course of business;
(21) Liens incurred in the ordinary course of business of Charter
Holdings, with respect to obligations which in the aggregate do not exceed
$50 million at any one time outstanding;
(22) Liens in favor of the trustee arising under the provisions in the
indentures under the subheading "-- Compensation and Indemnity"; and
(23) Liens in favor of the trustee for its benefit and the benefit of
holders of the Notes, as their respective interests appear.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Charter
Holdings or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Charter Holdings or any of its Restricted
Subsidiaries, other than intercompany Indebtedness; provided that unless
permitted otherwise by the indentures, no Indebtedness of Charter Holdings or
any of its Restricted Subsidiaries may be issued in exchange for, or the net
proceeds of are used to extend, refinance, renew, replace, defease or refund
Indebtedness of Charter Holdings or any of its Restricted Subsidiaries;
provided, further, that:
(1) the principal amount, or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount of,
or accreted value, if applicable, plus accrued interest and premium, if
any, on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded, plus the amount of reasonable expenses incurred in
connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Charter Holdings or by any
of its Restricted Subsidiaries who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"PRODUCTIVE ASSETS" means assets, including assets of a referent Person
owned directly or indirectly through ownership of Capital Stock, of a kind used
or useful in the Cable Related Business.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Stock.
"RATING AGENCIES" means Moody's and S&P.
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"RELATED PARTY" means:
(1) the spouse or an immediate family member, estate or heir of Paul
G. Allen; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of which consist of Paul G.
Allen and/or such other Persons referred to in the immediately preceding
clause (1).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED PAYMENTS" are set forth above under the caption "Certain
Covenants- Restricted Payments."
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Service, a division of the
McGraw-Hill Companies, Inc. or any successor to the rating agency business
thereof.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary of Charter
Holdings which is a "Significant Subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness on the January 12, 2000, or, if none, the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person:
(1) any corporation, association or other business entity of which at
least 50% of the total voting power of shares of Capital Stock entitled
without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof, and, in the
case of any such entity of which 50% of the total voting power of shares of
Capital Stock is so owned or controlled by such Person or one or more of
the other Subsidiaries of such Person, such Person and its Subsidiaries
also has the right to control the management of such entity pursuant to
contract or otherwise; and
(2) any partnership
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person, or
(b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person, or any combination thereof.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Charter Holdings that is
designated by the board of directors of Charter Holdings as an Unrestricted
Subsidiary pursuant to a board resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Charter Holdings or any Restricted Subsidiary of Charter
Holdings unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Charter Holdings or any Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of Charter Holdings unless such terms constitute
Investments permitted by the covenant described above under the caption
"-- Certain Covenants -- Investments";
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(3) is a Person with respect to which neither Charter Holdings nor any
of its Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or
(b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Charter Holdings or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Charter Holdings or any of its Restricted
Subsidiaries or has at least one executive officer that is not a director
or executive officer of Charter Holdings or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Charter Holdings as an Unrestricted
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the board resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "Certain Covenants -- Investments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indentures and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of Charter Holdings as of such
date and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption "Certain Covenants -- Incurrence
of Indebtedness and Issuance of preferred stock", Charter Holdings shall be in
default of such covenant. The board of directors of Charter Holdings may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of Charter Holdings of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if:
(1) such Indebtedness is permitted under the covenant described under
the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance
of preferred stock," calculated on a pro forma basis as if such designation
had occurred at the beginning of the four-quarter reference period; and
(2) no Default or Event of Default would be in existence following
such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the board of
directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal, including
payment at 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
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the opinion of Paul, Hastings, Janofsky & Walker
LLP, our legal counsel, as to the material United States federal income tax
consequences of
(1) the exchange offer relevant to U.S. holders, and
(2) the ownership and disposition of the new notes relevant to U.S. holders
and, in certain circumstances, non-U.S. holders.
The following deals only with notes held as capital assets within the
meaning of section 1221 of the Internal Revenue Code of 1986, as amended. The
following does not address special situations, such as those of broker-dealers,
tax-exempt organizations, individual retirement accounts and other tax deferred
accounts, financial institutions, insurance companies, or persons holding notes
as part of a hedging or conversion transaction, a straddle or a constructive
sale. Furthermore, the following is based upon the provisions of the Internal
Revenue Code and regulations, rulings and judicial decisions promulgated under
the Internal Revenue Code and judicial decisions as of the date hereof. Such
authorities may be repealed, revoked, or modified, possibly with retroactive
effect, so as to result in United States federal income tax consequences
different from those discussed below. In addition, except as otherwise
indicated, the following does not consider the effect of any applicable foreign,
state, local or other tax laws or estate or gift tax considerations.
We have not sought, and will not seek, any rulings from the IRS with
respect to the positions discussed below. There can be no assurance that the IRS
will not take a different position concerning the tax consequences of the
exchange offer and ownership or disposition of the original notes or new notes,
or that any such position would not be sustained.
As used herein, a "United States person" is
(1) a citizen or resident of the U.S.,
(2) a corporation, partnership or other entity created or organized in or
under the laws of the U.S. or any political subdivision thereof,
(3) an estate the income of which is subject to U.S. federal income
taxation regardless of its source,
(4) a trust if
(A) a United States court is able to exercise primary supervision over
the administration of the trust, and
(B) one or more United States persons have the authority to control
all substantial decisions of the trust,
(5) a certain type of trust in existence on August 20, 1996, which was
treated as a United States person under the Internal Revenue Code in effect
immediately prior to such date and which has made a valid election to be treated
as a United States person under the Internal Revenue Code, and
(6) any person otherwise subject to U.S. federal income tax on a net income
basis in respect of its worldwide taxable income.
A U.S. holder is a beneficial owner of a note who is a United States
person. A non-U.S. holder is a beneficial owner of a note that is not a U.S.
holder.
THE EXCHANGE OFFER
Pursuant to the exchange offer, holders are entitled to exchange the
original notes for new notes that will be substantially identical in all
material respects to the original notes, except that the new
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notes will be registered with the Securities and Exchange Commission and
therefore will not be subject to transfer restrictions. The exchange pursuant to
the exchange offer as described above will not result in a taxable event.
Accordingly,
(1) no gain or loss will be realized by a U.S. holder upon receipt of a new
note,
(2) the holding period of the new note will include the holding period of
the original note exchanged therefor and
(3) the adjusted tax basis of the new notes will be the same as the
adjusted tax basis of the original notes exchanged at the time of such exchange.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
PAYMENTS OF INTEREST ON THE 10.00% NOTES AND THE 10.25% NOTES
Interest on a 10.00% note or a 10.25% note, as the case may be, will be
taxable to a U.S. Holder as ordinary income from domestic sources at the time it
is paid or accrued in accordance with the U.S. Holder's regular method of
accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT ON THE 11.75% NOTES
The 11.75% notes will be issued with original issue discount. Such notes
will be issued with original issue discount because they will be issued at an
issue price which is substantially less than their stated principal amount at
maturity, and because interest on such notes will not be payable until July 15,
2005. Each U.S. Holder will be required to include in income in each year, in
advance of receipt of cash payments on such Senior Discount Notes to which such
income is attributable, original issue discount income as described below.
The amount of original issue discount with respect to the 11.75% notes will
be equal to the excess of
(1) note's "stated redemption price at maturity" over
(2) its "issue price."
The issue price of the 11.75% notes will be equal to the price to the
public, at which a substantial amount of such notes is initially sold for money
excluding any sales to a bond house, broker or similar person or organization
acting in the capacity of an underwriter, placement agent or wholesaler. The
stated redemption price at maturity of such a note is the total of all payments
provided by the 11.75% note, including stated interest payments.
A U.S. holder of such a note is required to include in gross income for
U.S. federal income tax purposes an amount equal to the sum of the "daily
portions" of such original issue discount for all days during the taxable year
on which the holder holds such note. The daily portions of original issue
discount required to be included in such holder's gross income in a taxable year
will be determined on a constant yield basis. A pro rata portion of the original
issue discount on such note which is attributable to the "accrual period" in
which such day is included will be allocated to each day during the taxable year
in which the holder holds the 11.75% notes. Accrual periods with respect to such
a note may be of any length and may vary in length over the term of the 11.75%
notes as long as
(1) no accrual period is longer than one year, and
(2) each scheduled payment of interest or principal on such note occurs on
either the first or final day of an accrual period.
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The amount of original issue discount attributable to each accrual period
will be equal to the product of
(1) the "adjusted issue price" at the beginning of such accrual period, and
(2) the "yield to maturity" of the instrument, stated in a manner
appropriately taking into account the length of the accrual period.
The yield to maturity is the discount rate that, when used in computing the
present value of all payments to be made under the 11.75% notes, produces an
amount equal to the issue price of such notes. The adjusted issue price of such
a note at the beginning of an accrual period is generally defined as the issue
price of such note plus the aggregate amount of original issue discount that
accrued in all prior accrual periods, less any cash payments made on the 11.75%
notes. Accordingly, a U.S. holder of such a note will be required to include
original issue discount in gross income for United States federal income tax
purposes in advance of the receipt of cash attributable to such income. The
amount of original issue discount allocable to an initial short accrual period
may be computed using any reasonable method if all other accrual periods, other
than a final short accrual period, are of equal length. The amount of original
issue discount allocable to the final accrual period at maturity of a 11.75%
note is the difference between
(A) the amount payable at the maturity of such note, and
(B) such note's adjusted issue price as of the beginning of the final
accrual period.
Payments on the 11.75% notes, including principal and stated interest
payments, are not separately included in a U.S. holder's income. Such payments
are treated first as payments of accrued original issue discount to the extent
of such accrued original issue discount and the excess as payments of principal,
which reduce the U.S. holder's adjusted tax basis in such notes.
EFFECT OF MANDATORY AND OPTIONAL REDEMPTION ON ORIGINAL ISSUE DISCOUNT
In the event of a change of control, we will be required to offer to redeem
all of the notes, at redemption prices specified elsewhere in this prospectus.
If we receive net proceeds from one or more equity offerings, we may, at our
option, use all or a portion of such net proceeds to redeem in the aggregate up
to 35% of the aggregate principal amount at maturity of the 10.25% notes and up
to 35% of the aggregate principal amount at maturity of the 11.75% notes at
redemption prices specified elsewhere herein, provided that at least 65% of the
aggregate principal amount at maturity of the 10.25% notes and the 11.75% notes,
respectively, remains outstanding after each such redemption. Computation of the
yield and maturity of the notes is not affected by such redemption rights and
obligations if, based on all the facts and circumstances as of January 12, 2000,
the stated payment schedule of the notes, that does not reflect the change of
control event or equity offering event, is significantly more likely than not to
occur. We have determined that, based on all of the facts and circumstances as
of the issue date, it is significantly more likely than not that the notes will
be paid according to their stated schedule.
We may redeem the 10.25% notes and the 11.75% notes, in whole or in part,
at any time on or after February 1, 2005, at redemption prices specified
elsewhere herein plus accrued and unpaid stated interest, if any, on the notes
so redeemed but excluding the date of redemption. The United States Treasury
Regulations contain rules for determining the "maturity date" and the stated
redemption price at maturity of an instrument that may be redeemed prior to its
stated maturity date at the option of the issuer. Under United States Treasury
Regulations, solely for the purposes of the accrual of original issue discount,
it is assumed that an issuer will exercise any option to redeem a debt
instrument if such exercise would lower the yield to maturity of the debt
instrument. We will not be presumed to redeem the notes prior to their stated
maturity under these rules because the exercise of such options would not lower
the yield to maturity of the notes.
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U.S. Holders may wish to consult their own tax advisors regarding the
treatment of such contingencies.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
Because the 11.75% notes constitute "applicable high yield discount
obligations", referred to as "AHYDOs", the portion of each 11.75% note that is
allocable to beneficial owners of Charter Holdings that are C corporations, such
as Charter Communications, Inc., will be treated as an AHYDO for U.S. federal
income tax purposes. The 11.75% notes constitute AHYDOs because they have a
yield to maturity that is at least five percentage points above the applicable
federal rate at the time of issuance of the 11.75% notes and the 11.75% notes
are issued with "significant original issue discount." An 11.75% note is treated
as having significant original issue discount because the aggregate amount that
will be includable in gross income with respect to such 11.75% note for periods
before the close of any accrual period ending after the date that is five years
after the date of issue exceeds the sum of (1) the aggregate amount of interest
to be paid in cash under the 11.75% note before the close of such accrual period
and (2) the product of the initial issue price of such 11.75% note and its yield
to maturity.
Because the 11.75% notes constitute AHYDOs, to the extent that the 11.75%
notes are allocable to beneficial owners of Charter Holdings that are C
corporations, such as Charter Communications, Inc.,
(1) the "disqualified portion" of the original issue discount that accrues
on the 11.75% notes allocable to beneficial owners of Charter Holdings that are
C corporations, such as Charter Communications, Inc., may be treated as a
dividend generally eligible for the dividends received deduction in the case of
corporate U.S. Holders,
(2) beneficial owners of Charter Holdings that are C corporations, such as
Charter Communications, Inc., will not be entitled to deduct their distributive
share of the disqualified portion of original issue discount that accrues on the
11.75% notes, and
(3) beneficial owners of Charter Holdings that are C corporations, such as
Charter Communications, Inc., will be allowed to deduct the remainder of their
distributive share of original issue discount only when Charter Holdings pays
amounts attributable to such original issue discount in cash.
The disqualified portion of original issue discount is equal to the lesser
of the amount of original issue discount or the portion of the "total return"
with respect to the 11.75% notes in excess of the applicable federal rate plus
six percentage points. The total return is the excess of all payments to be made
with respect to a 11.75% note over its issue price.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange, retirement or other taxable disposition of a note,
the holder will recognize gain or loss in an amount equal to the difference
between
(1) the amount of cash and the fair market value of other property received
in the exchange and
(2) the holder's adjusted tax basis in such note.
Amounts attributable to accrued but unpaid interest on the 10.00% notes and
the 10.25% notes will be treated as ordinary interest income. A holder's
adjusted tax basis in a note will equal the purchase price paid by such holder
for the note increased by the amount of any market discount, and in the case of
a 11.75% note by any original issue discount previously included in income by
such holder with respect to such note and decreased by the amount of any
amortizable bond premium
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applied to reduce interest on the notes and, in the case of a 11.75% note, by
any payments received thereon.
Gain or loss realized on the sale, exchange, retirement or other taxable
disposition of a note will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange, retirement, or other taxable
disposition, the note has been held for more than 12 months. The maximum rate of
tax on long-term capital gains with respect to notes held by an individual is
20%. The deductibility of capital losses is subject to certain limitations.
MARKET DISCOUNT
A holder receives a "market discount" when he/she
(1) purchases a 10.00% note or a 10.25% note for an amount below the issue
price, or
(2) purchases a 11.75% note for an amount below the adjusted issue price on
the date of purchase, as determined in accordance with the original issue
discount rules above.
Under the market discount rules, a U.S. holder will be required to treat
any partial principal payment on, or any gain on the sale, exchange, retirement
or other disposition of, a note as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on such note at the time of such payment or disposition. In
addition, the U.S. holder may be required to defer, until the maturity of the
note or its earlier disposition in a taxable transaction, the deduction of a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such notes.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the note, unless the U.S.
holder elects to accrue such discount on a constant interest rate method. A U.S.
holder may elect to include market discount in income currently as it accrues,
on either a ratable or constant interest rate method. If this election is made,
the holder's basis in the note will be increased to reflect the amount of income
recognized and the rules described above regarding deferral of interest
deductions will not apply. This election to include market discount in income
currently, once made, applies to all market discount obligations acquired on or
after the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
AMORTIZABLE BOND PREMIUM; ACQUISITION PREMIUM
A U.S. holder that
(1) purchases a 10.00% note or a 10.25% note for an amount in excess of the
principal amount, or
(2) purchases a 11.75% note for an amount in excess of the stated
redemption price will be considered to have purchased such note with
"amortizable bond premium." A U.S. holder generally may elect to amortize the
premium over the remaining term of the note on a constant yield method as
applied with respect to each accrual period of the note, and allocated ratably
to each day within an accrual period in a manner substantially similar to the
method of calculating daily portions of original issue discount, as described
above. However, because the notes may be optionally redeemed for an amount that
is in excess of their principal amount, special rules apply that could result in
a deferral of the amortization of bond premium until later in the term of the
note. The amount amortized in any year will be treated as a reduction of the
U.S. holder's interest income, including original issue discount income, from
the note. Bond premium on a note held by a U.S. holder that does not make such
an election will decrease the gain or increase the loss otherwise recognized
upon disposition of the note. The election to amortize premium on a constant
yield method, once made, applies to all
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debt obligations held or subsequently acquired by the electing U.S. 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 Internal Revenue Service.
A U.S. Holder that purchases a 11.75% note for an amount that is greater
than the adjusted issue price of the 11.75% note on the date of purchase, as
determined in accordance with the original issue discount rules, above, will be
considered to have purchased such 11.75% note at an "acquisition premium." A
holder of a 11.75% note that is purchased at an acquisition premium may reduce
the amount of the original issue discount otherwise includible in income with
respect to the 11.75% note by the "acquisition premium fraction." The
acquisition premium fraction is that fraction the numerator of which is the
excess of the holder's adjusted tax basis in the 11.75% note immediately after
its acquisition over the adjusted issue price of the 11.75% note and the
denominator of which is the excess of the sum of all amounts payable on the
11.75% note after the purchase date over the adjusted issue price of the 11.75%
note. Alternatively, a holder of a 11.75% note that is purchased at an
acquisition premium may elect to compute the original issue discount accrual on
the 11.75% note by treating the purchase as a purchase of the 11.75% note at
original issuance, treating the purchase price as the issue price, and applying
the original issue discount rules thereto using a constant yield method.
UNITED STATES FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
The payment to a non-U.S. holder of interest on a note, will not be subject
to U.S. federal withholding tax pursuant to the "portfolio interest exception,"
provided that
(1) the non-U.S. holder does not actually or constructively own 10% or more
of the capital or profits interest in the issuers and is not a controlled
foreign corporation that is related to the issuers within the meaning of the
Code and
(2) either
(A) the beneficial owner of the notes certifies to the issuers or their
agent, under penalties of perjury, that it is not a U.S. holder and provides its
name and address on U.S. Treasury Form W-8, or a suitable substitute form, or
(B) a securities clearing organization, bank or other financial institution
that holds the notes on behalf of such non-U.S. holder in the ordinary course of
its trade or business certifies under penalties of perjury that such Form W-8,
or suitable substitute form, has been received from the beneficial owner by it
or by a financial institution between it and the beneficial owner and furnishes
the payor with a copy thereof.
Recently adopted Treasury Regulations that will be effective January 1,
2001, provide alternative methods for satisfying the certification requirement
described in (2) above. These regulations will generally require, in the case of
notes held by a foreign partnership, that the certificate described in (2) above
be provided by the partners rather than by the foreign partnership, and that the
partnership provide certain information including a U.S. tax identification
number. For purposes of the United States federal withholding tax, payment of
interest includes the amount of any payment that is attributable to original
issue discount that accrued while such non-U.S. holder held the note.
If a non-U.S. holder cannot satisfy the requirements of the portfolio
interest exception described above, payments of interest, including the amount
of any payment that is attributable to original issue discount that accrued
while such non-U.S. holder held the note, made to such non-U.S. holder will be
subject to a 30% withholding tax, unless the beneficial owner of the note
provides us or our paying agent, as the case may be, with a properly executed
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(1) Internal Revenue Service Form 1001, or successor form, claiming an
exemption from or reduction in the rate of withholding under the benefit of a
tax treaty or
(2) Internal Revenue Service Form 4224, or successor form, stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States.
If a non-U.S. holder of a note is engaged in a trade or business in the
United States and interest on the note is effectively connected with the conduct
of such trade or business, such non-U.S. holder, will be subject to U.S. federal
income tax on such interest, including original issue discount, in the same
manner as if it were a U.S. holder. In addition, if such non-U.S. holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits, subject to adjustment, for that
taxable year unless it qualifies for a lower rate under an applicable income tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a person other than a U.S. holder generally
will not be subject to U.S. federal income tax provided
(1) such gain is not effectively connected with the conduct by such holder
of a trade or business in the United States,
(2) in the case of gains derived by an individual, such individual is not
present in the United States for 183 days or more in the taxable year of the
disposition and certain other conditions are met and
(3) the non-U.S. holder is not subject to tax pursuant to the provisions of
U.S. federal income tax law applicable to certain expatriates.
FEDERAL ESTATE TAX
Subject to applicable estate tax treaty provisions, notes held by an
individual who is not a citizen or resident of the United States for federal
estate tax purposes at the time of his or her death will not be subject to U.S.
federal estate tax if the interest on the notes qualifies for the portfolio
interest exemption from U.S. federal income tax under the rules described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding and information reporting requirements may apply to
certain payments of principal, premium, if any, and interest, and accruals of
original issue discount, on a note, and to the proceeds of the sale or
redemption of a note before maturity. We, our agent, a broker, the trustee or
the paying agent, as the case may be, will be required to withhold from any
payment that is subject to backup withholding a tax equal to 31% of such payment
if a U.S. holder fails to furnish his taxpayer identification number, certify
that such number is correct, certify that such holder is not subject to backup
withholding or otherwise comply with the applicable backup withholding rules.
Certain U.S. holders, including all corporations, are not subject to backup
withholding and information reporting requirements.
Non-U.S. holders other than corporations may be subject to backup
withholding and information reporting requirements. However, backup withholding
and information reporting requirements do not apply to payments of portfolio
interest, including original issue discount, made by us or a paying agent to
non-U.S. holders if the appropriate certification is received, provided that the
payor does not have actual knowledge that the holder is a U.S. holder. If any
payments of principal and interest are made to the beneficial owner of a note by
or through the foreign office of a foreign custodian, foreign nominee or other
foreign agent of such beneficial owner, or if the foreign office of a foreign
"broker",
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<PAGE> 226
as defined in the applicable Treasury Regulations, pays the proceeds of the
sale, redemption or other disposition of note or a coupon to the seller thereof,
backup withholding and information reporting requirements will not apply.
Information reporting requirements, but not backup withholding, will apply,
however, to a payment by a foreign office of a broker that is a United States
person or is a foreign person that derives 50% of more of its gross income for
certain period from the conduct of a trade or business in the United States, or
that is a "controlled foreign corporation", that is, a foreign corporation
controlled by certain U.S. shareholders, with respect to the United States
unless the broker has documentary evidence in its records that the holder is a
non-U.S. holder and certain other conditions are met or the holder otherwise
establishes an exemption. Payment by a U.S. office of a broker is subject to
both backup withholding at a rate of 31% and information reporting unless the
holder certifies under penalties of perjury that it is a non-U.S. holder or
otherwise establishes an exemption.
In October 1997, Treasury regulations were issued which alter the foregoing
rules in certain respects and which generally will apply to any payments in
respect of a note or proceeds from the sale of a note that are made after
December 31, 2000. Among other things, such regulations expand the number of
foreign intermediaries that are potentially subject to information reporting and
address certain documentary evidence requirements relating to exemption from the
backup withholding requirements. Holders of the notes should consult their tax
advisers concerning the possible application of such regulations to any payments
made on or with respect to the notes.
Any amounts withheld under the backup withholding rules from a payment to a
holder of the notes will be allowed as a refund or a credit against such
holder's United States federal income tax liability, provided that the required
information is furnished to the IRS.
We must report annually to the IRS and to each non-U.S. holder any interest
that is subject to withholding, or that is exempt from United States withholding
tax pursuant to a tax treaty, or interest that is exempt from United States
federal withholding tax under the portfolio interest exception. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
non-U.S. holder resides.
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PLAN OF DISTRIBUTION
A broker-dealer that is the holder of original notes that were acquired for
the account of such broker-dealer as a result of market-making or other trading
activities, other than original notes acquired directly from us or any of our
affiliates may exchange such original notes for new notes pursuant to the
exchange offer. This is true so long as each broker-dealer that receives new
notes for its own account in exchange for original notes, where such original
notes were acquired by such broker-dealer as a result of market-making or other
trading activities acknowledges that it will deliver a prospectus in connection
with any resale of such new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for original notes where such
original notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of 180 days after
consummation of the exchange offer or such time as any broker-dealer no longer
owns any registrable securities, we will make this prospectus, as it may be
amended or supplemented from time to time, available to any broker-dealer for
use in connection with any such resale. All dealers effecting transactions in
the new notes will be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers or any other holder of new notes. New notes received by
broker-dealers for their own account in the exchange offer may be sold from time
to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the new notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such new
notes. Any broker-dealer that resells new notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after consummation of the exchange offer or such
time as any broker-dealer no longer owns any registrable securities, we 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. We have agreed to pay all expenses incident to the
exchange offer and to our performance of, or compliance with, the registration
rights agreements (other than commissions or concessions of any brokers or
dealers) and will indemnify the holders of the notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the notes offered in this prospectus and other matters will
be passed upon for us by Paul, Hastings, Janofsky & Walker LLP, New York, New
York.
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EXPERTS
The consolidated financial statements of Charter Communications Holdings,
LLC and subsidiaries, the combined financial statements of CCA Group, the
consolidated financial statements of CharterComm Holdings, L.P. and
subsidiaries, the combined financial statements of Greater Media Cablevision
Systems, the financial statements of Sonic Communications Cable Television
Systems and Long Beach Acquisition Corp., included in this prospectus, to the
extent and for the periods indicated in their reports, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in this prospectus in reliance
upon the authority of said firm as experts in giving said reports.
The combined financial statements of TCI Falcon Systems as of September 30,
1998 and December 31, 1997 and for the nine-month period ended September 30,
1998, and for each of the years in the two-year period ended December 31, 1997,
the combined financial statements of Bresnan Communications Group Systems as of
December 31, 1997 and 1998, and for each of the years in the three-year period
ended December 31, 1998, the consolidated financial statements of Marcus Cable
Holdings, LLC as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, and the combined financial statements
of Helicon Partners I, L.P. and affiliates as of December 31, 1997 and 1998 and
for each of the years in the three-year period ended December 31, 1998, have
been included herein in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Renaissance Media Group LLC, the
combined financial statements of the Picayune, MS, LaFourche, LA, St. Tammany,
LA, St. Landry, LA, Pointe Coupee, LA, and Jackson, TN cable television systems,
the financial statements of Indiana Cable Associates, LTD., the consolidated
financial statements of R/N South Florida Cable Management Limited Partnership,
the combined financial statements of Fanch Cable Systems (comprised of
components of TW Fanch-one Co. and TW Fanch-two Co.) and the consolidated
financial statements of Falcon Communications, L.P. appearing in this prospectus
and registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
The audited combined financial statements of InterMedia Cable Systems
(comprised of components of InterMedia Partners and InterMedia Capital Partners
IV, L.P.), the audited financial statements of Rifkin Cable Income Partners
L.P., the audited consolidated financial statements of Rifkin Acquisition
Partners, L.L.L.P., the audited consolidated financial statements of Avalon
Cable of Michigan Holdings, Inc. and subsidiaries, the audited consolidated
financial statements of Cable Michigan Inc. and subsidiaries, the audited
consolidated financial statements of Avalon Cable LLC and subsidiaries, the
audited financial statements of Amrac Clear View, a Limited Partnership, the
audited combined financial statements of The Combined Operations of Pegasus
Cable Television of Connecticut, Inc. and the Massachusetts Operations of
Pegasus Cable Television, Inc., included in this registration statement, have
been audited by PricewaterhouseCoopers LLP, independent accountants. The
entities and periods covered by these audits are indicated in their reports. The
financial statements have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Amrac Clear View, a Limited Partnership as of
December 31, 1996 and 1997 and for each of the three years in the period ended
December 31, 1997, included in this prospectus, have been so included in
reliance on the report of Greenfield, Altman, Brown, Berger & Katz, P.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$1,532,000,000
OFFER TO PURCHASE
10.00% SENIOR NOTES DUE 2009,
10.25% SENIOR NOTES DUE 2010, AND
11.75% SENIOR DISCOUNT NOTES DUE 2010,
FOR ANY AND ALL OUTSTANDING
10.00% SENIOR NOTES DUE 2009,
10.25% SENIOR NOTES DUE 2010, AND
11.75% SENIOR DISCOUNT NOTES DUE 2010,
RESPECTIVELY, OF
CHARTER COMMUNICATIONS
HOLDINGS, LLC
AND
CHARTER COMMUNICATIONS
HOLDINGS CAPITAL CORPORATION
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO ISSUE ONLY THE NEW NOTES OFFERED HEREBY, BUT ONLY UNDER
CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 230
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
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<S> <C>
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-7
Consolidated Balance Sheet as of December 31, 1998.......... F-8
Consolidated Statement of Operations for the period from
December 24, 1998 through December 31, 1998............... F-9
Consolidated Statement of Cash Flows for the period from
December 24, 1998 through December 31, 1998............... F-10
Notes to Consolidated Financial Statements.................. F-11
Report of Independent Public Accountants.................... F-25
Consolidated Balance Sheet as of December 31, 1997.......... F-26
Consolidated Statement of Operations for the period from
January 1, 1998 through December 23, 1998 and for the
years ended December 31, 1997 and 1996.................... F-27
Consolidated Statements of Shareholder's Investment for the
period from January 1, 1998 through December 23, 1998 and
for the years ended December 31, 1997 and 1996............ F-28
Consolidated Statements of Cash Flows for the period from
January 1, 1998 through December 23, 1998 and for the
years ended December 31, 1997 and 1996.................... F-29
Notes to Consolidated Financial Statements.................. F-30
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES:
Independent Auditors' Report.............................. F-40
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................... F-41
Consolidated Statements of Operations for Each of the
Years in the Three-Year Period Ended December 31,
1998.................................................... F-42
Consolidated Statements of Members' Equity/Partners'
Capital for Each of the Years in the Three-Year Period
Ended December 31, 1998................................. F-43
Consolidated Statements of Cash Flows for Each of the
Years in the Three-Year Period Ended December 31,
1998.................................................... F-44
Notes to Consolidated Financial Statements................ F-45
CCA GROUP:
Report of Independent Public Accountants.................. F-56
Combined Balance Sheet as of December 31, 1997............ F-57
Combined Statements of Operations for the Period From
January 1, 1998, Through December 23, 1998 and for the
Years Ended December 31, 1997 and 1996.................. F-58
Combined Statements of Shareholders' Deficit for the
Period From January 1, 1998, Through December 23, 1998
and for the Years Ended December 31, 1997 and 1996...... F-59
Combined Statements of Cash Flows for the Period From
January 1, 1998, Through December 23, 1998 and for the
Years Ended December 31, 1997 and 1996.................. F-60
Notes to Combined Financial Statements.................... F-61
CHARTERCOMM HOLDINGS, L.P. AND SUBSIDIARIES:
Report of Independent Public Accountants.................. F-75
Consolidated Balance Sheet as of December 31, 1997........ F-76
Consolidated Statements of Operations for the Period From
January 1, 1998 Through December 23, 1998 and for the
Years Ended December 31, 1997 and 1996.................. F-77
Consolidated Statements of Partners' Capital for the
Period From January 1, 1998 Through December 23, 1998
and for the Years Ended December 31, 1997 and 1996...... F-78
Consolidated Statements of Cash Flows for the Period From
January 1, 1998 Through December 23, 1998 and for the
Years Ended December 31, 1997 and 1996.................. F-79
Notes to Consolidated Financial Statements................ F-80
GREATER MEDIA CABLEVISION SYSTEMS:
Report of Independent Public Accountants.................. F-93
Combined Balance Sheets as of September 30, 1998 and
1997.................................................... F-94
Combined Statements of Income for the Nine Months Ended
June 30, 1999 and 1998 (unaudited) and for the Years
Ended September 30, 1998, 1997 and 1996................. F-95
Combined Statements of Changes in Net Assets for the Years
Ended September 30, 1996, 1997 and 1998................. F-96
Combined Statements of Cash Flows for the Nine Months
Ended June 30, 1999 and 1998 (unaudited) and for the
Years Ended September 30, 1998, 1997 and 1996........... F-97
Notes to Combined Financial Statements.................... F-98
</TABLE>
F-1
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RENAISSANCE MEDIA GROUP LLC:
Report of Independent Auditors............................ F-104
Consolidated Balance Sheet as of December 31, 1998........ F-105
Consolidated Statement of Operations for the Year Ended
December 31, 1998....................................... F-106
Consolidated Statement of Changes in Members' Equity for
the Year Ended December 31, 1998........................ F-107
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1998....................................... F-108
Notes to Consolidated Financial Statements for the Year
Ended December 31, 1998................................. F-109
PICAYUNE MS, LAFOURCHE, LA, ST. TAMMANY, LA, ST. LANDRY, LA,
POINTE COUPEE, LA AND JACKSON, TN CABLE TELEVISION
SYSTEMS:
Report of Independent Auditors............................ F-119
Combined Balance Sheet as of April 8, 1998................ F-120
Combined Statement of Operations for the Period from
January 1, 1998 through April 8, 1998................... F-121
Combined Statement of Changes in Net Assets for the Period
from January 1, 1998 through April 8, 1998.............. F-122
Combined Statement of Cash Flows for the Period from
January 1, 1998 through April 8, 1998................... F-123
Notes to Combined Financial Statements.................... F-124
Report of Independent Auditors............................ F-131
Combined Balance Sheets as of December 31, 1996 and
1997.................................................... F-132
Combined Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997........................ F-133
Combined Statements of Changes in Net Assets for the Years
Ended December 31, 1996 and 1997........................ F-134
Combined Statements of Cash Flows for the Years Ended
1995, 1996 and 1997..................................... F-135
Notes to Combined Financial Statements.................... F-136
HELICON PARTNERS I, L.P. AND AFFILIATES:
Independent Auditors' Report.............................. F-143
Combined Balance Sheets as of December 31, 1997 and
1998.................................................... F-144
Combined Statements of Operations for Each of the Years in
the Three-Year Period Ended December 31, 1998........... F-145
Combined Statements of Changes in Partners' Deficit for
Each of the Years in the Three-Year Period Ended
December 31, 1998....................................... F-146
Combined Statements of Cash Flows for Each of the Years in
the Three-Year Period Ended December 31, 1998........... F-147
Notes to Combined Financial Statements.................... F-148
INTERMEDIA CABLE SYSTEMS (COMPRISED OF COMPONENTS OF
INTERMEDIA PARTNERS AND INTERMEDIA CAPITAL PARTNERS IV,
L.P.):
Report of Independent Accountants......................... F-161
Combined Balance Sheets at December 31, 1998 and 1997..... F-162
Combined Statements of Operations for the Years Ended
December 31, 1998 and 1997.............................. F-163
Combined Statement of Changes in Equity for the Years
Ended December 31, 1998 and 1997........................ F-164
Combined Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997.............................. F-165
Notes to Combined Financial Statements.................... F-166
RIFKIN CABLE INCOME PARTNERS L.P.:
Report of Independent Accountants......................... F-178
Balance Sheet at December 31, 1997 and 1998............... F-179
Statement of Operations for Each of the Three Years in the
Period Ended December 31, 1998.......................... F-180
Statement of Partners' Equity (Deficit) for Each of the
Three Years in the Period Ended December 31, 1998....... F-181
Statement of Cash Flows for Each of the Three Years in the
Period Ended December 31, 1998.......................... F-182
Notes to Financial Statements............................. F-183
RIFKIN ACQUISITION PARTNERS, L.L.L.P.:
Report of Independent Accountants......................... F-187
Consolidated Balance Sheet at December 31, 1998 and
1997.................................................... F-188
Consolidated Statement of Operations for Each of the Three
Years in the Period Ended December 31, 1998............. F-189
Consolidated Statement of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1998............. F-190
Consolidated Statement of Partners' Capital (Deficit) for
Each of the Three Years in the Period Ended December 31,
1998.................................................... F-191
Notes to Consolidated Financial Statements................ F-192
</TABLE>
F-2
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INDIANA CABLE ASSOCIATES, LTD.:
Report of Independent Auditors............................ F-206
Balance Sheet as December 31, 1997 and 1998............... F-207
Statement of Operations for the Years Ended December 31,
1996, 1997 and 1998..................................... F-208
Statement of Partners' Deficit for the Years Ended
December 31, 1996, 1997 and 1998........................ F-209
Statement of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998..................................... F-210
Notes to Financial Statements............................. F-211
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP:
Report of Independent Auditors............................ F-215
Consolidated Balance Sheet as of December 31, 1997 and
1998.................................................... F-216
Consolidated Statement of Operations for the Years Ended
December 31, 1996, 1997 and 1998........................ F-217
Consolidated Statement of Partners' Equity (Deficit) for
the Years Ended December 31, 1996, 1997 and 1998........ F-218
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998........................ F-219
Notes to Consolidated Financial Statements................ F-220
SONIC COMMUNICATIONS CABLE TELEVISION SYSTEMS:
Report of Independent Public Accountants.................. F-224
Statement of Operations and Changes in Net Assets for the
Period from April 1, 1998, through May 20, 1998......... F-225
Statement of Cash Flows for the Period from April 1, 1998,
through May 20, 1998.................................... F-226
Notes to Financial Statements............................. F-227
LONG BEACH ACQUISITION CORP.:
Report of Independent Public Accountants.................. F-230
Statement of Operations for the Period from April 1, 1997,
through May 23, 1997.................................... F-231
Statement of Stockholder's Equity for the Period from
April 1, 1997, through May 23, 1997..................... F-232
Statement of Cash Flows for the Period from April 1, 1997,
through May 23, 1997.................................... F-233
Notes to Financial Statements............................. F-234
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998......................... F-238
Consolidated Statements of Operations for the nine months
ended September 30, 1999 and 1998 (unaudited)............. F-239
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited)............. F-240
Notes to Consolidated Financial Statements.................. F-241
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
Consolidated Statements of Operations for the Three Months
Ended March 31, 1999...................................... F-250
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999...................................... F-251
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-252
RENAISSANCE MEDIA GROUP LLC:
Condensed Consolidated Statement of Operations for the
Four Months Ended April 30, 1999 and Nine Months Ended
September 30, 1998 (unaudited).......................... F-255
Condensed Consolidated Statement of Cash Flows for the
Four Months Ended April 30, 1999 and Nine Months Ended
September 30, 1998 (unaudited).......................... F-256
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................. F-257
HELICON PARTNERS I, L.P. AND AFFILIATES:
Unaudited Condensed Combined Statements of Operations for
the Period Ended July 30, 1999 and Nine Months Ended
September 30, 1998...................................... F-260
Unaudited Condensed Combined Statements of Changes in
Partners' Deficit for the Period Ended July 30, 1999.... F-261
Unaudited Condensed Combined Statements of Cash Flows for
the Period Ended July 30, 1999 and Nine Months Ended
September 30, 1998...................................... F-262
Notes to Unaudited Condensed Combined Financial
Statements.............................................. F-263
INTERMEDIA CABLE SYSTEMS (COMPRISED OF COMPONENTS OF
INTERMEDIA PARTNERS AND INTERMEDIA CAPITAL PARTNERS IV,
L.P.):
Combined Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998....................... F-265
Combined Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)........... F-266
Combined Statement of Changes in Equity for the Nine
Months Ended September 30, 1999 (unaudited) and for the
Year Ended December 31, 1998............................ F-267
Combined Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited)........... F-268
Notes to Condensed Combined Financial Statements
(unaudited)............................................. F-269
</TABLE>
F-3
<PAGE> 233
<TABLE>
<CAPTION>
PAGE
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<S> <C>
RIFKIN CABLE INCOME PARTNERS L.P.:
Balance Sheet as of September 13, 1999 and December 31,
1998 (unaudited)........................................ F-275
Statement of Operations for the Period Ended September 13,
1999 and Nine Months Ended September 30, 1998
(unaudited)............................................. F-276
Statement of Partners' Equity for the Period Ended
September 13, 1999 and Nine Months Ended September 30,
1998 (unaudited)........................................ F-277
Statement of Cash Flows for the Period (unaudited) Ended
September 13, 1999 and September 30, 1998 (unaudited)... F-278
Notes to Financial Statements (unaudited)................. F-279
RIFKIN ACQUISITION PARTNERS, L.L.L.P.:
Consolidated Balance Sheet as of September 13, 1999
(unaudited) and December 31, 1998....................... F-280
Consolidated Statement of Operations for the Period Ended
September 13, 1999 and the Period Ended September 30,
1998 (unaudited)........................................ F-281
Consolidated Statement of Partners' Capital (Deficit) for
the Period Ended September 13, 1999 and the Period Ended
September 30, 1998 (unaudited).......................... F-282
Consolidated Statement of Cash Flows for the Period Ended
September 13, 1999 and the Period Ended September 30,
1998 (unaudited)........................................ F-283
Notes to Consolidated Financial Statements (unaudited).... F-284
INDIANA CABLE ASSOCIATES, LTD.:
Balance Sheet as of September 13, 1999 and December 31,
1998 (unaudited)........................................ F-286
Statement of Operations for the Period Ended September 13,
1999 and Nine Months Ended September 30, 1998
(unaudited)............................................. F-287
Statement of Partners' Equity (Deficit) for the Period
Ended September 13, 1999 and Nine Months Ended September
30, 1998 (unaudited).................................... F-288
Statement of Cash Flows for the Period Ended September 13,
1999 and Nine Months Ended September 30, 1998
(unaudited)............................................. F-289
Notes to Financial Statement (unaudited).................. F-290
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP:
Consolidated Balance Sheet as of September 13, 1999 and
December 31, 1998 (unaudited)........................... F-291
Consolidated Statement of Operations for the Period Ended
September 13, 1999 and Nine Months Ended September 30,
1998 (unaudited)........................................ F-292
Consolidated Statement of Equity (Deficit) for the Period
Ended September 13, 1999 and Nine Months Ended September
30, 1998 (unaudited).................................... F-293
Consolidated Statement of Cash Flows for the Period Ended
September 13, 1999 and Nine Months Ended September 30,
1998 (unaudited)........................................ F-294
Notes to Consolidated Financial Statements (unaudited).... F-295
AVALON CABLE LLC AND SUBSIDIARIES:
Report of Independent Accountants......................... F-296
Consolidated Balance Sheet as of December 31, 1998 and
1997.................................................... F-297
Consolidated Statement of Operations for the year ended
December 31, 1998 and for the period from September 4,
1997 (inception) through December 31, 1997.............. F-298
Consolidated Statement of Changes in Members' interest
from September 4, 1997 (inception) through December 31,
1998.................................................... F-299
Consolidated Statement of Cash Flows for the year ended
December 31, 1998 and for the period from September 4,
1997 (inception) through December 31, 1997.............. F-300
Notes to Consolidated Financial Statements................ F-301
Consolidated Balance Sheet as of September 30, 1999
(unaudited) and December 31, 1998....................... F-315
Consolidated Statement of Operations for the nine months
ended September 30, 1999 and 1998 (unaudited)........... F-316
Consolidated Statement of Changes in Members' interest for
the nine months ended September 30, 1999 (unaudited).... F-317
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited)........... F-318
Notes to Consolidated Financial Statements (unaudited).... F-319
</TABLE>
F-4
<PAGE> 234
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-324
Consolidated Balance Sheet as of December 31, 1998 and
1997.................................................... F-325
Consolidated Statements of Operations for the year ended
December 31, 1998 and for the period from September 4,
1997 (inception) through December 31, 1997.............. F-326
Consolidated Statement of Changes in Shareholders' Equity
for the period from September 4, 1997 (inception)
through December 31, 1998............................... F-327
Consolidated Statement of Cash Flows for the year ended
December 31, 1998 and for the period from September 4,
1997 (inception) through December 31, 1997.............. F-328
Notes to Consolidated Financial Statements................ F-329
Consolidated Balance Sheet as of September 30, 1999 and
December 31, 1998 (unaudited)........................... F-343
Consolidated Statement of Operations for the nine months
ended September 30, 1999 and 1998 (unaudited)........... F-344
Consolidated Statement of Changes in Shareholders' Equity
for the nine months ended September 30, 1999
(unaudited)............................................. F-345
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 and 1998 (unaudited)........... F-346
Notes to Consolidated Financial Statements................ F-347
CABLE MICHIGAN, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-352
Consolidated Balance Sheets as of December 31, 1997 and
November 5, 1998........................................ F-353
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and for the period from January
1, 1998 through November 5, 1998........................ F-354
Consolidated Statements of Changes in Shareholders'
Deficit for the years ended December 31, 1996, 1997 and
for the period from January 1, 1998 through November 5,
1998.................................................... F-355
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1997 and for the period from January
1, 1998 through November 5, 1998........................ F-356
Notes to Consolidated Financial Statements................ F-357
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-372
Balance Sheet as of May 28, 1998.......................... F-373
Statement of Operations for the period from January 1,
1998 through May 28, 1998............................... F-374
Statement of Changes in Partners' Equity (Deficit) for the
period from January 1, 1998 through May 28, 1998........ F-375
Statement of Cash Flows for the period from January 1,
1998 through May 28, 1998............................... F-376
Notes to Financial Statements............................. F-377
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
Independent Auditors' Report.............................. F-381
Balance Sheets at December 31, 1996 and 1997.............. F-382
Statements of Net Earnings for the years ended December
31, 1995, 1996 and 1997................................. F-383
Statements of Changes in Partners' Equity (Deficit) for
the years ended December 31, 1995, 1996 and 1997........ F-384
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................... F-385
Notes to Financial Statements............................. F-386
PEGASUS CABLE TELEVISION, INC.
Report of Independent Accountants......................... F-390
Combined Balance Sheets at December 31, 1996 and 1997 and
June 30, 1998........................................... F-391
Combined Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 and the six months
ended June 30, 1998..................................... F-392
Combined Statements of Changes in Stockholder's Deficit
for the three years ended December 31, 1997 and the six
months ended June 30, 1998.............................. F-393
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1998..................................... F-394
Notes to Combined Financial Statements.................... F-395
</TABLE>
F-5
<PAGE> 235
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FALCON COMMUNICATIONS, L.P.
Report of Independent Auditors.............................. F-401
Consolidated Balance Sheets at December 31, 1997 and 1998... F-402
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1998............... F-403
Consolidated Statements of Partners' Deficit for each of the
three years in the period ended December 31, 1998......... F-404
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1998............... F-405
Notes to Consolidated Financial Statements.................. F-406
Condensed Consolidated Balance Sheets at December 31, 1998
and September 30, 1999 (unaudited)........................ F-428
Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1998 and 1999 (unaudited)...... F-429
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1999 (unaudited)...... F-430
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-431
TCI FALCON SYSTEMS
Independent Auditors' Report................................ F-433
Combined Balance Sheets at September 30, 1998 and December
31, 1997.................................................. F-434
Combined Statements of Operations and Parent's Investment
for the period from January 1, 1998 through September 30,
1998 and for the years ended December 31, 1997 and 1996... F-435
Combined Statements of Cash Flows for the period from
January 1, 1998 through September 30, 1998 and for the
years ended December 31, 1997 and 1996.................... F-436
Notes to Combined Financial Statements for the period from
January 1, 1998 through September 30, 1998 and for the
years ended December 31, 1997 and 1996.................... F-437
FANCH CABLE SYSTEM (comprised of components of TWFanch-one
Co. and TWFanch-two Co.)
Report of Independent Auditors.............................. F-444
Combined Balance Sheets at December 31, 1998 and 1997....... F-445
Combined Statements of Operations for the years ended
December 31, 1998 and 1997................................ F-446
Combined Statements of Net Assets for the years ended
December 31, 1998 and 1997................................ F-447
Combined Statements of Cash Flows for the years ended
December 31, 1998 and 1997................................ F-448
Notes to Combined Financial Statements...................... F-449
Combined Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998..................................... F-454
Combined Statements of Operations for the nine months ended
September 30, 1999 and 1998
(unaudited)............................................... F-455
Combined Statements of Net Assets for the nine months ended
September 30, 1999 and 1998
(unaudited)............................................... F-456
Combined Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998
(unaudited)............................................... F-457
Notes to Combined Financial Statements at June 30, 1999
(unaudited)............................................... F-458
BRESNAN COMMUNICATIONS GROUP LLC
Consolidated Balance Sheets at December 31, 1998 and
September 30, 1999 (unaudited)............................ F-461
Consolidated Statements of Operations and Member's Equity
(Deficit) for the nine months ended September 30, 1998 and
1999 (unaudited).......................................... F-462
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1999 (unaudited)............. F-463
Notes to Consolidated Financial Statements at September 30,
1999 (unaudited).......................................... F-464
BRESNAN COMMUNICATIONS GROUP SYSTEMS
Independent Auditors' Report................................ F-470
Combined Balance Sheets at December 31, 1997 and 1998....... F-471
Combined Statements of Operations and Parents' Investment
for the years ended December 31, 1996, 1997 and 1998...... F-472
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-473
Notes to Combined Financial Statements at December 31, 1996,
1997 and 1998............................................. F-474
</TABLE>
F-6
<PAGE> 236
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Charter Communications Holdings, LLC:
We have audited the accompanying consolidated balance sheet of Charter
Communications Holdings, LLC and subsidiaries as of December 31, 1998, and the
related consolidated statements of operations and cash flows for the period from
December 24, 1998, through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Charter Communications
Holdings, LLC and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the period from December 24, 1998, through
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 5, 1999 (except with respect to the
matters discussed in Notes 1 and 13,
as to which the date is April 19, 1999)
F-7
<PAGE> 237
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,573
Accounts receivable, net of allowance for doubtful
accounts of $1,728..................................... 15,108
Prepaid expenses and other................................ 2,519
----------
Total current assets................................... 27,200
----------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment............................. 716,242
Franchises, net of accumulated amortization of $5,253..... 3,590,054
----------
4,306,296
----------
OTHER ASSETS................................................ 2,031
----------
$4,335,527
==========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 10,450
Accounts payable and accrued expenses..................... 127,586
Payables to manager of cable television systems -- related
party.................................................. 4,334
----------
Total current liabilities.............................. 142,370
----------
LONG-TERM DEBT.............................................. 1,991,756
----------
DEFERRED MANAGEMENT FEES -- RELATED PARTY................... 15,561
----------
OTHER LONG-TERM LIABILITIES................................. 38,461
----------
MEMBERS' EQUITY -- 100 UNITS ISSUED AND OUTSTANDING......... 2,147,379
----------
$4,335,527
==========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-8
<PAGE> 238
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 24,
1998, THROUGH
DECEMBER 31,
1998
-------------
<S> <C>
REVENUES.................................................... $13,713
-------
OPERATING EXPENSES:
Operating costs........................................... 6,168
General and administrative................................ 966
Depreciation and amortization............................. 8,318
Stock option compensation expense......................... 845
Corporate expense charges -- related party................ 473
-------
16,770
-------
Loss from operations................................... (3,057)
-------
OTHER INCOME (EXPENSE):
Interest income........................................... 133
Interest expense.......................................... (2,353)
-------
(2,220)
-------
Net loss............................................... $(5,277)
=======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-9
<PAGE> 239
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 24,
1998, THROUGH
DECEMBER 31,
1998
--------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (5,277)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 8,318
Stock option compensation expense...................... 845
Changes in assets and liabilities --
Receivables, net..................................... (8,753)
Prepaid expenses and other........................... (211)
Accounts payable and accrued expenses................ 10,227
Payables to manager of cable television systems...... 473
Other operating activities........................... 2,022
----------
Net cash provided by operating activities......... 7,644
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (13,672)
----------
Net cash used in investing activities............. (13,672)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. 14,200
----------
Net cash provided by financing activities......... 14,200
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 8,172
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,401
----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 9,573
==========
CASH PAID FOR INTEREST...................................... $ 5,538
==========
NONCASH TRANSACTION -- Transfer of cable television
operating subsidiaries from the parent company (see Note
1)........................................................ $2,151,811
==========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-10
<PAGE> 240
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Charter Communications Holdings, LLC (Charter Holdings), a Delaware limited
liability company, was formed in February 1999 as a wholly owned subsidiary of
Charter Investment, Inc. (Charter), formerly Charter Communications, Inc.
Charter, through its wholly owned cable television operating subsidiary, Charter
Communications Properties, LLC (CCP), commenced operations with the acquisition
of a cable television system on September 30, 1995.
Effective December 23, 1998, through a series of transactions, Paul G.
Allen acquired approximately 94% of Charter for an aggregate purchase price of
$211 million, excluding $214 million in debt assumed (the "Paul Allen
Transaction"). In conjunction with the Paul Allen Transaction, Charter acquired
100% of the interests it did not already own in CharterComm Holdings, LLC
(CharterComm Holdings) and CCA Group (comprised of CCA Holdings Corp., CCT
Holdings Corp. and Charter Communications Long Beach, Inc.), all cable
television operating companies, for $2.0 billion, excluding $1.8 billion in debt
assumed from unrelated third parties for fair value. Charter previously managed
and owned minority interests in these companies. These acquisitions were
accounted for using the purchase method of accounting, and accordingly, results
of operations of CharterComm Holdings and CCA Group are included in the
financial statements from the date of acquisition. In February 1999, Charter
transferred all of its cable television operating subsidiaries to a wholly owned
subsidiary of Charter Holdings, Charter Communications Operating, LLC (Charter
Operating). Charter Holdings is a wholly owned subsidiary of Charter
Communications Holding Company (Charter Holdco). This transfer was accounted for
as a reorganization of entities under common control similar to a pooling of
interests.
As a result of the change in ownership of CCP, CharterComm Holdings and CCA
Group, Charter Holdings has applied push-down accounting in the preparation of
the consolidated financial statements. Accordingly, Charter Holdings increased
its members' equity by $2.2 billion to reflect the amounts paid by Paul G. Allen
and Charter. The purchase price was allocated to assets acquired and liabilities
assumed based on their relative fair values, including amounts assigned to
franchises of $3.6 billion. The allocation of the purchase price is based, in
part, on preliminary information which is subject to adjustment upon obtaining
complete valuation information of intangible assets. The valuation information
is expected to be finalized in the fourth quarter of 1999. Management believes
that finalization of the purchase price will not have a material impact on the
results of operations or financial position of Charter Holdings.
On April 23, 1998, Paul G. Allen and a company controlled by Paul G. Allen,
(the "Paul G. Allen Companies") purchased substantially all of the outstanding
partnership interests in Marcus Cable Company L.L.C. (Marcus Cable) for $1.4
billion, excluding $1.8 billion in assumed liabilities. The owner of the
remaining partnership interest retained voting control of Marcus Cable. In
February 1999, Marcus Cable Holdings, LLC (Marcus Holdings) was formed and Mr.
Allen's interests in Marcus Cable were transferred to Marcus Holdings on March
15, 1999. On March 31, 1999, Paul G. Allen purchased the remaining partnership
interests in Marcus Cable, including voting control. On April 7, 1999, Marcus
Holdings was merged into Charter Holdings and Marcus Cable was transferred to
Charter Holdings. For financial reporting purposes, the merger was accounted for
as an acquisition of Marcus Cable effective March 31, 1999, the date Paul G.
Allen obtained voting control of Marcus Cable. Accordingly, the results of
operations of Marcus Cable have not been included in the financial statements
for the period ended December 31, 1998.
F-11
<PAGE> 241
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated financial statements of Charter Holdings include the
accounts of Charter Operating and CCP and the accounts of CharterComm Holdings
and CCA Group and their subsidiaries since December 23, 1998 (date acquired by
Charter) and are collectively referred to as the "Company" herein. All
subsidiaries are wholly owned. All material intercompany transactions and
balances have been eliminated. The Company derives its primary source of
revenues by providing various levels of cable television programming and
services to residential and business customers. As of December 31, 1998, the
Company provided cable television services to customers in 20 states in the U.S.
The consolidated financial statements of Charter Holdings for periods prior
to December 24, 1998, are not presented herein since, as a result of the Paul
Allen Transaction and the application of push down accounting, the financial
information as of December 31, 1998, and for the period from December 24, 1998,
through December 31, 1998, is presented on a different cost basis than the
financial information as of December 31, 1997, and for the periods prior to
December 24, 1998. Such information is not comparable.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1998,
cash equivalents consist primarily of repurchase agreements. These investments
are carried at cost that approximates market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable television
transmission and distribution facilities, and the cost of new customer
installations. The costs of disconnecting a customer are charged to expense in
the period incurred. Expenditures for repairs and maintenance are charged to
expense as incurred, and equipment replacement and betterments are capitalized.
Depreciation is provided on the straight-line basis over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
Cable distribution systems.................................. 3-15 years
Buildings and leasehold improvements........................ 5-15 years
Vehicles and equipment...................................... 3-5 years
</TABLE>
FRANCHISES
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized over the lives of the franchises. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. Franchise rights
acquired through the purchase of cable television systems represent management's
estimate of fair value and are generally amortized using the straight-line
method over a period of 15 years. The period of 15 years is management's best
estimate of the useful lives of the franchises and assumes substantially all of
those franchises that expire during the period will be renewed by the Company.
IMPAIRMENT OF ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable
F-12
<PAGE> 242
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on projected undiscounted cash flows related to the asset over its
remaining life, the carrying value of such asset is reduced to its estimated
fair value.
REVENUES
Cable television 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. As of December 31, 1998, no installation revenue has
been deferred, as direct selling costs have exceeded installation revenue.
Fees collected from programmers to guarantee carriage are deferred and
amortized to income over the life of the contracts. Local governmental
authorities impose franchise fees on the Company ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Company's customers and are periodically remitted to local
franchises. Franchise fees collected and paid are reported as revenues.
INTEREST RATE HEDGE AGREEMENTS
The Company manages fluctuations in interest rates by using interest rate
hedge agreements, as required by certain debt agreements. Interest rate swaps,
caps and collars are accounted for as hedges of debt obligations, and
accordingly, the net settlement amounts are recorded as adjustments to interest
expense in the period incurred. Premiums paid for interest rate caps are
deferred, included in other assets, and are amortized over the original term of
the interest rate agreement as an adjustment to interest expense.
The Company's interest rate swap agreements require the Company to pay a
fixed rate and receive a floating rate thereby creating fixed rate debt.
Interest rate caps and collars are entered into by the Company to reduce the
impact of rising interest rates on floating rate debt.
The Company's participation in interest rate hedging transactions involves
instruments that have a close correlation with its debt, thereby managing its
risk. Interest rate hedge agreements have been designed for hedging purposes and
are not held or issued for speculative purposes.
INCOME TAXES
Income taxes are the responsibility of the individual members or partners
and are not provided for in the accompanying consolidated financial statements.
In addition, certain subsidiaries are corporations subject to income taxes but
have no operations and, therefore, no material income tax liabilities or assets.
SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." Segments have been identified based upon
management responsibility. The Company operates in one segment, cable services.
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
F-13
<PAGE> 243
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
2. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
In addition to the acquisitions by Charter of CharterComm Holdings and CCA
Group, the Company acquired cable television systems for an aggregate purchase
price, net of cash acquired, of $291,800 and $342,100 in 1998 and 1997,
respectively, all prior to December 24, 1998. The Company also refinanced
substantially all of its long-term debt in March 1999 (see Note 13).
Unaudited pro forma operating results as though the acquisitions and
refinancing discussed above, including the Paul Allen Transaction, had occurred
on January 1, 1997, with adjustments to give effect to amortization of
franchises, interest expense and certain other adjustments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues................................................... $ 601,953 $ 550,259
Loss from operations....................................... (90,346) (129,009)
Net loss................................................... (294,598) (329,323)
</TABLE>
The unaudited pro forma financial information has been presented for
comparative purposes and does not purport to be indicative of the results of
operations or financial position of the Company had these transactions been
completed as of the assumed date or which may be obtained in the future.
3. MEMBERS' EQUITY:
For the period from December 24, 1998, through December 31, 1998, members'
equity consisted of the following:
<TABLE>
<S> <C>
Balance, December 24, 1998.................................. $2,151,811
Net loss.................................................... (5,277)
Stock option compensation................................... 845
----------
Balance, December 31, 1998.................................. $2,147,379
==========
</TABLE>
F-14
<PAGE> 244
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31,
1998:
<TABLE>
<S> <C>
Cable distribution systems.................................. $661,749
Land, buildings and leasehold improvements.................. 26,670
Vehicles and equipment...................................... 30,590
--------
719,009
Less -- Accumulated depreciation............................ (2,767)
--------
$716,242
========
</TABLE>
For the period from December 24, 1998, through December 31, 1998,
depreciation expense was $2,767.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December
31, 1998:
<TABLE>
<S> <C>
Accrued interest............................................ $ 30,809
Franchise fees.............................................. 12,534
Programming costs........................................... 11,856
Capital expenditures........................................ 15,560
Accrued income taxes........................................ 15,205
Accounts payable............................................ 7,439
Other accrued liabilities................................... 34,183
--------
$127,586
========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Credit Agreements (including CCP, CCA Group and CharterComm
Holdings)................................................... $1,726,500
Senior Secured Discount Debentures.......................... 109,152
11 1/4% Senior Notes........................................ 125,000
Current maturities.......................................... (10,450)
Unamortized net premium..................................... 41,554
----------
$1,991,756
==========
</TABLE>
CCP CREDIT AGREEMENT
CCP maintains a credit agreement (the "CCP Credit Agreement"), which
provides for two term loan facilities, one with the principal amount of $60,000
that matures on June 30, 2006, and the other with the principal amount of
$80,000 that matures on June 30, 2007. The CCP Credit Agreement also provides
for a $90,000 revolving credit facility with a maturity date of June 30, 2006.
Amounts under the CCP Credit Agreement bear interest at the LIBOR Rate or Base
Rate,
F-15
<PAGE> 245
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as defined, plus a margin up to 2.88%. The variable interest rates ranged from
7.44% to 8.19% at December 31, 1998.
CC-I, CC-II COMBINED CREDIT AGREEMENT
Charter Communications, LLC and Charter Communications II, LLC,
subsidiaries of CharterComm Holdings, maintains a combined credit agreement (the
"Combined Credit Agreement"), which provides for two term loan facilities, one
with the principal amount of $200,000 that matures on June 30, 2007, and the
other with the principal amount of $150,000 that matures on December 31, 2007.
The Combined Credit Agreement also provides for a $290,000 revolving credit
facility, with a maturity date of June 30, 2007. Amounts under the Combined
Credit Agreement bear interest at the LIBOR Rate or Base Rate, as defined, plus
a margin up to 2.0%. The variable interest rates ranged from 6.69% to 7.31% at
December 31, 1998. A quarterly commitment fee of between 0.25% and 0.375% per
annum is payable on the unborrowed balance of the revolving credit facility.
CHARTERCOMM HOLDINGS -- SENIOR SECURED DISCOUNT DEBENTURES
CharterComm Holdings issued $146,820 of Senior Secured Discount Debentures
(the "Debentures") for proceeds of $75,000. The Debentures are effectively
subordinated to the claims and creditors of CharterComm Holdings' subsidiaries,
including the lenders under the Combined Credit Agreement. The Debentures are
redeemable at the Company's option at amounts decreasing from 107% to 100% of
principal, plus accrued and unpaid interest to the redemption date, beginning on
March 15, 2001. The issuer is required to make an offer to purchase all of the
Debentures, at a purchase price equal to 101% of the principal amount, together
with accrued and unpaid interest, upon a Change in Control, as defined in the
Debentures Indenture. No interest is payable on the Debentures prior to March
15, 2001. Thereafter, interest on the Debentures is payable semiannually in
arrears beginning September 15, 2001, until maturity on March 15, 2007.
CHARTERCOMM HOLDINGS -- 11 1/4% SENIOR NOTES
CharterComm Holdings issued $125,000 aggregate principal amount of 11 1/4%
Senior Notes (the "11 1/4% Notes"). The Notes are effectively subordinated to
the claims of creditors of CharterComm Holdings' subsidiaries, including the
lenders under the Combined Credit Agreements. The 11 1/4% Notes are redeemable
at the Company's option at amounts decreasing from 106% to 100% of principal,
plus accrued and unpaid interest to the date of redemption, beginning on March
15, 2001. The issuer is required to make an offer to purchase all of the 11 1/4%
Notes, at a purchase price equal to 101% of the principal amount, together with
accrued and unpaid interest, upon a Change in Control, as defined in the 11 1/4%
Notes indenture. Interest is payable semiannually on March 15 and September 15
until maturity on March 15, 2006.
As of December 24, 1998, the Debentures and 11 1/4% Notes were recorded at
their estimated fair values resulting in an increase in the carrying values of
the debt and an unamortized net premium as of December 31, 1998. The premium
will be amortized to interest expense over the estimated remaining lives of the
debt using the interest method. As of December 31, 1998, the effective interest
rates on the Debentures and 11 1/4% Notes were 10.7% and 9.6%, respectively.
CCE-I CREDIT AGREEMENT
Charter Communications Entertainment I LLC, a subsidiary of CCA Group,
maintains a credit agreement (the "CCE-I Credit Agreement"), which provides for
a $280,000 term loan that
F-16
<PAGE> 246
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
matures on September 30, 2006, and $85,000 fund loan that matures on March 31,
2007, and a $175,000 revolving credit facility with a maturity date of September
30, 2006. Amounts under the CCE-I Credit Agreement bear interest at either the
LIBOR Rate or Base Rate, as defined, plus a margin up to 2.75%. The variable
interest rates ranged from 6.88% to 8.06% at December 31, 1998. A quarterly
commitment fee of between 0.375% and 0.5% per annum is payable on the unborrowed
balance of the revolving credit facility.
CCE-II COMBINED CREDIT AGREEMENT
Charter Communications Entertainment II, LLC and Long Beach LLC,
subsidiaries of CCA Group, maintain a credit agreement (the "CCE-II Combined
Credit Agreement"), which provides for two term loan facilities, one with the
principal amount of $100,000 that matures on March 31, 2005, and the other with
the principal amount of $90,000 that matures on March 31, 2006. The CCE-II
Combined Credit Agreement also provides for a $185,000 revolving credit
facility, with a maturity date of March 31, 2005. Amounts under the CCE-II
Combined Credit Agreement bear interest at either the LIBOR Rate or Base Rate,
as defined, plus a margin up to 2.5%. The variable rates ranged from 6.56% to
7.59% at December 31, 1998. A quarterly commitment fee of between 0.25% and
0.375% per annum is payable on the unborrowed balance of the revolving credit
facility.
CCE CREDIT AGREEMENT
Charter Communications Entertainment, LLC, a subsidiary of CCA Group,
maintains a credit agreement (the "CCE Credit Agreement") which provides for a
term loan facility with the principal amount of $130,000 that matures on
September 30, 2007. Amounts under the CCE Credit Agreement bear interest at the
LIBOR Rate or Base Rate, as defined, plus a margin up to 3.25%. The variable
interest rate at December 31, 1998, was 8.62%.
CCE-II HOLDINGS CREDIT AGREEMENT
CCE-II Holdings, LLC, a subsidiary of CCA Group, entered into a credit
agreement (the "CCE-II Holdings Credit Agreement"), which provides for a term
loan facility with the principal amount of $95,000 that matures on September 30,
2006. Amounts under the CCE-II Holdings Credit Agreement bear interest at either
the LIBOR Rate or Base Rate, as defined, plus a margin up to 3.25%. The variable
rate at December 31, 1998, was 8.56%.
Based upon outstanding indebtedness at December 31, 1998, and the
amortization of term and fund loans, and scheduled reductions in available
borrowings of the revolving credit facilities, aggregate future principal
payments on the total borrowings under all debt agreements at December 31, 1998,
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
1999........................................................ $ 10,450
2000........................................................ 21,495
2001........................................................ 42,700
2002........................................................ 113,588
2003........................................................ 157,250
Thereafter.................................................. 1,652,837
----------
$1,998,320
==========
</TABLE>
F-17
<PAGE> 247
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
A summary of debt and the related interest rate hedge agreements at
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
CARRYING NOTIONAL FAIR
DEBT VALUE AMOUNT VALUE
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Credit Agreements (including CCP, CCA Group and
CharterComm Holdings).............................. $1,726,500 $ -- $1,726,500
Senior Secured Discount Debentures................. 138,102 -- 138,102
11 1/4% Senior Notes............................... 137,604 -- 137,604
INTEREST RATE HEDGE AGREEMENTS
Swaps.............................................. (23,216) 1,105,000 (23,216)
Caps............................................... -- 15,000 --
Collars............................................ (4,174) 310,000 (4,174)
</TABLE>
As the long-term debt under the credit agreements bears interest at current
market rates, their carrying amount approximates market value at December 31,
1998. The fair values of the 11 1/4% Notes and the Debentures are based on
quoted market prices.
The weighted average interest pay rate for the Company's interest rate swap
agreements was 7.66% at December 31, 1998. The weighted average interest rate
for the Company's interest rate cap agreements was 8.55% at December 31, 1998.
The weighted average interest rates for the Company's interest rate collar
agreements were 8.61% and 7.31% for the cap and floor components, respectively,
at December 31, 1998.
The notional amounts of interest rate hedge agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
exposure through its use of interest rate hedge agreements. The amounts
exchanged are determined by reference to the notional amount and the other terms
of the contracts.
The fair value of interest rate hedge agreements generally reflects the
estimated amounts that the Company would receive or pay (excluding accrued
interest) to terminate the contracts on the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer
quotations are available for the Company's interest rate hedge agreements.
Management believes that the sellers of the interest rate hedge agreements
will be able to meet their obligations under the agreements. In addition, some
of the interest rate hedge agreements are with certain of the participating
banks under the Company's credit facilities, thereby reducing the exposure to
credit loss. The Company has policies regarding the financial stability and
credit standing of major counterparties. Nonperformance by the counterparties is
not anticipated nor would it have a material adverse effect on the Company's
consolidated financial position or results of operations.
8. RELATED-PARTY TRANSACTIONS:
Charter provides management services to the Company including centralized
customer billing services, data processing and related support, benefits
administration and coordination of insurance coverage and self-insurance
programs for medical, dental and workers' compensation claims. Certain costs for
services are billed and charged directly to the Company's operating subsidiaries
and are included in operating costs. These billings are determined based on the
number of basic customers. Such costs totaled $128 for the period from December
24, 1998,
F-18
<PAGE> 248
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through December 31, 1998. All other costs incurred by Charter on behalf of the
Company are recorded as expenses in the accompanying consolidated financial
statements and are included in corporate expense charges -- related party.
Management believes that costs incurred by Charter on the Company's behalf and
included in the accompanying financial statements are not materially different
than costs the Company would have incurred as a stand alone entity.
Charter utilizes a combination of excess insurance coverage and
self-insurance programs for its medical, dental and workers' compensation
claims. Charges are made to the Company as determined by independent actuaries
at the present value of the actuarially computed present and future liabilities
for such benefits. Medical coverage provides for $2,435 aggregate stop loss
protection and a loss limitation of $100 per person per year. Workers'
compensation coverage provides for $800 aggregate stop loss protection and a
loss limitation of $150 per person per year.
The Company is charged a management fee based on percentages of revenues or
a flat fee plus additional fees based on percentages of operating cash flows, as
stipulated in the management agreements between Charter and the operating
subsidiaries. To the extent management fees charged to the Company are greater
(less) than the corporate expenses incurred by Charter, the Company will record
distributions to (capital contributions from) Charter. For the period from
December 24, 1998, through December 31, 1998, the management fee charged to the
Company approximated the corporate expenses incurred by Charter on behalf of the
Company. As of December 31, 1998, management fees currently payable of $473 are
included in payables to manager of cable television systems-related party.
Beginning in 1999, the management fee will be based on 3.5% of revenues as
permitted by the new debt agreements of the Company (see Note 13).
Charter, Paul G. Allen and certain affiliates of Mr. Allen own equity
interests or warrants to purchase equity interests in various entities which
provide services or programming to the Company, including High Speed Access
Corp. (High Speed Access), WorldGate Communications, Inc. (WorldGate), Wink
Communications, Inc. (Wink), ZDTV, USA Networks, Inc. (USA Networks) and Oxygen
Media Inc. (Oxygen Media). In addition, certain officers or directors of the
Company also serve as directors of High Speed Access and USA Networks. The
Company and its affiliates do not hold controlling interests in any of these
companies.
Certain of the Company's cable television subscribers receive cable
modem-based internet access through High Speed Access and TV-based internet
access through WorldGate. For the period from December 24, 1998, through
December 31, 1998, revenues attributable to these services were less than 1% of
total revenues.
The Company receives or will receive programming and certain interactive
features embedded into the programming for broadcast via its cable television
systems from Wink, ZDTV, USA Networks and Oxygen Media. The Company pays a fee
for the programming service generally based on the number of subscribers
receiving the service. Such fees for the period from December 24, 1998, through
December 31, 1998, were less than 1% of total operating costs. In addition, the
Company receives commissions from USA Networks for home shopping sales generated
by its customers. Such revenues for the period from December 24, 1998, through
December 31, 1998, were less than 1% of total revenues.
F-19
<PAGE> 249
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Leases and rental costs charged to expense for the period from
December 24, 1998, through December 31, 1998, were $70. Future minimum lease
payments are as follows:
<TABLE>
<S> <C>
1999........................................................ $2,843
2000........................................................ 2,034
2001........................................................ 1,601
2002........................................................ 626
2003........................................................ 366
Thereafter.................................................. 1,698
</TABLE>
The Company also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Company anticipates that such
rentals will recur. Rent expense incurred for pole rental attachments for the
period from December 24, 1998, through December 31, 1998, was $137.
LITIGATION
The Company is a party to lawsuits that arose in the ordinary course of
conducting its business. In the opinion of management, after consulting with
legal counsel, the outcome of these lawsuits will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act" and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. Legislation
and regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. As of December 31,
1998, the amount refunded by the Company has been insignificant. The Company may
be required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in
F-20
<PAGE> 250
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
jurisdictions that have chosen not to certify, refunds covering the previous
twelve-month period may be ordered upon certification if the Company is unable
to justify its basic rates. The Company is unable to estimate at this time the
amount of refunds, if any, that may be payable by the Company in the event
certain of its rates are successfully challenged by franchising authorities or
found to be unreasonable by the FCC. The Company does not believe that the
amount of any such refunds would have a material adverse effect on the
consolidated financial position or results of operations of the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's consolidated financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation. The Company is subject to state regulation in
Connecticut.
10. EMPLOYEE BENEFIT PLANS:
The Company's employees may participate in 401(k) plans (the "401(k)
Plans"). Employees that qualify for participation can contribute up to 15% of
their salary, on a before tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service. The Company made contributions to
the 401(k) Plans totaling $20 for the period from December 24, 1998, through
December 31, 1998.
11. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Company has
not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings
(loss).
F-21
<PAGE> 251
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PARENT COMPANY ONLY FINANCIAL STATEMENTS
As a result of the limitations on and prohibitions of distributions,
substantially all of the net assets of the consolidated subsidiaries are
restricted for distribution to Charter Holdings, the parent company. Charter
Holdings (parent company only) financial statements are presented below.
CHARTER COMMUNICATIONS HOLDINGS, LLC (PARENT COMPANY ONLY)
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
ASSETS
INVESTMENT IN CHARTER OPERATING............................. $2,147,379
==========
MEMBERS' EQUITY
MEMBERS' EQUITY............................................. $2,147,379
==========
</TABLE>
CHARTER COMMUNICATIONS HOLDINGS, LLC (PARENT COMPANY ONLY)
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 24, 1998,
THROUGH
DECEMBER 31, 1998
------------------
<S> <C>
EQUITY IN LOSS OF CHARTER OPERATING......................... $ (5,277)
==========
Net loss.................................................... $ (5,277)
==========
</TABLE>
CHARTER COMMUNICATIONS HOLDINGS, LLC (PARENT COMPANY ONLY)
STATEMENT OF MEMBERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance, December 24, 1998.................................. $2,151,811
Net loss.................................................... (5,277)
Stock option compensation................................... 845
----------
Balance, December 31, 1998.................................. $2,147,379
==========
</TABLE>
The investment in Charter Operating is accounted for on the equity method.
No statement of cash flows has been presented as Charter Holdings (parent
company only) had no cash flow activity.
13. SUBSEQUENT EVENTS:
Through April 19, 1999, the Company has entered into definitive agreements
to purchase eight cable television companies, including a swap of cable
television systems, for approximately $4.6 billion. The swap of cable television
systems will be recorded at the fair value of the systems exchanged. The
acquisitions are expected to close no later than March 31, 2000. The
acquisitions will be accounted for using the purchase method of accounting, and
accordingly,
F-22
<PAGE> 252
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations of the acquired businesses will be included in the
financial statements from the dates of acquisitions.
In March 1999, concurrent with the issuance of $600.0 million 8.250% Senior
Notes due 2007, $1.5 billion 8.625% Senior Notes due 2009 and $1.475 billion
9.920% Senior Discount Notes due 2011 (collectively, the "CCH Notes"), the
Company extinguished substantially all long-term debt, excluding borrowings of
the Company under its credit agreements, and refinanced substantially all
existing credit agreements at various subsidiaries with a new credit agreement
(the "CCO Credit Agreement") entered into by Charter Operating. The Company
expects to record an extraordinary loss of approximately $8 million in
conjunction with the extinguishment of substantially all long-term debt and the
refinancing of its credit agreements.
The CCO Credit Agreement provides for two term facilities, one with a
principal amount of $1.0 billion that matures September 2008 (Term A), and the
other with the principal amount of $1.85 billion that matures on March 2009
(Term B). The CCO Credit Agreement also provides for a $1.25 billion revolving
credit facility with a maturity date of September 2008. Amounts under the CCO
Credit Agreement bear interest at the Base Rate or the Eurodollar rate, as
defined, plus a margin up to 2.75%. A quarterly commitment fee of between 0.25%
and 0.375% per annum is payable on the unborrowed balance of Term A and the
revolving credit facility. On March 17, 1999, the Company borrowed $1.75 billion
under Term B and invested the excess cash of $1.0 billion in short-term
investments.
Charter Communications Holdings Capital Corporation is a co-issuer of the
CCH Notes and is a wholly owned finance subsidiary of Charter Holdings with no
independent assets or operations.
In accordance with an employment agreement between Charter and the
President and Chief Executive Officer of Charter and a related option agreement
between Charter Holdco and the President and Chief Executive Officer of Charter,
7,044,127 options to purchase 3% of the net equity value of CCHC were issued to
the President and Chief Executive Officer of Charter. The options vest over a
four year period from the date of grant and expire ten years from the date of
grant.
In February 1999, the Company adopted an option plan providing for the
grant of options to purchase up to an 10% of the aggregate equity value of the
subsidiaries of Charter Holdco as of February 1999. The option plan provides for
grants of options to employees, and consultants of Charter Holdco and its
affiliates and consultants who provide services to Charter Holdco. Options
granted vest over five years from the date of grant. However, if there has not
been a public offering of the equity interests of Charter Holdco or an
affiliate, vesting will occur only upon termination of employment for any
reason, other than for cause or disability. Options not exercised accumulate and
are exercisable, in whole or in part, in any subsequent period, but not later
than ten years from the date of grant.
Following the completion of an initial public offering by Charter
Communications, Inc. membership units received upon exercise of the options will
be automatically exchanged for shares of Class A common stock of CCI on a
one-for-one basis. Options outstanding as of March 31, 1999, are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ----------------------
EXERCISE NUMBER OF REMAINING CONTRACT NUMBER OF
PRICE OPTIONS LIFE (IN YEARS) OPTIONS
- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
$20.00 16,095,008 9.8 1,761,032
</TABLE>
F-23
<PAGE> 253
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" to account for the option plans. Stock option
compensation expense of $845 has been recorded in the financial statements since
the exercise price is less than the estimated fair value of the underlying
membership interests on the date of grant. Estimated fair value was determined
by the Company using the valuation inherent in the Paul Allen Transaction and
valuations of public companies in the cable television industry adjusted for
factors specific to the Company. Compensation expense is being accrued over the
vesting period of each grant that varies from four to five years. As of March
31, 1999, deferred compensation remaining to be recognized in future periods
totalled $143 million. Had compensation expense for the option plans been
determined based on the fair value at the grant dates under the provisions of
SFAS No. 123, the Company's net loss would have been $5.5 million for the period
from December 24, 1998, through December 31, 1998. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: no dividend yield, expected volatility of
44.00%, risk free rate of 5.00%, and expected option lives of 10 years.
F-24
<PAGE> 254
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Charter Communications Holdings, LLC:
We have audited the accompanying consolidated balance sheet of Charter
Communications Holdings, LLC and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, shareholder's investment and cash
flows for the period from January 1, 1998, through December 23, 1998, and for
the years ended December 31, 1997 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Charter Communications
Holdings, LLC and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the period from January 1, 1998, through
December 23, 1998, and for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 5, 1999
F-25
<PAGE> 255
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 626
Accounts receivable, net of allowance for doubtful
accounts of $52........................................ 579
Prepaid expenses and other................................ 32
-------
Total current assets................................... 1,237
-------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment............................. 25,530
Franchises, net of accumulated amortization of $3,829..... 28,195
-------
53,725
-------
OTHER ASSETS................................................ 849
-------
$55,811
=======
LIABILITIES AND SHAREHOLDER'S INVESTMENT
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 3,082
Payables to manager of cable television systems -- related
party.................................................. 114
-------
Total current liabilities.............................. 3,196
-------
LONG-TERM DEBT.............................................. 41,500
-------
NOTE PAYABLE TO RELATED PARTY, including accrued interest... 13,090
-------
SHAREHOLDER'S INVESTMENT:
Common stock, $.01 par value, 100 shares authorized, one
issued and outstanding................................. --
Paid-in capital........................................... 5,900
Accumulated deficit....................................... (7,875)
-------
Total shareholder's investment......................... (1,975)
-------
$55,811
=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-26
<PAGE> 256
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1998, THROUGH DECEMBER 31
DECEMBER 23, ------------------
1998 1997 1996
------------- ------- -------
<S> <C> <C> <C>
REVENUES................................................. $ 49,731 $18,867 $14,881
-------- ------- -------
OPERATING EXPENSES:
Operating costs........................................ 18,751 9,157 5,888
General and administrative............................. 7,201 2,610 2,235
Depreciation and amortization.......................... 16,864 6,103 4,593
Corporate expense allocation -- related party.......... 6,176 566 446
-------- ------- -------
48,992 18,436 13,162
-------- ------- -------
Income from operations.............................. 739 431 1,719
-------- ------- -------
OTHER INCOME (EXPENSE):
Interest income........................................ 44 41 20
Interest expense....................................... (17,277) (5,120) (4,415)
Other, net............................................. (728) 25 (47)
-------- ------- -------
(17,961) (5,054) (4,442)
-------- ------- -------
Net loss............................................ $(17,222) $(4,623) $(2,723)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-27
<PAGE> 257
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................. $-- $ 1,500 $ (529) $ 971
Capital contributions...................... -- 4,400 -- 4,400
Net loss................................. -- -- (2,723) (2,723)
-- ------- -------- --------
BALANCE, December 31, 1996................. -- 5,900 (3,252) 2,648
Net loss................................. -- -- (4,623) (4,623)
-- ------- -------- --------
BALANCE, December 31, 1997................. -- 5,900 (7,875) (1,975)
Capital contributions.................... -- 10,800 -- 10,800
Net loss................................. -- -- (17,222) (17,222)
-- ------- -------- --------
BALANCE, December 23, 1998................. $-- $16,700 $(25,097) $ (8,397)
== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-28
<PAGE> 258
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1998, THROUGH DECEMBER 31
DECEMBER 23, -------------------
1998 1997 1996
------------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (17,222) $(4,623) $ (2,723)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization........................... 16,864 6,103 4,593
Loss on sale of cable television system................. -- 1,363 --
Amortization of debt issuance costs, debt discount and
interest rate cap agreements.......................... 267 123 --
(Gain) loss on disposal of property, plant and
equipment............................................. (14) 130 --
Changes in assets and liabilities, net of effects from
acquisitions --
Receivables, net...................................... 10 (227) 6
Prepaid expenses and other............................ (125) 18 312
Accounts payable and accrued expenses................. 16,927 894 3,615
Payables to manager of cable television systems....... 5,288 (153) 160
Other operating activities............................ 569 -- --
--------- ------- --------
Net cash provided by operating activities............. 22,564 3,628 5,963
--------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (15,364) (7,880) (5,894)
Payments for acquisitions, net of cash acquired........... (167,484) -- (34,069)
Proceeds from sale of cable television system............. -- 12,528 --
Other investing activities................................ (486) -- 64
--------- ------- --------
Net cash provided by (used in) investing activities... (183,334) 4,648 (39,899)
--------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. 217,500 5,100 31,375
Repayments of long-term debt.............................. (60,200) (13,375) (1,000)
Capital contributions..................................... 7,000 -- 4,400
Payment of debt issuance costs............................ (3,487) (12) (638)
--------- ------- --------
Net cash provided by (used in) financing activities... 160,813 (8,287) 34,137
--------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 43 (11) 201
CASH AND CASH EQUIVALENTS, beginning of period.............. 626 637 436
--------- ------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 669 $ 626 $ 637
========= ======= ========
CASH PAID FOR INTEREST...................................... $ 7,679 $ 3,303 $ 2,798
========= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-29
<PAGE> 259
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
Charter Communications Holdings, LLC (Charter Holdings), a Delaware limited
liability company, was formed in February 1999 as a wholly owned subsidiary of
Charter Investment, Inc. (Charter), formerly Charter Communications, Inc.
Charter, through its wholly owned cable television operating subsidiary, Charter
Communications Properties, LLC (CCP), commenced operations with the acquisition
of a cable television system on September 30, 1995.
Effective December 23, 1998, through a series of transactions, Paul G.
Allen acquired approximately 94% of Charter for an aggregate purchase price of
$211 million, excluding $214 million in debt assumed (the "Paul Allen
Transaction"). In conjunction with the Paul Allen Transaction, Charter acquired
100% of the interest it did not already own in CharterComm Holdings, LLC
(CharterComm Holdings) and CCA Group (comprised of CCA Holdings Corp., CCT
Holdings Corp. and Charter Communications Long Beach Inc.), all cable television
operating companies, for $2.0 billion, excluding $1.8 billion in debt assumed
from unrelated third parties for fair value. Charter previously managed and
owned minority interests in these companies. These acquisitions were accounted
for using the purchase method of accounting, and accordingly results of
operations of CharterComm Holdings and CCA Group are included in the financial
statements of Charter Holdings from the date of acquisition. In February 1999,
Charter transferred all of its cable television operating subsidiaries to a
wholly owned subsidiary of Charter Holdings, Charter Communications Operating,
LLC (Charter Operating). Charter Holdings is a wholly owned subsidiary of
Charter Communications Holding Company, LLC (Charter Holdco). The transfer was
accounted for as a reorganization of entities under common control similar to a
pooling of interests.
The accompanying financial statements include the accounts of CCP,
Charter's wholly owned cable operating subsidiary, representing the financial
statements of Charter Holdings and subsidiaries (the Company) for all periods
presented. The accounts of CharterComm Holdings and CCA Group are not included
since these companies were not owned and controlled by Charter prior to December
23, 1998.
As a result of the change in ownership of CCP, CharterComm Holdings and CCA
Group, Charter Holdings has applied push-down accounting in the preparation of
the consolidated financial statements effective December 23, 1998. Accordingly,
the financial statements of Charter Holdings for periods ended on or before
December 23, 1998, are presented on a different cost basis than the financial
statements for the periods after December 23, 1998 (not presented herein), and
are not comparable.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1997,
cash equivalents consist primarily of repurchase agreements. These investments
are carried at cost that approximates market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable television
transmission and distribution facilities, and the cost of new customer
installations. The costs of disconnecting a customer are charged
F-30
<PAGE> 260
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to expense in the period incurred. Expenditures for repairs and maintenance are
charged to expense as incurred, and equipment replacement and betterments are
capitalized.
Depreciation is provided on the straight-line basis over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
Cable distribution systems.................................. 3-15 years
Buildings and leasehold improvements........................ 5-15 years
Vehicles and equipment...................................... 3-5 years
</TABLE>
In 1997, the Company shortened the useful lives from 10 years to 5 years of
certain plant and equipment included in cable distribution systems associated
with costs of new customer installations. As a result, additional depreciation
of $550 was recorded during 1997. The estimated useful lives were shortened to
be more reflective of average customer lives.
FRANCHISES
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized over the lives of the franchises. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. Franchise rights
acquired through the purchase of cable television systems represent management's
estimate of fair value and are generally amortized using the straight-line
method over a period of 15 years. The period of 15 years is management's best
estimate of the useful lives of the franchises and assumes substantially all of
those franchises that expire during the period will be renewed by the Company.
IMPAIRMENT OF ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable based on projected undiscounted cash flows related
to the asset over its remaining life, the carrying value of such asset is
reduced to its estimated fair value.
REVENUES
Cable television 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. As of December 31, 1997, no installation revenue has
been deferred, as direct selling costs have exceeded installation revenue.
Fees collected from programmers to guarantee carriage are deferred and
amortized to income over the life of the contracts. Local governmental
authorities impose franchise fees on the Company ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Company's customers and are periodically remitted to local
franchises. Franchise fees collected and paid are reported as revenues.
F-31
<PAGE> 261
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE HEDGE AGREEMENTS
The Company manages fluctuations in interest rates by using interest rate
hedge agreements, as required by certain debt agreements. Interest rate swaps,
caps and collars are accounted for as hedges of debt obligations, and
accordingly, the net settlement amounts are recorded as adjustments to interest
expense in the period incurred. Premiums paid for interest rate caps are
deferred, included in other assets, and are amortized over the original term of
the interest rate agreement as an adjustment to interest expense.
The Company's interest rate swap agreements require the Company to pay a
fixed rate and receive a floating rate thereby creating fixed rate debt.
Interest rate caps and collars are entered into by the Company to reduce the
impact of rising interest rates on floating rate debt.
The Company's participation in interest rate hedging transactions involves
instruments that have a close correlation with its debt, thereby managing its
risk. Interest rate hedge agreements have been designed for hedging purposes and
are not held or issued for speculative purposes.
INCOME TAXES
The Company files a consolidated income tax return with Charter. Income
taxes are allocated to the Company in accordance with the tax-sharing agreement
between the Company and Charter.
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.
2. ACQUISITIONS:
In 1998, the Company acquired cable television systems for an aggregate
purchase price, net of cash acquired, of $228,400, comprising $167,500 in cash
and $60,900 in a note payable to Seller. The excess of cost of properties
acquired over the amounts assigned to net tangible assets at the date of
acquisition was $207,600 and is included in franchises.
In 1996, the Company acquired cable television systems for an aggregate
purchase price, net of cash acquired, of $34,100. The excess of the cost of
properties acquired over the amounts assigned to net tangible assets at the date
of acquisition was $24,300 and is included in franchises.
The above acquisitions were accounted for using the purchase method of
accounting, and accordingly, results of operations of the acquired assets have
been included in the financial statements from the dates of acquisition. The
purchase prices were allocated to tangible and intangible assets based on
estimated fair values at the acquisition dates.
F-32
<PAGE> 262
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma operating results as though the acquisition discussed
above, excluding the Paul Allen Transaction, had occurred on January 1, 1997,
with adjustments to give effect to amortization of franchises, interest expense
and certain other adjustments are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998,
THROUGH YEAR ENDED
DECEMBER 23, 1998 1997
----------------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues................................................... $ 67,007 $ 63,909
Loss from operations....................................... (7,097) (7,382)
Net loss................................................... (24,058) (26,099)
</TABLE>
The unaudited pro forma information has been presented for comparative
purposes and does not purport to be indicative of the results of operations had
these transactions been completed as of the assumed date or which may be
obtained in the future.
3. SALE OF FT. HOOD SYSTEM:
In February 1997, the Company sold the net assets of the Ft. Hood system,
which served customers in Texas, for an aggregate sales price of approximately
$12,500. The sale of the Ft. Hood system resulted in a loss of $1,363, which is
included in operating costs in the accompanying statement of operations for the
year ended December 31, 1997.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31,
1997:
<TABLE>
<S> <C>
Cable distribution systems.................................. $29,061
Land, buildings and leasehold improvements.................. 447
Vehicles and equipment...................................... 1,744
-------
31,252
Less- Accumulated depreciation.............................. (5,722)
-------
$25,530
=======
</TABLE>
For the period from January 1, 1998, through December 23, 1998, and for the
years ended December 31, 1997 and 1996, depreciation expense was $6,249, $3,898
and $2,371, respectively.
F-33
<PAGE> 263
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December
31, 1997:
<TABLE>
<S> <C>
Accrued interest............................................ $ 292
Capital expenditures........................................ 562
Franchise fees.............................................. 426
Programming costs........................................... 398
Accounts payable............................................ 298
Other....................................................... 1,106
------
$3,082
======
</TABLE>
6. LONG-TERM DEBT:
The Company maintained a revolving credit agreement (the "Old Credit
Agreement") with a consortium of banks for borrowings up to $47,500, of which
$41,500 was outstanding at December 31, 1997. In 1997, the Credit Agreement was
amended to reflect the impact of the sale of a cable television system. The debt
bears interest, at the Company's option, at rates based on the prime rate of the
Bank of Montreal (the agent bank), or LIBOR, plus the applicable margin based
upon the Company's leverage ratio at the time of the borrowings. The variable
interest rates ranged from 7.44% to 7.63% at December 31, 1997.
In May 1998, the Company entered into a credit agreement (the "CCP Credit
Agreement"), which provides for two term loan facilities, one with the principal
amount of $60,000 that matures on June 30, 2006, and the other with the
principal amount of $80,000 that matures on June 30, 2007. The CCP Credit
Agreement also provides for a $90,000 revolving credit facility with a maturity
date of June 30, 2006. Amounts under the CCP Credit Agreement bear interest at
the LIBOR Rate or Base Rate, as defined, plus a margin of up to 2.88%.
Commencing March 31, 1999, and at the end of each quarter thereafter,
available borrowings under the revolving credit facility shall be reduced on an
annual basis by 3.5% in 1999, 7.0% in 2000, 9.0% in 2001, 10.5% in 2002 and
16.5% in 2003. Commencing March 31, 2000, and at the end of each quarter
thereafter, available borrowings under the term loan shall be reduced on an
annual basis by 6.0% in 2000, 8.0% in 2001, 11.0% in 2002 and 16.5% in 2003.
Commencing March 31, 2000, and at the end of each quarter thereafter, available
borrowings under the other term loan shall be reduced on an annual basis by 1.0%
in 2000, 1.0% in 2001, 1.0% in 2002 and 1.0% in 2003.
The credit agreement requires the Company and/or its subsidiaries to comply
with various financial and other covenants, including the maintenance of certain
operating and financial ratios. This agreement also contains substantial
limitations on, or prohibitions of, distributions, additional indebtedness,
liens, asset sales and certain other items.
7. NOTE PAYABLE TO RELATED PARTY:
As of December 31, 1997, the Company holds a promissory note payable to CCT
Holdings Corp., a company managed by Charter and acquired by Charter effective
December 23, 1998. The promissory note bears interest at the rates paid by CCT
Holdings Corp. on a note payable to a third party. Principal and interest are
due on September 29, 2005.
F-34
<PAGE> 264
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
A summary of debt and the related interest rate hedge agreements at
December 31, 1997, is as follows:
<TABLE>
<CAPTION>
CARRYING NOTIONAL FAIR
VALUE AMOUNT VALUE
-------- -------- -------
<S> <C> <C> <C>
Debt
CCP Credit Agreement........................................ $41,500 $ -- $41,500
Interest Rate Hedge Agreements
Caps........................................................ -- 15,000 --
Collars..................................................... -- 20,000 (74)
</TABLE>
As the long-term debt under the credit agreements bears interest at current
market rates, its carrying amount approximates market value at December 31,
1997.
The notional amounts of interest rate hedge agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
exposure through its use of interest rate hedge agreements. The amounts
exchanged are determined by reference to the notional amount and the other terms
of the contracts.
The fair value of interest rate hedge agreements generally reflects the
estimated amounts that the Company would receive or pay (excluding accrued
interest) to terminate the contracts on the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer
quotations are available for the Company's interest rate hedge agreements.
Management believes that the sellers of the interest rate hedge agreements
will be able to meet their obligations under the agreements. The Company has
policies regarding the financial stability and credit standing of major
counterparties. Nonperformance by the counterparties is not anticipated nor
would it have a material adverse effect on the Company's financial position or
results of operations.
9. INCOME TAXES:
At December 31, 1997, the Company had net operating loss carryforwards of
$9,594, which if not used to reduce taxable income in future periods, expire in
the years 2010 through 2012. As of December 31, 1997, the Company's deferred
income tax assets were offset by valuation allowances and deferred income tax
liabilities resulting primarily from differences in accounting for depreciation
and amortization.
10. RELATED-PARTY TRANSACTIONS:
Charter provides management services to the Company including centralized
customer billing services, data processing and related support, benefits
administration and coordination of insurance coverage and self-insurance
programs for medical, dental and workers' compensation claims. Certain costs for
services are billed and charged directly to the Company's operating subsidiaries
and are included in operating costs. These billings are determined based on the
number of basic customers. Such costs totaled $437, $220 and $131, respectively
for the period from January 1, 1998, through December 23, 1998, and the years
ended December 31, 1997 and 1996. All other costs incurred by Charter on behalf
of the Company are expensed in the accompanying financial statements and are
included in corporate expense allocations -- related
F-35
<PAGE> 265
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
party. The cost of these services is allocated based on the number of basic
customers. Management considers these allocations to be reasonable for the
operations of the Company.
Charter utilizes a combination of excess insurance coverage and
self-insurance programs for its medical, dental and workers' compensation
claims. Charges are made to the Company as determined by independent actuaries,
at the present value of the actuarially computed present and future liabilities
for such benefits. Medical coverage provides for $2,435 aggregate stop loss
protection and a loss limitation of $100 per person per year. Workers'
compensation coverage provides for $800 aggregate stop loss protection and a
loss limitation of $150 per person per year.
The Company is charged a management fee based on percentages of revenues as
stipulated in the management agreement between Charter and the Company. For the
period from January 1, 1998, through December 23, 1998, and the years ended
December 31, 1997 and 1996, the management fee charged to the Company
approximated the corporate expenses incurred by Charter on behalf of the
Company. Management fees currently payable of $114 are included in payables to
manager of cable television systems -- related party as of December 31, 1997.
11. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Leases and rental costs charged to expense for the period from
January 1, 1998, through December 23, 1998, and for the years ended December 31,
1997 and 1996, were $278, $130 and $91, respectively.
The Company also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Company anticipates that such
rentals will recur. Rent expense incurred for pole rental attachments for the
period from January 1, 1998, through December 23, 1998, and for the years ended
December 31, 1997 and 1996, was $421, $271 and $174, respectively.
LITIGATION
The Company is a party to lawsuits that arose in the ordinary course of
conducting its business. In the opinion of management, after consulting with
legal counsel, the outcome of these lawsuits will not have a material adverse
effect on the Company's financial position or results of operations.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act" and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. Legislation
and regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
F-36
<PAGE> 266
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. As of December 31,
1998, the amount refunded by the Company has been insignificant. The Company may
be required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company is unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation. The Company is subject to state regulation in
Connecticut.
12. EMPLOYEE BENEFIT PLAN:
401(k) PLAN
The Company's employees may participate in the Charter Communications, Inc.
401(k) Plan (the "401(k) Plan"). Employees that qualify for participation can
contribute up to 15% of their salary, on a before tax basis, subject to a
maximum contribution limit as determined by the Internal Revenue Service. The
Company contributes an amount equal to 50% of the first 5% of contributions by
each employee. The Company contributed $74, $29 and $22 for the period from
January 1, 1998, through December 23, 1998, and for the years ended December 31,
1997 and 1996, respectively.
F-37
<PAGE> 267
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APPRECIATION RIGHTS PLAN
Certain employees of Charter participate in the 1995 Charter
Communications, Inc. Appreciation Rights Plan (the "Plan"). The Plan permits
Charter to grant 1,500,000 units to certain key employees, of which 1,251,500
were outstanding at December 31, 1997. Units received by an employee vest at a
rate of 20% per year, unless otherwise provided in the participant's
Appreciation Rights Unit Agreement. The appreciation rights entitle the
participants to receive payment, upon termination or change in control of
Charter, of the excess of the unit value over the base value (defined as the
appreciation value) for each vested unit. The unit value is based on Charter's
adjusted equity, as defined in the Plan. Deferred compensation expense recorded
by Charter is based on the appreciation value since the grant date and is being
amortized over the vesting period.
As a result of the acquisition of Charter by Paul G. Allen, the Plan was
terminated, all outstanding units became 100% vested and all amounts were paid
by Charter in 1999. The cost of this plan was allocated to the Company based on
the number of basic customers. Management considers this allocation to be
reasonable for the operations of the Company. For the period January 1, 1998,
through December 23, 1998, the Company expensed $3,800, included in corporate
expense allocation, for the cost of this plan.
13. PARENT COMPANY ONLY FINANCIAL STATEMENTS
As a result of the limitations on and prohibitions of distributions,
substantially all of the net assets of the consolidated subsidiaries are
restricted for distribution to Charter Holding, the parent company. Charter
Holdings (parent company only) financial statements are presented below.
CHARTER COMMUNICATIONS HOLDINGS, LLC (PARENT COMPANY ONLY)
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
LIABILITIES
INVESTMENT IN CHARTER OPERATING............................. $(1,975)
=======
SHAREHOLDER'S INVESTMENT
Common Stock................................................ $ --
Paid-in-capital............................................. 5,900
Accumulated deficit......................................... (7,875)
-------
$(1,975)
=======
</TABLE>
F-38
<PAGE> 268
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CHARTER COMMUNICATIONS HOLDINGS, LLC (PARENT COMPANY ONLY)
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JANUARY 1, 1998 DECEMBER 31
THROUGH ------------------
DECEMBER 23, 1998 1997 1996
----------------- ------- -------
<S> <C> <C> <C>
EQUITY IN LOSS OF CHARTER OPERATING................. $(17,222) $(4,623) $(2,723)
-------- ------- -------
Net loss............................................ $(17,222) $(4,623) $(2,723)
======== ======= =======
</TABLE>
CHARTER COMMUNICATIONS HOLDINGS, LLC (PARENT COMPANY ONLY)
STATEMENT OF SHAREHOLDER'S INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................... $-- $ 1,500 $ (529) $ 971
Capital Contribution......................... -- 4,400 -- 4,400
Net loss -- -- (2,723) (2,723)
-- ------- -------- --------
BALANCE, December 31, 1996................... -- 5,900 (3,252) 2,648
Net loss................................... -- -- (4,623) (4,623)
-- ------- -------- --------
BALANCE, December 31, 1997................... -- 5,900 (7,875) (1,975)
Capital Contribution....................... -- 10,800 -- 10,800
Net loss................................... -- -- (17,222) (17,222)
-- ------- -------- --------
BALANCE, December 23, 1998................... $-- $16,700 $(25,097) $ (8,397)
== ======= ======== ========
</TABLE>
The investment in Charter Operating is accounted for on the equity method.
No statement of cash flows has been presented as Charter Holdings (parent
company only) had no cash flow activity.
14. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Company has
not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings
(loss).
F-39
<PAGE> 269
INDEPENDENT AUDITORS' REPORT
The Members
Marcus Cable Holdings, LLC:
We have audited the accompanying consolidated balance sheets of Marcus
Cable Holdings, LLC and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, members' equity/partners' capital
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 Marcus Cable
Holdings, LLC 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.
/s/ KPMG LLP
Dallas, Texas
February 19, 1999
(except for the fourth and seventh paragraphs of Note 1
which are as of August 25, 1999 and April 7, 1999, respectively)
F-40
<PAGE> 270
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents................................. $ 813 $ 1,607
Accounts receivable, net of allowance of $1,800 in 1998
and $1,904 in 1997..................................... 16,055 23,935
Prepaid expenses and other................................ 6,094 2,105
---------- ----------
Total current assets.............................. 22,962 27,647
Investment in cable television systems:
Property, plant and equipment............................. 741,021 706,626
Franchises................................................ 783,742 945,125
Noncompetition agreements................................. 4,425 6,770
Other assets................................................ 52,928 64,300
---------- ----------
$1,605,078 $1,750,468
========== ==========
LIABILITIES AND MEMBERS' EQUITY/PARTNERS' CAPITAL
- -------------------------------------------------
Current liabilities:
Current maturities of long-term debt...................... $ 77,500 $ 67,499
Accrued liabilities....................................... 66,985 68,754
---------- ----------
Total current liabilities......................... 144,485 136,253
Long-term debt.............................................. 1,354,919 1,531,927
Other long-term liabilities................................. 1,390 2,261
Members' equity/partners' capital........................... 104,284 80,027
---------- ----------
$1,605,078 $1,750,468
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE> 271
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Cable services..................................... $ 499,265 $ 473,701 $ 432,172
Management fees -- related party................. 555 5,614 2,335
--------- --------- ---------
Total revenues........................... 499,820 479,315 434,507
--------- --------- ---------
Operating expenses:
Selling, service and system management........... 193,725 176,515 157,197
General and
administrative................................ 77,913 72,351 73,017
Transaction and severance costs.................. 135,379 -- --
Management fees -- related party................. 3,341 -- --
Depreciation and amortization.................... 215,789 188,471 166,429
--------- --------- ---------
Total operating expenses................. 626,147 437,337 396,643
--------- --------- ---------
Operating income (loss).................. (126,327) 41,978 37,864
--------- --------- ---------
Other (income) expense:
Interest expense................................. 159,985 151,207 144,376
Gain on sale of assets........................... (201,278) -- (6,442)
--------- --------- ---------
Total other (income) expense............. (41,293) 151,207 137,934
--------- --------- ---------
Loss before extraordinary
item................................... (85,034) (109,229) (100,070)
Extraordinary item -- loss on early retirement of
debt............................................. (9,059) -- --
--------- --------- ---------
Net loss................................. $ (94,093) $(109,229) $(100,070)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE> 272
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY/PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCUS
CLASS B CABLE
GENERAL LIMITED PROPERTIES, VULCAN
PARTNERS PARTNERS L.L.C. CABLE, INC. TOTAL
-------- -------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... $(21,396) $ 310,722 -- -- $ 289,326
Net loss......................... (200) (99,870) -- -- (100,070)
-------- --------- -------- -------- ---------
Balance at December 31, 1996..... (21,596) 210,852 -- -- 189,256
Net loss....................... (218) (109,011) -- -- (109,229)
-------- --------- -------- -------- ---------
Balance at December 31, 1997..... (21,814) 101,841 -- -- 80,027
Net loss -- January 1, 1998 to
April 22, 1998.............. (224) (111,838) -- -- (112,062)
Capital contributions.......... -- -- -- 118,350 118,350
Reorganization of limited
partnership to limited
liability company........... 22,038 9,997 (22,038) (9,997) --
Net income -- April 23, 1998 to
December 31, 1998........... -- -- 683 17,286 17,969
-------- --------- -------- -------- ---------
Balance at December 31, 1998..... $ -- $ -- $(21,355) $125,639 $ 104,284
======== ========= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 273
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (94,093) $(109,229) $(100,070)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item -- loss on early retirement of
debt................................................... 9,059 -- --
Gain on sale of assets.................................. (201,278) -- (6,442)
Depreciation and amortization........................... 215,789 188,471 166,429
Non cash interest expense............................... 82,416 72,657 63,278
Changes in assets and liabilities, net of working
capital adjustments for acquisitions:
Accounts receivable, net.............................. 7,880 (6,439) (70)
Prepaid expenses and other............................ (4,017) 95 (574)
Other assets.......................................... 413 (385) (502)
Accrued liabilities................................... (1,769) 9,132 (3,063)
--------- --------- ---------
Net cash provided by operating activities:......... 14,400 154,302 118,986
--------- --------- ---------
Cash flows from investing activities:
Acquisition of cable systems.............................. (57,500) (53,812) (10,272)
Proceeds from sale of assets, net of cash acquired and
selling costs........................................... 401,432 -- 20,638
Additions to property, plant and equipment................ (224,723) (197,275) (110,639)
Other..................................................... (689) -- --
--------- --------- ---------
Net cash provided by (used in) investing
activities:...................................... 118,520 (251,087) (100,273)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under Senior Credit Facility................... 217,750 226,000 65,000
Repayments under Senior Credit Facility................... (359,500) (131,250) (95,000)
Repayments of notes and debentures........................ (109,344) -- --
Payment of debt issuance costs............................ (99) (1,725) --
Cash contributed by member................................ 118,350 -- --
Payments on other long-term liabilities................... (871) (667) (88)
--------- --------- ---------
Net cash provided by (used in) financing
activities....................................... (133,714) 92,358 (30,088)
--------- --------- ---------
Net decrease in cash and cash equivalents................... (794) (4,427) (11,375)
Cash and cash equivalents at the beginning of the period.... 1,607 6,034 17,409
--------- --------- ---------
Cash and cash equivalents at the end of the period.......... $ 813 $ 1,607 $ 6,034
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 81,765 $ 81,155 $ 83,473
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 274
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Marcus Cable Holdings, LLC ("MCHLLC"), a Delaware limited liability
company, was formed in February 1999 as parent of Marcus Cable Company, L.L.C.
("MCCLLC"), formerly Marcus Cable Company, L.P. ("MCCLP"). MCCLP was formed as a
Delaware limited partnership and was converted to a Delaware limited liability
company on June 9, 1998 (See Note 3). MCHLLC and its subsidiaries (collectively,
the "Company") derive their primary source of revenues by providing various
levels of cable television programming and services to residential and business
customers. The Company's operations are conducted through Marcus Cable Operating
Company, L.L.C. ("MCOC"), a wholly-owned subsidiary of the Company. The Company
operates its cable television systems primarily in Texas, Wisconsin, Indiana,
California and Alabama.
The accompanying consolidated financial statements include the accounts of
MCHLLC, which is the predecessor of MCCLLC, and its subsidiary limited liability
companies and corporations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
On April 23, 1998, Vulcan Cable, Inc. and Paul G. Allen (collectively
referred to as "Vulcan") acquired all of the outstanding limited partnership
interests and substantially all of the general partner interest in MCCLP for
cash payments of $1,392,000 ("the Vulcan Acquisition"). Under the terms of the
purchase agreement, the owner of the remaining 0.6% general partner interest in
the Company (the "Minority Interest"), which represents 100% of the voting
control of the Company, could cause Vulcan to purchase the 0.6% general partner
interest under certain conditions, or Vulcan could cause the Minority Interest
to sell its interest to Vulcan under certain conditions, at a fair value of not
less than $8,000.
The accompanying consolidated financial statements do not reflect the
application of purchase accounting for the Vulcan Acquisition because the
Securities and Exchange Commission staff challenged such accounting treatment
since, as of December 31, 1998, Vulcan had not acquired voting control of the
Company. On March 31, 1999, Vulcan acquired voting control of the Company by its
acquisition of the Minority Interest for cash consideration.
In connection with the Vulcan Acquisition, the Company incurred transaction
costs of approximately $119,345, comprised primarily of $90,200 of compensation
paid to employees of the Company by Vulcan in settlement of specially designated
Class B units in MCCLP ("EUnit") granted in past periods by the general partner
of MCCLP, $24,000 of transaction fees paid to certain equity partners for
investment banking services and $5,200 of expenses for professional fees. These
transaction costs have been included in the accompanying consolidated statement
of operations for the year ended December 31, 1998.
Effective December 23, 1998, through a series of transactions, Paul G.
Allen acquired approximately 94% of Charter Communications, Inc. ("Charter").
Beginning in October 1998, Charter managed the operations of the Company.
In March 1999, Charter transferred all of its cable television operating
subsidiaries to a subsidiary, Charter Communications Holdings, LLC (Charter
Holdings) in connection with the issuance of Senior Notes and Senior Discount
Notes totaling $3.6 billion. These operating subsidiaries were then transferred
to Charter Communications Operating, LLC ("Charter Operating"). On April 7,
1999, the cable operations of the Company were transferred to Charter Operating
subsequent to the purchase by Paul G. Allen of the Minority Interest.
As a result of the Vulcan Acquisition, the Company recognized severance and
stay-on bonus compensation of $16,034, which is included in Transaction and
Severance Costs in the
F-45
<PAGE> 275
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying statement of operations for the year ended December 31, 1998. As of
December 31, 1998, 35 employees and officers of the Company had been terminated
and $13,634 had been paid under severance and bonus arrangements. By March 31,
1999, an additional 50 employees will be terminated. The remaining balance of
$2,400 is to be paid by April 30, 1999 and an additional $400 in stay-on bonuses
will be recorded as compensation in 1999 as the related services are provided.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1998
and 1997, cash equivalents consist of certificates of deposit and money market
funds. These investments are carried at cost which approximates market value.
(b) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable television
transmission and distribution facilities, and the cost of new customer
installation. The costs of disconnecting a customer are charged to expense in
the period incurred. Expenditures for maintenance and repairs are charged to
expense as incurred and equipment replacements and betterments are capitalized.
Depreciation is provided by the straight-line method over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
Cable distribution systems...................... 3-10 years
Buildings and leasehold improvements............ 5-15 years
Vehicles and equipment.......................... 3-5 years
</TABLE>
(c) FRANCHISES
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized over the estimated lives of the franchises. Costs relating to
unsuccessful franchise applications are charged to expense when it is determined
that the efforts to obtain the franchise will not be successful. Franchise
rights acquired through the purchase of cable television systems represent
management's estimate of fair value and are amortized using the straight-line
method over a period of 15 years. The period of 15 years is management's best
estimate of the useful lives of the franchises and assumes substantially all of
those franchises that expire during the period will be renewed by the Company.
Accumulated amortization was $317,335 and $264,600 at December 31, 1998 and
1997, respectively.
(d) NONCOMPETITION AGREEMENTS
Noncompetition agreements are amortized using the straight-line method over
the term of the respective agreements. Accumulated amortization was $20,267 and
$19,144 at December 31, 1998 and 1997, respectively.
(e) OTHER ASSETS
Debt issuance costs are amortized to interest expense over the term of the
related debt. Going concern value of acquired cable systems is amortized using
the straight-line method over a period up to 10 years.
F-46
<PAGE> 276
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) IMPAIRMENT OF ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable based on projected undiscounted cash flows related
to the asset over its remaining life, the carrying value of such asset is
reduced to its estimated fair value.
(g) REVENUES
Cable television 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. As of December 31, 1998 and 1997, no installation
revenue has been deferred, as direct selling costs exceeded installation
revenue.
Management fee revenues are recognized concurrently with the recognition of
revenues by the managed cable television system, or as a specified monthly
amount as stipulated in the management agreement. Incentive management fee
revenue is recognized upon performance of specified actions as stipulated in the
management agreement.
(h) INCOME TAXES
Income taxes are the responsibility of the individual members and are not
provided for in the accompanying financial statements. The Company's subsidiary
corporations are subject to federal income tax but have had no operations and
therefore, no taxable income since inception.
(i) INTEREST RATE HEDGE AGREEMENTS
The Company manages fluctuations in interest rates by using interest rate
hedge agreements, as required by certain of its debt agreements. Interest rate
swaps and caps are accounted for as hedges of debt obligations, and accordingly,
the net settlement amounts are recorded as adjustments to interest expense in
the period incurred.
The Company's interest rate swap agreements require the Company to pay a
fixed rate and receive a floating rate thereby creating thereby creating fixed
rate debt. Interest rate caps are entered into by the Company to reduce the
impact of rising interest rates on floating rate debt.
The Company's participation in interest rate hedging transactions involves
instruments that have a close correlation with its debt, thereby managing its
risk. Interest rate hedge agreements have been designed for hedging purposes and
are not held or issued for speculative purposes.
(j) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-47
<PAGE> 277
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) ACCOUNTING STANDARD NOT IMPLEMENTED
In June 1998, the Financial Accounting Standards Boards adopted Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS No.
137, is effective for fiscal years beginning after June 15, 2000. The Company
has not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility of earnings
(loss).
(3) CAPITAL STRUCTURE
PARTNERS' CAPITAL
(a) CLASSES OF PARTNERSHIP INTERESTS
The MCCLP partnership agreement (the "Partnership Agreement") provided for
Class B Units and Convertible Preference Units. Class B Units consisted of
General Partner Units ("GP Units") and Limited Partner Units ("LP Units"). To
the extent that GP Units had the right to vote, GP Units voted as Class B Units
together with Class B LP Units. Voting rights of Class B LP Units were limited
to items specified under the Partnership Agreement. Prior to the dissolution of
the Partnership on June 9, 1998, there were 18,848.19 GP Units and 294,937.67
Class B LP Units outstanding.
The Partnership Agreement also provided for the issuance of a class of
Convertible Preference Units. These units were entitled to a general
distribution preference over the Class B LP Units and were convertible into
Class B LP Units. The Convertible Preference Units could vote together with
Class B Units as a single class, and the voting percentage of each Convertible
Preference Unit, at a given time, was based on the number of Class B LP Units
into which such Convertible Preference Unit is then convertible. MCCLP had
issued 7,500 Convertible Preference Units with a distribution preference and
conversion price of two thousand dollars per unit.
The Partnership Agreement permitted the General Partner, at its sole
discretion, to issue up to 31,517 Employee Units (classified as Class B Units)
to key individuals providing services to the Company. Employee Units were not
entitled to distributions until such time as all units have received certain
distributions as calculated under provisions of the Partnership Agreement
("subordinated thresholds"). At December 31, 1997 28,033.20 Employee Units were
outstanding with a subordinated threshold ranging from $1,600 to $1,750 per unit
(per unit amounts in whole numbers). In connection with the Vulcan Acquisition,
the amount paid to EUnit holders of $90,200 was recognized as Transaction and
Severance Costs in the year ended December 31, 1998.
F-48
<PAGE> 278
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) ALLOCATION OF INCOME AND LOSS TO PARTNERS
MCCLP incurred losses from inception. Losses were allocated as follows:
(1) First, among the partners whose capital accounts exceed their
unreturned capital contributions in proportion to such excesses until each such
partner's capital account equals its unreturned capital contribution; and
(2) Next, to the holders of Class B Units in accordance with their
unreturned capital contribution percentages.
The General Partner was allocated a minimum of 0.2% to 1% of income or loss
at all times, depending on the level of capital contributions made by the
partners.
MEMBERS' EQUITY
Upon completion of the Vulcan Acquisition, Vulcan collectively owned 99.4%
of MCCLP through direct ownership of all LP Units and through 80% ownership of
Marcus Cable Properties, Inc. ("MCPI"), the general partner of Marcus Cable
Properties, L.P. ("MCPLP"), the general partner of MCCLP. The Minority Interest
owned the voting common stock, or the remaining 20% of MCPI. In July 1998,
Vulcan contributed $20,000 in cash to the Company relating to certain employee
severance arrangements.
On June 9, 1998, MCCLP was converted into a Delaware limited liability
company with two members: Vulcan Cable, Inc., with 96.2% ownership, and Marcus
Cable Properties, L.L.C. ("MCPLLC") (formerly MCPLP), with 3.8% ownership.
Vulcan Cable, Inc. owns approximately 25.6% and MCPI owns approximately 74.4% of
MCPLLC, with Vulcan's interest in MCPI unchanged. As there was no change in
ownership interests, the historical partners' capital balances at June 9, 1998
were transferred to and became the initial equity of MCCLLC, and thus the
accompanying statement of members' equity has been presented as if the
conversion of MCCLP into MCCLLC occurred on April 23, 1998, the date of the
Vulcan Acquisition (see Note 1).
As of December 31, 1998, MCCLLC has 100 issued and outstanding membership
units. Income and losses of MCCLLC are allocated to the members in accordance
with their ownership interests. Members are not personally liable for
obligations of MCCLLC.
(4) ACQUISITIONS AND DISPOSITIONS
In 1998, the Company acquired cable television systems in the Birmingham,
Alabama area for a purchase price of $57,500. The excess of the cost of
properties acquired over the amounts assigned to net tangible assets and
noncompetition agreements as of the date of acquisition was approximately
$44,603 and is included in franchises.
Additionally, in 1998, the Company completed the sale of certain cable
television systems for an aggregate net sales price of $401,432, resulting in a
total gain of $201,278.
In 1997, the Company acquired cable television systems in the Dallas-Ft.
Worth, Texas area for a purchase price of $35,263. The excess of the cost of
properties acquired over the amounts assigned to net tangible assets as of the
date of acquisition was $15,098 and is included in franchises.
Additionally, in July 1997, the Company completed an exchange of cable
television systems in Indiana and Wisconsin. According to the terms of the trade
agreement, in addition to the contribution of its systems, the Company paid
$18,549.
F-49
<PAGE> 279
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, the Company acquired cable television systems in three separate
transactions for an aggregate purchase price of $10,272. The excess of the cost
of properties acquired over the amounts assigned to net tangible assets as of
the date of acquisition was $4,861 and is included in franchises.
Additionally, in 1996, the Company completed the sale of cable television
systems in Washington, D.C. for a sale price of $20,638. The sale resulted in a
gain of $6,442.
The above acquisitions were accounted for using the purchase method of
accounting and, accordingly, results of operations of the acquired assets have
been included in the accompanying consolidated financial statements from the
dates of acquisition. The purchase prices were allocated to tangible and
intangible assets based on estimated fair market values at the dates of
acquisition. The cable system trade discussed above was accounted for as a
nonmonetary exchange and, accordingly, the additional cash contribution was
allocated to tangible and intangible assets based on recorded amounts of the
nonmonetary assets relinquished.
Unaudited pro forma operating results as though 1998 and 1997 acquisitions
and divestitures discussed above had occurred on January 1, 1997, with
adjustments to give effect to amortization of franchises, interest expense and
certain other adjustments are as follows for the years ended December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues........................................... $ 457,929 $ 421,665
Operating income (loss)............................ (148,472) 9,064
Net loss........................................... (150,841) (142,143)
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cable distribution systems........................ $ 996,804 $ 878,721
Vehicles and other................................ 40,243 37,943
Land and buildings................................ 18,861 17,271
---------- ---------
1,055,908 933,935
Accumulated depreciation.......................... (314,887) (227,309)
---------- ---------
$ 741,021 $ 706,626
========== =========
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996
was $129,663, $96,220, and $72,281, respectively.
(6) OTHER ASSETS
Other assets consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Debt issuance costs.................................. $ 41,079 $ 45,225
Going concern value.................................. 37,274 37,274
Other................................................ 677 1,090
-------- --------
79,030 83,589
Accumulated amortization............................. (26,102) (19,289)
-------- --------
$ 52,928 $ 64,300
======== ========
</TABLE>
F-50
<PAGE> 280
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accrued operating liabilities.......................... $26,334 $27,923
Accrued programming costs.............................. 9,539 9,704
Accrued franchise fees................................. 8,907 10,131
Accrued property taxes................................. 4,586 5,125
Accrued interest....................................... 3,752 7,949
Other accrued liabilities.............................. 13,867 7,922
------- -------
$66,985 $68,754
======= =======
</TABLE>
(8) LONG-TERM DEBT
The Company has outstanding the following borrowings on long-term debt
arrangements at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Senior Credit Facility............................ $ 808,000 $ 949,750
13 1/2% Senior Subordinated Discount Notes........ 383,236 336,304
14 1/4% Senior Discount Notes..................... 241,183 213,372
11 7/8% Senior Debentures......................... -- 100,000
---------- ----------
1,432,419 1,599,426
Less current maturities........................... 77,500 67,499
---------- ----------
$1,354,919 $1,531,927
========== ==========
</TABLE>
The Company, through MCOC, maintains a senior credit facility ("Senior
Credit Facility"), which provides for two term loan facilities, one with a
principal amount of $490,000 that matures on December 31, 2002 ("Tranche A") and
the other with a principal amount of $300,000 million that matures on April 30,
2004 ("Tranche B"). The Senior Credit Facility provides for scheduled
amortization of the two term loan facilities which began in September 1997. The
Senior Credit Facility also provides for a $360,000 revolving credit facility
("Revolving Credit Facility"), with a maturity date of December 31, 2002.
Amounts outstanding under the Senior Credit Facility bear interest at either
the: i) Eurodollar rate, ii) prime rate, or iii) CD base rate or Federal Funds
rate, plus a margin of up to 2.25%, which is subject to certain quarterly
adjustments based on the ratio of MCOC's total debt to annualized operating cash
flow, as defined. The variable interest rates ranged from 6.23% to 7.75% and
5.97% to 8.00% at December 23, 1998, and December 31, 1997, respectively. A
quarterly commitment fee ranging from 0.250% to 0.375% per annum is payable on
the unused commitment under the Senior Credit Facility.
On October 16, 1998, the Company entered into an agreement to amend its
Senior Credit Facility. The amendment provides for, among other items, a
reduction in the permitted leverage and cash flow ratios, a reduction in the
interest rate charge under the Senior Credit Facility and a change in the
restriction related to the use of cash proceeds from asset sales to allow such
proceeds to be used to redeem the 11 7/8% Senior Debentures.
In 1995, the Company issued $299,228 of 14 1/4% Senior Discount Notes due
December 15, 2005 (the "14 1/4% Notes") for net proceeds of $150,003. The
14 1/4% Notes are unsecured and rank pari passu to the 11 7/8% Debentures
(defined below). The 14 1/4% Notes are redeemable at the option of MCHLLC at
amounts decreasing from 107% to 100% of par beginning on June 15, 2000. No
interest is payable until December 15, 2000. Thereafter interest is payable
semi-
F-51
<PAGE> 281
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
annually until maturity. The discount on the 14 1/4% Notes is being accreted
using the effective interest method. The unamortized discount was $85,856 at
December 31, 1997.
In 1994, the Company, through MCOC, issued $413,461 face amount of 13 1/2%
Senior Subordinated Discount Notes due August 1, 2004 (the "13 1/2% Notes") for
net proceeds of $215,000. The 13 1/2% Notes are unsecured, are guaranteed by
MCHLLC and are redeemable, at the option of MCOC, at amounts decreasing from
105% to 100% of par beginning on August 1, 1999. No interest is payable on the
13 1/2% Notes until February 1, 2000. Thereafter, interest is payable
semi-annually until maturity. The discount on the 13 1/2% Notes is being
accreted using the effective interest method. The unamortized discount was
$77,157 at December 31, 1997.
In 1993, the Company issued $100,000 principal amount of 11 7/8% Senior
Debentures due October 1, 2005 (the "11 7/8% Debentures"). The 11 7/8%
Debentures were unsecured and were redeemable at the option of the Company on or
after October 1, 1998 at amounts decreasing from 105.9% to 100% of par at
October 1, 2002, plus accrued interest, to the date of redemption. Interest on
the 11 7/8% Debentures was payable semi-annually each April 1 and October 1
until maturity.
On July 1, 1998, $4,500 face amount of the 14 1/4% Notes and $500 face
amount of the 11 7/8% Notes were tendered for gross tender payments of $3,472
and $520 respectively. The payments resulted in a gain on the retirement of the
debt of $753. On December 11, 1998, the 11 7/8% Notes were redeemed for a gross
payment of $107,668, including accrued interest. The redemption resulted in a
loss on the retirement of the debt of $9,059.
The 14 1/4% Notes, 13 1/2% Notes, 11 7/8% Debentures and Senior Credit
Facility are all unsecured and require the Company and/or its subsidiaries to
comply with various financial and other covenants, including the maintenance of
certain operating and financial ratios. These debt instruments also contain
substantial limitations on, or prohibitions of, distributions, additional
indebtedness, liens, asset sales and certain other items.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying and fair values of the Company's significant financial
instruments as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Senior Credit Facility......................... $808,000 $808,000 $949,750 $949,750
13 1/2% Notes.................................. 383,236 418,629 336,304 381,418
14 1/4% Notes.................................. 241,183 279,992 213,372 258,084
11 7/8% Debentures............................. -- -- 100,000 108,500
</TABLE>
The carrying amount of the Senior Credit Facility approximates fair value
as the outstanding borrowings bear interest at market rates. The fair values of
the 14 1/4% Notes, 13 1/2% Notes, and 11 7/8% Debentures, are based on quoted
market prices. The Company had interest rate swap agreements covering a notional
amount of $500,000 at December 31, 1998 and 1997. The fair value of such swap
agreements was ($5,761) at December 31, 1998.
The weighted average interest pay rate for the interest rate swap
agreements was 5.7% at December 31, 1998, and 1997. Certain of these agreements
allow for optional extension by the counterparty or for automatic extension in
the event that one month LIBOR exceeds a stipulated rate on any monthly reset
date. Approximately $100,000 notional amount included in the $500,000
F-52
<PAGE> 282
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notional amount described above is also modified by an interest rate cap
agreement which resets monthly.
The notional amounts of the interest rate hedge agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
exposure through its use of interest rate hedge agreements. The amounts
exchanged are determined by reference to the notional amount and the other terms
of the contracts.
The fair values of the interest rate hedge agreements generally reflect the
estimated amounts that the Company would receive or (pay) (excluding accrued
interest) to terminate the contracts on the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer
quotations are available for the Company's interest rate hedge agreements.
Management believes that the sellers of the interest rate hedge agreements
will be able to meet their obligations under the agreements. In addition, some
of the interest rate hedge agreements are with certain of the participating
banks under the Company's Senior Credit Facility thereby reducing the exposure
to credit loss. The Company has policies regarding the financial stability and
credit standing of the major counterparties. Nonperformance by the
counterparties is not anticipated nor would it have a material adverse effect on
the Company's consolidated financial position or results of operations.
(10) RELATED PARTY TRANSACTIONS
The Company and Charter entered into a management agreement on October 6,
1998 whereby Charter began to manage the day-to-day operations of the Company.
In consideration for the management consulting services provided by Charter,
Marcus pays Charter an annual fee equal to 3% of the gross revenues of the cable
system operations, plus expenses. From October 6, 1998 to December 31, 1998,
management fees under this agreement were $3,341.
Prior to the consummation of the Vulcan Acquisition, affiliates of Goldman
Sachs owned limited partnership interests in MCCLP. Maryland Cable Partners,
L.P. ("Maryland Cable"), which was controlled by an affiliate of Goldman Sachs,
owned the Maryland Cable systems. MCOC managed the Maryland Cable systems under
the Maryland Cable Agreement. Pursuant to such agreement, MCOC earned a
management fee equal to 4.7% of the revenues of Maryland Cable.
Effective January 31, 1997, Maryland Cable was sold to a third party.
Pursuant to the Maryland Cable Agreement, MCOC recognized incentive management
fees of $5,069 during the twelve months ended December 31, 1997 in conjunction
with the sale. Although MCOC is no longer involved in the active management of
the Maryland Cable systems, MCOC has entered into an agreement with Maryland
Cable to oversee the activities, if any, of Maryland Cable through the
liquidation of the partnership. Pursuant to such agreement, MCOC earns a nominal
monthly fee. During the year ended December 31, 1998, MCOC earned total
management fees of $555. Including the incentive management fees noted above,
during the years ended December 31, 1997 and 1996, MCOC earned total management
fees of $5,614 and $2,335, respectively.
(11) EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan for its employees whereby employees that
qualify for participation under the plan can contribute up to 15% of their
salary, on a before tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service. The Company matches participant
contributions up to a maximum of 2% of a participant's salary. For
F-53
<PAGE> 283
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the years ended December 31, 1998, 1997 and 1996, the Company made contributions
to the plan of $765, $761 and $480, respectively.
(12) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Lease and rental costs charged to expense for the years ended
December 31, 1998, 1997 and 1996 were $3,394, $3,230, and $2,767, respectively.
The Company also rents utility poles in its operations. Generally, pole rentals
are cancelable on short notice, but the Company anticipates that such rentals
will recur. Rent expense for pole attachments for the years ended December 31,
1998, 1997 and 1996 were $4,081, $4,314, and $4,008, respectively.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act" and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. Legislation
and regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. As of December 23,
1998, the amount returned by the Company has been insignificant. The Company may
be required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company is unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
F-54
<PAGE> 284
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation.
LITIGATION
In Alabama, Indiana, Texas and Wisconsin, customers have filed punitive
class action lawsuits on behalf of all person residing in those respective
states who are or were potential customers of the Company's cable television
service, and who have been charged a processing fee for delinquent payment of
their cable bill. The actions challenge the legality of the processing fee and
seek declaratory judgment, injunctive relief and unspecified damages. In Alabama
and Wisconsin, the Company has entered into joint speculation and case
management orders with attorneys for plaintiffs. A Motion to Dismiss is pending
in Indiana. The Company intends to vigorously defend the actions. At this stage
of the actions, the Company is not able to project the expenses of defending the
actions or the potential outcome of the actions, including the impact on the
consolidated financial position or results of operations.
The Company is also party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
(13) SUBSEQUENT EVENT (UNAUDITED)
In March 1999, concurrent with the issuance of Senior Notes and Senior
Discount Notes, the combined company (Charter and the Company, see note 1)
extinguished all long-term debt, excluding borrowings of Charter and the Company
under their respective credit agreements, and refinanced all existing credit
agreements at various subsidiaries of the Company and Charter with a new credit
agreement entered into by a wholly owned subsidiary of the combined company.
F-55
<PAGE> 285
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCA Group:
We have audited the accompanying combined balance sheet of CCA Holdings
Corp., CCT Holdings Corp. and Charter Communications Long Beach, Inc.
(collectively CCA Group) and subsidiaries as of December 31, 1997, and the
related combined statements of operations, shareholders' deficit and cash flows
for the period from January 1, 1998, through December 23, 1998, and for the
years ended December 31, 1997 and 1996. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of CCA Group and
subsidiaries as of December 31, 1997, and the combined results of their
operations and their cash flows for the period from January 1, 1998, through
December 23, 1998, and for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 5, 1999
F-56
<PAGE> 286
CCA GROUP
COMBINED BALANCE SHEET -- DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,501
Accounts receivable, net of allowance for doubtful
accounts of $926....................................... 9,407
Prepaid expenses and other................................ 1,988
Deferred income tax asset................................. 5,915
----------
Total current assets.............................. 21,811
----------
RECEIVABLE FROM RELATED PARTY, including accrued interest... 13,090
----------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment............................. 352,860
Franchises, net of accumulated amortization of $132,871... 806,451
----------
1,159,311
----------
OTHER ASSETS................................................ 13,731
----------
$1,207,943
==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 25,625
Accounts payable and accrued expenses..................... 48,554
Payables to manager of cable television systems -- related
party.................................................. 1,975
----------
Total current liabilities......................... 76,154
----------
DEFERRED REVENUE............................................ 1,882
----------
DEFERRED INCOME TAXES....................................... 117,278
----------
LONG-TERM DEBT, less current maturities..................... 758,795
----------
DEFERRED MANAGEMENT FEES.................................... 4,291
----------
NOTES PAYABLE, including accrued interest................... 348,202
----------
SHAREHOLDERS' DEFICIT:
Common stock.............................................. 1
Additional paid-in capital................................ 128,499
Accumulated deficit....................................... (227,159)
----------
Total shareholders' deficit....................... (98,659)
----------
$1,207,943
==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-57
<PAGE> 287
CCA GROUP
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1998, THROUGH DECEMBER 31
DECEMBER 23, ---------------------
1998 1997 1996
------------- ---- ----
<S> <C> <C> <C>
REVENUES............................................. $ 324,432 $ 289,697 $233,392
--------- --------- --------
EXPENSES:
Operating costs.................................... 135,705 122,917 102,977
General and administrative......................... 28,440 26,400 18,687
Depreciation and amortization...................... 136,689 116,080 96,547
Management fees -- related parties................. 17,392 11,414 8,634
--------- --------- --------
318,226 276,811 226,845
--------- --------- --------
Income from operations.......................... 6,206 12,886 6,547
--------- --------- --------
OTHER INCOME (EXPENSE):
Interest income.................................... 4,962 2,043 1,883
Interest expense................................... (113,824) (108,122) (88,999)
Other, net......................................... (294) 171 (2,504)
--------- --------- --------
(109,156) (105,908) (89,620)
--------- --------- --------
Net loss........................................ $(102,950) $ (93,022) $(83,073)
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-58
<PAGE> 288
CCA GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................. $ 1 $ 99,999 $ (51,064) $ 48,936
Net loss................................... -- -- (83,073) (83,073)
--- -------- --------- ---------
BALANCE, December 31, 1996................. 1 99,999 (134,137) (34,137)
Capital contributions.................... -- 28,500 -- 28,500
Net loss................................. -- -- (93,022) (93,022)
--- -------- --------- ---------
BALANCE, December 31, 1997................. 1 128,499 (227,159) (98,659)
Capital contributions.................... -- 5,684 -- 5,684
Net loss................................. -- -- (102,950) (102,950)
--- -------- --------- ---------
BALANCE, December 23, 1998................. $ 1 $134,183 $(330,109) $(195,925)
=== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-59
<PAGE> 289
CCA GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1998, THROUGH DECEMBER 31
DECEMBER 23, ---------------------
1998 1997 1996
------------- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(102,950) $(93,022) $ (83,073)
Adjustments to reconcile net loss to net cash
provided by operating activities --
Depreciation and amortization................... 136,689 116,080 96,547
Amortization of debt issuance costs and non cash
interest cost................................. 44,701 49,107 39,927
(Gain) loss on sale of property, plant and
equipment..................................... 511 (156) 1,257
Changes in assets and liabilities, net of
effects from acquisitions --
Accounts receivable, net...................... 4,779 222 (1,393)
Prepaid expenses and other.................... 243 (175) 216
Accounts payable and accrued expenses......... 3,849 8,797 3,855
Payables to manager of cable television
systems, including deferred management
fees....................................... 3,485 784 448
Deferred revenue.............................. 1,336 559 (236)
Other operating activities.................... 5,583 (3,207) 1,372
--------- -------- ---------
Net cash provided by operating activities..... 98,226 78,989 58,920
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......... (95,060) (82,551) (56,073)
Payments for acquisitions, net of cash acquired.... -- (147,187) (122,017)
Other investing activities......................... (2,898) (1,296) 54
--------- -------- ---------
Net cash used in investing activities........... (97,958) (231,034) (178,036)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt....................... 300,400 162,000 127,000
Repayments of long-term debt....................... (64,120) (39,580) (13,100)
Payments of debt issuance costs.................... (8,442) (3,360) (3,126)
Repayments under notes payable..................... (230,994) -- --
Capital contributions.............................. -- 28,500 --
--------- -------- ---------
Net cash provided by (used in) financing
activities.................................... (3,156) 147,560 110,774
--------- -------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS............ (2,888) (4,485) (8,342)
CASH AND CASH EQUIVALENTS, beginning of period....... 4,501 8,986 17,328
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period............. $ 1,613 $ 4,501 $ 8,986
========= ======== =========
CASH PAID FOR INTEREST............................... $ 179,781 $ 49,687 $ 51,434
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-60
<PAGE> 290
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
CCA Group consists of CCA Holdings Corp. (CCA Holdings), CCT Holdings Corp.
(CCT Holdings) and Charter Communications Long Beach, Inc. (CC-LB), all Delaware
corporations (collectively referred to as "CCA Group" or the "Company") and
their subsidiaries. The combined financial statements of each of these companies
have been combined by virtue of their common ownership and management. All
material intercompany transactions and balances have been eliminated.
CCA Holdings commenced operations in January 1995 in connection with
consummation of the Crown Transaction (as defined below). The accompanying
financial statements include the accounts of CCA Holdings; its wholly-owned
subsidiary, CCA Acquisition Corp. (CAC); CAC's wholly-owned subsidiary, Cencom
Cable Entertainment, Inc. (CCE); and Charter Communications Entertainment I,
L.P. (CCE-I), which is controlled by CAC through its general partnership
interest. Through December 23, 1998, CCA Holdings was approximately 85% owned by
Kelso Investment Associates V, L.P., an investment fund, together with an
affiliate (collectively referred to as "Kelso" herein) and certain other
individuals and approximately 15% by Charter Communications, Inc. (Charter),
manager of CCE-I's cable television systems.
CCT Holdings was formed on January 6, 1995. CCT Holdings commenced
operations in September 1995 in connection with consummation of the Gaylord
Transaction (as defined below). The accompanying financial statements include
the accounts of CCT Holdings and Charter Communications Entertainment II, L.P.
(CCE-II), which is controlled by CCT Holdings through its general partnership
interest. Through December 23, 1998, CCT Holdings was owned approximately 85% by
Kelso and certain other individuals and approximately 15% by Charter, manager of
CCE-II's cable television systems.
In January 1995, CAC completed the acquisition of certain cable television
systems from Crown Media, Inc. (Crown), a subsidiary of Hallmark Cards,
Incorporated (Hallmark) (the "Crown Transaction"). On September 29, 1995, CAC
and CCT Holdings entered into an Asset Exchange Agreement whereby CAC exchanged
a 1% undivided interest in all of its assets for a 1.22% undivided interest in
certain assets to be acquired by CCT Holdings from an affiliate of Gaylord
Entertainment Company, Inc. (Gaylord). Effective September 30, 1995, CCT
Holdings acquired certain cable television systems from Gaylord (the "Gaylord
Transaction"). Upon execution of the Asset Purchase Agreement, CAC and CCT
Holdings entered into a series of agreements to contribute the assets acquired
under the Crown Transaction to CCE-I and certain assets acquired in the Gaylord
acquisition to CCE-II. Collectively, CCA Holdings and CCT Holdings own 100% of
CCE-I and CCE-II.
CC-LB was acquired by Kelso and Charter in May 1997. The accompanying
financial statements include the accounts of CC-LB and its wholly owned
subsidiary, Long Beach Acquisition Corp. (LBAC) from the date of acquisition.
Through December 23, 1998, CC-LB was owned approximately 85% by Kelso and
certain other individuals and approximately 15% by Charter, manager of LBAC's
cable television systems.
Effective December 23, 1998, Paul G. Allen acquired 94% of Charter through
a series of transactions. In conjunction with Mr. Allen's acquisition, Charter
acquired 100% of the outstanding stock of CCA Holdings, CCT Holdings and CC-LB
on December 23, 1998.
F-61
<PAGE> 291
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, CCE-I provided cable television service to customers in
Connecticut, Illinois, Massachusetts, Missouri and New Hampshire, CCE-II
provided cable television service to customers in California and LBAC provided
cable television service to customers in Long Beach, California, and certain
surrounding areas.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1997,
cash equivalents consist primarily of repurchase agreements. These investments
are carried at cost that approximates market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable television
transmission and distribution facilities, and the cost of new customer
installation. The costs of disconnecting a residence are charged to expense in
the period incurred. Expenditures for repairs and maintenance are charged to
expense as incurred, and equipment replacement costs and betterments are
capitalized.
Depreciation is provided on the straight-line basis over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
Cable distribution systems.................................. 3-15 years
Buildings and leasehold improvements........................ 5-15 years
Vehicles and equipment...................................... 3-5 years
</TABLE>
In 1997, the Company shortened the estimated useful lives of certain property,
plant and equipment for depreciation purposes. As a result, additional
depreciation of $8,123 was recorded during 1997.
FRANCHISES
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized over the lives of the franchises. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. Franchise rights
acquired through the purchase of cable television systems represent management's
estimate of fair value and are amortized using the straight-line method over 15
years.
OTHER ASSETS
Debt issuance costs are amortized to interest expense over the term of the
related debt. The interest rate cap costs are being amortized over the terms of
the agreement, which approximates three years.
INCOME TAXES
Income taxes are recorded in accordance with SFAS No. 109, "Accounting for
Income Taxes."
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
F-62
<PAGE> 292
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
2. ACQUISITIONS:
In 1997, CC-LB acquired the stock of LBAC for an aggregate purchase price,
net of cash acquired, of $147,200. In connection with the completion of this
acquisition, LBAC recorded $55,900 of deferred income tax liabilities resulting
from differences between the financial reporting and tax basis of certain assets
acquired. The excess of the cost of properties acquired over the amounts
assigned to net tangible assets at the date of acquisition was $190,200 and is
included in franchises.
In 1996, the Company acquired cable television systems in three separate
transactions for an aggregate purchase price, net of cash acquired, of $122,000.
The excess of the cost of properties acquired over the amounts assigned to net
tangible assets at the dates of acquisition was $100,200 and is included in
franchises.
The above acquisitions were accounted for using the purchase method of
accounting, and accordingly, results of operations of the acquired assets have
been included in the financial statements from the dates of the acquisitions.
Unaudited pro forma operating results for the 1997 acquisitions as though
the acquisitions had been made on January 1, 1997, with pro forma adjustments to
give effect to amortization of franchises, interest expense and certain other
adjustments as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
(UNAUDITED)
-------------
<S> <C>
Revenues.................................................... $303,797
Income from operations...................................... 14,108
Net loss.................................................... (94,853)
</TABLE>
The unaudited pro forma information has been presented for comparative
purposes and does not purport to be indicative of the results of operations had
these transactions been completed as of the assumed date or which may be
obtained in the future.
3. RECEIVABLE FROM RELATED PARTY:
In connection with the transfer of certain assets acquired in the Gaylord
Transaction to Charter Communications Properties, Inc. (CCP), Charter
Communications Properties Holding Corp. (CCP Holdings), the parent of CCP and a
wholly owned subsidiary of Charter, entered into a $9,447 promissory note with
CCT Holdings. The promissory note bears interest at the rates paid by CCT
Holdings on the Gaylord Seller Note. Principal and interest are due on September
29, 2005. Interest income has been accrued based on an average rate of interest
over the life of the Gaylord Seller Note, which approximates 15.4% and totaled
$1,899 for the period from January 1, 1998, through December 23, 1998, and
$1,806 and $1,547 for the years ended December 31, 1997 and 1996, respectively.
As of December 31, 1997, interest receivable totaled $3,643.
F-63
<PAGE> 293
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31,
1997:
<TABLE>
<S> <C>
Cable distribution systems.................................. $ 426,241
Land, buildings and leasehold improvements.................. 15,443
Vehicles and equipment...................................... 24,375
---------
466,059
Less -- Accumulated depreciation............................ (113,199)
---------
$ 352,860
=========
</TABLE>
Depreciation expense for the period from January 1, 1998, through December
23, 1998, and for the years ended December 31, 1997 and 1996, was $72,914,
$59,599 and $39,575, respectively.
5. OTHER ASSETS:
Other assets consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Debt issuance costs......................................... $13,416
Note receivable............................................. 2,100
Other....................................................... 1,342
-------
16,858
Less -- Accumulated amortization............................ (3,127)
-------
$13,731
=======
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December
31, 1997:
<TABLE>
<S> <C>
Accrued interest............................................ $ 8,389
Franchise fees.............................................. 6,434
Programming expenses........................................ 5,855
Accounts payable............................................ 4,734
Public education and governmental costs..................... 4,059
Salaries and related benefits............................... 3,977
Capital expenditures........................................ 3,629
Other....................................................... 11,477
-------
$48,554
=======
</TABLE>
F-64
<PAGE> 294
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
CCE-I:
Term loans.................................................. $274,120
Fund loans................................................ 85,000
Revolving credit facility................................. 103,800
--------
462,920
--------
CCE-II:
Term loans................................................ 105,000
Revolving credit facility................................. 123,500
--------
228,500
--------
LBAC:
Term loans................................................ 85,000
Revolving credit facility................................. 8,000
--------
93,000
--------
Total debt........................................ 784,420
Less -- Current maturities.................................. (25,625)
--------
Total long-term debt.............................. $758,795
========
</TABLE>
CCE-I CREDIT AGREEMENT
CCE-I maintains a credit agreement (the "CCE-I Credit Agreement"), which
provides for a $280,000 term loan that matures on September 30, 2006, an $85,000
fund loan that matures on March 31, 2007, and a $175,000 revolving credit
facility with a maturity date of September 30, 2006. Amounts under the CCE-I
Credit Agreement bear interest at either the LIBOR Rate or Base Rate, as
defined, plus a margin of up to 2.75%. The variable interest rate ranged from
6.88% to 8.06% at December 23, 1998, and from 7.63% to 8.50% and 7.63% to 8.38%
at December 31, 1997 and 1996, respectively.
Commencing June 30, 2002, and at the end of each calendar quarter
thereafter, available borrowings under the revolving credit facility and the
term loan shall be reduced on an annual basis by 12.0% in 2002 and 15.0% in
2003. Commencing June 30, 2002, and at the end of each calendar quarter
thereafter, the available borrowings for the fund loan shall be reduced on an
annual basis by 0.75% in 2002 and 1.0% in 2003. A quarterly commitment fee of
between 0.375% and 0.5% per annum is payable on the unborrowed balance of the
revolving credit facility.
COMBINED CREDIT AGREEMENT
CCE-II and LBAC maintain a credit agreement (the "Combined Credit
Agreement") which provides for two term loan facilities, one with the principal
amount of $100,000 that matures on March 31, 2005, and the other with the
principal amount of $90,000 that matures on March 31, 2006. The Combined Credit
Agreement also provides for a $185,000 revolving credit facility, with a
maturity date of March 31, 2005. Amounts under the Combined Credit Agreement
bear interest at either the LIBOR Rate or Base Rate, as defined, plus a margin
of up to 2.5%. The variable interest rate ranged from 6.56% to 7.59% at December
23, 1998, and from 7.50% to 8.38% at December 31, 1997, respectively.
F-65
<PAGE> 295
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Commencing March 31, 2001, and at the end of each quarter thereafter,
available borrowings under the revolving credit facility and one term loan shall
be reduced on an annual basis by 5.0% in 2001, 15.0% in 2002 and 18.0% in 2003.
Commencing in December 31, 1999, and at the end of each quarter thereafter,
available borrowings under the other term loan shall be reduced on annual basis
by 0.5% in 1999, 0.8% in 2000, 1.0% in 2001, 1.0% in 2002 and 1.0% in 2003. A
quarterly commitment fee of between 0.25% and 0.375% per annum, based upon the
intercompany indebtedness of the Company, is payable on the unborrowed balance
of the revolving credit facility.
CCE CREDIT AGREEMENT
In October 1998, Charter Communications Entertainment, L.P. (CCE L.P.), a
98% direct and indirect owner of CCE-I and CCE-II and indirectly owned
subsidiary of the Company, entered into a credit agreement (the "CCE L.P. Credit
Agreement") which provides for a term loan facility with the principal amount of
$130,000 that matures on September 30, 2007. Amounts under the CCE L.P. Credit
Agreement bear interest at the LIBOR Rate or Base Rate, as defined, plus a
margin of up to 3.25%. The variable interest rate at December 23, 1998, was
8.62%.
Commencing June 30, 2002, and the end of each calendar quarter thereafter,
the available borrowings for the term loan shall be reduced on an annual basis
by 0.75% in 2002 and 1.0% in 2003.
CCE-II HOLDINGS CREDIT AGREEMENT
CCE-II Holdings, LLC (CCE-II Holdings), a wholly owned subsidiary of CCE
L.P. and the parent of CCE-II, entered into a credit agreement (the "CCE-II
Holdings Credit Agreement") in November 1998, which provides for a term loan
facility with the principal amount of $95,000 that matures on September 30,
2006. Amounts under the CCE-II Holdings Credit Agreement bear interest at either
the LIBOR Rate or Base Rate, as defined, plus a margin of up to 3.25%. The
variable rate at December 23, 1998, was 8.56%.
Commencing June 30, 2002, and at the end of each quarter thereafter,
available borrowings under the revolving credit facility and one term loan shall
be reduced on an annual basis by 0.5% in 2002 and 1.0% in 2003.
The credit agreements require the Company to comply with various financial
and nonfinancial covenants, including the maintenance of annualized operating
cash flow to fixed charge ratio, as defined, not to exceed 1.0 to 1.0. These
debt instruments also contain substantial limitations on, or prohibitions of,
distributions, additional indebtedness, liens asset sales and certain other
items.
8. NOTES PAYABLE:
Notes payable consists of the following at December 31, 1997:
<TABLE>
<S> <C>
HC Crown Note............................................... $ 82,000
Accrued interest on HC Crown Note........................... 36,919
Gaylord Seller Note......................................... 165,688
Accrued interest on Gaylord Seller Note..................... 63,595
--------
Total............................................. $348,202
========
</TABLE>
In connection with the Crown Transaction, the Company entered into an
$82,000 senior subordinated loan agreement with a subsidiary of Hallmark, HC
Crown Corp., and pursuant to
F-66
<PAGE> 296
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such loan agreement issued a senior subordinated note (the "HC Crown Note"). The
HC Crown Note was an unsecured obligation. The HC Crown Note was limited in
aggregate principal amount to $82,000 and has a stated maturity date of December
31, 1999 (the "Stated Maturity Date"). Interest has been accrued at 13% per
annum, compounded semiannually, payable upon maturity. In October 1998, the
Crown Note and accrued interest was paid in full.
In connection with the Gaylord Transaction, CCT Holdings entered into a
$165,700 subordinated loan agreement with Gaylord (the "Gaylord Seller Note").
Interest expense has been accrued based on an average rate of interest over the
life of the Gaylord Seller Note, which approximated 15.4%.
In connection with the Gaylord Transaction, CCT Holdings, CCE L.P. and
Gaylord entered into a contingent payment agreement (the "Contingent
Agreement"). The Contingent Agreement indicates CCE L.P. will pay Gaylord 15% of
any amount distributed to CCT Holdings in excess of the total of the Gaylord
Seller Note, Crown Seller Note and $450,000. In conjunction with the Paul G.
Allen acquisition of Charter and the Company, Gaylord was paid an additional
$132,000 pursuant to the Contingent Agreement and the Gaylord Seller Note was
paid in full.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
A summary of debt and the related interest rate hedge agreements at
December 31, 1997, is as follows:
<TABLE>
<CAPTION>
1997
--------------------------------
CARRYING NOTIONAL FAIR
VALUE AMOUNT VALUE
-------- -------- -----
<S> <C> <C> <C>
DEBT
Debt under credit agreements............................ $784,420 $ -- $784,420
HC Crown Note (including accrued interest).............. 118,919 -- 118,587
Gaylord Seller Note (including accrued interest)........ 229,283 -- 214,074
INTEREST RATE HEDGE AGREEMENTS
Swaps................................................... -- 405,000 (1,214)
Caps.................................................... -- 120,000 --
Collars................................................. -- 190,000 (437)
</TABLE>
As the long-term debt under the credit agreements bear interest at current
market rates, their carrying amount approximates fair market value at December
31, 1997. Fair value of the HC Crown Note is based upon trading activity at
December 31, 1997. Fair value of the Gaylord Seller Note is based on current
redemption value.
The weighted average interest pay rate for the Company's interest rate swap
agreements was 7.82% at December 31, 1997. The weighted average interest rate
for the Company's interest rate cap agreements was 8.49% at December 31, 1997.
The weighted average interest rates for the Company's interest rate collar
agreements were 9.04% and 7.57% for the cap and floor components, respectively,
at December 31, 1997.
The notional amounts of interest rate hedge agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the Company's
exposure through its use of interest rate hedge agreements. The amounts
exchanged are determined by reference to the notional amount and the other terms
of the contracts.
F-67
<PAGE> 297
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of interest rate hedge agreements generally reflects the
estimated amounts that the Company would receive or pay (excluding accrued
interest) to terminate the contracts on the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer
quotations are available for the Company's interest rate hedge agreements.
Management believes that the sellers of the interest rate hedge agreements
will be able to meet their obligations under the agreements. In addition, some
of the interest rate hedge agreements are with certain of the participating
banks under the Company's Senior Credit Facility thereby reducing the exposure
to credit loss. The Company has policies regarding the financial stability and
credit standing of major counterparties. Nonperformance by the counterparties is
not anticipated nor would it have a material adverse effect on the results of
operations or the financial position of the Company.
10. COMMON STOCK:
The Company's common stock consist of the following at December 31, 1997:
<TABLE>
<S> <C>
CCA Holdings:
Common stock -- Class A, voting, $.01 par value, 100,000
shares authorized; 75,515 shares issued and outstanding..... $ 1
Common stock -- Class B, voting, $.01 par value, 20,000
shares authorized; 4,300 shares issued and
outstanding............................................ --
Common stock -- Class C, nonvoting, $.01 par value, 5,000
shares authorized; 185 shares issued and outstanding... --
---
1
---
CCT Holdings:
Common stock -- Class A, voting, $.01 par value, 20,000
shares authorized; 16,726 shares issued and
outstanding............................................ --
Common stock -- Class B, voting, $.01 par value, 4,000
shares authorized; 3,000 shares issued and
outstanding............................................ --
Common stock -- Class C, nonvoting, $.01 par value, 1,000
shares authorized; 275 shares issued and outstanding... --
---
CC-LB:
Common stock -- Class A, voting, $.01 par value, 31,000
shares authorized, 27,850 shares issued and
outstanding............................................ --
Common stock -- Class B, voting, $.01 par value, 2,000
shares authorized, 1,500 shares issued and
outstanding............................................ --
Common stock -- Class C, nonvoting, $.01 par value, 2,000
shares authorized, 650 shares issued and outstanding... --
---
Total common stock................................ $ 1
===
</TABLE>
CCA HOLDINGS
The Class A Voting Common Stock (CCA Class A Common Stock) and Class C
Nonvoting Common Stock (CCA Class C Common Stock) have certain preferential
rights upon liquidation of CCA Holdings. In the event of liquidation,
dissolution or "winding up" of CCA Holdings, holders of CCA Class A and Class C
Common Stock are entitled to a preference of $1,000 per share. After such amount
is paid, holders of Class B Voting Common Stock (CCA Class B Common Stock) are
entitled to receive $1,000 per share. Thereafter, Class A and Class C
shareholders shall ratably receive the remaining proceeds.
F-68
<PAGE> 298
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
If upon liquidation, dissolution or "winding up" the assets of CCA Holdings
are insufficient to permit payment to Class A and Class C shareholders for their
full preferential amounts, all assets of CCA Holdings shall then be distributed
ratably to Class A and Class C shareholders. Furthermore, if the proceeds from
liquidation are inadequate to pay Class B shareholders their full preferential
amounts, the proceeds are to be distributed on a pro rata basis to Class B
shareholders.
Upon the occurrence of any Conversion Event (as defined within the Amended
and Restated Certificate of Incorporation) Class C shareholders may convert any
or all of their outstanding shares into the same number of Class A shares.
Furthermore, CCA Holdings may automatically convert outstanding Class C shares
into the same number of Class A shares.
CCA Holdings is restricted from making cash dividends on its common stock
until the balance outstanding under the HC Crown Note is repaid.
Charter and Kelso entered into a Stockholders' Agreement providing for
certain restrictions on the transfer, sale or purchase of CCA Holdings' common
stock.
CCT HOLDINGS
The Class A Voting Common Stock (CCT Class A Common Stock) and Class C
Nonvoting Common Stock (CCT Class C Common Stock) have certain preferential
rights upon liquidation of CCT Holdings. In the event of liquidation,
dissolution or "winding up" of CCT Holdings, holders of CCT Class A Common Stock
and Class C Common Stock are entitled to a preference of $1,000 per share. After
such amount is paid, holders of Class B Voting Common Stock (CCT Class B Common
Stock) are entitled to receive $1,000 per share. Thereafter, Class A and Class C
shareholders shall ratably receive the remaining proceeds.
If upon liquidation, dissolution or "winding up" the assets of CCT Holdings
are insufficient to permit payment to Class A Common Stock and Class C
shareholders for their full preferential amount, all assets of the Company shall
then be distributed ratably to Class A and Class C shareholders. Furthermore, if
the proceeds from liquidation are inadequate to pay Class B shareholders their
full preferential amount, the proceeds are to be distributed on a pro rata basis
to Class B shareholders.
Upon the occurrence of any Conversion Event (as defined within the Amended
and Restated Certificate of Incorporation), Class C shareholders may convert any
or all of their outstanding shares into the same number of Class A shares.
Furthermore, CCT Holdings may automatically convert outstanding Class C shares
into the same number of Class A shares.
CCT Holdings is restricted from making cash dividends on its common stock
until the balance outstanding under the note payable to seller is repaid.
Charter and Kelso entered into a Stockholders' Agreement providing for
certain restrictions on the transfer, sale or purchase of CCT Holdings' common
stock.
CC-LB
The Class A Voting Common Stock (CC-LB Class A Common Stock) and Class C
Nonvoting Common Stock (CC-LB Class C Common Stock) have certain preferential
rights upon liquidation of CC-LB. In the event of liquidation, dissolution or
"winding up" of CC-LB, holders of CC-LB Class A Common Stock and Class C Common
Stock are entitled to a preference of $1,000 per share. After such amount is
paid, holders of Class B Voting Common Stock (CC-LB
F-69
<PAGE> 299
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Class B Common Stock) are entitled to receive $1,000 per share. Thereafter,
Class A, Class B and Class C shareholders shall ratably receive the remaining
proceeds.
If upon liquidation, dissolution or "winding up" the assets of CC-LB are
insufficient to permit payment to Class A and Class C shareholders for their
full preferential amount, all assets of the Company shall then be distributed
ratably to Class A and Class C shareholders. Furthermore, if the proceeds from
liquidation are inadequate to pay Class B shareholders their full preferential
amount, the proceeds are to be distributed on a pro rata basis to Class B
shareholders.
CC-LB Class C Common Stock may be converted into CC-LB Class A Common Stock
upon the transfer of CC-LB Class C Common Stock to a person not affiliated with
the seller. Furthermore, CC-LB may automatically convert outstanding Class C
shares into the same number of Class A shares.
11. RELATED PARTY TRANSACTIONS:
Charter provides management services to the Company under the terms of a
contract which provides for annual base fees equal to $9,277 and $9,485 for the
period from January 1, 1998, through December 23, 1998, and for the year ended
December 31, 1997, respectively, plus an additional fee equal to 30% of the
excess, if any, of operating cash flow (as defined in the management agreement)
over the projected operating cash flow. Payment of the additional fee is
deferred due to restrictions provided within the Company's credit agreements.
Deferred management fees bear interest at 8.0% per annum. The additional fees
for the periods from January 1, 1998, through December 23, 1998, and the years
ended December 31, 1997 and 1996, totaled $2,160, $1,990 and $1,255,
respectively. In addition, the Company receives financial advisory services from
an affiliate of Kelso, under terms of a contract which provides for fees equal
to $1,064 and $1,113 per annum as of January 1, 1998, through December 23, 1998,
and December 31, 1997, respectively. Management and financial advisory service
fees currently payable of $2,281 are included in payables to manager of cable
television systems -- related party at December 31, 1997.
The Company pays certain acquisition advisory fees to an affiliate of Kelso
and Charter, which typically equal approximately 1% of the total purchase price
paid for cable television systems acquired. Total acquisition fees paid to the
affiliate of Kelso for the period from January 1, 1998, through December 23,
1998, were $-0-. Total acquisition fees paid to the affiliate of Kelso in 1997
and 1996 were $-0- and $1,400, respectively. Total acquisition fees paid to
Charter for the period from January 1, 1998, through December 23, 1998, were
$-0-. Total acquisition fees paid to Charter in 1997 and 1996 were $-0- and
$1,400, respectively.
The Company and all entities managed by Charter collectively utilize a
combination of insurance coverage and self-insurance programs for medical,
dental and workers' compensation claims. Medical coverage provides for $2,435
aggregate stop loss protection and a loss limitation of $100 per person per
year. Workers' compensation coverage provides for $800 aggregate stop loss
protection and a loss limitation of $150 per person per year. Charges are
determined by independent actuaries at the present value of the actuarially
computed present and future liabilities for such benefits. The Company is
allocated its share of the charges monthly based upon its total number of
employees, historical claims and medical cost trend rates. Management considers
this allocation to be reasonable for the operations of the Company. For the
period from January 1, 1998, through December 23, 1998, the Company expensed
$1,950 relating to insurance allocations. During 1997 and 1996, the Company
expensed $1,689 and $2,065, respectively, relating to insurance allocations.
F-70
<PAGE> 300
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Beginning in 1996, the Company and other entities managed by Charter
employed the services of Charter's National Data Center (the "National Data
Center"). The National Data Center performs certain customer billing services
and provides computer network, hardware and software support to the Company and
other affiliated entities. The cost of these services is allocated based on the
number of customers. Management considers this allocation to be reasonable for
the operations of the Company. For the period from January 1, 1998, through
December 23, 1998, the Company expensed $843 relating to these services. During
1997 and 1996, the Company expensed $723 and $466 relating to these services,
respectively.
CCE-I maintains a regional office. The regional office performs certain
operational services on behalf of CCE-I and other affiliated entities. The cost
of these services is allocated to CCE-I and affiliated entities based on their
number of customers. Management considers this allocation to be reasonable for
the operations of CCE-I. From the period January 1, 1998, through December 23,
1998, the Company expensed $1,926 relating to these services. During 1997 and
1996, CCE-I expensed $861 and $799, respectively, relating to these services.
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Lease and rental costs charged to expense for the period from
January 1, 1998, through December 23, 1998, was $2,222. Rent expense incurred
under these leases during 1997 and 1996 was $1,956 and $1,704, respectively.
The Company also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Company anticipates that such
rentals will recur. Rent expensed incurred for pole attachments for the period
from January 1, 1998, through December 23, 1998, was $2,430. Rent expense
incurred for pole attachments during 1997 and 1996 was $2,601 and $2,330,
respectively.
LITIGATION
The Company is a party to lawsuits that arose in the ordinary course of
conducting its business. In the opinion of management, after consulting with
legal counsel, the outcome of these lawsuits will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
13. REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act" and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. Legislation
and regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in
F-71
<PAGE> 301
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
additional regulatory oversight by the FCC and local or state franchise
authorities. The Cable Acts and the corresponding FCC regulations have
established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. As of December 23,
1998, the amount refunded by the Company has been insignificant. The Company may
be required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company is unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation. The Company is subject to state regulation in
Connecticut.
14. INCOME TAXES:
Deferred tax assets and liabilities are recognized for the estimated future
tax consequence attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using the enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled. Deferred income tax expense or benefit is
the result of changes in the liability or asset recorded for deferred taxes. A
valuation allowance must be established for any portion of a deferred tax asset
for which it is more likely than not that a tax benefit will not be realized.
For the period from January 1, 1998, through December 23, 1998, and the
years ended December 31, 1997 and 1996, no current provision (benefit) for
income taxes was recorded. The effective income tax rate is less than the
federal rate of 35% primarily due to providing a valuation allowance on deferred
income tax assets.
F-72
<PAGE> 302
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes are comprised of the following at December 31, 1997:
<TABLE>
<S> <C>
Deferred income tax assets:
Accounts receivable......................................... $ 252
Other assets.............................................. 7,607
Accrued expenses.......................................... 4,740
Deferred revenue.......................................... 624
Deferred management fees.................................. 1,654
Tax loss carryforwards.................................... 80,681
Tax credit carryforward................................... 1,360
Valuation allowance....................................... (40,795)
---------
Total deferred income tax assets.................. 56,123
---------
Deferred income tax liabilities:
Property, plant and equipment............................. (38,555)
Franchise costs........................................... (117,524)
Other..................................................... (11,407)
---------
Total deferred income tax liabilities............. (167,486)
---------
Net deferred income tax liability................. $(111,363)
=========
</TABLE>
At December 31, 1997, the Company had net operating loss (NOL)
carryforwards for regular income tax purposes aggregating $204,400, which expire
in various years from 1999 through 2012. Utilization of the NOLs carryforwards
is subject to certain limitations.
15. EMPLOYEE BENEFIT PLANS:
The Company's employees may participate in the Charter Communications, Inc.
401(k) Plan (the "401(k) Plan"). Employees that qualify for participation can
contribute up to 15% of their salary, on a before tax basis, subject to a
maximum contribution limit as determined by the Internal Revenue Service. The
Company contributes an amount equal to 50% of the first 5% of contributions by
each employee. For the period from January 1, 1998, through December 23, 1998,
the Company contributed $585 to the 401(k) plan. During 1997 and 1996, the
Company contributed approximately $499 and $435 to the 401(k) Plan,
respectively.
Certain employees of the Company are participants in the 1996 Charter
Communications/ Kelso Group Appreciation Rights Plan (the "Plan"). The Plan
covers certain key employees and consultants within the group of companies and
partnerships controlled by affiliates of Kelso and managed by Charter. The Plan
permits the granting of up to 1,000,000 units, of which 705,000 were outstanding
at December 31, 1997. Unless otherwise provided in a particular instance, units
vest at a rate of 20% per annum. The Plan entitles participants to receive
payment of the appreciated unit value for vested units, upon the occurrence of
certain events specified in the Plan (i.e. change in control, employee
termination) The units do not represent a right to an equity interest to any
entities within the CCA Group. Compensation expense is based on the appreciated
unit value and is amortized over the vesting period.
As a result of the acquisition of Charter and the Company, the Plan was
terminated, all outstanding units became 100% vested and all amounts were paid
by Charter in 1999. For the period from January 1, 1998, through December 23,
1998, the Company recorded $5,684 of expense, included in management fees, and a
contribution from Charter related to the Appreciation Rights Plan.
F-73
<PAGE> 303
CCA GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
16. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Company has
not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings
(loss).
17. SUBSEQUENT EVENT:
Subsequent to December 23, 1998, CCA Holdings, CCT Holdings and CC-LB
converted to limited liability companies and are now known as CCA Holdings LLC,
CCT Holdings LLC and Charter Communications Long Beach, LLC, respectively.
F-74
<PAGE> 304
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CharterComm Holdings, L.P.:
We have audited the accompanying consolidated balance sheet of CharterComm
Holdings, L.P. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, partners' capital and cash flows for the
period from January 1, 1998, through December 23, 1998, and for the years ended
December 31, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CharterComm Holdings, L.P.
and subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the period from January 1, 1998, through December 23,
1998, and for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 5, 1999
F-75
<PAGE> 305
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,742
Accounts receivable, net of allowance for doubtful
accounts of $330....................................... 3,158
Prepaid expenses and other................................ 342
--------
Total current assets.............................. 6,242
--------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment............................. 235,808
Franchises, net of accumulated amortization of $119,968... 480,201
--------
716,009
--------
OTHER ASSETS................................................ 16,176
--------
$738,427
========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 5,375
Accounts payable and accrued expenses..................... 30,507
Payables to manager of cable television systems -- related
party.................................................. 1,120
--------
Total current liabilities......................... 37,002
--------
DEFERRED REVENUE............................................ 1,719
--------
LONG-TERM DEBT, less current maturities..................... 666,662
--------
DEFERRED MANAGEMENT FEES.................................... 7,805
--------
DEFERRED INCOME TAXES....................................... 5,111
--------
REDEEMABLE PREFERRED LIMITED UNITS -- 577.81 units,
issued and outstanding.................................... 20,128
--------
PARTNERS' CAPITAL:
General Partner........................................... --
Common Limited Partners -- 220.24 units issued and
outstanding............................................ --
--------
Total partners' capital........................... --
--------
$738,427
========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-76
<PAGE> 306
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998, YEAR ENDED
THROUGH DECEMBER 31
DECEMBER 23, --------------------
1998 1997 1996
------------ ---- ----
<S> <C> <C> <C>
REVENUES.............................................. $196,801 $175,591 $120,280
-------- -------- --------
OPERATING EXPENSES:
Operating costs..................................... 83,745 75,728 50,970
General and administrative.......................... 14,586 12,607 9,327
Depreciation and amortization....................... 86,741 76,535 53,133
Management fees -- related party.................... 14,780 8,779 6,014
-------- -------- --------
199,852 173,649 119,444
-------- -------- --------
Income (loss) from operations.................... (3,051) 1,942 836
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income..................................... 211 182 233
Interest expense.................................... (66,121) (61,498) (41,021)
Other, net.......................................... (1,895) 17 (468)
-------- -------- --------
(67,805) (61,299) (41,256)
-------- -------- --------
Loss before extraordinary item................... (70,856) (59,357) (40,420)
EXTRAORDINARY ITEM -- Loss on early retirement of
debt................................................ (6,264) -- --
-------- -------- --------
Net loss......................................... (77,120) (59,357) (40,420)
REDEMPTION PREFERENCE ALLOCATION:
Special Limited Partner units....................... -- -- (829)
Redeemable Preferred Limited units.................. -- -- (4,081)
NET LOSS ALLOCATED TO REDEEMABLE PREFERRED LIMITED
UNITS............................................... 20,128 2,553 4,063
-------- -------- --------
Net loss applicable to partners' capital
accounts....................................... $(56,992) $(56,804) $(41,267)
======== ======== ========
NET LOSS ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner..................................... $(56,992) $(21,708) $(38,391)
Common Limited Partners............................. -- (35,096) (2,876)
-------- -------- --------
$(56,992) $(56,804) $(41,267)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-77
<PAGE> 307
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -----
<S> <C> <C> <C>
BALANCE, December 31, 1995.............................. $ 29,396 $ 2,202 $ 31,598
Capital contributions................................. 30,703 2,300 33,003
Allocation of net loss................................ (38,391) (2,876) (41,267)
-------- -------- --------
BALANCE, December 31, 1996.............................. 21,708 1,626 23,334
Capital contributions................................. -- 33,470 33,470
Allocation of net loss................................ (21,708) (35,096) (56,804)
-------- -------- --------
BALANCE, December 31, 1997.............................. -- -- --
Capital contributions................................. 4,920 -- 4,920
Allocation of net loss................................ (56,992) -- (56,992)
-------- -------- --------
BALANCE, December 23, 1998.............................. $(52,072) $ -- $(52,072)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-78
<PAGE> 308
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998,
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 23, -----------------------
1998 1997 1996
------------ ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (77,120) $ (59,357) $ (40,420)
Adjustments to reconcile net loss to net cash provided
by operating activities --
Extraordinary item -- Loss on early retirement of
debt............................................. 6,264 -- --
Depreciation and amortization...................... 86,741 76,535 53,133
Amortization of debt issuance costs, debt discount
and interest rate cap agreements................. 14,563 14,212 9,564
Loss on disposal of property, plant and
equipment........................................ 1,714 203 367
Changes in assets and liabilities, net of effects
from acquisition --
Accounts receivable, net......................... 2,000 369 (303)
Prepaid expenses and other....................... (203) 943 245
Accounts payable and accrued expenses............ (1,970) 3,988 9,911
Payables to manager of cable television systems,
including deferred management fees............ 9,456 3,207 3,479
Deferred revenue................................. 770 (82) 452
Other operating activities....................... 5,378 -- --
--------- --------- ---------
Net cash provided by operating activities........ 47,593 40,018 36,428
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............ (85,044) (72,178) (48,324)
Payments for acquisitions, net of cash acquired....... (5,900) (159,563) (145,366)
Other investing activities............................ 5,280 1,577 (2,089)
--------- --------- ---------
Net cash used in investing activities.............. (85,664) (230,164) (195,779)
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.......................... 547,400 231,250 260,576
Repayments of long-term debt.......................... (505,300) (67,930) (34,401)
Partners' capital contributions....................... -- 29,800 --
Payment of debt issuance costs........................ (3,651) (3,593) (11,732)
Payment of Special Limited Partnership units.......... -- -- (43,243)
Repayments of note payable -- related party........... -- -- (15,000)
Payments for interest rate cap agreements............. -- -- (35)
--------- --------- ---------
Net cash provided by financing activities.......... 38,449 189,527 156,165
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 378 (619) (3,186)
CASH AND CASH EQUIVALENTS, beginning of period.......... 2,742 3,361 6,547
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period................ $ 3,120 $ 2,742 $ 3,361
========= ========= =========
CASH PAID FOR INTEREST.................................. $ 61,559 $ 42,538 $ 28,860
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-79
<PAGE> 309
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
CharterComm Holdings, L.P. (CharterComm Holdings) was formed in March 1996
with the contributions of Charter Communications Southeast Holdings, L.P.
(Southeast Holdings), Charter Communications, L.P. (CC-I) and Charter
Communications II, L.P. (CC-II). This contribution was accounted for as a
reorganization under common control and, accordingly, the consolidated financial
statements and notes have been restated to include the results and financial
position of Southeast Holdings, CC-I and CC-II.
Through December 23, 1998, CharterComm Holdings was owned 75.3% by
affiliates of Charterhouse Group International, Inc., a privately owned
investment firm (collectively referred to herein as "Charterhouse"), indirectly
owned 5.7% by Charter Communications, Inc. (Charter), manager of the
Partnership's (as defined below) cable television systems, and owned 19.0%
primarily by other institutional investors.
Effective December 23, 1998, Paul G. Allen acquired 94% of Charter through
a series of transactions. In conjunction with Mr. Allen's acquisition, Charter
acquired 100% of the outstanding partnership interests in CharterComm Holdings
on December 23, 1998.
The accompanying consolidated financial statements include the accounts of
CharterComm Holdings and its subsidiaries collectively referred to as the
"Partnership" herein. All significant intercompany balances and transactions
have been eliminated in consolidation.
In 1998, the Partnership through its subsidiaries provided cable television
service to customers in Alabama, Georgia, Kentucky, Louisiana, North Carolina,
South Carolina and Tennessee.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. At December 31, 1997,
cash equivalents consist primarily of repurchase agreements. These investments
are carried at cost that approximates market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable television
transmission and distribution facilities, and the cost of new customer
installation. The costs of disconnecting a customer are charged to expense in
the period incurred. Expenditures for repairs and maintenance are charged to
expense as incurred, and equipment replacement and betterments are capitalized.
Depreciation is provided on the straight-line basis over the estimated
useful lives of the related assets as follows:
<TABLE>
<S> <C>
Cable distribution systems.................................. 3-15 years
Buildings and leasehold improvements........................ 5-15 years
Vehicles and equipment...................................... 3-5 years
</TABLE>
F-80
<PAGE> 310
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, the Partnership shortened the estimated useful lives of certain
property, plant and equipment for depreciation purposes. As a result, an
additional $4,775 of depreciation was recorded during 1997.
FRANCHISES
Costs incurred in obtaining and renewing cable franchises are deferred and
amortized over the lives of the franchises. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. Franchise rights
acquired through the purchase of cable television systems represent management's
estimate of fair value and are generally amortized using the straight-line
method over a period of 15 years. In addition, approximately $100,000 of
franchise rights are being amortized over a period of 3 to 11 years.
OTHER ASSETS
Debt issuance costs are being amortized to interest expense over the term
of the related debt. The interest rate cap costs are being amortized over the
terms of the agreement, which approximates three years.
IMPAIRMENT OF ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable based on projected undiscounted cash flows related
to the asset over its remaining life, the carrying value of such asset is
reduced to its estimated fair value.
REVENUES
Cable television 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. As of December 31, 1997, no installation revenue has
been deferred, as direct selling costs exceeded installation revenue.
Fees collected from programmers to guarantee carriage are deferred and
amortized to income over the life of the contracts. Local governmental
authorities impose franchise fees on the Partnership ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Partnership's customers and are periodically remitted to
local franchises. Franchise fees collected and paid are reported as revenue.
INTEREST RATE HEDGE AGREEMENTS
The Partnership manages fluctuations in interest rates by using interest
rate hedge agreements, as required by certain debt agreements. Interest rate
swaps, caps and collars are accounted for as hedges of debt obligations, and
accordingly, the net settlement amounts are recorded as adjustments to interest
expense in the period incurred. Premiums paid for interest rate caps are
deferred, included in other assets, and are amortized over the original term of
the interest rate agreement as an adjustment to interest expense.
F-81
<PAGE> 311
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership's interest rate swap agreements require the Partnership to
pay a fixed rate and receive a floating rate thereby creating fixed rate debt.
Interest rate caps and collars are entered into by the Partnership to reduce the
impact of rising interest rates on floating rate debt.
The Partnership's participation in interest rate hedging transactions
involves instruments that have a close correlation with its debt, thereby
managing its risk. Interest rate hedge agreements have been designed for hedging
purposes and are not held or issued for speculative purposes.
OTHER INCOME (EXPENSE)
Other, net includes gain and loss on disposition of property, plant and
equipment, and other miscellaneous items, all of which are not directly related
to the Partnership's primary line of business. In 1996, the Partnership recorded
$367 of nonoperating losses for its portion of insurance deductibles pertaining
to damage caused by hurricanes to certain cable television systems.
INCOME TAXES
Income taxes are the responsibility of the partners and are not provided
for in the accompanying financial statements except for Peachtree Cable TV, Inc.
(Peachtree), an indirect wholly owned subsidiary, which is a C corporation and
for which taxes are presented in accordance with SFAS No. 109.
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.
2. ACQUISITIONS:
In 1998, the Partnership acquired cable television systems in one
transaction for a purchase price net of cash acquired, of $5,900. The excess
cost of properties acquired over the amounts assigned to net tangible assets at
the date of acquisition was $5,000 and is included in franchises.
In 1997, the Partnership acquired cable television systems in three
separate transactions for an aggregate purchase price, net of cash acquired, of
$159,600. The excess of the cost of properties acquired over the amounts
assigned to net tangible assets at the date of acquisition was $126,400 and is
included in franchises.
In 1996, the Partnership acquired cable television systems in three
separate transactions for an aggregate purchase price, net of cash acquired, of
$145,400. The excess of the cost of properties acquired over the amounts
assigned to net tangible assets at the date of acquisition was $118,200 and is
included in franchises.
The above acquisitions were accounted for using the purchase method of
accounting, and accordingly, results of operations of the acquired assets have
been included in the financial statements from the dates of acquisition.
F-82
<PAGE> 312
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma operating results for the 1997 acquisitions as though
the acquisitions had been made on January 1, 1997, with pro forma adjustments to
give effect to amortization of franchises, interest expense and certain other
adjustments are as follows.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
Revenues.................................................... $182,770
Income from operations...................................... 2,608
Net loss.................................................... (61,389)
</TABLE>
The unaudited pro forma information does not purport to be indicative of
the results of operations had these transactions been completed as of the
assumed date or which may be obtained in the future.
3. DISTRIBUTIONS AND ALLOCATIONS:
For financial reporting purposes, redemption preference allocations,
profits and losses are allocated to partners in accordance with the liquidation
provision of the applicable partnership agreement.
As stated in the Partnership Agreement, the Partnership may make
distributions to the partners out of all available funds at such times and in
such amounts as the General Partner may determine in its sole discretion.
4. REDEEMABLE PREFERRED LIMITED UNITS:
As of December 31, 1995, certain Redeemable Preferred Limited Partner units
of CC-I and CC-II were outstanding. During 1996, the Partnership issued certain
Redeemable Preferred Limited Partner units of CharterComm Holdings.
The Preferred Limited Partners' preference return has been reflected as an
addition to the Redeemable Preferred Limited Partner units, and the decrease has
been allocated to the General Partner and Common Limited Partner consistent with
the liquidation and distribution provisions in the partnership agreements.
At December 23, 1998, the balance related to the CharterComm Holdings
Preferred Limited Partner units was as follows:
<TABLE>
<S> <C>
Contribution, March 1996.................................... $ 20,052
1996 redemption preference allocation....................... 2,629
Allocation of net loss.................................... --
--------
Balance, December 31, 1996.................................. 22,681
1997 redemption preference allocation..................... --
Allocation of net loss.................................... (2,553)
--------
Balance, December 31, 1997.................................. 20,128
1998 redemption preference allocation..................... --
Allocation of net loss.................................... (20,128)
--------
Balance, December 23, 1998.................................. $ --
========
</TABLE>
F-83
<PAGE> 313
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1998 and 1997 redemption preference allocations of $4,617 and $4,020,
respectively, have not been reflected in the Preferred Limited Partners' capital
accounts since the General Partner and Common Limited Partners' capital accounts
have been reduced to $-0-.
5. SPECIAL LIMITED PARTNER UNITS (CC-I):
Prior to March 28, 1996, certain Special Limited Partner units of CC-I were
outstanding. CC-I's profits were allocated to the Special Limited Partners until
allocated profits equaled the unrecovered preference amount (preference amounts
range from 6% to 17.5% of the unrecovered initial cost of the partnership units
and unrecovered preference amounts per annum). When there was no profit to
allocate, the preference return was reflected as a decrease in Partners'
Capital.
In accordance with a purchase agreement and through the use of a capital
contribution from Charter Communications Southeast, L.P. (Southeast), a wholly
owned subsidiary of Southeast Holdings, resulting from the proceeds of the Notes
(see Note 9), CC-I paid the Special Limited Partners $43,243 as full
consideration for their partnership interests on March 28, 1996.
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31,
1997:
<TABLE>
<S> <C>
Cable distribution systems.................................. $274,837
Land, buildings and leasehold improvements.................. 5,439
Vehicles and equipment...................................... 14,669
--------
294,945
Less -- Accumulated depreciation............................ (59,137)
--------
$235,808
========
</TABLE>
Depreciation expense for the period from January 1, 1998, through December
23, 1998, and for the years ended December 31, 1997 and 1996, was $44,307,
$33,634 and $16,997, respectively.
7. OTHER ASSETS:
Other assets consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Debt issuance costs......................................... $18,385
Other assets................................................ 3,549
-------
21,934
Less -- Accumulated amortization............................ (5,758)
-------
$16,176
=======
</TABLE>
As a result of the payment and termination of the CC-I Credit Agreement and
CC-II Credit Agreement (see Note 9), debt issuance costs of $6,264 were written
off as an extraordinary loss on early retirement of debt for the period from
January 1, 1998, through December 23, 1998.
F-84
<PAGE> 314
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December
31, 1997:
<TABLE>
<S> <C>
Accrued interest............................................ $ 9,804
Franchise fees.............................................. 3,524
Programming costs........................................... 3,391
Accounts payable............................................ 2,479
Capital expenditures........................................ 2,099
Salaries and related benefits............................... 2,079
Other....................................................... 7,131
-------
$30,507
=======
</TABLE>
9. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Senior Secured Discount Debentures.......................... $146,820
11 1/4% Senior Notes........................................ 125,000
Credit Agreements:
CC-I...................................................... 112,200
CC-II..................................................... 339,500
--------
723,520
Less:
Current maturities........................................ (5,375)
Unamortized discount...................................... (51,483)
--------
$666,662
========
</TABLE>
SENIOR SECURED DISCOUNT DEBENTURES
On March 28, 1996, Southeast Holdings and CharterComm Holdings Capital
Corporation (Holdings Capital), a wholly owned subsidiary of Southeast Holdings
(collectively the "Debentures Issuers"), issued $146,820 of Senior Secured
Discount Debentures (the "Debentures") for proceeds of $75,000. Proceeds from
the Debentures were used to pay fees and expenses related to the issuance of the
Debentures and the balance of $72,400 was a capital contribution to Southeast.
The Debentures are secured by all of Southeast Holdings' ownership interest in
Southeast and rank pari passu in right and priority of payment to all other
existing and future indebtedness of the Debentures Issuers. The Debentures are
effectively subordinated to the claims of creditors of Southeast Holdings'
subsidiaries, including the Combined Credit Agreement (as defined herein). The
Debentures are redeemable at the Debentures Issuers' option at amounts
decreasing from 107% to 100% of principal, plus accrued and unpaid interest to
the redemption date, beginning on March 15, 2001. The Debentures Issuers are
required to make an offer to purchase all of the Debentures, at a purchase price
equal to 101% of the principal amount, together with accrued and unpaid
interest, upon a Change in Control, as defined in the Debentures Indenture. No
interest is payable on the Debentures prior to March 15, 2001. Thereafter,
interest on the Debentures is payable semiannually in arrears beginning
September 15, 2001, until maturity on March 15, 2007. The discount on the
Debentures is being accreted
F-85
<PAGE> 315
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
using the effective interest method at an interest rate of 14% from the date of
issuance to March 15, 2001.
11 1/4% SENIOR NOTES
Southeast and CharterComm Capital Corporation (Southeast Capital), a wholly
owned subsidiary of Southeast (collectively the "Notes Issuers"), issued
$125,000 aggregate principal amount of 11 1/4% Senior Notes (the "Notes"). The
Notes are senior unsecured obligations of the Notes Issuers and rank pari passu
in right and priority of payment to all other existing and future indebtedness
of the Notes Issuers. The Notes are effectively subordinated to the claims of
creditors of Southeast's subsidiaries, including the lenders under the Combined
Credit Agreement. The Notes are redeemable at the Notes Issuers' option at
amounts decreasing from 105.625% to 100% of principal, plus accrued and unpaid
interest to the date of redemption, beginning on March 15, 2001. The Notes
Issuers are required to make an offer to purchase all of the Notes, at a
purchase price equal to 101% of the principal amount, together with accrued and
unpaid interest, upon a Change in Control, as defined in the Notes Indenture.
Interest is payable semiannually on March 15 and September 15 until maturity on
March 15, 2006.
Southeast and Southeast Holdings are holding companies with no significant
assets other than their direct and indirect investments in CC-I and CC-II.
Southeast Capital and Holdings Capital were formed solely for the purpose of
serving as co-issuers and have no operations. Accordingly, the Notes Issuers and
Debentures Issuers must rely upon distributions from CC-I and CC-II to generate
funds necessary to meet their obligations, including the payment of principal
and interest on the Notes and Debentures.
COMBINED CREDIT AGREEMENT
In June 1998, CC-I and CC-II (the "Borrowers") replaced their existing
credit agreements and entered into a combined credit agreement (the "Combined
Credit Agreement"), which provides for two term loan facilities, one with the
principal amount of $200,000 that matures on June 30, 2007, and the other with
the principal amount of $150,000 that matures on December 31, 2007. The Combined
Credit Agreement also provides for a $290,000 revolving credit facility, with a
maturity date of June 30, 2007. Amounts under the Combined Credit Agreement bear
interest at the LIBOR Rate or Base Rate, as defined, plus a margin of up to
2.0%. The variable interest rates ranged from 6.69% to 7.31% at December 23,
1998.
Commencing March 31, 2002, and at the end of each calendar quarter
thereafter, the available borrowings for the revolving credit facility and the
$200,000 term loan shall be reduced on an annual basis by 11.0% in 2002 and
14.6% in 2003. Commencing March 31, 2002, and at the end of each calendar
quarter thereafter, the available borrowings for the $150,000 term loan shall be
reduced on an annual basis by 1.0% in 2002 and 1.0% in 2003. A quarterly
commitment fee of between 0.25% and 0.375% per annum is payable on the
unborrowed balance of the revolving credit facility.
The Debentures, Notes and Combined Credit Agreement require the Partnership
to comply with various financial and nonfinancial covenants including the
maintenance of a ratio of debt to annualized operating cash flow, as defined,
not to exceed 5.25 to 1 at December 23, 1998. These debt instruments also
contain substantial limitations on, or prohibitions of, distributions,
additional indebtedness, liens, asset sales and certain other items.
F-86
<PAGE> 316
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CC-I CREDIT AGREEMENT
CC-I maintained a credit agreement (the "CC-I Credit Agreement") with a
consortium of banks for borrowings up to $127,200, consisting of a revolving
line of credit of $63,600 and a term loan of $63,600. Interest accrued, at
CC-I's option, at rates based upon the Base Rate, as defined in the CC-I Credit
Agreement, LIBOR, or prevailing bid rates of certificates of deposit plus the
applicable margin based upon CC-I's leverage ratio at the time of the
borrowings. The variable interest rates ranged from 7.75% to 8.00% and 7.44% to
7.50% at December 31, 1997 and 1996, respectively.
In June 1998, the CC-I Credit Agreement was repaid and terminated in
conjunction with the establishment of the Combined Credit Agreement.
CC-II CREDIT AGREEMENT
CC-II maintained a credit agreement (the "CC-II Credit Agreement") with a
consortium of banks for borrowings up to $390,000, consisting of a revolving
credit facility of $215,000, and two term loans totaling $175,000. Interest
accrued, at CC-II's option, at rates based upon the Base Rate, as defined in the
CC-II Credit Agreement, LIBOR, or prevailing bid rates of certificates of
deposit plus the applicable margin based upon CC-II's leverage ratio at the time
of the borrowings. The variable interest rates ranged from 7.63% to 8.25% and
7.25% to 8.125% at December 31, 1997 and 1996, respectively.
In June 1998, the CC-II Credit Agreement was repaid and terminated in
conjunction with the establishment of the Combined Credit Agreement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
A summary of debt and the related interest rate hedge agreements at
December 31, 1997, is as follows:
<TABLE>
<CAPTION>
CARRYING NOTIONAL FAIR
VALUE AMOUNT VALUE
-------- -------- -----
<S> <C> <C> <C>
DEBT
Senior Secured Discount Debentures.............. $ 95,337 $ -- $115,254
11 1/4% Senior Notes............................ 125,000 -- 136,875
CC-I Credit Agreement........................... 112,200 -- 112,200
CC-II Credit Agreement.......................... 339,500 -- 339,500
INTEREST RATE HEDGE AGREEMENTS
CC-I:
Swaps......................................... -- 100,000 (797)
CC-II:
Swaps......................................... -- 170,000 (1,030)
Caps.......................................... -- 70,000 --
Collars....................................... -- 55,000 (166)
</TABLE>
As the CC-I and CC-II Credit Agreements bear interest at current market
rates, their carrying amounts approximate fair market values at December 31,
1997. The fair value of the Notes and the Debentures is based on current
redemption value.
F-87
<PAGE> 317
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest pay rate for CC-I interest rate swap
agreements was 8.07% at December 31, 1997.
The weighted average interest pay rate for CC-II interest rate swap
agreements was 8.03% at December 31, 1997. The weighted average interest rate
for CC-II interest cap agreements was 8.48% at December 31, 1997. The weighted
average interest rates for CC-II interest rate collar agreements were 9.01% and
7.61% for the cap and floor components, respectively, at December 31, 1997.
The notional amounts of interest rate hedge agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the
Partnership's exposure through its use of interest rate hedge agreements. The
amounts exchanged are determined by reference to the notional amount and the
other terms of the contracts.
The fair value of interest rate hedge agreements generally reflects the
estimated amounts that the Partnership would receive or pay (excluding accrued
interest) to terminate the contracts on the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer
quotations are available for the Partnership's interest rate hedge agreements.
Management believes that the sellers of the interest rate hedge agreements
will be able to meet their obligations under the agreements. In addition, some
of the interest rate hedge agreements are with certain of the participating
banks under the Partnership's credit facilities thereby reducing the exposure to
credit loss. The Partnership has policies regarding the financial stability and
credit standing of major counterparties. Nonperformance by the counterparties is
not anticipated nor would it have a material adverse effect on the results of
operations or the financial position of the Partnership.
11. INCOME TAXES:
The book value of the Partnership's net assets (excluding Peachtree)
exceeds its tax reporting basis by $2,919 as of December 31, 1997.
As of December 31, 1997, temporary differences and carryforwards that gave
rise to deferred income tax assets and liabilities for Peachtree are as follows:
<TABLE>
<S> <C>
Deferred income tax assets:
Accounts receivable......................................... $ 4
Accrued expenses.......................................... 29
Deferred management fees.................................. 111
Deferred revenue.......................................... 24
Tax loss carryforwards.................................... 294
Tax credit carryforwards.................................. 361
-------
Total deferred income tax assets.................. 823
-------
Deferred income tax liabilities:
Property, plant and equipment............................. (1,372)
Franchises and other assets............................... (4,562)
-------
Total deferred income tax liabilities............. (5,934)
-------
Net deferred income tax liability................. $(5,111)
=======
</TABLE>
F-88
<PAGE> 318
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS:
Charter provides management services to the Partnership under the terms of
contracts which provide for fees equal to 5% of the Partnership's gross service
revenues. The debt agreements prohibit payment of a portion of such management
fees (40% for both CC-I and CC-II) until repayment in full of the outstanding
indebtedness. The remaining 60% of management fees, are paid quarterly through
December 31, 1998. Thereafter, the entire fee may be deferred if a multiple of
EBITDA, as defined, does not exceed outstanding indebtedness of CC-I and CC-II.
In addition, payments due on the Notes and Debentures shall be paid before any
deferred management fees are paid. Expenses recognized under the contracts for
the period from January 1, 1998, through December 23, 1998, were $9,860.
Expenses recognized under the contracts during 1997 and 1996 were $8,779 and
$6,014, respectively. Management fees currently payable of $1,432 are included
in payables to manager of cable television systems -- related party at December
31, 1997.
The Partnership and all entities managed by Charter collectively utilize a
combination of insurance coverage and self-insurance programs for medical,
dental and workers' compensation claims. Medical coverage provides for $2,435
aggregate stop loss protection and a loss limitation of $100 per person per
year. Workers' compensation coverage provides for $800 aggregate stop loss
protection and a loss limitation of $150 per person per year. Charges are
determined by independent actuaries at the present value of the actuarially
computed present and future liabilities for such benefits. The Partnership is
allocated its share of the charges monthly based upon its total number of
employees, historical claims and medical cost trend rates. Management considers
this allocation to be reasonable for the operations of the Partnership. For the
period from January 1, 1998, through December 23, 1998, the Partnership expensed
$1,831 relating to insurance allocations. During 1997 and 1996, the Partnership
expensed $1,524 and $1,136, respectively, relating to insurance allocations.
The Partnership employs the services of Charter's National Data Center (the
"National Data Center"). The National Data Center performs certain customer
billing services and provides computer network, hardware and software support
for the Partnership and other entities managed by Charter. The cost of these
services is allocated based on the number of basic customers. Management
considers this allocation to be reasonable for the operations of the
Partnership. For the period from January 1, 1998, through December 23, 1998, the
Partnership expensed $685 relating to these services. During 1997 and 1996, the
Partnership expensed $606 and $345, respectively, relating to these services.
CC-I, CC-II and other entities managed by Charter maintain regional
offices. The regional offices perform certain operational services. The cost of
these services is allocated based on number of basic customers. Management
considers this allocation to be reasonable for the operations of the
Partnership. For the period from January 1, 1998, through December 23, 1998, the
Partnership expensed $3,009 relating to these services. During 1997 and 1996,
the Partnership expensed $1,992 and $1,294, respectively, relating to these
services.
The Partnership pays certain acquisition advisory fees to Charter and
Charterhouse for cable television systems acquired. Total acquisition fees paid
to Charter for the period from January 1, 1998, through December 23, 1998, were
$-0-. Total acquisition fees paid to Charter in 1997 and 1996 were $982 and
$1,738, respectively. Total acquisition fees paid to Charterhouse for the period
from January 1, 1998, through December 23, 1998, were $-0-. Total acquisition
fees paid to Charterhouse in 1997 and 1996 were $982 and $1,738, respectively.
F-89
<PAGE> 319
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the ownership of CharterComm Holdings changed as a result of
CharterComm Holdings receiving a $25,000 cash contribution from an institutional
investor, a $3,000 cash contribution from Charterhouse and a $2,000 cash
contribution from Charter, as well as the transfer of assets and liabilities of
a cable television system through a series of transactions initiated by Charter
and Charterhouse. Costs of $200 were incurred in connection with the cash
contributions. These contributions were contributed to Southeast Holdings which,
in turn, contributed them to Southeast.
13. COMMITMENTS AND CONTINGENCIES:
LEASES
The Partnership leases certain facilities and equipment under noncancelable
operating leases. Lease and rental costs charged to expense for the period from
January 1, 1998, through December 23, 1998, was $642. Rent expense incurred
under leases during 1997 and 1996 was $615 and $522, respectively.
The Partnership also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Partnership anticipates that
such rentals will recur. Rent expense incurred for pole rental attachments for
the period from January 1, 1998, through December 23, 1998, was $3,261. Rent
expense incurred for pole attachments during 1997 and 1996 was $2,930 and
$2,092, respectively.
LITIGATION
The Partnership is a party to lawsuits that arose in the ordinary course of
conducting its business. In the opinion of management, after consulting with
legal counsel, the outcome of these lawsuits will not have a material adverse
effect on the Partnership's consolidated financial position or results of
operations.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act" and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. Legislation
and regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the
F-90
<PAGE> 320
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maximum permitted rates. As of December 23, 1998, the amount returned by the
Company has been insignificant. The Company may be required to refund additional
amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company is unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation.
14. EMPLOYEE BENEFIT PLANS:
The Partnership's employees may participate in Charter Communications, Inc.
401(k) Plan (the "401(k) Plan"). Employees that qualify for participation can
contribute up to 15% of their salary, on a before tax basis, subject to a
maximum contribution limit as determined by the Internal Revenue Service. The
Partnership contributes an amount equal to 50% of the first 5% of contributions
by each employee. For the period from January 1, 1998, through December 23,
1998, the Partnership contributed $305. During 1997 and 1996, the Partnership
contributed $262 and $149, respectively.
Certain Partnership employees participate in the 1996 Charter
Communications/ Charterhouse Group Appreciation Rights Plan (the "Appreciation
Rights Plan"). The Appreciation Rights Plan covers certain key employees and
consultants within the group of companies and partnerships controlled by
Charterhouse and managed by Charter. The Plan permits the granting of up to
1,000,000 units, of which 925,000 were outstanding at December 31, 1997. Unless
otherwise provided in a particular instance, units vest at a rate of 20% per
annum. The Plan entitles participants to receive payment of the appreciated unit
value for vested units, upon the occurrence of certain events specified in the
Plan (i.e. change in control, employee termination). The units do not represent
a right to an equity interest in CharterComm Holdings.
F-91
<PAGE> 321
CHARTERCOMM HOLDINGS, L.P.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Compensation expense is based on the appreciated unit value and is amortized
over the vesting period.
As a result of the acquisition of Charter and the Partnership, the Plan was
terminated, all outstanding units became 100% vested and all amounts were paid
by Charter in 1999. For the period from January 1, 1998, through December 23,
1998, the Partnership recorded $4,920 of expense, included in management fees,
and a contribution from Charter related to the Appreciation Rights Plan.
15. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the Financial Accounting Standards Board adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Partnership
has not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings
(loss).
16. SUBSEQUENT EVENT:
Subsequent to December 31, 1998, CharterComm Holdings, L.P. and all of its
subsidiaries converted to limited liability companies and are now known as
CharterComm Holdings LLC and subsidiaries.
F-92
<PAGE> 322
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greater Media, Inc.:
We have audited the accompanying combined balance sheets of Greater Media
Cablevision Systems (see Note 1) (collectively, the "Combined Systems") included
in Greater Media, Inc., as of September 30, 1998 and 1997, and the related
combined statements of income, changes in net assets, and cash flows for each of
the three years in the period ended September 30, 1998. These combined financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Combined Systems, as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 2, 1999
F-93
<PAGE> 323
GREATER MEDIA CABLEVISION SYSTEMS (SEE NOTE 1)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,080 $ 3,680
Accounts receivable (less allowance for doubtful accounts
of $308 (unaudited), $244 and $337).................... 2,755 2,739
Prepaid expenses and other current assets................. 2,746 1,949
------- -------
Total current assets.............................. 9,581 8,368
Property and equipment, net................................. 54,468 41,971
Intangible assets, net...................................... 2,690 1,647
Other assets................................................ 77 103
------- -------
Total assets...................................... $66,816 $52,089
======= =======
Current liabilities:
Accounts payable and accrued expenses..................... $ 7,125 $ 5,299
Customers' prepayments and deferred installation
revenue................................................ 1,910 1,815
------- -------
Total current liabilities......................... 9,035 7,114
Other long-term liabilities................................. 3,650 3,920
Net assets.................................................. 54,131 41,055
------- -------
Total liabilities and net assets.................. $66,816 $52,089
======= =======
</TABLE>
The accompanying notes are an integral part of these combined balance
sheets.
F-94
<PAGE> 324
GREATER MEDIA CABLEVISION SYSTEMS (SEE NOTE 1)
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
------------------ ---------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................ $62,469 $57,536 $77,127 $73,436 $66,816
------- ------- ------- ------- -------
OPERATING EXPENSES:
Operating expenses.................... 26,248 24,262 32,665 31,115 29,460
General and administrative............ 9,150 8,282 10,869 11,211 10,321
Corporate charges..................... 3,175 2,898 3,888 3,696 3,365
Depreciation and amortization......... 7,398 5,717 8,183 7,368 7,353
------- ------- ------- ------- -------
45,971 41,159 55,605 53,390 50,499
------- ------- ------- ------- -------
Income from operations............. 16,498 16,377 21,522 20,046 16,317
OTHER INCOME (EXPENSES):
Interest expense, net................... (705) (308) (504) (307) (764)
Other................................... (365) 34 (532) (957) (366)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION IN LIEU OF
INCOME TAXES.......................... 15,428 16,103 20,486 18,782 15,187
Provision in lieu of income taxes (Note
6).................................... 6,646 6,247 8,008 7,964 5,987
------- ------- ------- ------- -------
Net income.............................. $ 8,782 $ 9,856 $12,478 $10,818 $ 9,200
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-95
<PAGE> 325
GREATER MEDIA CABLEVISION SYSTEMS (SEE NOTE 1)
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
-----
<S> <C>
Balance, September 30, 1995................................. $ 42,185
Net income.................................................. 9,200
Provision in lieu of income taxes......................... 5,987
Net payments to affiliates................................ (17,038)
--------
Balance, September 30, 1996................................. 40,334
Net income................................................ 10,818
Provision in lieu of income taxes......................... 7,964
Net payments to affiliates................................ (18,061)
--------
Balance, September 30, 1997................................. 41,055
Net income................................................ 12,478
Provision in lieu of income taxes......................... 8,008
Net payments to affiliates................................ (7,410)
--------
Balance, September 30, 1998................................. $ 54,131
========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-96
<PAGE> 326
GREATER MEDIA CABLEVISION SYSTEMS (SEE NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
------------------- ----------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income................................. $ 8,782 $ 9,856 $12,478 $10,818 $ 9,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision in lieu of income taxes........ 6,646 6,247 8,008 7,964 5,987
Depreciation and amortization............ 7,398 5,717 8,183 7,368 7,353
(Gain) loss on sale of fixed assets...... 465 171 300 715 274
Changes in assets and liabilities:
Accounts receivable, prepaid expenses and
other assets.......................... (1,431) (4,045) (813) (1,115) (498)
Other assets............................. 10 31 24 (30) (11)
Accounts payable and accrued expenses.... (178) 144 1,825 (440) (1,900)
Customers' prepayments and deferred
installation revenue.................. 242 (7) 96 367 94
Customers' deposits and deferred
revenue............................... (24) (174) (270) (69) 466
-------- -------- ------- ------- --------
Net cash provided by operating
activities............................... 21,910 17,940 29,831 25,578 20,965
-------- -------- ------- ------- --------
Cash flow from investing activities:
Capital expenditures....................... (13,797) (15,700) (21,049) (7,587) (5,122)
Proceeds from disposition of property and
equipment................................ -- 250 72 -- 128
Purchase of licenses....................... (512) (49) (1,044) (99) --
-------- -------- ------- ------- --------
Net cash used in investing activities...... (14,309) (15,499) (22,021) (7,686) (4,994)
-------- -------- ------- ------- --------
Cash flow from financing activities:
Net payments to affiliates................. (34) (3,941) (7,410) (18,061) (17,038)
-------- -------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 7,567 (1,500) 400 (169) (1,067)
Cash and cash equivalents, beginning of
year..................................... 4,080 3,680 3,680 3,849 4,916
-------- -------- ------- ------- --------
Cash and cash equivalents, end of year..... $ 11,647 $ 2,180 $ 4,080 $ 3,680 $ 3,849
======== ======== ======= ======= ========
Supplemental disclosure of cash flow
information:
Non-affiliate interest paid during the
year.................................. $ 264 $ 42 $ 296 $ 155 $ 447
======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-97
<PAGE> 327
GREATER MEDIA CABLEVISION SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, BASIS OF PRESENTATION AND OPERATIONS
Greater Media Cablevision Systems is the owner and operator of the
following Massachusetts-based cable television systems: Auburn, Boylston,
Chicopee, Dudley, East Longmeadow, Easthampton, Grafton, Hampden, Holden,
Leicester, Ludlow, Millbury, Northborough, Northbridge, Oxford, Paxton,
Southampton, Southborough, Southbridge, Spencer, Sturbridge, Upton, Webster,
West Boylston, West Brookfield, Westborough, Wilbraham and Worcester ("the
Combined Systems"). The Combined Systems are wholly-owned by Greater Media
Cablevision, Inc. ("the Company"). The combined financial statements do not
include the accounts of Greater Philadelphia Cablevision, Inc. or Greater
Philadelphia Cablevision Limited Partnership (the "Philadelphia System"), which
are also wholly-owned by the Company. The Company is a wholly-owned subsidiary
of Greater Media, Inc. ("the Parent"). In February 1999, the Parent and the
Company entered into an agreement ("Sales Agreement") to sell the net assets of
the Company including the Combined Systems but excluding the Philadelphia
Systems to Charter Communications Holdings, LLC.
Significant intercompany accounts and transactions between the Combined
Systems have been eliminated in the combined financial statements. Significant
accounts and transactions with the Parent and other affiliates are disclosed as
related party transactions (See Note 7).
The Combined Systems primarily provide cable television services to
subscribers in central and western Massachusetts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Maintenance and repair costs are expensed when incurred. For financial
reporting purposes, depreciation is provided on the straight-line method based
on the following estimated useful lives:
<TABLE>
<CAPTION>
CLASSIFICATION YEARS
-------------- -----
<S> <C>
Land improvements........................................... 20
Buildings................................................... 15-40
Furniture, fixtures and equipment........................... 3-15
Trunk and distribution systems.............................. 7-12
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill amortized over forty years
and costs incurred in obtaining and renewing cable franchises which are
amortized over the life of the respective franchise agreements.
REVENUES
Cable revenues from basic and premium services are recognized when the
related services are provided.
F-98
<PAGE> 328
GREATER MEDIA CABLEVISION SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
QUARTERLY RESULTS
The financial statements included herein as of December 31, 1998 and for
the three months ended December 31, 1998 and 1997 have been prepared by the
Company without audit. In the opinion of management, all adjustments have been
made which are of a normal recurring nature necessary to present fairly the
Combined Systems' financial position as of December 31, 1998 and the results of
operations, changes in net assets and cash flows for the three months ended
December 31, 1998 and 1997. Certain information and footnote disclosures have
been condensed or omitted for these periods. The results for interim periods are
not necessarily indicative of results for the entire year.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid and other current assets consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Franchise grant.......................................... $1,445 $ 604
Corporate business tax................................... 1,015 882
Other.................................................... 286 463
------ ------
Prepaid expenses and other current assets................ $2,746 $1,949
====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land and land improvements........................... $ 1,229 $ 1,134
Buildings............................................ 4,521 4,521
Furniture, fixtures and equipment.................... 5,503 4,822
Trunk and distribution systems....................... 109,253 97,042
Construction in progress............................. 9,026 4,450
-------- --------
129,532 111,969
Accumulated depreciation............................. (75,064) (69,998)
-------- --------
Property and equipment, net.......................... $ 54,468 $ 41,971
======== ========
</TABLE>
Depreciation expense for the years ended September 30, 1998, 1997 and 1996
was $8,081, $7,337, and $7,314, respectively. Construction in progress results
primarily from costs to upgrade the systems to fiber optic technologies in the
areas served by the Combined Systems.
F-99
<PAGE> 329
GREATER MEDIA CABLEVISION SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Franchise agreements..................................... $3,230 $2,883
Customer lists........................................... 1,751 1,751
Organization expenses.................................... 146 146
Goodwill................................................. 2,260 1,510
Covenant not to compete.................................. 40 40
------ ------
7,427 6,330
Accumulated amortization................................. 4,737 4,683
------ ------
Intangible assets, net................................... $2,690 $1,647
====== ======
</TABLE>
Amortization expense for the years ended September 30, 1998, 1997 and 1996
was $102, $31 and $39, respectively.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at September
30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accounts payable......................................... $4,733 $3,544
Rate refund liability.................................... 923 481
Programming expenses..................................... 586 557
Other.................................................... 883 717
------ ------
$7,125 $5,299
====== ======
</TABLE>
6. INCOME TAXES
The Combined Systems are included in the consolidated federal income tax
return of the Parent. However, the Parent is responsible for tax payments
applicable to the Combined Systems. The combined financial statements reflect a
provision in lieu of income taxes as if the combined systems were filing on a
separate company basis. Accordingly, the Combined Systems have included the
provision in lieu of income taxes as a component of net assets for all periods
presented.
The provision in lieu of income taxes approximates the amount of tax
computed using U.S. statutory rates, after reflecting state income tax expense
of $2,053, $1,924 and $1,486, for 1998, 1997 and 1996, respectively.
As the Sales Agreement represents a sale of assets, Charter Communications
Holdings, LLC will have new tax basis in the Combined Systems' assets and
liabilities acquired.
7. RELATED PARTY TRANSACTIONS
The Company and each of its subsidiaries are guarantors of the Parent
Company's debt.
F-100
<PAGE> 330
GREATER MEDIA CABLEVISION SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The combined statements include the charge for certain corporate expenses
incurred by the Parent on behalf of the Combined Systems. Such charges amounted
to $3,888, $3,696, and $3,365 for the three years ended September 30, 1998, 1997
and 1996. Management believes that these costs are reasonable and reflect costs
of doing business that the Combined Systems would have incurred on a stand-alone
basis.
The Combined Systems charge an affiliate interest on certain balances,
aggregating $15,000 per year, at an annual rate of 12%. Interest income on such
balances amounted to $1,800 for each of the three years in the period ended
September 30, 1998. In addition, the Combined Systems are required to pay the
Parent interest on certain balances, at an annual rate of 12%. Interest expense
on such balances amounted to $2,340 for each of these years in the period ended
September 30, 1998, all which were due during the periods presented. The amounts
described above and certain non-interest bearing amounts due affiliates are
included in Net Assets in the Combined Systems balance sheet. As a result of the
Sales Agreement, such amounts will be assumed by the Parent. The interest income
and expense have been netted in the accompanying statement of operations.
8. EMPLOYEE BENEFIT PLAN
401(k) PLAN
The Combined Systems' employees participate in the Greater Media, Inc.
401(k) Plan (the "401(k) Plan"). Employees that qualify for participation can
contribute up to 12% of their salary, on a before tax basis, subject to a
maximum contribution limit as determined by the Internal Revenue Service. The
Parent contributes an amount equal to 50% of the participant's contribution,
limited to the lessor of 3% of the participant's compensation or $1 per year.
The Combined Systems expense relating to the 401(k) Plan was $140, $127,
and $96 in 1998, 1997, and 1996, respectively.
PENSION
Employees of the Combined Systems participate in a pension plan sponsored
by the Parent. The Combined Systems allocable share of the pension expense
amounted to $105, $204 and $217 during the years ended September 30, 1998, 1997
and 1996, respectively. As a result of the Sales Agreement, the Combined
Systems' employees will be fully vested with respect to their plan benefits,
although no additional benefits will accrue to such employees in the future. In
addition, the Parent will be responsible for the allocable pension liability
($838 at September 30, 1998) and will continue to administer the plan on behalf
of the Combined Systems' employees after the sale is consummated.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and equipment under noncancellable
operating leases. Leases and rental costs charged to expense for the years ended
September 30, 1998, 1997 and 1996, was $2,124, $2,133 and $1,636, respectively.
Rent expense incurred under leases for the
F-101
<PAGE> 331
GREATER MEDIA CABLEVISION SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
years ended September 30, 1998, 1997 and 1996, was $678, $665 and $660,
respectively. Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1999................................................. $ 690
2000................................................. 618
2001................................................. 524
2002................................................. 402
2003................................................. 396
Thereafter........................................... 3,267
</TABLE>
The Company also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Company anticipates that such
rentals will recur. Rent expense incurred for pole rental attachments for the
years ended September 30, 1998, 1997 and 1996, was $1,008, $840 and $578,
respectively.
LITIGATION
The Company is party to lawsuits that arise in the ordinary course of
conducting its business. In the opinion of management, after consulting with
legal counsel, the outcome of these lawsuits will not have a material adverse
effect on the Company's combined financial position or results of operations.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act" and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. Legislation
and regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. The Company may be
required to refund additional amounts in the future.
The Combined Systems believe that they have complied in all material
respects with the provisions of the 1992 Cable Act, including the rate setting
provisions promulgated by the FCC. However, in jurisdictions that have chosen
not to certify, refunds covering the previous twelve-month period may be ordered
upon certification if a company is unable to justify its basic rates. The
Combined Systems are unable to estimate at this time the amount of refunds, if
any, that may be payable by the Combined Systems in the event certain of its
rates are successfully
F-102
<PAGE> 332
GREATER MEDIA CABLEVISION SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
challenged by franchising authorities or found to be unreasonable by the FCC.
The Combined Systems do not believe that the amount of any such refunds would
have a material adverse effect on their financial position or results of
operations.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Combined Systems cannot predict the ultimate effect of the 1996 Telecom
Act on their financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Combined Systems.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation. The Combined Systems are subject to state
regulation in Massachusetts.
10. SUBSEQUENT EVENT (UNAUDITED)
On June 30, 1999, Charter Communications Entertainment I, LLC, an indirect
subsidiary of Charter Communications Holdings Company, LLC purchased the
Combined Systems for an aggregate purchase price of $500 million plus a working
capital adjustment. Effective with this change of ownership, the Combined
Systems will be managed by Charter Investment, Inc.
F-103
<PAGE> 333
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Renaissance Media Group LLC
We have audited the accompanying consolidated balance sheet of Renaissance
Media Group LLC as of December 31, 1998 and the related consolidated statements
of operations, changes in members' equity, and cash flows for the year ended
December 31, 1998. These 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Renaissance
Media Group LLC at December 31, 1998, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 22, 1999
except for Note 11, as to which
the date is February 24, 1999
F-104
<PAGE> 334
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 8,482
Accounts receivable -- trade (less allowance for doubtful
accounts of $92).......................................... 726
Accounts receivable -- other................................ 584
Prepaid expenses and other assets........................... 340
Escrow deposit.............................................. 150
Investment in cable television systems:
Property, plant and equipment............................. 71,246
Less: Accumulated depreciation............................ (7,294)
--------
63,952
--------
Cable television franchises............................... 236,489
Less: Accumulated amortization............................ (11,473)
--------
225,016
--------
Intangible assets......................................... 17,559
Less: Accumulated amortization............................ (1,059)
--------
16,500
--------
Total investment in cable television systems......... 305,468
--------
Total assets...................................... $315,750
========
LIABILITIES AND MEMBERS' EQUITY
Accounts payable............................................ $ 2,042
Accrued expenses(a)......................................... 6,670
Subscriber advance payments and deposits.................... 608
Deferred marketing support.................................. 800
Advances from Holdings...................................... 135
Debt........................................................ 209,874
--------
Total Liabilities................................. 220,129
--------
Members' Equity:
Paid in capital............................................. 108,600
Accumulated deficit......................................... (12,979)
--------
Total members' equity................................ 95,621
--------
Total liabilities and members' equity............. $315,750
========
</TABLE>
- ---------------
(a) includes accrued costs from transactions with affiliated companies of $921.
See accompanying notes to financial statements.
F-105
<PAGE> 335
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES.................................................... $ 41,524
--------
COSTS & EXPENSES
Service Costs(a).......................................... 13,326
Selling, General & Administrative......................... 7,711
Depreciation & Amortization............................... 19,107
--------
Operating Income....................................... 1,380
Interest Income........................................ 158
Interest (Expense) (b)................................. (14,358)
--------
(Loss) Before Provision for Taxes...................... (12,820)
Provision for Taxes.................................... 135
--------
Net (Loss)............................................. $(12,955)
========
</TABLE>
- ---------------
(a) includes costs from transactions with affiliated companies of $7,523.
(b) includes $676 of amortization of deferred financing costs.
See accompanying notes to financial statements.
F-106
<PAGE> 336
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PAID TOTAL
IN ACCUMULATED MEMBER'S
CAPITAL (DEFICIT) EQUITY
------- ----------- --------
<S> <C> <C> <C>
Contributed Members' Equity -- Renaissance Media
Holdings LLC and Renaissance Media LLC................ $ 15,000 $ (24) $14,976
Additional capital contributions........................ 93,600 -- 93,600
Net (Loss).............................................. -- (12,955) (12,955)
-------- -------- -------
Balance December 31, 1998............................... $108,600 $(12,979) $95,621
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-107
<PAGE> 337
RENAISSANCE MEDIA GROUP LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net (loss).................................................. $(12,955)
Adjustments to non-cash and non-operating items:
Depreciation and amortization............................. 19,107
Accretion on Senior Discount Notes........................ 7,363
Other non-cash charges.................................... 730
Changes in operating assets and liabilities:
Accounts receivable -- trade, net...................... (726)
Accounts receivable -- other........................... (584)
Prepaid expenses and other assets...................... (338)
Accounts payable....................................... 2,031
Accrued expenses....................................... 6,660
Subscriber advance payments and deposits............... 608
Deferred marketing support............................. 800
--------
Net cash provided by operating activities................... 22,696
--------
INVESTING ACTIVITIES:
Purchased cable television systems:
Property, plant and equipment.......................... (65,580)
Cable television franchises............................ (235,412)
Cash paid in excess of identifiable assets............. (8,608)
Escrow deposit............................................ (150)
Capital expenditures...................................... (5,683)
Cable television franchises............................... (1,077)
Other intangible assets................................... (526)
--------
Net cash (used in) investing activities..................... (317,036)
--------
FINANCING ACTIVITIES:
Debt acquisition costs.................................... (8,323)
Principal repayments on bank debt......................... (7,500)
Advances from Holdings.................................... 33
Proceeds from bank debt................................... 110,000
Proceeds from 10% Senior Discount Notes................... 100,012
Capital contributions..................................... 108,600
--------
Net cash provided by financing activities................... 302,822
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 8,482
CASH AND CASH EQUIVALENTS AT DECEMBER 31, 1997.............. --
--------
CASH AND CASH EQUIVALENTS AT DECEMBER 31, 1998.............. $ 8,482
========
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID............................................. $ 4,639
========
</TABLE>
See accompanying notes to financial statements.
F-108
<PAGE> 338
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Renaissance Media Group LLC ("Group") was formed on March 13, 1998 by
Renaissance Media Holdings LLC ("Holdings"). Holdings is owned by Morgan Stanley
Capital Partners III, L.P. ("MSCP III"), Morgan Stanley Capital Investors, L.P.
("MSCI"), MSCP III 892 Investors, L.P. ("MSCP Investors" and, collectively, with
its affiliates, MSCP III and MSCI and their respective affiliates, the "Morgan
Stanley Entities"), Time Warner and the Management Investors. On March 20, 1998,
Holdings contributed to Group its membership interests in two wholly-owned
subsidiaries; Renaissance Media (Louisiana) LLC ("Louisiana") and Renaissance
Media (Tennessee) LLC ("Tennessee"), which were formed on January 7, 1998.
Louisiana and Tennessee acquired a 76% interest and 24% interest, respectively,
in Renaissance Media LLC ("Media") from Morgan Stanley Capital Partners III,
Inc. ("MSCP"), on February 13, 1998 through an acquisition of entities under
common control accounted for as if it were a pooling of interests. As a result,
Media became a subsidiary of Group and Holdings. Group and its aforementioned
subsidiaries are collectively referred to as the "Company". On April 9, 1998,
the Company acquired (the "Acquisition") six cable television systems (the
"Systems") from TWI Cable, Inc. ("TWI Cable"), a subsidiary of Time Warner Inc.
("Time Warner"). See Note 3. Prior to this Acquisition, the Company had no
operations other than start-up related activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING STANDARDS
During fiscal 1998, the Financial Accounting Standards Board ("FASB")
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133").
FAS 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The Company
will adopt FAS 133 as of January 1, 2000. The impact of the adoption on the
Company's consolidated financial statements is not expected to be material.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and its wholly owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Company generally extends credit to customers and the ultimate collection of
accounts receivable could be affected by the local economy. Management performs
continuous credit evaluations of its customers and may require cash in advance
or other special arrangements from certain customers. Management does not
believe that there is any significant credit risk which could have a material
effect on the Company's financial condition.
REVENUE AND COSTS
Subscriber fees are recorded as revenue in the period the related services
are provided and advertising revenues are recognized in the period the related
advertisements are exhibited.
F-109
<PAGE> 339
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Rights to exhibit programming are purchased from various cable networks. The
costs of such rights are generally expensed as the related services are made
available to subscribers.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements. Advertising expense amounted to $491 in 1998.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and investments in short-term,
highly liquid securities, which have maturities when purchased of three months
or less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at purchased and capitalized
cost. Capitalized internal costs principally, consist of employee costs and
interest on funds borrowed during construction. Capitalized labor, materials and
associated overhead amounted to approximately $1,429 in 1998. Replacements,
renewals and improvements to installed cable plant are capitalized. Maintenance
and repairs are charged to expense as incurred. Depreciation expense for the
year ended December 31, 1998 amounted to $7,314. Property, plant and equipment
is depreciated using the straight-line method over the following estimated
service lives:
<TABLE>
<S> <C>
Buildings and leasehold improvements........................ 5 - 30 years
Cable systems, equipment and subscriber devices............. 5 - 30 years
Transportation equipment.................................... 3 - 5 years
Furniture, fixtures and office equipment.................... 5 - 10 years
</TABLE>
Property, plant and equipment at December 31, 1998 consisted of:
<TABLE>
<S> <C>
Land........................................................ $ 432
Buildings and leasehold improvements...................... 1,347
Cable systems, equipment and subscriber devices........... 62,740
Transportation equipment.................................. 2,181
Furniture, Fixtures and office equipment.................. 904
Construction in progress.................................. 3,642
-------
71,246
Less: accumulated depreciation.............................. (7,294)
-------
Total............................................. $63,952
=======
</TABLE>
F-110
<PAGE> 340
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
CABLE TELEVISION FRANCHISES AND INTANGIBLE ASSETS
Cable television franchise costs include the assigned fair value, at the
date of acquisition, of the franchises from purchased cable television systems.
Intangible assets include goodwill, deferred financing and other intangible
assets. Cable television franchises and intangible assets are amortized using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television franchises................................. 15 years
Goodwill.................................................... 25 years
Deferred financing and other intangible assets.............. 2 - 10 years
</TABLE>
Intangible assets at December 31, 1998 consisted of:
<TABLE>
<S> <C>
Goodwill.................................................... $ 8,608
Deferred Financing Costs.................................... 8,323
Other intangible assets..................................... 628
-------
17,559
Less: accumulated amortization.............................. (1,059)
-------
Total............................................. $16,500
=======
</TABLE>
The Company periodically reviews the carrying value of its long-lived
assets, including property, plant and equipment, cable television franchises and
intangible assets, whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. To the extent the estimated future cash
inflows attributable to the asset, less estimated future cash outflows, is less
than the carrying amount, an impairment loss is recognized to the extent that
the carrying value of such asset is greater than its fair value.
ESTIMATES USED IN FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. ACQUISITIONS
TWI CABLE
On April 9, 1998, the Company acquired six cable television systems from
TWI Cable. The systems are clustered in southern Louisiana, western Mississippi
and western Tennessee. This Acquisition represented the first acquisition by the
Company. The purchase price for the systems was $309,500 which was paid as
follows: TWI Cable received $300,000 in cash, inclusive of an escrow deposit of
$15,000, and a $9,500 (9,500 units) equity interest in Renaissance Media
Holdings LLC, the parent company of Group. In addition to the purchase price,
the Company incurred approximately $1,385 in transaction costs, exclusive of
financing costs.
The Acquisition was accounted for using the purchase method and,
accordingly, results of operations are reported from the date of the Acquisition
(April 9, 1998). The excess of the
F-111
<PAGE> 341
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
purchase price over the estimated fair value of the tangible assets acquired has
been allocated to cable television franchises and goodwill in the amount of
$235,387 and $8,608, respectively.
DEFFNER CABLE
On August 31, 1998, the Company acquired the assets of Deffner Cable, a
cable television company located in Gadsden, Tennessee. The purchase price was
$100 and was accounted for using the purchase method. The allocation of the
purchase price is subject to change, although management does not believe that
any material adjustment to such allocation is expected.
BAYOU VISION, INC.
On February 3, 1999, Media acquired the cable television assets of Bayou
Vision, Inc. and Gulf South Cable, Inc. serving approximately 1,950 subscribers
in the Villages of Estherwood, Morse and Mermentau and Acadia and Livingston
Parish, Louisiana. The cash purchase price was approximately $2,700 and was paid
out of available Company funds.
Unaudited Pro Forma summarized results of operations for the Company for
the year ended December 31, 1998 and 1997, assuming the Acquisition, Notes (as
hereinafter defined) offering and Credit Agreement (as hereinafter defined) had
been consummated on January 1, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1998
---- ----
<S> <C> <C>
Revenues.................................................... $ 50,987 $ 56,745
Expenses.................................................... 53,022 55,210
-------- --------
Operating (loss) income..................................... (2,035) 1,535
Interest expense and other expenses......................... (19,740) (19,699)
-------- --------
Net (Loss).................................................. $(21,775) $(18,164)
======== ========
</TABLE>
4. DEBT
As of December 31, 1998, debt consisted of:
<TABLE>
<S> <C>
10.00% Senior Discount Notes at Accreted Value(a)........... $107,374
Credit Agreement(b)......................................... 102,500
--------
$209,874
========
</TABLE>
(a) On April 9, 1998, in connection with the Acquisition described in Note
3, the Company issued $163,175 principal amount at maturity, $100,012 initial
accreted value, of 10.00% senior discount notes due 2008 ("Notes"). The Notes
pay no interest until April 15, 2003. From and after April 15, 2003 the Notes
will bear interest, payable semi-annually in cash, at a rate of 10% per annum on
April 15 and October 15 of each year, commencing October 15, 2003. The Notes are
due on April 15, 2008.
(b) On April 9, 1998, Renaissance Media entered into a credit agreement
among Morgan Stanley & Co. Incorporated as Placement Agent, Morgan Stanley
Senior Funding Inc., as Syndication Agent, the Lenders, CIBC Inc., as
Documentation Agent and Bankers Trust Company as Administrative Agent (the
"Credit Agreement"). The aggregate commitments under the Credit
F-112
<PAGE> 342
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Agreement total $150,000, consisting of a $40,000 revolver, $60,000 Tranche A
Term Loans and $50,000 Tranche B Term Loans (collectively the "Term Loans"). The
revolving credit and term loans are collateralized by a first lien position on
all present and future assets and the member's interest of Media, Louisiana and
Tennessee. The Credit Agreement provides for interest at varying rates based
upon various borrowing options and the attainment of certain financial ratios
and for commitment fees of 1/2% on the unused portion of the revolver. The
effective interest rate, including commitment fees and amortization of related
deferred financing costs and the interest-rate cap, for the year ended December
31, 1998 was 8.82%.
On April 9, 1998, $110,000 was borrowed under the Credit Agreement's
Tranche A and B Term Loans. On June 23, 1998, $7,500 was repaid resulting in
$102,500 of outstanding Tranche A and B Term Loans as of December 31, 1998.
As of December 31, 1998, the Company had unrestricted use of the $40,000
revolver. No borrowings had been made by the Company under the revolver through
that date.
Annual maturities of borrowings under the Credit Agreement for the years
ending December 31 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 776
2000........................................................ 1,035
2001........................................................ 2,701
2002........................................................ 9,506
2003........................................................ 11,590
2004........................................................ 11,590
Thereafter.................................................. 65,302
--------
102,500
Less: Current portion....................................... (776)
--------
$101,724
========
</TABLE>
The Credit Agreement and the Indenture pursuant to which the Notes were
issued contain restrictive covenants on the Company and subsidiaries regarding
additional indebtedness, investment guarantees, loans, acquisitions, dividends
and merger or sale of the subsidiaries and require the maintenance of certain
financial ratios.
Total interest cost incurred for the year ended December 31, 1998,
including commitment fees and amortization of deferred financing and
interest-rate cap costs was $14,358, net of capitalized interest of $42.
5. INTEREST RATE-CAP AGREEMENT
The Company purchases interest-rate cap agreements that are designed to
limit its exposure to increasing interest rates and are designated to its
floating rate debt. The strike price of these agreements exceeds the current
market levels at the time they are entered into. The interest rate indices
specified by the agreements have been and are expected to be highly correlated
with the interest rates the Company incurs on its floating rate debt. Payments
to be received as a result of the specified interest rate index exceeding the
strike price are accrued in other assets and are recognized as a reduction of
interest expense (the accrual accounting method). The cost of these agreements
is included in other assets and amortized to interest expense ratably during
F-113
<PAGE> 343
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
the life of the agreement. Upon termination of an interest-rate cap agreement,
any gain is deferred in other liabilities and amortized over the remaining term
of the original contractual life of the agreement as a reduction of interest
expense.
On December 1, 1997, the Company purchased an interest-rate cap agreement
from Morgan Stanley Capital Services Inc. The carrying value as of December 31,
1998 was $47. The fair value of the interest-rate cap, which is based upon the
estimated amount that the Company would receive or pay to terminate the cap
agreement as of December 31, 1998, taking into consideration current interest
rates and the credit worthiness of the counterparties, approximates its carrying
value.
The following table summarizes the interest-rate cap agreement:
<TABLE>
<CAPTION>
NOTIONAL INITIAL
PRINCIPAL EFFECTIVE TERMINATION CONTRACT FIXED RATE
AMOUNT TERM DATE DATE COST (PAY RATE)
- --------- ---- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
$100,000 2 years 12/1/97 12/1/99 $100 7.25%
</TABLE>
6. TAXES
For the year ended December 31, 1998, the provision for income taxes has
been calculated on a separate company basis. The components of the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Federal:
Current..................................................... $ --
Deferred.................................................. --
State:
Current................................................... 135
Deferred.................................................. --
----
Provision for income taxes............................. $135
====
</TABLE>
The Company's current state tax liability results from its obligation to
pay franchise tax in Tennessee and Mississippi and tax on capital in New York.
The Company has a net operating loss ("NOL") carryforward for income tax
purposes which is available to offset future taxable income. This NOL totals
approximately $14,900 and expires in the year 2018. The Company has established
a valuation allowance to offset the entire potential future tax benefit of the
NOL carryforward and, therefore, has recognized no deferred tax asset with
respect to the NOL.
Louisiana and Tennessee have elected to be treated as corporations for
federal income tax purposes and have not recorded any tax benefit for their
losses as the realization of theses losses by reducing future taxable income in
the carry forward period is uncertain at this time.
7. RELATED PARTY TRANSACTIONS
(a) TRANSACTIONS WITH MORGAN STANLEY ENTITIES
In connection with the Acquisition, Media entered into the Credit Agreement
with Morgan Stanley Senior Funding Inc. and Morgan Stanley & Co. Incorporated
acted as the Placement
F-114
<PAGE> 344
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Agent for the Notes. In connection with these services the Morgan Stanley
Entities received customary fees and expense reimbursement.
(b) TRANSACTIONS WITH TIME WARNER AND RELATED PARTIES
In connection with the Acquisition, Media entered into an agreement with
Time Warner, pursuant to which Time Warner manages the Company's programming in
exchange for providing the Company access to certain Time Warner programming
arrangements.
(c) Transactions with Management
Prior to the consummation of the Acquisition described in Note 3, Media
paid fees in 1998 to six senior executives of the Company who are investors in
the Company (the "Management Investors") for services rendered prior to their
employment by Media relating to the Acquisition and the Credit Agreement. These
fees totaled $287 and were recorded as transaction and financing costs.
(d) DUE TO MANAGEMENT INVESTORS
Prior to the formation of the Company, the Management Investors advanced
$1,000 to Holdings, which was used primarily for working capital purposes. Upon
formation of the Company, Holdings contributed certain assets and liabilities to
Group and the $1,000 advance from the Management Investors was recorded as paid
in capital.
(e) TRANSACTIONS WITH BOARD MEMBER
The Company has utilized the law firm of one of its board members for legal
services for the Acquisition, financing agreements and various ongoing legal
matters. These fees totaled approximately $1,348 for the year ended December 31,
1998.
8. ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 consist of the following:
<TABLE>
<S> <C>
Accrued programming costs................................... $1,986
Accrued interest............................................ 1,671
Accrued franchise fees...................................... 1,022
Accrued legal and professional fees,........................ 254
Accrued salaries, wages and benefits........................ 570
Accrued property and sales tax.............................. 637
Other accrued expenses...................................... 530
------
$6,670
======
</TABLE>
9. EMPLOYEE BENEFIT PLAN
Effective April 9, 1998, the Company began sponsoring a defined
contribution plan which covers substantially all employees (the "Plan"). The
Plan provides for contributions from eligible employees up to 15% of their
compensation. The Company's contribution to the Plan is limited to 50% of each
eligible employee's contribution up to 10% of his or her compensation. The
Company has the right in any year to set the amount of the Company's
contribution percentage.
F-115
<PAGE> 345
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Company matching contributions to the Plan for the year ended December 31, 1998
were approximately $97. All participant contributions and earnings are fully
vested upon contribution and company contributions and earnings vest 20% per
year of employment with the Company, becoming fully vested after five years.
10. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company had rental expense under various lease and rental agreements
primarily for offices, tower sites and warehouses of approximately $125 in 1998.
In addition, the Company rents utility poles in its operations generally under
short term arrangements, but the Company expects these arrangements to recur.
Total rent expense for utility poles was approximately $620 in 1998. Future
minimum annual rental payments under noncancellable leases are as follows:
<TABLE>
<S> <C>
1999............................................... $162
2000............................................... 38
2001............................................... 24
2002............................................... 20
2003 and thereafter................................ 66
----
Total......................................... $310
====
</TABLE>
(b) EMPLOYMENT AGREEMENTS
Media has entered into employment agreements with six senior executives who
are also investors in Holdings. Under the conditions of five of the agreements
the employment term is five years, expiring in April 2003 and requires Media to
continue salary payments (including any bonus) through the term if the
executive's employment is terminated by Media without cause, as defined in the
employment agreement. Media's obligations under the employment agreements may be
reduced in certain situations based on actual operating performance relative to
the business plan, death or disability or by actions of the other senior
executives.
The employment agreement for one senior executive has a term of one year
and may be renewed annually. This agreement has been renewed through April 8,
2000.
(c) OTHER AGREEMENTS
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, Time
Warner agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 megahertz) by 1999
(approximately $23 million). This agreement with the FCC has been assumed by the
Company as part of the Acquisition.
11. SUBSEQUENT EVENT
On February 23, 1999, Holdings entered into an agreement with Charter
Communications, LLC and Charter Communications, Inc., to sell 100% of its
members' equity in the Company for approximately $459,000, subject to certain
closing conditions. This transaction is expected to close during the third
quarter of 1999.
F-116
<PAGE> 346
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
12. YEAR 2000 ISSUES (UNAUDITED)
The Company relies on computer systems, related software applications and
other control devices in operating and monitoring all major aspects of its
business, including, but not limited to, its financial systems (such as general
ledger, accounts payable, payroll and fixed asset modules), subscriber billing
systems, internal networks and telecommunications equipment. The Company also
relies, directly and indirectly, on the external systems of various independent
business enterprises, such as its suppliers and financial organizations, for the
accurate exchange of data.
The Company continues to assess the likely impact of Year 2000 issues on
its business operations, including its material information technology ("IT")
and non-IT applications. These material applications include all billing and
subscriber information systems, general ledger software, payroll systems,
accounting software, phone switches and certain headend applications, all of
which are third party supported.
The Company believes it has identified all systems that may be affected by
Year 2000 Issues. Concurrent with the identification phase, the Company is
securing compliance determinations relative to all identified systems. For those
systems that the Company believes are material, compliance programs have been
received or such systems have been certified by independent parities as Year
2000 compliant. For those material systems that are subject to compliance
programs, the Company expects to receive Year 2000 certifications from
independent parties by the second quarter 1999. Determinations of Year 2000
compliance requirements for less mission critical systems are in progress and
are expected to be completed in the second quarter of 1999.
With respect to third parties with which the Company has a material
relationship, the Company believes its most significant relationships are with
financial institutions, who receive subscriber monthly payments and maintain
Company bank accounts, and subscriber billing and management systems providers.
We have received compliance programs which if executed as planned should provide
a high degree of assurance that all Year 2000 issues will be addressed by mid
1999.
The Company has not incurred any material Year 2000 costs to date, and
excluding the need for contingency plans, does not expect to incur any material
Year 2000 costs in the future because most of its applications are maintained by
third parties who have borne Year 2000 compliance costs.
The Company cannot be certain that it or third parties supporting its
systems have resolved or will resolve all Year 2000 issues in a timely manner.
Failure by the Company or any such third party to successfully address the
relevant Year 2000 issues could result in disruptions of the Company's business
and the incurrence of significant expenses by the Company. Additionally, the
Company could be affected by any disruption to third parties with which the
Company does business if such third parties have not successfully addressed
their Year 2000 issues.
Failure to resolve Year 2000 issues could result in improper billing to the
Company's subscribers which could have a major impact on the recording of
revenue and the collection of cash as well as create significant customer
dissatisfaction. In addition, failure on the part of the financial institutions
with which the Company relies on for its cash collection and management services
could also have a significant impact on collections, results of operations and
the liquidity of the Company.
F-117
<PAGE> 347
RENAISSANCE MEDIA GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
(ALL DOLLAR AMOUNTS IN THOUSANDS)
The Company has not yet finalized contingency plans necessary to handle the
most likely worst case scenarios. Before concluding as to possible contingency
plans, the Company must determine whether the material service providers
contemplate having such plans in place. In the event that contingency plans from
material service providers are not in place or are deemed inadequate, management
expects to have such plans in place by the third quarter of 1999.
F-118
<PAGE> 348
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TWI Cable, Inc.
We have audited the accompanying combined balance sheet of the Picayune MS,
Lafourche LA, St. Tammany LA, St. Landry LA, Pointe Coupee LA, and Jackson TN
cable television systems, (collectively, the "Combined Systems") included in TWI
Cable, Inc. ("TWI Cable"), as of April 8, 1998, and the related combined
statements of operations, changes in net assets and cash flows for the period
from January 1, 1998 through April 8, 1998. These combined financial statements
are the responsibility of the Combined Systems' management. Our responsibility
is to express an opinion on these combined financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Combined Systems, included in TWI Cable, at April 8, 1998, and the combined
results of their operations and their cash flows for the period from January 1,
1998 through April 8, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 22, 1999
F-119
<PAGE> 349
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 7
Receivables, less allowance of $116......................... 576
Prepaid expenses and other assets........................... 438
Property, plant and equipment, net.......................... 35,992
Cable television franchises, net............................ 195,907
Goodwill and other intangibles, net......................... 50,023
--------
Total assets...................................... $282,943
========
LIABILITIES AND NET ASSETS
Accounts payable............................................ $ 63
Accrued programming expenses................................ 978
Accrued franchise fees...................................... 616
Subscriber advance payments and deposits.................... 593
Deferred income taxes....................................... 61,792
Other liabilities........................................... 747
--------
Total liabilities................................. 64,789
Total net assets.................................. 218,154
--------
Total liabilities and net assets.................. $282,943
========
</TABLE>
See accompanying notes to combined financial statements.
F-120
<PAGE> 350
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, 1998
THROUGH
APRIL 8, 1998
---------------
<S> <C>
REVENUES.................................................... $15,221
COSTS AND EXPENSES:
Operating and programming................................... 3,603
Selling, general and administrative......................... 4,134
Depreciation and amortization............................... 5,031
(Gain) on disposal of fixed assets.......................... (96)
-------
Total costs and expenses.......................... 12,672
-------
Operating income............................................ 2,549
Provision for income taxes.................................. 1,191
-------
Net income.................................................. $ 1,358
=======
</TABLE>
See accompanying notes to combined financial statements.
F-121
<PAGE> 351
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENT OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1997................................ $224,546
Repayment of advances from Parent........................... (17,408)
Advances from Parent...................................... 9,658
Net income................................................ 1,358
--------
Balance at April 8, 1998.................................... $218,154
========
</TABLE>
See accompanying notes to combined financial statements.
F-122
<PAGE> 352
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1, 1998
THROUGH
APRIL 8, 1998
---------------
<S> <C>
OPERATING ACTIVITIES:
Net income.................................................. $ 1,358
Adjustments for noncash and nonoperating items:
Income tax expense........................................ 1,191
Depreciation and amortization............................. 5,031
(Gain) on disposal of fixed assets........................ (96)
Changes in operating assets and liabilities:
Receivables, prepaids and other assets................. 289
Accounts payable, accrued expenses and other
liabilities........................................... (770)
Other balance sheet changes............................ (4)
-------
Net cash provided by operations............................. 6,999
-------
INVESTING ACTIVITIES:
Capital expenditures........................................ (613)
-------
Net cash used in investing activities....................... (613)
-------
FINANCING ACTIVITIES:
Net repayment of advances from Parent....................... (7,750)
-------
Net cash (used in) financing activities..................... (7,750)
INCREASE IN CASH AND CASH EQUIVALENTS....................... (1,364)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,371
-------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 7
=======
</TABLE>
See accompanying notes to combined financial statements.
F-123
<PAGE> 353
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The cable television systems operating in the metropolitan areas of
Picayune, Mississippi; Lafourche, Louisiana; St. Tammany, Louisiana; St. Landry,
Louisiana; Pointe Coupee, Louisiana; and Jackson, Tennessee (the "Combined
Systems") are principally engaged in the cable television business under
non-exclusive franchise agreements, which expire at various times beginning in
1999. The Combined Systems' operations consist primarily of selling video
programming which is distributed to subscribers for a monthly fee through a
network of coaxial and fiber-optic cables.
Prior to January 4, 1996, the Combined Systems were included in certain
subsidiaries of Cablevision Industries Corporation ("CVI"). On January 4, 1996,
CVI merged into a wholly owned subsidiary of Time Warner Inc. (the "CVI
Merger"). On October 1, 1996, Time Warner Inc. ("Time Warner") completed a
reorganization amongst certain of its wholly owned cable television subsidiaries
whereby CVI was renamed TWI Cable Inc. ("TWI Cable").
BASIS OF PRESENTATION
TWI Cable has sold the Combined Systems to Renaissance Media Holdings LLC
("Renaissance") pursuant to an Asset Purchase Agreement with Renaissance, dated
November 14, 1997 (see Note 8). Accordingly, the accompanying combined financial
statements of the Combined Systems reflect the "carved out" historical financial
position, results of operations, cash flows and changes in net assets of the
operations of the Combined Systems as if they had been operating as a separate
company. Effective as of January 1, 1996, the Combined Systems' financial
statements reflect the new basis of accounting arising from Time Warner's merger
with CVI. Based on Time Warner's allocation of the purchase price, the assets
and liabilities of the Combined Systems were revalued resulting in goodwill
allocated to the Combined Systems of approximately $52,971,000, which is being
amortized over its estimated life of 40 years. In addition, approximately
$220,981,000 was allocated to cable television franchises and other intangible
assets, which is being amortized over periods up to 20 years.
The combined statements have been adjusted to include the allocation of
certain corporate expenses incurred by Time Warner Cable and/or TWI Cable on the
Combined Systems' behalf, based upon the number of Combined System subscribers
managed by Time Warner Cable and the ratio of Combined System subscribers to
total TWI Cable subscribers, respectively. These allocations reflect all costs
of doing business that the Combined Systems would have incurred on a stand alone
basis as disclosed in Note 3. Management believes that these allocations are
reasonable.
BASIS OF COMBINATION
The combined financial statements include the assets, liabilities,
revenues, expenses, income, loss and cash flows of the Combined Systems, as if
the Combined Systems were a single company. Significant intercompany accounts
and transactions between the Combined Systems have been eliminated. Significant
accounts and transactions with Time Warner and its affiliates are disclosed as
related party transactions (see Note 3).
F-124
<PAGE> 354
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined financial
statements and footnotes thereto. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Combined Systems generally extend credit to customers and the ultimate
collection of accounts receivable could be affected by the local economy.
Management performs continuous credit evaluations of its customers and may
require cash in advance or other special arrangements from certain customers.
Management does not believe that there is any significant credit risk which
could have a material effect on the financial condition of the Combined Systems.
REVENUE AND COSTS
Subscriber fees are recorded as revenue in the period the related services
are provided and advertising revenues are recognized in the period the related
advertisements are exhibited. Rights to exhibit programming are purchased from
various cable networks. The costs of such rights are generally expensed as the
related services are made available to subscribers.
FRANCHISE FEES
Local governmental authorities impose franchise fees on the cable
television systems owned by the Combined Systems ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Combined Systems' customers and such fees are not included as
revenue or as a franchise fee expense.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements. Advertising expense amounted to $105,000 for the period from
January 1, 1998 through April 8, 1998.
STATEMENT OF CASH FLOWS
The Combined Systems participate in a cash management system with
affiliates whereby cash receipts are transferred to a centralized bank account
from which centralized payments to various suppliers and creditors are made on
behalf of the Combined Systems. The excess of such cash receipts over payments
is included in net assets. Amounts shown as cash represent the Combined Systems'
net cash receipts not transferred to the centralized account as of December 31,
1996 and 1997. The average net intercompany payable balances was $166,522,000
for the period from January 1, 1998 through April 8, 1998.
For purposes of this statement, cash and cash equivalents includes all
highly liquid investments purchased with original maturities of three months or
less.
F-125
<PAGE> 355
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to property,
plant and equipment generally include material, labor, overhead and interest.
Depreciation is provided on the straight-line method over estimated useful lives
as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-20 years
Cable television equipment.................................. 5-15 years
Furniture, fixtures and other equipment..................... 3-10 years
</TABLE>
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
(IN THOUSANDS)
<S> <C>
Land and buildings.......................................... $ 2,255
Cable television equipment.................................. 40,276
Furniture, fixtures and other equipment..................... 2,308
Construction in progress.................................... 1,183
--------
46,022
Less accumulated depreciation............................... (10,030)
--------
Total............................................. $ 35,992
========
</TABLE>
INTANGIBLE ASSETS
The Combined Systems amortized goodwill over periods up to 40 years and
cable television franchises over periods up to 20 years, both using the
straight-line method. For the period from January 1, 1998 through April 8, 1998
amortization of goodwill amounted to $360,000 and amortization of cable
television franchises amounted to $3,008,000. Accumulated amortization of
intangible assets amounted to $28,114,000 at April 8, 1998.
IMPAIRMENT
Management separately reviews the carrying value of acquired long-lived
assets for each acquired entity on a quarterly basis to determine whether an
impairment may exist. Management considers relevant cash flow and profitability
information, including estimated future operating results, trends and other
available information, in assessing whether the carrying value of long-lived
assets can be recovered. Upon a determination that the carrying value of
long-lived assets will not be recovered from the undiscounted future cash flows
of the acquired business, the carrying value of such long-lived assets would be
considered impaired and would be reduced by a charge to operations in the amount
of the impairment. An impairment charge is measured as a deficiency in estimated
discounted future cash flows of the acquired business to recover the carrying
value related to the long-lived assets.
INCOME TAXES
Income taxes have been provided using the liability method prescribed by
FASB Statement No. 109, "Accounting for Income Taxes." Under the liability
method, deferred income taxes reflect tax carryforwards and the net tax effects
of temporary differences between the carrying
F-126
<PAGE> 356
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
amount of assets and liabilities for financial statements and income tax
purposes, as determined under enacted tax laws and rates.
2. EMPLOYEE BENEFIT PLANS
Following the CVI Merger, the Combined Systems began participation in the
Time Warner Cable Pension Plan (the "Pension Plan"), a non-contributory defined
benefit pension plan, and the Time Warner Cable Employee Savings Plan (the
"Savings Plan") which are administered by a committee appointed by the Board of
Representatives of Time Warner Entertainment Company, L.P. ("TWE"), an affiliate
of Time Warner, and which cover substantially all employees.
Benefits under the Pension Plan are determined based on formulas which
reflect an employee's years of service and compensation levels during the
employment period. Pension expense for the period from January 1, 1998 through
April 8, 1998 totaled $61,000.
The Combined Systems' contributions to the Savings Plan are limited to
6.67% of an employee's eligible compensation during the plan year. The Board of
Representatives of TWE has the right in any year to set the maximum amount of
the Combined Systems' contribution. Defined contribution plan expense for the
period from January 1, 1998 through April 8, 1998 totaled $38,000.
The Combined Systems have no material obligations for other post retirement
benefits.
3. RELATED PARTIES
In the normal course of conducting business, the Combined Systems had
various transactions with Time Warner and its affiliates, generally on terms
resulting from a negotiation between the affected units that in management's
view resulted in reasonable allocations.
PROGRAMMING
Included in the Combined Systems' operating expenses are charges for
programming and promotional services provided by Home Box Office, Turner
Broadcasting System, Inc. and other affiliates of Time Warner. These charges are
based on customary rates and are in the ordinary course of business. These
charges totaled $1,164,000 for the period from January 1, 1998 through April 8,
1998. Accrued related party expenses for these programming and promotional
services included in accrued programming expenses approximated $409,000 for the
period from January 1, 1998 through April 8, 1998.
MANAGEMENT FEES
TWI Cable entered into a management service arrangement with Time Warner
Cable ("TWC"), pursuant to which TWC is responsible for the management and
operation of TWI Cable, which includes the Combined Systems. The management fees
paid to TWC by TWI Cable are based on an allocation of the corporate expenses of
TWC's cable division in proportion to the respective number of subscribers of
all cable systems managed by TWC's cable division. The allocation of the TWI
Cable management fee to the Combined Systems approximated $486,000 for the
period from January 1, 1998 through April 8, 1998.
Other divisional expenses allocated to the Combined Systems approximated
$299,000 for the period from January 1, 1998 through April 8, 1998.
F-127
<PAGE> 357
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTEREST EXPENSE
Prior to the CVI Merger, the Jackson, Tennessee system was included in
Cablevision Industries Limited Partnership and Combined Entities ("CILP"). The
Jackson system was charged interest expense in connection with CILP's (a) senior
and subordinated bank credit agreements; and (b) senior unsecured subordinated
Series A and Series B notes payable to CVI. The remaining five systems
comprising the Combined Systems were included in Cablevision Industries of the
Southeast, Inc. and Combined Entities ("CIOS"). These systems were charged
interest expense in connection with CIOS's (a) bank revolving credit agreement;
and (b) junior and senior subordinated debt to CVI.
5. INCOME TAXES
Effective January 4, 1996, the Combined Systems are included in the
consolidated federal income tax return of Time Warner. Prior to January 4, 1996,
the Combined Systems were included in the consolidated federal income tax return
of CVI. The provision for income taxes has been calculated on a separate company
basis. The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1, 1998
THROUGH
APRIL 8, 1998
--------------------
(IN THOUSANDS)
<S> <C>
Federal:
Current................................................... $ --
Deferred................................................ 962
State:
Current................................................. --
Deferred................................................ 229
------
Net provision for income taxes....................... $1,191
======
</TABLE>
The Combined Systems did not, and will not, have a tax sharing agreement
with either Time Warner, TWI Cable or CVI. Therefore, the Combined Systems have
not and will not be compensated for the utilization of the Combined Systems' tax
losses, by Time Warner, TWI Cable or CVI. In addition, the Combined Systems have
not and will not be required to make payments to either Time Warner or TWI Cable
for the current tax provision of the Combined Systems.
The differences between the income tax provision expected at the U.S.
federal statutory income tax rate and the total income tax provision are due to
nondeductible goodwill amortization and state taxes.
F-128
<PAGE> 358
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Combined Systems' deferred tax assets and
liabilities, as calculated on a separate company basis, are as follows:
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
(IN THOUSANDS)
<S> <C>
Deferred tax liabilities:
Amortization................................................ $57,817
Depreciation.............................................. 4,181
-------
Total gross deferred tax liabilities.............. 61,998
-------
Deferred tax assets:
Tax loss carryforwards.................................... 160
Allowance for doubtful accounts........................... 46
-------
Total deferred tax assets......................... 206
-------
Net deferred tax liability........................ $61,792
=======
</TABLE>
On a separate company basis, the Combined Systems have tax loss
carryforwards of approximately $400,000 at April 8, 1998. However, if the
Combined Systems are acquired in an asset purchase, the tax loss carryforwards,
and net deferred tax liabilities relating to temporary differences will not
carry over to Renaissance (see Note 8).
6. COMMITMENTS AND CONTINGENCIES
The Combined Systems had rental expense of approximately $244,000 for the
period from January 1, 1998 through April 8, 1998 under various lease and rental
agreements for offices, utility poles, warehouses and computer equipment. Future
minimum annual rental payments under noncancellable leases will approximate
$1,000,000 annually over the next five years.
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, TWC
has agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 megahertz) over the
next three years (approximately $25 million at December 31, 1997). This
agreement with the FCC, which extends to the Combined Systems, will be assumed
by Renaissance as it relates to the Combined Systems in accordance with the
Asset Purchase Agreement.
F-129
<PAGE> 359
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
APRIL 8, 1998
-------------
(IN THOUSANDS)
<S> <C>
Compensation................................................ $279
Data Processing Costs....................................... 161
Sales and other taxes....................................... 146
Copyright Fees.............................................. 35
Pole Rent................................................... 93
Other....................................................... 33
----
Total............................................. $747
====
</TABLE>
8. SUBSEQUENT EVENT
The sale of the Combined Systems, in connection with the Asset Purchase
Agreement with Renaissance, closed on April 9, 1998 at the purchase price of
$309,500,000.
F-130
<PAGE> 360
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TWI Cable Inc.
We have audited the accompanying combined balance sheets of the Picayune
MS, Lafourche LA, St. Tammany LA, St. Landry LA, Pointe Coupee LA, and Jackson
TN cable television systems, (collectively, the "Combined Systems") included in
TWI Cable, Inc. ("TWI Cable"), as of December 31, 1996 and 1997, the related
combined statements of operations, changes in net assets and cash flows for the
years then ended. In addition, we have audited the combined statement of
operations and cash flows for the year ended December 31, 1995 of the
Predecessor Combined Systems. These combined financial statements are the
responsibility of the Combined Systems' or the Predecessor's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the Combined
Systems, included in TWI Cable or the Predecessor, at December 31, 1996 and
1997, and the combined results of their operations and their cash flows for the
years ended December 31, 1995, 1996 and 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
March 16, 1998
F-131
<PAGE> 361
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 570 $ 1,371
Receivables, less allowance of $71 and $116 for the years
ended December 31, 1996 and 1997, respectively............ 794 1,120
Prepaid expenses and other assets........................... 45 183
Property, plant and equipment, net.......................... 36,966 36,944
Cable television franchises, net............................ 209,952 198,913
Goodwill and other intangibles, net......................... 51,722 50,383
-------- --------
Total assets...................................... $300,049 $288,914
======== ========
LIABILITIES AND NET ASSETS
Accounts payable............................................ $ 1,640 $ 652
Accrued programming expenses................................ 847 904
Accrued franchise fees...................................... 736 835
Subscriber advance payments and deposits.................... 66 407
Deferred income taxes....................................... 58,340 60,601
Other liabilities........................................... 945 969
-------- --------
Total liabilities................................. 62,574 64,368
Total net assets.................................. 237,475 224,546
-------- --------
Total liabilities and net assets.................. $300,049 $288,914
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-132
<PAGE> 362
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
---- ---- ----
(PREDECESSOR) (INCLUDED IN TWI CABLE INC.)
<S> <C> <C> <C>
REVENUES............................................ $43,549 $47,327 $50,987
COSTS AND EXPENSES:
Operating and programming........................... 13,010 12,413 12,101
Selling, general and administrative................. 9,977 12,946 13,823
Depreciation and amortization....................... 17,610 18,360 18,697
(Gain) loss on disposal of fixed assets............. -- (244) 620
------- ------- -------
Total costs and expenses.................. 40,597 43,475 45,241
------- ------- -------
Operating income.................................... 2,952 3,852 5,746
Interest expense.................................... 11,871 -- --
------- ------- -------
(Loss) income before income tax (benefit) expense... (8,919) 3,852 5,746
Income tax (benefit) expense........................ (3,567) 1,502 2,262
------- ------- -------
Net (loss) income................................... $(5,352) $ 2,350 $ 3,484
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-133
<PAGE> 363
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
<TABLE>
<S> <C>
Contribution by Parent...................................... $250,039
Repayment of advances from Parent........................... (47,895)
Advances from Parent...................................... 32,981
Net income................................................ 2,350
--------
Balance at December 31, 1996................................ 237,475
Repayment of advances from Parent......................... (50,661)
Advances from Parent...................................... 34,248
Net income................................................ 3,484
--------
Balance at December 31, 1997................................ $224,546
========
</TABLE>
See accompanying notes to combined financial statements.
F-134
<PAGE> 364
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
---- ---- ----
(PREDECESSOR) (INCLUDED IN TWI CABLE INC.)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income................................... $(5,352) $ 2,350 $ 3,484
Adjustments for noncash and nonoperating items:
Income tax (benefit) expense................... (3,567) 1,502 2,262
Depreciation and amortization.................. 17,610 18,360 18,697
(Gain) loss on disposal of fixed assets........ -- (244) 620
Changes in operating assets and liabilities:
Receivables, prepaids and other assets....... (196) 944 (464)
Accounts payable, accrued expenses and other
liabilities............................... (972) 176 (466)
Other balance sheet changes.................. -- -- (529)
------- --------- --------
Net cash provided by operations..................... 7,523 23,088 23,604
INVESTING ACTIVITIES:
Purchase of Predecessor cable systems, net of cash
acquired.......................................... -- (249,473) --
Capital expenditures................................ (7,376) (8,170) (6,390)
------- --------- --------
Net cash used in investing activities............... (7,376) (257,643) (6,390)
FINANCING ACTIVITIES:
Advance from Parent for purchase of Predecessor..... -- 250,039 --
Net repayment of advances from Parent............... -- (14,914) (16,413)
------- --------- --------
Net cash provided by (used in) financing
activities........................................ -- 235,125 (16,413)
INCREASE IN CASH AND CASH EQUIVALENTS............... 147 570 801
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.... 419 0 570
------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......... $ 566 $ 570 $ 1,371
======= ========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-135
<PAGE> 365
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The cable television systems operating in the metropolitan areas of
Picayune, Mississippi; Lafourche, Louisiana; St. Tammany, Louisiana; St. Landry,
Louisiana; Pointe Coupee, Louisiana; and Jackson, Tennessee (the "Combined
Systems") are principally engaged in the cable television business under
non-exclusive franchise agreements, which expire at various times beginning in
1999. The Combined Systems' operations consist primarily of selling video
programming which is distributed to subscribers for a monthly fee through a
network of coaxial and fiber-optic cables.
Prior to January 4, 1996, the Combined Systems were included in certain
subsidiaries of Cablevision Industries Corporation ("CVI"). On January 4, 1996,
CVI merged into a wholly owned subsidiary of Time Warner Inc. (the "CVI
Merger"). On October 1, 1996, Time Warner Inc. ("Time Warner") completed a
reorganization amongst certain of its wholly owned cable television subsidiaries
whereby CVI was renamed TWI Cable Inc. ("TWI Cable").
BASIS OF PRESENTATION
TWI Cable has committed to sell the Combined Systems to Renaissance Media
Holdings LLC ("Renaissance") pursuant to an Asset Purchase Agreement with
Renaissance, dated November 14, 1997. Accordingly, the accompanying combined
financial statements of the Combined Systems reflect the "carved out" historical
financial position, results of operations, cash flows and changes in net assets
of the operations of the Combined Systems as if they had been operating as a
separate company. Effective as of January 1, 1996, the Combined Systems'
financial statements reflect the new basis of accounting arising from Time
Warner's merger with CVI. Based on Time Warner's allocation of the purchase
price, the assets and liabilities of the Combined Systems were revalued
resulting in goodwill allocated to the Combined Systems of approximately
$52,971,000, which is being amortized over its estimated life of 40 years. In
addition, approximately $220,981,000 was allocated to cable television
franchises and other intangible assets, which is being amortized over periods up
to 20 years. The Combined Systems' financial statements through December 31,
1995 reflect the historical cost of their assets and liabilities and results of
their operations.
The combined statements have been adjusted to include the allocation of
certain corporate expenses incurred by Time Warner Cable and/or TWI Cable on the
Combined Systems' behalf, based upon the number of Combined System subscribers
managed by Time Warner Cable and the ratio of Combined System subscribers to
total TWI Cable subscribers, respectively. These allocations reflect all costs
of doing business that the Combined Systems would have incurred on a stand alone
basis as disclosed in Note 3. Management believes that these allocations are
reasonable.
BASIS OF COMBINATION
The combined financial statements include the assets, liabilities,
revenues, expenses, income, loss and cash flows of the Combined Systems, as if
the Combined Systems were a single company. Significant intercompany accounts
and transactions between the Combined Systems have been eliminated. Significant
accounts and transactions with Time Warner and its affiliates are disclosed as
related party transactions (see Note 3).
F-136
<PAGE> 366
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined financial
statements and footnotes thereto. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
A significant portion of the customer base is concentrated within the local
geographical area of each of the individual cable television systems. The
Combined Systems generally extend credit to customers and the ultimate
collection of accounts receivable could be affected by the local economy.
Management performs continuous credit evaluations of its customers and may
require cash in advance or other special arrangements from certain customers.
Management does not believe that there is any significant credit risk which
could have a material effect on the financial condition of the Combined Systems.
REVENUE AND COSTS
Subscriber fees are recorded as revenue in the period the related services
are provided and advertising revenues are recognized in the period the related
advertisements are exhibited. Rights to exhibit programming are purchased from
various cable networks. The costs of such rights are generally expensed as the
related services are made available to subscribers.
FRANCHISE FEES
Local governmental authorities impose franchise fees on the cable
television systems owned by the Combined Systems ranging up to a federally
mandated maximum of 5.0% of gross revenues. On a monthly basis, such fees are
collected from the Combined Systems' customers. Prior to January 1997, franchise
fees were not separately itemized on customers' bills. Such fees were considered
part of the monthly charge for basic services and equipment, and therefore were
reported as revenue and expense in the Combined Systems' financial results.
Management began the process of itemizing such fees on all customers' bills
beginning in January 1997. In conjunction with itemizing these charges, the
Combined Systems began separately collecting the franchise fee on all revenues
subject to franchise fees. As a result, such fees are no longer included as
revenue or as franchise fee expense. The net effect of this change is a
reduction in 1997 revenue and franchise fee expense of approximately $1,500,000
versus the comparable period in 1996.
ADVERTISING COSTS
Advertising costs are expensed upon the first exhibition of the related
advertisements. Advertising expense amounted to $308,000, $632,000 and $510,000
for the years ended 1995, 1996 and 1997, respectively.
STATEMENT OF CASH FLOWS
The Combined Systems participate in a cash management system with
affiliates whereby cash receipts are transferred to a centralized bank account
from which centralized payments to various suppliers and creditors are made on
behalf of the Combined Systems. The excess of
F-137
<PAGE> 367
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such cash receipts over payments is included in net assets. Amounts shown as
cash represent the Combined Systems' net cash receipts not transferred to the
centralized account as of December 31, 1996 and 1997. The average net
intercompany payable balances were $173,348,000 and $170,438,000 for the years
ended December 31, 1996 and 1997, respectively.
For purposes of this statement, cash and cash equivalents includes all
highly liquid investments purchased with original maturities of three months or
less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to property,
plant and equipment generally include material, labor, overhead and interest.
Depreciation is provided on the straight-line method over estimated useful lives
as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-20 years
Cable television equipment.................................. 5-15 years
Furniture, fixtures and other equipment..................... 3-10 years
</TABLE>
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
---- ----
<S> <C> <C>
Land and buildings.......................................... $ 2,003 $ 2,265
Cable television equipment.................................. 32,324 39,589
Furniture, fixtures and other equipment..................... 1,455 2,341
Construction in progress.................................... 5,657 1,028
------- -------
41,439 45,223
Less accumulated depreciation............................... (4,473) (8,279)
------- -------
Total............................................. $36,966 $36,944
======= =======
</TABLE>
INTANGIBLE ASSETS
During 1996 and 1997, the Combined Systems amortized goodwill over periods
up to 40 years and cable television franchises over periods up to 20 years, both
using the straight-line method. Prior to the CVI Merger, goodwill and cable
television franchises were amortized over 15 years using the straight-line
method. For the years ended 1995, 1996, and 1997, amortization of goodwill
amounted to $8,199,000, $1,325,000, and $1,325,000, respectively, and
amortization of cable television franchises amounted to $1,284,000, $11,048,000,
and $11,048,000, respectively. Accumulated amortization of intangible assets at
December 31, 1996 and 1997 amounted to $12,373,000 and $24,746,000,
respectively.
IMPAIRMENT
Management separately reviews the carrying value of acquired long-lived
assets for each acquired entity on a quarterly basis to determine whether an
impairment may exist. Management considers relevant cash flow and profitability
information, including estimated future operating results, trends and other
available information, in assessing whether the carrying value of long-lived
assets can be recovered. Upon a determination that the carrying value of
long-lived assets
F-138
<PAGE> 368
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
will not be recovered from the undiscounted future cash flows of the acquired
business, the carrying value of such long-lived assets would be considered
impaired and would be reduced by a charge to operations in the amount of the
impairment. An impairment charge is measured as a deficiency in estimated
discounted future cash flows of the acquired business to recover the carrying
value related to the long-lived assets.
INCOME TAXES
Income taxes have been provided using the liability method prescribed by
FASB Statement No. 109, "Accounting for Income Taxes." Under the liability
method, deferred income taxes reflect tax carryforwards and the net tax effects
of temporary differences between the carrying amount of assets and liabilities
for financial statements and income tax purposes, as determined under enacted
tax laws and rates.
2. EMPLOYEE BENEFIT PLANS
Following the CVI Merger, the Combined Systems began participation in the
Time Warner Cable Pension Plan (the "Pension Plan"), a non-contributory defined
benefit pension plan, and the Time Warner Cable Employee Savings Plan (the
"Savings Plan") which are administered by a committee appointed by the Board of
Representatives of Time Warner Entertainment Company, L.P. ("TWE"), an affiliate
of Time Warner, and which cover substantially all employees.
Benefits under the Pension Plan are determined based on formulas which
reflect an employee's years of service and compensation levels during the
employment period. Pension expense for the years ended December 31, 1996 and
1997 totaled $184,000 and $192,000, respectively.
The Combined Systems' contributions to the Savings Plan are limited to
6.67% of an employee's eligible compensation during the plan year. The Board of
Representatives of TWE has the right in any year to set the maximum amount of
the Combined Systems' contribution. Defined contribution plan expense for the
years ended December 31, 1996 and 1997 totaled $107,000 and $117,000,
respectively.
Prior to the CVI Merger, substantially all employees were eligible to
participate in a profit sharing plan or a defined contribution plan. The profit
sharing plan provided that the Combined Systems may contribute, at the
discretion of their board of directors, an amount up to 15% of compensation for
all eligible participants out of its accumulated earnings and profits, as
defined. Profit sharing expense amounted to approximately $31,000 for the year
ended December 31, 1995.
The defined contribution plan contained a qualified cash or deferred
arrangement pursuant to Internal Revenue Code Section 401(k). This plan provided
that eligible employees may contribute from 2% to 10% of their compensation to
the plan. The Combined Systems matched contributions of up to 4% of the
employees' compensation. The expense for this plan amounted to approximately
$96,000 for the year ended December 31, 1995.
The Combined Systems have no material obligations for other post retirement
benefits.
F-139
<PAGE> 369
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. RELATED PARTIES
In the normal course of conducting business, the Combined Systems had
various transactions with Time Warner and its affiliates, generally on terms
resulting from a negotiation between the affected units that in management's
view resulted in reasonable allocations.
PROGRAMMING
Included in the Combined Systems' 1996 and 1997 operating expenses are
charges for programming and promotional services provided by Home Box Office,
Turner Broadcasting System, Inc. and other affiliates of Time Warner. These
charges are based on customary rates and are in the ordinary course of business.
For the year ended December 31, 1996 and 1997, these charges totaled $3,260,000
and $3,458,000, respectively. Accrued related party expenses for these
programming and promotional services included in accrued programming expenses
approximated $327,000 and $291,000 for the years ended December 31, 1996 and
1997, respectively. There were no such programming and promotional service
related party transactions in 1995.
MANAGEMENT FEES
TWI Cable entered into a management service arrangement with Time Warner
Cable ("TWC"), pursuant to which TWC is responsible for the management and
operation of TWI Cable, which includes the Combined Systems. The management fees
paid to TWC by TWI Cable are based on an allocation of the corporate expenses of
TWC's cable division in proportion to the respective number of subscribers of
all cable systems managed by TWC's cable division. The allocation of the TWI
Cable management fee to the Combined Systems approximated $1,432,000 and
$1,715,000 for the years ended December 31, 1996 and 1997, respectively.
Other divisional expenses allocated to the Combined Systems approximated
$1,301,000 and $1,067,000 for the years ended December 31, 1996 and 1997,
respectively.
4. INTEREST EXPENSE
Prior to the CVI Merger, the Jackson, Tennessee system was included in
Cablevision Industries Limited Partnership and Combined Entities ("CILP"). The
Jackson system was charged interest expense in connection with CILP's (a) senior
and subordinated bank credit agreements; and (b) senior unsecured subordinated
Series A and Series B notes payable to CVI. The remaining five systems
comprising the Combined Systems were included in Cablevision Industries of the
Southeast, Inc. and Combined Entities ("CIOS"). These systems were charged
interest expense in connection with CIOS's (a) bank revolving credit agreement;
and (b) junior and senior subordinated debt to CVI.
5. INCOME TAXES
Effective January 4, 1996, the Combined Systems are included in the
consolidated federal income tax return of Time Warner. Prior to January 4, 1996,
the Combined Systems were included in the consolidated federal income tax return
of CVI. The provision (benefit) for income
F-140
<PAGE> 370
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
taxes has been calculated on a separate company basis. The components of the
provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
FEDERAL:
Current............................... $ -- $ -- $ --
Deferred............................ (2,881) 1,213 1,826
STATE:
Current............................. -- -- --
Deferred............................ (686) 289 436
------- ------ ------
Net provision (benefit) for income
taxes............................ $(3,567) $1,502 $2,262
======= ====== ======
</TABLE>
The Combined Systems did not, and will not, have a tax sharing agreement
with either Time Warner, TWI Cable or CVI. Therefore, the Combined Systems have
not and will not be compensated for the utilization of the Combined Systems' tax
losses, by Time Warner, TWI Cable or CVI. In addition, the Combined Systems have
not and will not be required to make payments to either Time Warner or TWI Cable
for the current tax provision of the Combined Systems.
The differences between the income tax provision (benefit) expected at the
U.S. federal statutory income tax rate and the total income tax provision
(benefit) are due to nondeductible goodwill amortization and state taxes.
Significant components of the Combined Systems' deferred tax assets and
liabilities, as calculated on a separate company basis, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Amortization................................. $61,266 $58,507
Depreciation............................... 3,576 4,060
------- -------
Total gross deferred tax
liabilities...................... 64,842 62,567
------- -------
DEFERRED TAX ASSETS:
Tax loss carryforwards..................... 6,474 1,920
Allowance for doubtful accounts............ 28 46
------- -------
Total deferred tax assets.......... 6,502 1,966
------- -------
Net deferred tax liability................. $58,340 $60,601
======= =======
</TABLE>
On a separate company basis, the Combined Systems have tax loss
carryforwards of approximately $4.8 million at December 31, 1997. However, if
the Combined Systems are acquired in an asset purchase, the tax loss
carryforwards, and net deferred tax liabilities relating to temporary
differences will not carry over to Renaissance (see Note 8).
F-141
<PAGE> 371
PICAYUNE MS, LAFOURCHE LA, ST. TAMMANY LA, ST. LANDRY LA,
POINTE COUPEE LA, AND JACKSON TN CABLE TELEVISION SYSTEMS
(INCLUDED IN TWI CABLE INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Combined Systems had rental expense of approximately $642,000,
$824,000, and $843,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, under various lease and rental agreements for offices, utility
poles, warehouses and computer equipment. Future minimum annual rental payments
under noncancellable leases will approximate $1,000,000 annually over the next
five years.
In exchange for certain flexibility in establishing cable rate pricing
structures for regulated services that went into effect on January 1, 1996, TWC
has agreed with the Federal Communications Commission ("FCC") to invest in
certain upgrades to its cable infrastructure (consisting primarily of materials
and labor in connection with the plant upgrades up to 750 megahertz) over the
next three years (approximately $22 million). This agreement with the FCC, which
extends to the Combined Systems, will be assumed by Renaissance as it relates to
the Combined Systems in accordance with the Asset Purchase Agreement.
7. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Compensation................................................ $217 $250
Data Processing Costs....................................... 100 90
Sales and other taxes....................................... 101 90
Copyright Fees.............................................. 85 83
Pole Rent................................................... 66 63
Other....................................................... 376 393
---- ----
Total.................................................. $945 $969
==== ====
</TABLE>
8. SUBSEQUENT EVENT (UNAUDITED)
The sale of the Combined Systems, in connection with the Asset Purchase
Agreement with Renaissance, closed on April 9, 1998 at the purchase price of
$309,500,000.
F-142
<PAGE> 372
INDEPENDENT AUDITORS' REPORT
The Partners
Helicon Partners I, L.P.:
We have audited the accompanying combined balance sheets of Helicon Partners I,
L.P. and affiliates as of December 31, 1997 and 1998, and the related combined
statements of operations, changes in partners' deficit, and cash flows for each
of the years in the three-year period ended December 31, 1998. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Helicon Partners I,
L.P. and affiliates as of December 31, 1997 and 1998 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.
/s/ KPMG LLP
New York, New York
March 26, 1999
F-143
<PAGE> 373
HELICON PARTNERS I, L.P. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
ASSETS (NOTES 8 AND 9)
Cash and cash equivalents (note 2)..................... $ 4,372,281 $ 5,130,561
Receivables from subscribers........................... 1,439,720 1,631,931
Prepaid expenses and other assets...................... 2,205,794 3,469,228
Property, plant and equipment, net (notes 3, 4, and
11).................................................. 80,104,377 86,737,580
Intangible assets and deferred costs, net (notes 3 and
5)................................................... 85,066,665 94,876,847
------------- -------------
Total assets................................. $ 173,188,837 $ 191,846,147
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable..................................... $ 7,416,901 $ 8,037,193
Accrued expenses..................................... 1,539,116 1,589,240
Subscriptions received in advance.................... 1,018,310 819,564
Accrued interest..................................... 3,760,360 3,742,456
Due to principal owner (note 7)...................... 5,000,000 5,000,000
Senior secured notes (note 8)........................ 115,000,000 115,000,000
Loans payable to banks (note 9)...................... 85,776,641 120,266,922
12% subordinated notes, net of unamortized discount
of $2,889,541 in 1997 and $2,543,869 in 1998 (note
10)............................................... 37,249,948 42,672,085
Redeemable partnership interests (note 10)........... 6,437,142 16,253,906
Other notes payable (note 11)........................ 5,747,076 5,448,804
Due to affiliates, net (note 6)...................... 71,474 247,042
------------- -------------
Total liabilities............................ 269,016,968 319,077,212
------------- -------------
Commitments (notes 8, 9, 10, 11 and 13)
Partners' deficit (note 12):
Preferred limited partners........................... 7,649,988 8,567,467
Accumulated partners' deficit........................ (103,477,119) (135,797,532)
Less capital contribution receivable................. (1,000) (1,000)
------------- -------------
Total partners' deficit...................... (95,828,131) (127,231,065)
------------- -------------
Total liabilities and partners' deficit...... $ 173,188,837 $ 191,846,147
============= =============
</TABLE>
See accompanying notes to combined financial statements.
F-144
<PAGE> 374
HELICON PARTNERS I, L.P. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues.................................... $ 42,061,537 $ 59,957,434 $ 75,576,810
------------ ------------ ------------
Operating expenses:
Operating expenses (note 13).............. 11,395,509 17,408,265 22,687,850
General and administrative expenses (notes
6 and 13).............................. 7,244,663 9,762,931 13,365,824
Marketing expenses........................ 1,235,553 2,266,627 3,521,893
Depreciation and amortization............. 12,556,023 19,411,813 24,290,088
Management fee charged by affiliate (note
6)..................................... 2,103,077 2,997,872 3,496,271
Corporate and other expenses.............. 426,672 549,222 602,987
------------ ------------ ------------
Total operating expenses.......... 34,961,497 52,396,730 67,964,913
------------ ------------ ------------
Operating income.......................... 7,100,040 7,560,704 7,611,897
------------ ------------ ------------
Interest expense (note 7)................... (17,418,266) (23,586,227) (27,633,714)
Interest income............................. 563,362 154,037 92,967
------------ ------------ ------------
(16,854,904) (23,432,190) (27,540,747)
------------ ------------ ------------
Loss before extraordinary item............ (9,754,864) (15,871,486) (19,928,850)
------------ ------------ ------------
Extraordinary item -- write-off of deferred
financing costs (note 9).................. -- -- (1,657,320)
------------ ------------ ------------
Net loss.................................. $ (9,754,864) $(15,871,486) $(21,586,170)
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-145
<PAGE> 375
HELICON PARTNERS I, L.P. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
PARTNERS' DEFICIT
-------------------------
PREFERRED CLASS A CAPITAL
LIMITED GENERAL LIMITED CONTRIBUTION
PARTNERS PARTNER PARTNERS RECEIVABLE TOTAL
---------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... $ -- $(307,994) $ (67,144,287) $(1,000) $ (67,453,281)
Issuance of preferred limited
partnership interests (note
10)............................. 6,250,000 (62,500) (6,187,500) -- --
Partner capital contributions
(note 10)..................... -- 1,500 -- -- 1,500
Distribution of additional
preferred partnership
interests (note 10)........... 558,430 (5,584) (552,846) -- --
Net loss........................ -- (97,549) (9,657,315) -- (9,754,864)
---------- --------- ------------- ------- -------------
Balance at December 31, 1996.... 6,808,430 (472,127) (83,541,948) (1,000) (77,206,645)
Distribution of additional
preferred partnership
interests (note 10)........... 841,558 (8,416) (833,142) -- --
Accretion of redeemable
partnership interests (note
10)........................... -- (27,500) (2,722,500) -- (2,750,000)
Net loss........................ -- (158,715) (15,712,771) -- (15,871,486)
---------- --------- ------------- ------- -------------
Balance at December 31, 1997.... 7,649,988 (666,758) (102,810,361) (1,000) (95,828,131)
Distribution of additional
preferred partnership
interests (note 10)........... 917,479 (9,175) (908,304) -- --
Accretion of redeemable
partnership interests (note
10)........................... -- (98,168) (9,718,596) -- (9,816,764)
Net loss........................ -- (215,861) (21,370,309) -- (21,586,170)
---------- --------- ------------- ------- -------------
Balance at December 31, 1998.... $8,567,467 $(989,962) $(134,807,570) $(1,000) $(127,231,065)
========== ========= ============= ======= =============
</TABLE>
See accompanying notes to combined financial statements.
F-146
<PAGE> 376
HELICON PARTNERS I, L.P. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (9,754,864) $(15,871,486) $(21,586,170)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Extraordinary item...................................... -- -- 1,657,320
Depreciation and amortization........................... 12,556,023 19,411,813 24,290,088
Gain on sale of equipment............................... (20,375) (1,069) (29,323)
Interest on 12% subordinated notes paid through the
issuance of additional notes.......................... 1,945,667 4,193,819 4,961,241
Interest on other notes payable added to principal...... 168,328 185,160 --
Amortization of debt discount and deferred financing
costs................................................. 2,115,392 849,826 919,439
Change in operating assets and liabilities, net of
acquisitions:
Decrease (increase) in receivables from subscribers... 176,432 (496,146) (79,535)
Increase in prepaid expenses and other assets......... (269,156) (976,491) (1,255,018)
Increase in financing costs incurred.................. (4,525,331) (434,000) (2,200,000)
Increase in accounts payable and accrued expenses..... 2,182,762 2,957,524 681,037
Increase (decrease) in subscriptions received in
advance............................................ 119,277 325,815 (208,803)
Increase (decrease) in accrued interest............... 1,613,630 376,158 (17,904)
------------ ------------ ------------
Total adjustments.................................. 16,062,649 26,392,409 28,718,542
------------ ------------ ------------
Net cash provided by operating activities.......... 6,307,785 10,520,923 7,132,372
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (8,987,766) (15,824,306) (13,538,978)
Proceeds from sale of equipment........................... 21,947 23,270 118,953
Cash paid for net assets of cable television systems
acquired................................................ (35,829,389) (70,275,153) (26,063,284)
Cash paid for net assets of internet businesses
acquired................................................ (40,000) (993,760) --
Increase in intangible assets and deferred costs.......... (127,673) (308,759) (183,018)
------------ ------------ ------------
Net cash used in investing activities.............. (44,962,881) (87,378,708) (39,666,327)
------------ ------------ ------------
Cash flows from financing activities:
Capital contributions..................................... 1,500 -- --
Decrease in restricted cash............................... -- 1,000,000 --
Proceeds from issuance of 12% subordinated notes and
redeemable partnership interests........................ 34,000,000 -- --
Proceeds from bank loans.................................. 8,900,000 77,285,000 104,000,000
Repayment of bank loans................................... (952,777) (1,505,581) (69,509,719)
Repayment of other notes payable.......................... (527,514) (1,145,989) (1,362,995)
Advances to affiliates.................................... (3,207,996) (3,412,411) (8,856,491)
Repayments of advances to affiliates...................... 3,479,336 2,986,778 9,021,440
------------ ------------ ------------
Net cash provided by financing activities.......... 41,692,549 75,207,797 33,292,235
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents...................................... 3,037,453 (1,649,988) 758,280
Cash and cash equivalents at beginning of year.............. 2,984,816 6,022,269 4,372,281
------------ ------------ ------------
Cash and cash equivalents at end of year.................... $ 6,022,269 $ 4,372,281 $ 5,130,561
============ ============ ============
Supplemental cash flow information:
Interest paid............................................. $ 11,575,250 $ 17,981,264 $ 21,770,938
============ ============ ============
Other non-cash items:
Acquisition of property, plant and equipment through
issuance of other notes payable....................... $ 1,222,000 $ 917,815 $ 1,025,319
============ ============ ============
Issuance of notes payable in connection with the
acquisition of cable television and internet systems,
net of imputed interest............................... $ 569,500 $ 1,914,479 --
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-147
<PAGE> 377
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. ORGANIZATION AND NATURE OF BUSINESS
Helicon Partners I, L.P. ("the Partnership") was organized as a limited
partnership on November 30, 1994 under the laws of the State of Delaware. On
April 8, 1996, Baum Investments, Inc. acquired a 1% general partnership interest
in the Partnership through an initial capital contribution of $1,500 and the
existing limited partners of The Helicon Group, L.P. ("THGLP"), formed in 1993,
exchanged their limited partnership interests in THGLP for all Class A Common
Limited Partnership Interests and Preferred Limited Partnership Interests in the
Partnership. As a result of this exchange, THGLP became 99% owned by the
Partnership. The Partnership now owns all of the limited partnership interests
in THGLP and Baum Investments, Inc. continues to be the general partner of THGLP
and to own a 1% general partnership interest in THGLP. The Partnership also owns
a 99% interest and THGLP a 1% interest in HPI Acquisition Co., LLC ("HPIAC"), a
Delaware limited liability company formed on February 7, 1996. The Partnership
also owned an 89% limited partnership interest and Baum Investments, Inc. a 1%
general partnership interest in Helicon OnLine, L. P. ("HOL"), a Delaware
limited partnership formed May 31, 1997. On June 29, 1998, the net assets of HOL
were transferred to THGLP in settlement of the inter-company loans THGLP had
made to HOL. The Partnership, THGLP, HPIAC and HOL are referred to collectively
herein as the Company.
On March 22, 1999, Helicon Partners I, L. P. (HPI), Baum Investments, Inc.
and all the holders of partnership interests in HPI entered into a purchase
agreement by and among Charter Communications, Inc, Charter Communications, LLC
and Charter Helicon, LLC (collectively the "Charter Entities") providing for the
sale of all such partnership interests and Helicon Corp.'s interest in the
management agreements with THGLP and HPIAC to the Charter Entities. The sale
price is $550 million which amount will be reduced by any outstanding
indebtedness assumed by the Charter Entities.
The Company operates cable television systems located in Pennsylvania, West
Virginia, North Carolina, South Carolina, Louisiana, Vermont, New Hampshire,
Georgia and Tennessee. The Company also offers a broad range of Internet access
service, including dial-up access, dedicated high speed access, both two-way and
asymmetrical ("Hybrid"), high speed cable modem access, World Wide Web design
and hosting services and other value added services such as paging and private
network systems within the Company's cable service and contiguous areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) PRINCIPLES OF COMBINATION
The accompanying financial statements include the accounts of the
Partnership, THGLP and HPIAC and HOL which have been combined because of common
ownership and control. They also reflect the accounts of THGLP's subsidiary,
Helicon Capital Corp. ("HCC"), which has nominal assets and no operations since
its incorporation. All intercompany accounts and transactions have been
eliminated in combination.
b) PARTNERSHIP PROFITS, LOSSES AND DISTRIBUTIONS
Under the terms of the partnership agreements of the Partnership and THGLP,
profits, losses and distributions will be made to the general and Class A
Limited Partners pro-rata based on their respective partnership interest.
F-148
<PAGE> 378
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Holders of Preferred Limited Partnership Interests are entitled to an
aggregate preference on liquidation of $6,250,000 plus cumulative in-kind
distributions of additional Preferred Limited Partnership interests at an annual
rate of 12%.
c) REVENUE RECOGNITION
Revenue is recognized as services are provided to subscribers. Subscription
revenues billed in advance for services are deferred and recorded as income in
the period in which services are rendered.
d) Property, Plant and Equipment
Property, plant and equipment are carried at cost and are depreciated using
the straight-line method over the estimated useful lives of the respective
assets.
e) INTANGIBLE ASSETS AND DEFERRED COSTS
Intangible assets and deferred costs are carried at cost and are amortized
using the straight-line method over the estimated useful lives of the respective
assets. The Company periodically reviews the amortization periods of their
intangible assets and deferred costs. The Company evaluates whether there has
been a permanent impairment in the value of these assets by considering such
factors including projected undiscounted cash flows, current market conditions
and changes in the cable television industry that would impact the
recoverability of such assets, among other things.
f) INCOME TAXES
No provision for Federal or state income taxes has been made in the
accompanying combined financial statements since any liability for such income
taxes is that of the partners and not of the Partnership or its affiliates.
Certain assets have a basis for income tax purposes that differs from the
carrying value for financial reporting purposes, primarily due to differences in
depreciation methods. As a result of these differences, at December 31, 1997 and
1998 the net carrying value of these assets for financial reporting purposes
exceeded the net basis for income tax purposes by approximately $22 million and
$27 million respectively.
g) CASH AND CASH EQUIVALENTS
Cash and cash equivalents, consisting of amounts on deposit in money market
accounts, checking accounts and certificates of deposit, were $4,372,281 and
$5,130,561 at December 31, 1997 and 1998, respectively.
h) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, revenues, expenses and the
disclosure of contingent assets and liabilities to prepare these combined
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
i) INTEREST RATE CAP AGREEMENTS
The cost paid is amortized over the life of the agreements.
F-149
<PAGE> 379
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
j) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Receivables, Accounts Payable and Accrued Expenses
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, current receivables, notes receivable, accounts payable,
and accrued expenses approximate fair values.
Senior Secured Notes and Long-term Debt
For the Senior Secured Notes, fair values are based on quoted market
prices. The fair market value at December 31, 1997 and 1998 was approximately
$123,000,000 and $120,000,000, respectively. For long-term debt, their values
approximate carrying value due to the short-term maturity of the debt and/or
fluctuating interest.
Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the consolidated
statements of stockholder's equity and comprehensive income. The Statement
requires only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results of operations.
The Company has no items that qualify as comprehensive income.
3. ACQUISITIONS
Cable Acquisitions
On January 31, 1995, THGLP acquired a cable television system, serving
approximately 1,100 (unaudited) subscribers in the Vermont communities of
Bradford, South Royalton and Chelsea. The aggregate purchase price was
approximately $350,000 and was allocated to the net assets acquired which
included property and equipment and intangible assets.
In June and July, 1996, HPIAC completed the acquisitions of all the
operating assets of the cable television systems, serving approximately 26,000
(unaudited) subscribers, in the areas of Jasper and Skyline, Tennessee and
Summerville, Trenton, Menlo, Decatur and Chatsworth, Georgia (collectively
referred to as the Tennessee cluster).
The aggregate purchase price of $36,398,889, including acquisition costs of
$742,837, was allocated to the net assets acquired based on their estimated fair
value. Such allocation is summarized as follows:
<TABLE>
<S> <C>
Land.................................................... $ 25,000
Cable television system................................. 17,876,244
Other property, plant and equipment..................... 185,000
Subscriber lists........................................ 17,474,762
Noncompete agreement.................................... 1,000
Other intangible assets................................. 742,837
Other net operating items............................... 94,046
-----------
Total aggregate purchase price.......................... $36,398,889
===========
</TABLE>
F-150
<PAGE> 380
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A portion of the purchase price was paid through the issuance of notes to
the sellers of one of the systems totaling $750,000. Such notes were reported
net of imputed interest of $180,500 computed at 9% per annum (see note 11).
On January 16, 1997, HPIAC acquired an adjacent cable television system
serving approximately 2,256 (unaudited) subscribers in the communities of Ten
Mile and Hamilton, Tennessee. The aggregate purchase price was approximately
$2,960,294 and was allocated to the net assets acquired which included property,
equipment and intangible assets, based on their estimated fair value.
On January 31, 1997, THGLP acquired a cable television system, serving
approximately 823 (unaudited) subscribers in the West Virginia counties of Wirt
and Wood. The aggregate purchase price was approximately $1,053,457, and was
allocated to the net assets acquired which included property, equipment and
intangible assets, based on their estimated fair value.
On April 18, 1997, HPIAC acquired a cable television system serving
approximately 839 (unaudited) subscribers in the communities of Charleston and
Calhoun, Tennessee. The aggregate purchase price was approximately $1,055,693
and was allocated to the net assets acquired which included property and
equipment and intangible assets, based on their estimated fair value.
On June 26, 1997, HPIAC acquired the net assets of cable television systems
serving approximately 21,500 (unaudited) subscribers primarily in the North
Carolina communities of Avery County and surrounding areas and in the South
Carolina community of Anderson County. The aggregate purchase price was
approximately $45,258,279, including acquisition costs of $547,235, and was
allocated to the net assets acquired which included property, plant, equipment
and intangible assets, based on their estimated fair value.
On June 26, 1997, THGLP acquired the net assets of a cable television
system serving approximately 11,000 (unaudited) subscribers in the North
Carolina communities of Watauga County, Blowing Rock, Beech Mountain and the
town of Boone. The aggregate purchase price was $19,947,430 and was allocated to
the net assets acquired which included, property, plant, equipment and
intangible assets, based on their estimated fair value.
The aggregate purchase price of the 1997 cable acquisitions was $70,275,153
and was allocated to the net assets acquired based on their estimated fair
market value as follows:
<TABLE>
<S> <C>
Land...................................................... $ 158,500
Cable television system................................... 21,320,900
Vehicles.................................................. 1,473,600
Computer equipment........................................ 240,000
Subscriber lists.......................................... 46,925,173
Organization and other costs.............................. 688,816
Other net operating items................................. (531,836)
-----------
Total aggregate purchase price............................ $70,275,153
===========
</TABLE>
On December 31, 1998, HPIAC acquired the net assets of cable television
systems serving approximately 11,225 (unaudited) subscribers primarily in the
North Carolina community of Roanoke Rapids. The aggregate purchase price was
$26,063,284 including acquisition costs of
F-151
<PAGE> 381
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$535,875 and was allocated to the net assets acquired, which included, property,
equipment and intangible assets, based on their estimated fair value.
<TABLE>
<S> <C>
Land...................................................... $ 250,000
Cable television system................................... 4,258,000
Other property, plant and equipment....................... 1,103,375
Subscriber lists.......................................... 19,805,000
Organization and other costs.............................. 535,875
Other net operating items................................. 111,034
-----------
Total aggregate purchase price............................ $26,063,284
===========
</TABLE>
Internet Acquisitions
On March 22, 1996, THGLP acquired the net assets of a telephone dial-up
internet access provider ("ISP") serving approximately 350 (unaudited) customers
in and around the area of Uniontown, Pennsylvania. The aggregate purchase price
was approximately $40,000.
On April 1, 1997, the Partnership acquired the net assets of a telephone
dial-up ISP serving approximately 2,500 (unaudited) customers in and around the
area of Uniontown, Pennsylvania. The aggregate purchase price was $757,029.
On May 31, 1997, the Partnership acquired the net assets of a telephone
dial-up ISP serving approximately 1,800 (unaudited) customers in and around the
area of Uniontown, Pennsylvania. The aggregate purchase price was $213,629.
On November 14, 1997, HOL acquired the net assets of a telephone dial-up
ISP serving approximately 1,744 (unaudited) customers in and around the area of
Johnstown, Pennsylvania. The aggregate purchase price was $348,927.
On December 17, 1997, HOL acquired the net assets of a telephone dial-up
ISP serving 1,571 (unaudited) customers in and around the area of Plainfield,
Vermont. The aggregate purchase price was $497,307.
On December 17, 1997, HOL acquired the net assets of a telephone dial-up
ISP serving approximately 2,110 (unaudited) customers in and around the area of
Wells River, Vermont. The aggregate purchase price was $673,170.
The aggregate purchase price of the 1997 ISP acquisitions was $2,490,062
and was allocated to the net assets acquired, based on their estimated fair
value. Such allocation is summarized as follows:
<TABLE>
<S> <C>
Internet service equipment................................. $ 237,064
Customer lists............................................. 1,409,768
Non-compete Agreement...................................... 883,097
Other intangible assets.................................... 35,000
Other net operating items.................................. (74,867)
----------
Total aggregate purchase price............................. $2,490,062
==========
</TABLE>
F-152
<PAGE> 382
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A portion of the purchase price was paid through the issuance of notes to
the Sellers totaling $1,801,000. Such notes were reported net of imputed
interest of $304,698 computed at 9% per annum (see Note 11).
The operating results relating to the above acquisitions, effective with
their acquisition dates, are included in the accompanying combined financial
statements.
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is summarized as follows at December 31:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1997 1998 LIFE IN YEARS
------------ ------------ ----------------
<S> <C> <C> <C>
Land........................... $ 121,689 $ 320,689 --
Cable television system........ 124,684,403 140,441,324 5 to 20
Internet service equipment..... 1,281,362 2,483,602 2 to 3
Office furniture and
fixtures..................... 677,672 728,253 5 and 10
Vehicles....................... 3,536,358 4,570,990 3 and 5
Building....................... 805,525 1,585,384 5 and 10
Building and leasehold
Improvements................. 398,843 445,820 1 to 5
Computers...................... 3,232,355 4,159,506 3 to 5
------------ ------------
134,738,207 154,735,568
Less accumulated
depreciation................. (54,633,830) (67,997,988)
------------ ------------
$ 80,104,377 $ 86,737,580
============ ============
</TABLE>
5. INTANGIBLE ASSETS AND DEFERRED COSTS
Intangible assets and deferred costs are summarized as follows at December
31:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1997 1998 LIFE IN YEARS
------------ ------------ ----------------
<S> <C> <C> <C>
Covenants not-to-compete......... $ 14,270,120 $ 14,270,120 5
Franchise agreements............. 19,650,889 19,650,889 9 to 17
Goodwill......................... 1,703,760 1,703,760 20
Subscriber lists................. 82,292,573 102,097,574 6 to 10
Financing costs.................. 9,414,809 9,291,640 8 to 10
Organization and other costs..... 3,631,650 4,306,777 5 to 10
------------ ------------
130,963,801 151,320,760
Less accumulated amortization.... (45,897,136) (56,443,913)
------------ ------------
$ 85,066,665 $ 94,876,847
============ ============
</TABLE>
F-153
<PAGE> 383
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. TRANSACTIONS WITH AFFILIATES
Amounts due from/to affiliates result from management fees, expense
allocations and temporary non-interest bearing loans. The affiliates are related
to the Company through common-ownership.
The Partnership is managed by Helicon Corp., an affiliated management
company. During 1996, 1997 and 1998, the Partnership was charged management fees
of $2,103,077, $2,997,872, and $3,496,271, respectively. In 1997 and 1998,
$2,685,172 and $3,231,362 of the management fees were paid and $312,700 and
$172,476 were deferred, in accordance with the terms of the Partnership's credit
agreements, respectively. Management fees are calculated based on the gross
revenues of the systems. Additionally, during 1996, 1997 and 1998, THGLP was
also charged $980,000, $713,906, and $1,315,315, respectively, for certain costs
incurred by this related party on their behalf.
In May 1997, immediately after the formation of HOL, HPI sold 10% of its
limited partner interest in HOL to certain employees of Helicon Corp. Such
interests were sold at HPI's proportionate carrying value of HOL of $83,631 in
exchange for notes receivable from these individuals. These notes are due upon
the liquidation of HOL or the sale of all or substantially all of its assets.
On June 26, 1998, the notes were cancelled in consideration of the return
by the Helicon employees of their 10% limited partnership interests.
7. DUE TO PRINCIPAL OWNER
Mr. Theodore Baum, directly or indirectly, is the principal owner of 96.17%
of the general and limited partnership interests of the Partnership (the
"Principal Owner"). Due to Principal Owner consists of $5,000,000 at December
31, 1997 and 1998 payable by THGLP. Beginning on November 3, 1993, interest on
the $5,000,000 due to the Principal Owner did not accrue and in accordance with
the provisions of the Senior Secured Notes was not paid for twenty four months.
Interest resumed on November 3, 1995 (see Note 8). The principal may only be
repaid thereafter subject to the passage of certain limiting tests under the
covenants of the Senior Secured Notes. Prior to the issuance of the Senior
Secured Notes, amounts due to Principal Owner bore interest at varying rates per
annum based on the prime rate and were due on demand. Interest expense includes
$521,701 in 1996 and $530,082 in 1997 and $524,880 in 1998 related to this debt.
8. SENIOR SECURED NOTES
On November 3, 1993, THGLP and HCC (the "Issuers"), through a private
placement offering, issued $115,000,000 aggregate principal amount of 11% Senior
Secured Notes due 2003 (the "Senior Secured Notes"), secured by substantially
all the assets of THGLP. The Senior Secured Notes were issued at a substantial
discount from their principal amount and generated net proceeds to the Issuers
of approximately $105,699,000. Interest is payable on a semi-annual basis in
arrears on November 1 and May 1, beginning on May 1, 1994. Until November 1,
1996 the Senior Secured Notes bore interest at the rate of 9% per annum. After
November 1, 1996, the Senior Secured Notes bear interest at the rate of 11% per
annum. The discount on the Senior Secured Notes has been amortized over the term
of the Senior Secured Notes so as to result in an effective interest rate of 11%
per annum.
F-154
<PAGE> 384
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Senior Secured Notes may be redeemed at the option of the Issuers in
whole or in part at any time on or after November 1, 1997 at the redemption
price of 108% reducing ratably to 100% of the principal amount, in each case
together with accrued interest to the redemption date. The Issuers are required
to redeem $25,000,000 principal amount of the Senior Secured Notes on each of
November 1, 2001 and November 1, 2002. The indenture under which the Senior
Secured Notes were issued contains various restrictive covenants, the more
significant of which are, limitations on distributions to partners, the
incurrence or guarantee of indebtedness, the payment of management fees, other
transactions with officers, directors and affiliates, and the issuance of
certain types of equity interests or distributions relating thereto.
9. LOANS PAYABLE TO BANKS
On July 12, 1996, HPIAC entered into $85,000,000 of senior secured credit
facilities ("Facilities") with a group of banks and The First National Bank of
Chicago, as agent. The Facilities were comprised of a $55,000,000 senior secured
two and one-half year revolving credit facility, converting on December 31, 1998
to a five and one-half year amortizing term loan due June 30, 2004 ("Facility
A"); and, a $30,000,000 senior secured, amortizing, multiple draw nine year term
loan facility due June 30, 2005 ("Facility B"). The Facilities financed certain
permitted acquisitions, transaction expenses and general corporate purposes.
Interest on outstanding borrowings was payable at specified margins over either
LIBOR or the higher of the corporate base rate of The First National Bank of
Chicago or the rates on overnight Federal funds transactions with members of the
Federal Reserve System. The margins varied based on the Company's total leverage
ratio, as defined, at the time of an advance. As of December 31, 1997, the
amounts outstanding were $30,000,000 under Facility B and $35,500,000
outstanding under Facility A. Interest was payable at LIBOR plus 3.50% for
Facility B and LIBOR plus 3.00% for Facility A. In addition, HPIAC paid a
commitment fee of .5% of the unused balance of the Facilities.
On December 15, 1998, the Facilities were repaid in full together with
accrued interest thereon from the proceeds of the new credit agreements (see
below).
In connection with the early retirement of the aforementioned bank debt,
HPIAC wrote off related unamortized deferred financing costs totaling
$1,657,320. Such amount has been classified as an extraordinary item in the
accompanying 1998 combined statement of operations.
In connection with the aforementioned Facilities, HPIAC entered into an
interest rate cap agreement to reduce its exposure to interest rate risk.
Interest rate cap transactions generally involve the exchange of fixed and
floating rate interest payment obligations and provide for a ceiling on interest
to be paid, respectively, without the exchange of the underlying notional
principal amount. These types of transactions involve risk of counterpart
nonperformance under the terms of the contract. At December 31, 1997, HPIAC had
cap agreements with aggregate notional amounts of $42,500,000 expiring through
March 29, 2000. On December 15, 1998, in connection with the early retirement of
the related bank debt, the cap agreements were terminated and HPIAC wrote off
the unamortized costs of these cap agreements.
On December 15, 1998, HPIAC entered into credit agreements with a group of
banks and Paribas, as agent, providing maximum borrowings of $110,000,000 (the
1998 Credit Facilities). The agreements include (i) a senior secured Credit
Agreement consisting of a $35,000,000 A Term Loan, maturing on December 31,
2005, $45,000,000 B Term Loan, maturing on December 31, 2006 and a $10,000,000
Revolving Commitment, maturing on December 31, 2005
F-155
<PAGE> 385
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and (ii) a Loan Agreement consisting of a $20,000,000 Hybrid Facility, maturing
on December 31, 2007.
As of December 31, 1998, the A Term Loan, B Term Loan and Hybrid Facility
were fully drawn down and there was nothing outstanding under the Revolving
Commitment. The principal cash payments required under the Company's credit
agreements for the fiscal years ended December 31, 1999, 2000, 2001, 2002 and
2003 are estimated to aggregate $0, $812,500, $3,950,000, $5,700,000 and
$7,450,000, respectively.
Interest is payable at LIBOR plus an applicable margin, which is based on a
ratio of loans outstanding to annualized EBITDAM, as defined in the agreement
and can not exceed 3.00% for A Term Loan and Revolving Commitments, 3.25% for B
Term Loan and 4.50% for the Hybrid Facility. In addition, the Company pays a
commitment fee of .50% of the unused balance of the Revolving Commitment.
The 1998 Credit Facilities are secured by a first perfected security
interest in all of the assets of HPIAC and a pledge of all equity interests of
HPIAC. The credit agreement contains various restrictive covenants that include
the achievement of certain financial ratios relating to interest, fixed charges,
leverage, limitations on capital expenditures, incurrence or guarantee of
indebtedness, other transactions with affiliates and distributions to members.
In addition, management fees in the aggregate cannot exceed 5% of gross revenues
of HPIAC.
On June 26, 1997, THGLP entered into a $20,000,000 senior secured credit
facility with Banque Paribas, as Agent (the 1997 Credit Facility). On January 5,
1999, the 1997 Credit Facility was restated and amended. The facility is
non-amortizing and is due November 1, 2000. Borrowings under the facility
financed the acquisition of certain cable television assets in North Carolina
(see note 3). Interest on the $20,000,000 outstanding is payable at specified
margins over either LIBOR or the rate of interest publicly announced in New York
City by The Chase Manhattan Bank from time to time as its prime commercial
lending rate. The margins vary based on the THGLP's total leverage ratio, as
defined, at the time of an advance. Currently interest is payable at LIBOR plus
2.75%.
The 1997 Credit Facility is secured by a first perfected security interest
in all of the assets of the Partnership and a pledge of all equity interests of
the THGLP. The credit agreement contains various restrictive covenants that
include the achievement of certain financial ratios relating to interest, fixed
charges, leverage, limitations on capital expenditures, incurrence or guarantee
of indebtedness, transactions with affiliates, distributions to members and
management fees which accrue at 5% of gross revenues.
Also included in loans payable to banks is a mortgage note of $266,922
payable to a bank that is secured by THGLP's office building in Vermont. The
interest is payable at Prime plus 1% and the mortgage note is due March 1, 2012.
F-156
<PAGE> 386
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments on the mortgage note are summarized as follows at
December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ----------------------- --------
<S> <C>
1999........................................................ $ 10,581
2000........................................................ 11,631
2001........................................................ 12,786
2002........................................................ 14,055
2003 and thereafter......................................... 217,869
--------
$266,922
========
</TABLE>
10. SUBORDINATED NOTES AND REDEEMABLE PARTNERSHIP INTERESTS
In April 1996 the Partnership sold to unrelated investors, $34,000,000
aggregate principal amount of its 12% Subordinated Notes (the "Subordinated
Notes") and warrants to purchase 2,419.1 units (the "Units") of Class B Common
Limited Partnership Interests representing in the aggregate 24.191% of the
outstanding limited partner interests of the Partnership on a fully diluted
basis (the "Warrants"). Of the $34,000,000 of gross proceeds, $3,687,142 was
determined to be the value of the Warrants, and $30,312,858 was allocated to the
Subordinated Notes. The discount on the Subordinated Notes is being amortized
over the term of these Notes.
The Subordinated Notes are subordinated to the senior indebtedness of the
Partnership and are due April 1, 2004. Interest is payable semi-annually on each
October 1 and April 1 in cash or through the issuance of additional Subordinated
Notes, at the option of the Partnership. In October 1996, April 1997, October
1997, April 1998 and October 1998, the Partnership elected to satisfy interest
due through the issuance of $1,945,667, $2,156,740, $2,037,079, $2,408,370 and
$2,552,871, respectively, additional Subordinated Notes. After September 2001, a
holder or holders of no less than 33 1/3% of the aggregate principal amount of
the Subordinated Notes can require the Partnership to repurchase their
Subordinated Notes at a price equal to the principal amount thereof plus accrued
interest. The Partnership has an option to redeem the Subordinated Notes at 102%
of the aggregate principal amount after the fifth anniversary of their issuance,
at 101% of the aggregate principal amount after the sixth anniversary of
issuance and at 100% of the aggregate principal amount after the seventh
anniversary of issuance.
Holders of the Warrants have the right to acquire the Units at any time for
a price of $1,500 per Unit. After September 2001, a holder or holders of at
least 33 1/3% of the Warrants can require the Partnership to either purchase
their Warrants at their interest in the Net Equity Value of the Partnership or
seek a purchaser for all of the assets or equity interests of the Partnership.
Net Equity Value pursuant to the terms of the underlying agreements is the
estimated amount of cash that would be available for distribution to the
Partnership interests upon a sale of all of the assets of the Partnership and
its subsequent dissolution and liquidation. The Net Equity Value is the amount
agreed to by the Partnership and 66 2/3% of the holders of the Subordinated
Notes and Warrants or, absent such agreement, determined through a specified
appraisal process.
The Partnership estimated the Net Equity Value of the Warrants to be
approximately $43,250,000 at December 31, 1998 and $16,750,000 at December 31,
1997. Such estimate as of December 31, 1998 reflects the amount that the holders
of the warrants have agreed to accept for their interests assuming the proposed
sale of all of the interests of the partnership is consummated (see note 14).
The increase in the estimated Net Equity Value over the original
F-157
<PAGE> 387
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of the Warrants is being accreted evenly over the period
beginning with the date of the increase and September 2001. Such accretion is
being reflected in the accompanying financial statements as an increase in the
carrying value of the Warrants and a corresponding reduction in the carrying
value of the capital accounts of the General and Class A Limited Partners.
The agreements underlying the Subordinated Notes and the Warrants contain
various restrictive covenants that include limitations on incurrence or
guarantee of indebtedness, transactions with affiliates, and distributions to
partners. In addition, management fees in the aggregate cannot exceed 5% of
gross revenues of the Partnership.
11. OTHER NOTES PAYABLE
Other Notes payable consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Promissory note in consideration for acquisition of a cable
television system, accruing interest at 10% per annum on
principal and accrued interest which is added to principal
on certain specified dates; interest becomes payable on
January 1, 1998 and the principal is payable in full on
August 20, 2000 $2,036,765 $2,036,765
Non-interest bearing promissory notes issued in connection
with the acquisition of a cable television system.
Principal payments begin on July 16, 1997, in the amount
of $70,000 and four installments in the amount of $170,000
on each July 16 thereafter. Such notes are reported net of
imputed interest of $141,116 and $101,732 in 1997 and
1998, respectively, computed at 9% per annum 538,884 408,268
Non-interest bearing promissory notes issued in connection
with the acquisitions of the internet businesses.
Principal payments are due in January, February, and March
of each year and continue quarterly thereafter through
June, 2001. Such notes are reported net of imputed
interest of $180,727 and $146,441 in the 1997 and 1998,
respectively, computed at 9% per annum 1,398,478 1,021,474
Installment notes, collateralized by vehicles and other
equipment and payable in monthly installments, at interest
rates between 5.5% to 14.25% per annum, through January,
2003 1,772,949 1,982,297
---------- ----------
$5,747,076 $5,448,804
========== ==========
</TABLE>
F-158
<PAGE> 388
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments due on the above notes payable are summarized as follows
at December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- ----------------------- ----------
<S> <C>
1999..................................................... $1,337,476
2000..................................................... 3,276,529
2001..................................................... 678,349
2002..................................................... 140,944
2003..................................................... 15,506
----------
$5,448,804
==========
</TABLE>
12. PARTNERS' DEFICIT
During 1993, the Principal Owner contributed a $6,500,000 unsecured,
non-interest bearing personal promissory note due on demand to the general
partner of THGLP. Additionally, the Principal Owner contributed to THGLP an
unsecured, non-interest bearing personal promissory note in the aggregate
principal amount of $24,000,000 (together with the $6,500,000 note, the "Baum
Notes"). The Baum Notes have been issued for the purpose of THGLP's credit
enhancement. Although the Baum Notes are unconditional, they do not become
payable except (i) in increasing amounts presently up to $19,500,000 and in
installments thereafter to a maximum of $30,500,000 on December 16, 1996 and
(ii) at such time after such dates as THGLP's creditors shall have exhausted all
claims against THGLP's assets.
13. COMMITMENTS
The Partnership and affiliates leases telephone and utility poles on an
annual basis. The leases are self renewing. Pole rental expense for the years
ended December 31, 1996, 1997 and 1998 was $609,075, $873,264 and $982,306,
respectively.
In connection with certain lease and franchise agreements, the Partnership,
from time to time, issues security bonds.
The Partnership and affiliates utilizes certain office space under
operating lease agreements which expire at various dates through August 2013 and
contain renewal options. At December 31, 1998 the future minimum rental
commitments under such leases were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- -----------------------
<S> <C>
1999..................................................... $ 166,825
2000..................................................... 142,136
2001..................................................... 141,727
2002..................................................... 147,912
2003..................................................... 151,412
Thereafter............................................... 1,418,017
----------
$2,168,029
==========
</TABLE>
Office rent expense was $102,801 in 1996, $203,506 in 1997 and $254,955 in
1998.
F-159
<PAGE> 389
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
On March 22, 1999, Helicon Partners I, L. P. (HPI), Baum Investments, Inc.
and all the holders of partnership interests in HPI entered into a purchase
agreement by and among Charter Communications, Inc, Charter Communications, LLC
and Charter Helicon, LLC (collectively the "Charter Entities") providing for the
sale of all such partnership interests and Helicon Corp.'s interest in the
management agreements with THGLP and HPIAC to the Charter Entities. The sale
price is $550 million which amount will be reduced by any outstanding
indebtedness assumed by the Charter Entities.
F-160
<PAGE> 390
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of InterMedia Partners
and InterMedia Capital Partners IV, L.P.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in equity and of cash flows
present fairly, in all material respects, the financial position of InterMedia
Cable Systems (comprised of components of InterMedia Partners and InterMedia
Capital Partners IV, L.P.), at December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the management of InterMedia Partners and InterMedia
Capital Partners IV, L.P.; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Francisco, California
April 20, 1999
F-161
<PAGE> 391
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Accounts receivable, net of allowance for doubtful accounts
of $899 and $680, respectively............................ $ 14,425 $ 13,017
Receivables from affiliates................................. 5,623 1,719
Prepaid expenses............................................ 423 626
Other current assets........................................ 350 245
-------- --------
Total current assets.............................. 20,821 15,607
Intangible assets, net...................................... 255,356 283,562
Property and equipment, net................................. 218,465 179,681
Deferred income taxes....................................... 12,598 14,221
Other non-current assets.................................... 2,804 1,140
-------- --------
Total assets...................................... $510,044 $494,211
======== ========
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities.................... $ 19,230 $ 20,934
Deferred revenue............................................ 11,104 8,938
Payables to affiliates...................................... 3,158 2,785
Income taxes payable........................................ 285
-------- --------
Total current liabilities......................... 33,492 32,942
Note payable to InterMedia Partners IV, L.P................. 396,579 387,213
Deferred channel launch revenue............................. 4,045 2,104
-------- --------
Total liabilities................................. 434,116 422,259
-------- --------
Commitments and contingencies...............................
Mandatorily redeemable preferred shares..................... 14,184 13,239
Equity...................................................... 61,744 58,713
-------- --------
Total liabilities and equity...................... $510,044 $494,211
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-162
<PAGE> 392
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
REVENUES
Basic and cable services.................................... $125,920 $112,592
Pay services................................................ 23,975 24,467
Other services.............................................. 26,167 25,519
-------- --------
176,062 162,578
COSTS AND EXPENSES
Program fees................................................ 39,386 33,936
Other direct expenses....................................... 16,580 16,500
Selling, general and administrative expenses................ 30,787 29,181
Management and consulting fees.............................. 3,147 2,870
Depreciation and amortization............................... 85,982 81,303
-------- --------
175,882 163,790
-------- --------
Profit/(loss) from operations............................... 180 (1,212)
-------- --------
OTHER INCOME (EXPENSE)
Interest expense............................................ (25,449) (28,458)
Gain on sale/exchange of cable systems...................... 26,218 10,006
Interest and other income................................... 341 429
Other expense............................................... (3,188) (1,431)
-------- --------
(2,078) (19,454)
Loss before income tax benefit (expense).................... (1,898) (20,666)
Income tax benefit (expense)................................ (1,623) 4,026
-------- --------
NET LOSS.................................................... $ (3,521) $(16,640)
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-163
<PAGE> 393
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED STATEMENT OF CHANGES IN EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1996................................ $ 69,746
Net loss.................................................... (16,640)
Accretion for mandatorily redeemable preferred shares....... (882)
Net contributions from parent............................... 6,489
--------
Balance at December 31, 1997................................ 58,713
Net loss.................................................... (3,521)
Accretion for mandatorily redeemable preferred shares....... (945)
Net cash contributions from parent.......................... 6,350
In-kind contribution from parent............................ 1,147
--------
Balance at December 31, 1998................................ $ 61,744
========
</TABLE>
See accompanying notes to combined financial statements.
F-164
<PAGE> 394
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $ (3,521) $(16,640)
Adjustments to reconcile net loss to cash flows from
operating activities:
Depreciation and amortization.......................... 85,982 81,303
Loss and disposal of fixed assets...................... 3,177 504
Gain on sale/exchange of cable systems................. (26,218) (10,006)
Changes in assets and liabilities:
Accounts receivable.................................. (1,395) (2,846)
Receivables from affiliates.......................... (3,904) (639)
Prepaid expenses..................................... 203 (251)
Other current assets................................. (106) (10)
Deferred income taxes................................ 1,623 (4,311)
Other non-current assets............................. (517) (58)
Accounts payable and accrued liabilities............. (2,073) 4,436
Deferred revenue..................................... 1,208 1,399
Payables to affiliates............................... 373 469
Accrued interest..................................... 25,449 28,458
Deferred channel launch revenue...................... 2,895 2,817
-------- --------
Cash flows from operating activities.............. 83,176 84,625
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.................... (72,673) (87,253)
Sale/exchange of cable systems......................... (398) 11,157
Intangible assets...................................... (372) (506)
-------- --------
Cash flows from investing activities.............. (73,443) (76,602)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net contributions from parent.......................... 6,350 6,489
Net repayment of borrowings............................ (16,083) (14,512)
-------- --------
Cash flows from financing activities.............. (9,733) (8,023)
-------- --------
Net change in cash.......................................... -- --
-------- --------
CASH AT BEGINNING OF PERIOD................................. -- --
-------- --------
CASH AT END OF PERIOD....................................... $ -- $ --
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-165
<PAGE> 395
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
THE CHARTER TRANSACTIONS
InterMedia Partners, a California limited partnership ("IP-I"), and
InterMedia Capital Partners IV, L.P., a California limited partnership,
("ICP-IV", together with IP-I, "InterMedia") are affiliated through common
control and management. Robin Media Group, Inc., a Nevada corporation, ("RMG")
is a majority owned subsidiary of ICP-IV. On April 20, 1999, InterMedia and
certain of its affiliates entered into agreements (the "Agreements") with
affiliates of Charter Communications, Inc. ("Charter") to sell and exchange
certain of their cable television systems ("the Charter Transactions").
Specifically, ICP-IV and its affiliates have agreed to sell certain of
their cable television systems in Tennessee and Gainesville, Georgia through a
combination of asset sales and the sale of its equity interests in RMG, and to
exchange their systems in and around Greenville and Spartanburg, South Carolina
for Charter systems located in Indiana, Kentucky, Utah and Montana. Immediately
upon Charter's acquisition of RMG, IP-I will exchange its cable television
systems in Athens, Georgia, Asheville and Marion, North Carolina and Cleveland,
Tennessee for RMG's cable television systems located in middle Tennessee.
The Charter Transactions are expected to close during the third or fourth
quarter of 1999. The cable systems retained by Charter upon consummation of the
Charter Transactions, together with RMG, are referred to as the "InterMedia
Cable Systems," or the "Systems."
PRESENTATION
The accompanying combined financial statements represent the financial
position of the InterMedia Cable Systems as of December 31, 1998 and 1997 and
the results of their operations and their cash flows for the years then ended.
The Systems being sold or exchanged do not individually or collectively comprise
a separate legal entity. Accordingly, the combined financial statements have
been carved-out from the historical accounting records of InterMedia.
CARVE-OUT METHODOLOGY
Throughout the periods covered by the combined financial statements, the
individual cable systems were operated and accounted for separately. However,
the Charter Transactions exclude certain systems (the "Excluded Systems") which
were operated as part of the Marion, North Carolina and western Tennessee
systems throughout 1997 and 1998. For purposes of carving out and excluding the
results of operations and financial position of the Excluded Systems from the
combined financial statements, management has estimated the revenues, expenses,
assets and liabilities associated with each Excluded System based on the ratio
of each Excluded System's basic subscribers to the total basic subscribers
served by the Marion, North Carolina and western Tennessee systems,
respectively. Management believes the basis used for these allocations is
reasonable. The Systems' results of operations are not necessarily indicative of
future operating results or the results that would have occurred if the Systems
were a separate legal entity.
Management and consulting fees represent an allocation of management fees
charged to IP-I and ICP-IV by InterMedia Capital Management, a California
limited partnership ("ICM") and
F-166
<PAGE> 396
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
InterMedia Management, Inc. ("IMI"), respectively. Prior to January 1, 1998,
InterMedia Capital Management IV, L.P. ("ICM-IV") provided such management and
consulting services to ICP-IV. ICM and ICM-IV are limited partners of IP-I and
ICP-IV, respectively. IMI is the managing member of each of the general partners
of IP-I and ICP-IV. These fees are charged at a fixed amount per annum and have
been allocated to the Systems based upon the allocated contributed capital of
the individual systems as compared to the total contributed capital of
InterMedia's subsidiaries.
As more fully described in Note 9 -- "Related Party Transactions," certain
administrative services are also provided by IMI and are charged to all
affiliates based on relative basic subscriber percentages.
CASH AND INTERCOMPANY ACCOUNTS
Under InterMedia's centralized cash management system, cash requirements of
its individual operating units were generally provided directly by InterMedia
and the cash generated or used by the Systems was transferred to/from
InterMedia, as appropriate, through intercompany accounts. The intercompany
account balances between InterMedia and the individual operating units, except
RMG's intercompany note payable to InterMedia Partners IV, L.P. ("IP-IV") as
described in Note 7 -- "Note Payable to InterMedia Partners IV, L.P." are not
intended to be settled. Accordingly, the balances, other than RMG's note payable
to IP-IV, are included in equity and all net cash generated from operations,
investing activities and financing activities have been included in the Systems'
net contribution from parent in the combined statements of cash flows.
IP-I and ICP-IV or its subsidiaries maintain all external debt to fund and
manage InterMedia's operations on a centralized basis. The combined financial
statements present only the debt and related interest expense of RMG, which is
assumed and repaid by Charter pursuant to the Charter Transactions. See Note
7 -- "Note Payable to InterMedia Partners IV, L.P." Debt, unamortized debt issue
costs and interest expense related to the financing of the cable systems not
owned by RMG have not been allocated to the InterMedia Cable Systems. As such,
the level of debt, unamortized debt issue costs and related interest expense
presented in the combined financial statements are not representative of the
debt that would be required or interest expense incurred if InterMedia Cable
Systems were a separate legal entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Cable television service revenue is recognized in the period in which
services are provided to customers. Deferred revenue generally represents
revenue billed in advance and deferred until cable service is provided.
PROPERTY AND EQUIPMENT
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials, labor and
overhead. Costs of disconnecting and reconnecting cable service are expensed.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and improvements are capitalized. Capitalized
fixed assets are written down to recoverable values whenever recover-
F-167
<PAGE> 397
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
ability through operations or sale of the systems becomes doubtful. Gains and
losses on disposal of property and equipment are included in the Systems'
statements of operations when the assets are sold or retired from service.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Cable television plant...................................... 5 - 10
Buildings and improvements.................................. 10
Furniture and fixtures...................................... 3 - 7
Equipment and other......................................... 3 - 10
</TABLE>
INTANGIBLE ASSETS
The Systems have franchise rights to operate cable television systems in
various towns and political subdivisions. Franchise rights are being amortized
over the lesser of the remaining franchise lives or the base ten and twelve-year
terms of IP-I and ICP-IV, respectively. The remaining lives of the franchises
range from one to eighteen years.
Goodwill represents the excess of acquisition costs over the fair value of
net tangible and franchise assets acquired and liabilities assumed and is being
amortized on a straight-line basis over the base ten or twelve-year term of IP-I
and ICP-IV, respectively.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the systems becomes doubtful. Each
year, the Systems evaluate the recoverability of the carrying value of their
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized costs of these assets.
INCOME TAXES
Income taxes reported in InterMedia Cable Systems' combined financial
statements represent the tax effects of RMG's results of operations. RMG as a
corporation is the only entity within InterMedia Cable Systems which reports a
provision/benefit for income taxes. No provision or benefit for income taxes is
reported by any of the other cable systems within the InterMedia Cable Systems
structure because these systems are currently owned by various partnerships,
and, as such, the tax effects of these cable systems' results of operations
accrue to the partners.
RMG accounts for income taxes using the asset and liability approach which
requires the recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
F-168
<PAGE> 398
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 these estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, payables, deferred revenue and accrued
liabilities approximates fair value due to their short maturity.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (FAS
130), which establishes standards for reporting and disclosure of comprehensive
income and its components. FAS 130 is effective for fiscal years beginning after
December 15, 1997 and requires reclassification of financial statements for
earlier periods to be provided for comparative purposes. The Systems' total
comprehensive loss for all periods presented herein did not differ from those
amounts reported as net loss in the combined statement of operations.
3. SALE AND EXCHANGE OF CABLE PROPERTIES
SALE
On December 5, 1997, RMG sold its cable television assets serving
approximately 7,400 (unaudited) basic subscribers in and around Royston and
Toccoa, Georgia. The sale resulted in a gain, calculated as follows:
<TABLE>
<S> <C>
Proceeds from sale.......................................... $11,212
Net book value of assets sold............................... (1,206)
-------
Gain on sale................................................ $10,006
=======
</TABLE>
EXCHANGE
On December 31, 1998, certain of the Systems' cable television assets
located in and around western and eastern Tennessee ("Exchanged Assets"),
serving approximately 10,600 (unaudited) basic subscribers, plus cash of $398
were exchanged for other cable television assets located in and around western
and eastern Tennessee, serving approximately 10,000 (unaudited) basic
subscribers.
F-169
<PAGE> 399
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The cable television assets received have been recorded at fair market
value, allocated as follows:
<TABLE>
<S> <C>
Property and equipment...................................... $ 5,141
Franchise rights............................................ 24,004
-------
Total............................................. $29,145
=======
</TABLE>
The exchange resulted in a gain of $26,218 calculated as the difference
between the fair value of the assets received and the net book value of the
Exchanged Assets less cash paid of $398.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- --------
<S> <C> <C>
Franchise rights............................................ $ 332,157 $302,308
Goodwill.................................................... 58,505 58,772
Other....................................................... 345 6,392
--------- --------
391,007 367,472
Accumulated amortization.................................... (135,651) (83,910)
--------- --------
$ 255,356 $283,562
========= ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 1,068 $ 1,898
Cable television plant...................................... 231,937 138,117
Building and improvements................................... 5,063 4,657
Furniture and fixtures...................................... 3,170 2,009
Equipment and other......................................... 25,396 21,808
Construction-in-progress.................................... 18,065 49,791
-------- --------
284,699 218,280
Accumulated depreciation.................................... (66,234) (38,599)
-------- --------
$218,465 $179,681
======== ========
</TABLE>
F-170
<PAGE> 400
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Accounts payable............................................ $ 1,780 $ 2,996
Accrued program costs....................................... 1,897 1,577
Accrued franchise fees...................................... 4,676 4,167
Accrued copyright fees...................................... 406 762
Accrued capital expenditures................................ 5,215 5,179
Accrued payroll costs....................................... 1,784 1,789
Accrued property and other taxes............................ 862 1,851
Other accrued liabilities................................... 2,610 2,613
------- -------
$19,230 $20,934
======= =======
</TABLE>
7. NOTE PAYABLE TO INTERMEDIA PARTNERS IV, L.P.
RMG's note payable to IP-IV consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Intercompany revolving credit facility, $1,200,000
commitment as of December 31, 1998, interest
currently at 6.86% payable on maturity, matures
December 31, 2006.......................................... $396,579 $387,213
======== ========
</TABLE>
RMG's debt is outstanding under an intercompany revolving credit facility
executed with IP-IV. The revolving credit facility currently provides for
$1,200,000 of available credit.
RMG's intercompany revolving credit facility requires repayment of the
outstanding principal and accrued interest on the earlier of (i) December 31,
2006, or (ii) acceleration of any of IP-IV's obligations to repay under its bank
debt outstanding under its revolving credit facility ("IP-IV Revolving Credit
Facility") and term loan agreement ("IP-IV Term Loan", together with the IP-IV
Revolving Credit Facility, the "IP-IV Bank Facility") dated July 30, 1996.
Interest rates under RMG's intercompany revolving credit facility are
calculated monthly and are referenced to those made available under the IP-IV
Bank Facility. Interest rates ranged from 6.84% to 7.92% during 1998.
Charter has an obligation to assume and repay RMG's intercompany revolving
credit facility pursuant to the Charter Transactions.
Advances under the IP-IV Bank Facility are available under interest rate
options related to the base rate of the administrative agent for the IP-IV Bank
Facility ("ABR") or LIBOR. Effective October 20, 1997, pursuant to an amendment
to the IP-IV Bank Facility, interest rates on
F-171
<PAGE> 401
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
borrowings under the IP-IV Term Loan vary from LIBOR plus 1.75% to LIBOR plus
2.00% or ABR plus 0.50% to ABR plus 0.75% based on IP-IV's ratio of debt
outstanding to annualized quarterly operating cash flow ("Senior Debt Ratio").
Interest rates vary on borrowings under the IP-IV Revolving Credit Facility from
LIBOR plus 0.625% to LIBOR plus 1.50% or ABR to ABR plus 0.25% based on IP-IV's
Senior Debt Ratio. Prior to the amendment, interest rates on borrowings under
the IP-IV Term Loan were at LIBOR plus 2.375% or ABR plus 1.125%; and, interest
rates on borrowings under the IP-IV Revolving Credit Facility varied from LIBOR
plus 0.75% to LIBOR plus 1.75% or ABR to ABR plus 0.50% based on IP-IV's Senior
Debt Ratio. The IP-IV Bank Facility requires quarterly payment of fees on the
unused portion of the IP-IV Revolving Credit Facility of 0.375% per annum when
the Senior Debt Ratio is greater than 4.0:1.0 and at 0.25% when the Senior Debt
Ratio is less than or equal to 4.0:1.0.
The terms and conditions of RMG's intercompany debt agreement are not
necessarily indicative of the terms and conditions which would be available if
the Systems were a separate legal entity.
8. MANDATORILY REDEEMABLE PREFERRED SHARES
RMG has Redeemable Preferred Stock outstanding at December 31, 1998 and
1997, which has an annual dividend of 10.0% and participates in any dividends
paid on the common stock at 10.0% of the dividend per share paid on the common
stock. The Redeemable Preferred Stock bears a liquidation preference of $12,000
plus any accrued but unpaid dividends at the time of liquidation and is
mandatorily redeemable on September 30, 2006 at the liquidation preference
amount. Under the Agreements, upon consummation of the Charter Transactions,
Charter has an obligation to redeem RMG's Redeemable Preferred Stock at the
liquidation preference amount.
9. RELATED PARTY TRANSACTIONS
ICM and IMI provide certain management services to IP-I and ICP-IV,
respectively, for per annum fixed fees, of which 20% per annum is deferred and
payable in each following year in order to support InterMedia's debt. Prior to
January 1, 1998, ICM-IV provided such management services to ICP-IV.
InterMedia's management fees for the years ended December 31, 1998 and 1997
amounted to $5,410, and $6,395, respectively, of which $3,147 and $2,870,
respectively, has been charged to the Systems.
IMI has entered into agreements with both IP-I and ICP-IV to provide
accounting and administrative services at cost. Under the terms of the
agreements, the expenses associated with rendering these services are charged to
the Systems and other affiliates based upon relative basic subscriber
percentages. Management believes this method to be reflective of the actual
cost. During 1998 and 1997, IMI administrative fees charged to the Systems
totaled $3,657 and $4,153, respectively. Receivable from affiliates at December
31, 1998 and 1997 includes $52 and $1,080, respectively, of advances to IMI, net
of administrative fees charged by IMI and operating expenses paid by IMI on
behalf of the Systems.
IP-I is majority-owned, and ICP-IV is owned in part, by
Tele-Communications, Inc. ("TCI"). As affiliates of TCI, IP-I and ICP-IV are
able to purchase programming services from a subsidiary of TCI. Management
believes that the overall programming rates made available through this
relationship are lower than the Systems could obtain separately. Such volume
rates may not
F-172
<PAGE> 402
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
continue to be available in the future should TCI's ownership interest in
InterMedia significantly decrease. Program fees charged by the TCI subsidiary to
the Systems for the years ended December 31, 1998 and 1997 amounted to $30,884
and $26,815, respectively. Payable to affiliates includes programming fees
payable to the TCI subsidiary of $2,918 and $2,335 at December 31, 1998 and
1997, respectively.
On January 1, 1998 an affiliate of TCI entered into agreements with
InterMedia to manage the Systems' advertising business and related services for
an annual fixed fee per advertising sales subscriber as defined by the
agreements. In addition to the annual fixed fee TCI is entitled to varying
percentage shares of the incremental growth in annual cash flows from
advertising sales above specified targets. Management fees charged by the TCI
subsidiary for the year ended December 31, 1998 amount to $292. Receivable from
affiliates at December 31, 1998 includes $3,437 of receivable from TCI for
advertising sales.
As part of its normal course of business the Systems are involved in
transactions with affiliates of InterMedia which own and operate cable
television systems. Such transactions include purchases and sales of inventories
used in construction of cable plant at cost. Receivable from affiliates at
December 31, 1998 and 1997 includes $2,134 and $639, respectively, of
receivables from affiliated systems. Payable to affiliates at December 31, 1998
and 1997 includes $208 and $181, respectively, of payables to affiliated
systems.
10. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the past, and
may in the future, materially affect the Systems and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer services and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act eliminated rate regulation on the expanded
basic tier effective March 31, 1999.
Current regulations issued in conjunction with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates which
exceed the maximum permitted levels and to require refunds measured from the
date a complaint is filed in some circumstances or retroactively for up to one
year in other circumstances. Management believes it has made a fair
interpretation of the 1992 Act and related FCC regulations in determining
regulated cable television rates and other fees based on the information
currently available. However, complaints have been filed with the FCC on rates
for certain franchises and certain local franchise authorities have challenged
existing and prior rates. Further complaints and challenges could be
forthcoming, some of which could apply to revenue recorded in 1998, 1997 and
prior years. Management believes that the effect, if any, of these complaints
and challenges will not be material to the Systems' financial position or
results of operations.
F-173
<PAGE> 403
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Many aspects of regulation at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition, the
FCC is required to conduct rulemaking proceedings to implement various
provisions of the 1996 Act. It is not possible at this time to predict the
ultimate outcome of these reviews or proceedings or their effect on the Systems.
11. COMMITMENTS AND CONTINGENCIES
The Systems are committed to provide cable television services under
franchise agreements with remaining terms of up to eighteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Systems have entered into long-term retransmission agreements with
all applicable stations in exchange for in-kind and/or other consideration.
InterMedia has been named in purported and certified class actions in
various jurisdictions concerning late fee charges and practices. Certain cable
systems owned by InterMedia charge late fees to customers who do not pay their
cable bills on time. These late fee cases challenge the amount of the late fees
and the practices under which they are imposed. The Plaintiffs raise claims
under state consumer protection statutes, other state statutes, and common law.
Plaintiffs generally allege that the late fees charged by InterMedia's cable
systems, including the Systems in the States of Tennessee, South Carolina and
Georgia are not reasonably related to the costs incurred by the cable systems as
a result of the late payment. Plaintiffs seek to require cable systems to reduce
their late fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. These cases are either at the early
stages of the litigation process or are subject to a case management order that
sets forth a process leading to mediation. Based upon the facts available
management believes that, although no assurances can be given as to the outcome
of these actions, the ultimate disposition of these matters should not have a
material adverse effect upon the financial condition of the Systems.
Under existing Tennessee laws and regulations, the Systems pay an Amusement
Tax in the form of a sales tax on programming service revenues generated in
Tennessee in excess of charges for the basic and expanded basic levels of
service. Under the existing statute, only the service charges or fees in excess
of the charges for the "basic cable" television service package are exempt from
the Amusement Tax. Related regulations clarify the definition of basic cable to
include two tiers of service, which InterMedia's management and other operators
in Tennessee have interpreted to mean both the basic and expanded basic level of
services.
The Tennessee Department of Revenue ("TDOR") has proposed legislation which
would replace the Amusement Tax under the existing statute with a new sales tax
on all cable service revenues in excess of twelve dollars per month. The new tax
would be computed at a rate approximately equal to the existing effective tax
rate.
Unless InterMedia and other cable operators in Tennessee support the
proposed legislation, the TDOR has suggested that it would assess additional
taxes on prior years' expanded basic service revenues. The TDOR can issue an
assessment for prior periods up to three years. Management estimates that the
amount of such an assessment for the Systems, if made for all
F-174
<PAGE> 404
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
periods not previously audited, would be approximately $5.4 million.
InterMedia's management believes that it is possible but not likely that the
TDOR can make such an assessment and prevail in defending it.
InterMedia's management believes it has made a valid interpretation of the
current Tennessee statute and regulations and that it has properly determined
and paid all sales taxes due. InterMedia further believes that the legislative
history of the current statute and related regulations, as well as the TDOR's
history of not making assessments based on audits of prior periods, support
InterMedia's interpretation. InterMedia and other cable operators in Tennessee
are aggressively defending their past practices on calculation and payment of
the Amusement Tax and are discussing with the TDOR modifications to their
proposed legislation which would clarify the statute and would minimize the
impact of such legislation on the Systems' results of operations.
The Systems are subject to other claims and litigation in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material effect on the
Systems' financial position or results of operations.
The Systems have entered into pole rental agreements and lease certain of
its facilities and equipment under non-cancelable operating leases. Minimum
rental commitments at December 31, 1998 for the next five years and thereafter
under non-cancelable operating leases related to the Systems are as follows:
<TABLE>
<S> <C>
1999........................................................ $155
2000........................................................ 144
2001........................................................ 136
2002........................................................ 35
2003........................................................ 7
----
$477
====
</TABLE>
Rent expense, including pole rental agreements, for the years ended
December 31, 1998 and 1997 was $2,817 and $2,828, respectively.
12. INCOME TAXES
Income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------- ------
<S> <C> <C>
Current federal............................................. $ -- $ (285)
Deferred federal............................................ (1,454) 3,813
Deferred state.............................................. (169) 498
------- ------
$(1,623) $4,026
======= ======
</TABLE>
F-175
<PAGE> 405
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Deferred income taxes relate to temporary differences as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Property and equipment..................................... $ (7,258) $ (6,786)
Intangible assets.......................................... (12,930) (8,336)
-------- --------
(20,188) (15,122)
Loss carryforward -- federal............................... 31,547 29,058
Loss carryforward -- state................................. 297 --
Other...................................................... 942 285
-------- --------
$ 12,598 $ 14,221
======== ========
</TABLE>
At December 31, 1998, RMG had net operating loss carryforwards for federal
income tax purposes aggregating $92,785, which expire through 2018. RMG is a
loss corporation as defined in Section 382 of the Internal Revenue Code.
Therefore, if certain substantial changes in RMG's ownership should occur, there
could be a significant annual limitation on the amount of loss carryforwards
which can be utilized.
InterMedia's management has not established a valuation allowance to reduce
the deferred tax assets related to RMG's unexpired net operating loss
carryforwards. Due to an excess of appreciated asset value over the tax basis of
RMG's net assets, management believes it is more likely than not that the
deferred tax assets related to unexpired net operating losses will be realized.
A reconciliation of the tax benefit computed at the statutory federal rate
and the tax (expense) benefit reported in the accompanying combined statements
of operations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
Tax benefit at federal statutory rate....................... $ 626 $ 4,454
State taxes, net of federal benefit......................... 73 498
Goodwill amortization....................................... (2,309) (2,056)
Realization of acquired tax benefit......................... -- 346
Other....................................................... (13) 784
------- -------
$(1,623) $ 4,026
======= =======
</TABLE>
13. CHANNEL LAUNCH REVENUE
During the years ended December 31, 1998 and 1997, the Systems were
credited $2,646 and $5,072, respectively, representing their share of payments
received by IP-I and ICP-IV from certain programmers to launch and promote their
new channels. Also, during 1998 the Systems recorded a receivable from a
programmer, of which $1,791 remains outstanding at December 31, 1998, for the
launch and promotion of its new channel. Of the total amount credited the
Systems recognized advertising revenue of $586 and $1,182 during the year ended
December 31, 1998
F-176
<PAGE> 406
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
and 1997, respectively, for advertisements provided by the Systems to promote
the new channels. The remaining payments and receivable credited from the
programmers are being amortized over the respective terms of the program
agreements which range between five and ten years. For the years ended December
31, 1998 and 1997, the Systems amortized and recorded as other service revenue
$956 and $894 respectively.
14. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
In connection with RMG's sale of its cable television assets located in
Royston and Toccoa, Georgia in December 1997, as described in Note 3 -- "Sale
and Exchange of Cable Properties," net cash proceeds received were as follows:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from sale.......................................... $11,212
Receivable from buyer....................................... (55)
-------
Net proceeds received from buyer.................. $11,157
=======
</TABLE>
In connection with the exchange of certain cable assets in and around
western and eastern Tennessee on December 31, 1998, as described in Note 3, the
Systems paid cash of $398.
In December 1998, IP-IV contributed its 4.99% partner interest in a limited
partnership to RMG. The book value of the investment at the time of the
contribution was $1,147.
Total accretion on RMG's Redeemable Preferred Stock for the years ended
December 31, 1998 and 1997 amounted to $945 and $882, respectively.
15. EMPLOYEE BENEFIT PLANS
The Systems participate in the InterMedia Partners Tax Deferred Savings
Plan which covers all full-time employees who have completed at least six months
of employment. The plan provides for a base employee contribution of 1% and a
maximum of 15% of compensation. The Systems' matching contributions under the
plan are at the rate of 50% of the employee's contribution, up to a maximum of
5% of compensation.
F-177
<PAGE> 407
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Rifkin Cable Income Partners L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of partners' equity (deficit) and of cash flows present fairly, in
all material respects, the financial position of Rifkin Cable Income Partners
L.P. (the "Partnership") at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March 19, 1999
F-178
<PAGE> 408
RIFKIN CABLE INCOME PARTNERS L. P.
BALANCE SHEET
<TABLE>
<CAPTION>
12/31/97 12/31/98
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 381,378 $ 65,699
Customer accounts receivable, net of allowance for doubtful
accounts of $12,455 in 1997 and $18,278 in 1998.......... 49,585 51,523
Other receivables.......................................... 123,828 133,278
Prepaid expenses and deposits.............................. 81,114 70,675
Property, plant and equipment, at cost:
Cable television transmission and distribution systems
and related equipment................................. 8,536,060 8,758,525
Land, buildings, vehicles and furniture and fixtures..... 618,671 623,281
----------- -----------
9,154,731 9,381,806
Less accumulated depreciation............................ (3,847,679) (4,354,685)
----------- -----------
Net property, plant and equipment..................... 5,307,052 5,027,121
Franchise costs and other intangible assets, net of
accumulated amortization of $1,819,324 in 1997 and
$2,033,405 in 1998....................................... 2,005,342 1,772,345
----------- -----------
Total assets..................................... $ 7,948,299 $ 7,120,641
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued liabilities................... $ 365,392 $ 396,605
Customer deposits and prepayments.......................... 177,307 126,212
Interest payable........................................... 58,093 --
Long-term debt............................................. 4,914,000 --
Interpartnership debt...................................... -- 2,865,426
----------- -----------
Total liabilities................................ 5,514,792 3,388,243
Commitments and contingencies (Notes 4 and 8)
Partners' equity:
General partner.......................................... 263,171 822,837
Limited partners......................................... 2,170,336 2,909,561
----------- -----------
Total partner's equity........................... 2,433,507 3,732,398
----------- -----------
Total liabilities and partners' equity........... $ 7,948,299 $ 7,120,641
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-179
<PAGE> 409
RIFKIN CABLE INCOME PARTNERS L.P.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
12/31/96 12/31/97 12/31/98
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Service............................................ $4,104,841 $4,491,983 $4,790,052
Installation and other............................. 206,044 239,402 345,484
---------- ---------- ----------
Total revenue............................ 4,310,885 4,731,385 5,135,536
COSTS AND EXPENSES:
Operating expense.................................. 643,950 691,700 671,968
Programming expense................................ 787,124 879,939 1,077,540
Selling, general and administrative expense........ 683,571 663,903 622,774
Depreciation....................................... 535,559 602,863 628,515
Amortization....................................... 377,749 332,770 199,854
Management fees.................................... 215,544 236,569 256,777
Loss (gain) on disposal of assets.................. 1,530 2,980 (2,138)
---------- ---------- ----------
Total costs and expenses................. 3,245,027 3,410,724 3,455,290
---------- ---------- ----------
Operating income................................... 1,065,858 1,320,661 1,680,246
Interest expense................................... 533,294 448,530 362,439
---------- ---------- ----------
Net income before extraordinary item............... 532,564 872,131 1,317,807
Extraordinary item -- Loss on early retirement of
debt (Note 1).................................... -- -- 18,916
---------- ---------- ----------
Net income......................................... $ 532,564 $ 872,131 $1,298,891
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-180
<PAGE> 410
RIFKIN CABLE INCOME PARTNERS L.P.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Partners' equity (deficit), December 31, 1995... $(299,131) $1,427,630 $1,128,499
Net income...................................... 229,471 303,093 532,564
Equity distribution............................. (42,953) (56,734) (99,687)
--------- ---------- ----------
Partners' equity (deficit), December 31, 1996... (112,613) 1,673,989 1,561,376
Net income...................................... 375,784 496,347 872,131
--------- ---------- ----------
Partners' equity, December 31, 1997............. 263,171 2,170,336 2,433,507
Net income...................................... 559,666 739,225 1,298,891
--------- ---------- ----------
Partners' equity December 31, 1998.............. $ 822,837 $2,909,561 $3,732,398
========= ========== ==========
</TABLE>
The partners' capital accounts for financial reporting purposes vary from
the tax capital accounts.
The accompanying notes are an integral part of the financial statements.
F-181
<PAGE> 411
RIFKIN CABLE INCOME PARTNERS L.P.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
12/31/96 12/31/97 12/31/98
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 532,564 $ 872,131 $ 1,298,891
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 913,308 935,633 828,369
Amortization of deferred loan cost.......... 18,970 18,970 14,228
Loss on early retirement of debt............ -- -- 18,916
Loss (gain) on disposal of fixed assets..... 1,530 2,980 (2,138)
Decrease (increase) in customer accounts
receivables............................... 521 (5,729) (1,938)
Increase in other receivables............... (45,274) (56,059) (9,450)
Decrease in prepaid expense and other....... 40,737 13,230 10,439
Increase (decrease) in accounts payable and
accrued liabilities....................... (207,035) 61,625 31,213
Increase (decrease) in customer deposits and
prepayment................................ 673 (63,524) (51,095)
Increase (decrease) in interest payable..... 35,638 (3,145) (58,093)
---------- ---------- -----------
Net cash provided by operating
activities............................. 1,291,632 1,776,112 2,079,342
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..... (824,359) (679,394) (415,534)
Additions to other intangible assets, net of
refranchises................................ -- (112) --
Net proceeds from the sale of assets........... 18,255 57,113 69,087
Sales tax related to Florida assets sold in
1994........................................ (14,694) -- --
---------- ---------- -----------
Net cash used in investing activities..... (820,798) (622,393) (346,447)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from interpartnership debt............ -- -- 4,265,426
Payments of long-term debt..................... (715,000) (871,000) (4,914,000)
Payments of interpartnership debt.............. -- -- (1,400,000)
Partners' capital distributions................ (99,687) -- --
---------- ---------- -----------
Net cash used in financing activities..... (814,687) (871,000) (2,048,574)
---------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... (343,853) 282,719 (315,679)
Cash and cash equivalents at beginning of
period......................................... 442,512 98,659 381,378
---------- ---------- -----------
Cash and cash equivalents at end of period....... $ 98,659 $ 381,378 $ 65,699
========== ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................. $ 455,124 $ 431,722 $ 406,304
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-182
<PAGE> 412
RIFKIN CABLE INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Rifkin Cable Income Partners L.P. (the "Partnership") was formed in 1986 as
a limited partnership under the laws of the State of Delaware. The Partnership
owns, operates and develops cable television systems in Missouri and New Mexico.
Rifkin Cable Management Partners L.P., an affiliate of Rifkin & Associates, Inc.
(Note 3), is the general partner of the Partnership.
The Partnership Agreement (the "Agreement") establishes the respective
rights, obligations and interests of the partners. The Agreement provides that
net income or loss, certain capital events, and cash distributions (all as
defined in the Agreement) are generally allocated 43% to the general partner and
57% to the limited partners.
ACQUISITION BY INTERLINK COMMUNICATIONS PARTNERS, LLLP
During 1998, Interlink Communications Partners, LLLP ("ICP") agreed to
purchase all of the interests of the Partnership. ICP acquired the limited
partner interests, effective December 31, 1998, and is currently in the process
of obtaining the necessary consents to transfer all of the Partnership's
franchises to ICP. Once obtained, ICP will then purchase the general partner
interest in the Partnership, and the Partnership will, by operation of law, be
consolidated into ICP.
REVENUE RECOGNITION
Customer fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the customer.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion expenses are charged to income during the year in
which they are incurred and were not significant for the periods shown.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are recorded at cost, which in
the case of assets constructed includes amounts for material, labor, overhead
and capitalized interest, if applicable. Upon sale or retirement of an asset,
the related costs and accumulated depreciation are removed from the accounts and
any gain or loss is recognized.
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings................................................. 21-30 years
Cable television transmission and distribution systems and
related equipment......................................... 3-15 years
Vehicles and furniture and fixtures....................... 3-5 years
</TABLE>
FRANCHISE COSTS
Franchise costs are amortized using the straight-line method over the
remaining lives of the franchises as of the date they were acquired, ranging
from eight to twenty-five years. The
F-183
<PAGE> 413
RIFKIN CABLE INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of intangibles is assessed for recoverability by management based
on an analysis of undiscounted expected future cash flows. The Partnership's
management believes that there has been no impairment thereof as of December 31,
1998.
OTHER INTANGIBLE ASSETS
Loan costs of the Partnership have been deferred and have been amortized to
interest expense utilizing the straight-line method over the term of the related
debt. Use of the straight-line method approximates the results of the
application of the interest method. The net amount remaining at December 31,
1997 was $37,886.
On December 30, 1998, the loan with a financial institution was paid in
full (Note 2). The related deferred loan costs and associated accumulated
amortization were written off and an extraordinary loss of $18,916 was recorded.
CASH AND CASH EQUIVALENTS
All highly liquid debt instruments purchased with an original maturity of
three months or less are considered to be cash equivalents.
INCOME TAXES
No provision for Federal or State income taxes is necessary in the
financial statements of the Partnership, because as a partnership, it is not
subject to Federal or State income tax as the tax effect of its activities
accrues to the partners.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities," which requires the Partnership to expense all start up costs
related to opening a new facility, introduction of anew product or service, or
conducting business with a new class of customer or in a new territory. This
standard is effective for the Partnership's 1999 fiscal year. Management
believes that SOP 98-5 will have no material effect on its financial position or
the results of operations.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform with the 1998 financial statement presentation.
2. DEBT
The Partnership had a term loan with a financial institution which required
varying quarterly payments. At December 31, 1997, the term loan had a balance of
$4,914,000. At December 30,
F-184
<PAGE> 414
RIFKIN CABLE INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1998, the term loan had a balance of $4,216,875; at that date, the total balance
and accrued interest were paid in full.
On that same date, the Partnership obtained a new interpartnership loan
with ICP (Note 1). Borrowing under the interpartnership loan, as well as
interest and principle payments are due at the discretion of the management of
ICP, resulting in no minimum required annual principle payments. The balance of
the interpartnership loan at December 31, 1998 was $2,865,426. The effective
interest rate at December 31, 1998 was 8.5%.
3. MANAGEMENT AGREEMENT
The Partnership has entered into a management agreement with Rifkin and
Associates, Inc. (Rifkin). The management agreement provides that Rifkin shall
act as manager of the Partnership's CATV systems, and shall be entitled to
annual compensation of 5% of the Partnership's CATV revenues, net of certain
CATV programming costs. Effective September 1, 1998, Rifkin conveyed its CATV
management business to R & A Management, LLC (RML). The result of this
transaction included the conveyance of the Rifkin management agreement (Rifkin
Agreement) to RML (RML Agreement). Expenses incurred pursuant to the Rifkin
Agreement and the RML Agreement are disclosed in total on the Statement of
Operations.
4. COMMITMENTS AND RENTAL EXPENSE
The Partnership leases certain real and personal property under
noncancelable operating leases expiring through the year 2001. Future minimum
lease payments under such noncancelable leases as of December 31, 1998 are:
$30,000 for each year 1999, 2000 and 2001, totaling $90,000.
Total rental expense for the years ended December 31, 1996, 1997 and 1998
was $60,323, $68,593 and $68,776, respectively, including $27,442, $36,822 and
$36,716, respectively, relating to cancelable pole rental agreements.
5. RETIREMENT BENEFITS
The Partnership has a 401(k) plan for its employees that have been employed
by the Partnership for at least one year. Employees of the Partnership can
contribute up to 15% of their salary, on a before-tax basis, with a maximum 1998
contribution of $10,000 (as set by the Internal Revenue Service). The
Partnership matches participant contributions up to a maximum of 50% of the
first 3% of a participant's salary contributed. All participant contributions
and earnings are fully vested upon contribution and Partnership contributions
and earnings vest 20% per year of employment with the Partnership, becoming
fully vested after five years. The Partnership's matching contributions for the
years ended December 31, 1996, 1997 and 1998 were $2,693, $3,653 and $2,680,
respectively.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership has a number of financial instruments, none of which are
held for trading purposes. The following method and assumptions were used by the
Partnership to estimate the fair values of financial instruments as disclosed
herein:
Cash and Cash Equivalents, Customer Accounts Receivable, Other Receivables,
Accounts Payable and Accrued Liabilities and Customer Deposits and Prepayments:
The carrying value amount approximates fair value because of the short period to
maturity.
F-185
<PAGE> 415
RIFKIN CABLE INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Debt: The carrying value amount approximates the fair value because the
Partnership's interpartnership debt was obtained on December 30, 1998.
7. CABLE REREGULATION
Congress enacted the Cable Television Consumer Protection and Competition
Act of 1992 (the Cable Act) and has amended it at various times since.
The total effects of the present law are, at this time, still unknown.
However, one provision of the present law further redefines a small cable
system, and exempts these systems from rate regulation on the upper tiers of
cable service. The Partnership is awaiting an FCC rulemaking implementing the
present law to determine whether its systems qualify as small cable systems.
8. LITIGATION
The Partnership could possibly be named as defendant in various actions and
proceedings arising from the normal course of business. In all such cases, the
Partnership will vigorously defend itself against the litigation and, where
appropriate, will file counterclaims. Although the eventual outcome of potential
lawsuits cannot be predicted, it is management's opinion that any such lawsuit
will not result in liabilities that would have a material affect on the
Partnership's financial position or results of operations.
F-186
<PAGE> 416
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Rifkin Acquisition Partners, L.L.L.P.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, partners' capital (deficit) and cash
flows present fairly, in all material respects, the financial position of Rifkin
Acquisition Partners, L.L.L.P. and its subsidiaries (the "Company") at December
31, 1998 and 1997, and the 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. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March 19, 1999
F-187
<PAGE> 417
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
12/31/98 12/31/97
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 2,324,892 $ 1,902,555
Customer accounts receivable, net of allowance for
doubtful accounts of $444,839 in 1998 and $425,843 in
1997................................................... 1,932,140 1,371,050
Other receivables........................................ 5,637,771 4,615,089
Prepaid expenses and other............................... 2,398,528 1,753,257
Property, plant and equipment at cost:
Cable television transmission and distribution systems
and related equipment............................... 149,376,914 131,806,310
Land, buildings, vehicles and furniture and fixtures... 7,421,960 7,123,429
------------ ------------
156,798,874 138,929,739
Less accumulated depreciation.......................... (35,226,773) (26,591,458)
------------ ------------
Net property, plant and equipment.............. 121,572,101 112,338,281
Franchise costs and other intangible assets, net of
accumulated amortization of $67,857,545 in 1998 and
$53,449,637 in 1997.................................... 183,438,197 180,059,655
------------ ------------
Total assets................................... $317,303,629 $302,039,887
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities................. $ 11,684,594 $ 11,690,894
Customer deposits and prepayments........................ 1,676,900 1,503,449
Interest payable......................................... 7,242,954 7,384,509
Deferred tax liability, net.............................. 7,942,000 12,138,000
Notes payable............................................ 224,575,000 229,500,000
------------ ------------
Total liabilities.............................. 253,121,448 262,216,852
Commitments and contingencies (Notes 8 and 14)
Redeemable partners' interests........................... 10,180,400 7,387,360
Partners' capital (deficit):
General partner........................................ (1,991,018) (1,885,480)
Limited partners....................................... 55,570,041 34,044,912
Preferred equity interest.............................. 422,758 276,243
------------ ------------
Total partners' capital.................................. 54,001,781 32,435,675
------------ ------------
Total liabilities and partners' capital........ $317,303,629 $302,039,887
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-188
<PAGE> 418
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
12/31/98 12/31/97 12/31/96
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Service..................................... $ 82,498,638 $ 78,588,503 $ 66,433,321
Installation and other...................... 7,422,675 5,736,412 4,852,124
------------ ------------ ------------
Total revenue..................... 89,921,313 84,324,915 71,285,445
COSTS AND EXPENSES:
Operating expense........................... 13,305,376 14,147,031 10,362,671
Programming expense......................... 18,020,812 15,678,977 14,109,527
Selling, general and administrative
expense................................... 13,757,090 12,695,176 11,352,870
Depreciation................................ 15,109,327 14,422,631 11,725,246
Amortization................................ 22,104,249 24,208,169 23,572,457
Management fees............................. 3,147,246 2,951,372 2,475,381
Loss on disposal of assets.................. 3,436,739 7,834,968 1,357,180
------------ ------------ ------------
Total costs and expenses.......... 88,880,839 91,938,324 74,955,332
------------ ------------ ------------
Operating income (loss)..................... 1,040,474 (7,613,409) (3,669,887)
Gain from the sale of assets (Note 4)....... (42,863,060) -- --
Interest expense............................ 23,662,248 23,765,239 21,607,174
------------ ------------ ------------
Income (loss) before income taxes........... 20,241,286 (31,378,648) (25,277,061)
Income tax benefit.......................... (4,177,925) (5,335,000) (3,645,719)
------------ ------------ ------------
Net income (loss)........................... $ 24,419,211 $(26,043,648) $(21,631,342)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-189
<PAGE> 419
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
12/31/98 12/31/97 12/31/96
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 24,419,211 $(26,043,648) $(21,631,342)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 37,213,576 38,630,800 35,297,703
Amortization of deferred loan costs.............. 989,760 989,760 970,753
Gain on sale of assets (Note 4).................. (42,863,060) -- --
Loss on disposal of fixed assets................. 3,436,739 7,834,968 1,357,180
Deferred tax benefit............................. (4,196,000) (5,335,000) (3,654,000)
Increase in customer accounts receivables........ (300,823) (186,976) (117,278)
Increase in other receivables.................... (474,599) (1,992,714) (994,681)
(Increase) decrease in prepaid expenses and
other.......................................... (684,643) 23,015 (494,252)
Increase in accounts payable and accrued
liabilities.................................... 34,073 1,753,656 3,245,736
Increase (decrease) in customer deposits and
prepayments.................................... (86,648) 231,170 164,824
Increase (decrease) in interest payable.......... (141,555) 600,248 6,692,988
------------ ------------ ------------
Net cash provided by operating activities... 17,346,031 16,505,279 20,837,631
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable systems, net (Note 3).......... (2,212,958) (19,359,755) (71,797,038)
Additions to property, plant and equipment.......... (26,354,756) (28,009,253) (16,896,582)
Additions to cable television franchises, net of
retirements...................................... (151,695) 72,162 (1,182,311)
Net proceeds from the sale of cable systems (Note
4)............................................... 16,533,564 -- --
Net proceeds from the other sales of assets......... 247,216 306,890 197,523
------------ ------------ ------------
Net cash used in investing activities....... (11,938,629) (46,989,956) (89,678,408)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from isssuance of senior subordinated
notes............................................ -- -- 125,000,000
Proceeds from long-term bank debt................... 22,500,000 38,000,000 18,000,000
Deferred loan costs................................. -- -- (6,090,011)
Payments of long-term bank debt..................... (27,425,000) (7,000,000) (82,000,000)
Partners' capital contributions..................... -- -- 15,000,000
Equity distributions to partners.................... (60,065) -- --
------------ ------------ ------------
Net cash provided by (used in) financing
activities................................ (4,985,065) 31,000,000 69,909,989
------------ ------------ ------------
Net increase in cash.................................. 422,337 515,323 1,069,212
Cash and cash equivalents at beginning of period...... 1,902,555 1,387,232 318,020
------------ ------------ ------------
Cash and cash equivalents at end of period............ $ 2,324,892 $ 1,902,555 $ 1,387,232
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid....................................... $ 22,737,443 $ 22,098,732 $ 13,866,995
============ ============ ============
Noncash investing activities:
Proceeds from the sale of Michigan assets held in
escrow......................................... $ 500,000 $ -- $ --
============ ============ ============
Trade value related to the trade sale of
Tennessee assets............................... $ 46,668,000 $ -- $ --
============ ============ ============
Trade value related to trade acquisition of
Tennessee assets............................... $(46,668,000) $ -- $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-190
<PAGE> 420
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED GENERAL LIMITED
EQUITY INTEREST PARTNER PARTNERS TOTAL
--------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital (deficit) at
December 31, 1995............. $ 562,293 $(1,085,311) $ 69,421,043 $ 68,898,025
Partners' capital
contributions................... -- 150,000 14,850,000 15,000,000
Accretion of redeemable
partners' interest............ -- (157,730) (1,104,110) (1,261,840)
Net loss........................ (129,788) (216,313) (21,285,241) (21,631,342)
--------- ----------- ------------ ------------
Partners' capital (deficit) at
December 31, 1996............. 432,505 (1,309,354) 61,881,692 61,004,843
Accretion of redeemable
partners' interest............ -- (315,690) (2,209,830) (2,525,520)
Net loss........................ (156,262) (260,436) (25,626,950) (26,043,648)
--------- ----------- ------------ ------------
Partners' capital (deficit) at
December 31, 1997............. 276,243 (1,885,480) 34,044,912 32,435,675
Accretion of redeemable
partners' interest............ -- (349,130) (2,443,910) (2,793,040)
Net income...................... 146,515 244,192 24,028,504 24,419,211
Partners' equity distribution... -- (600) (59,465) (60,065)
--------- ----------- ------------ ------------
Partners' capital (deficit) at
December 31, 1998............. $ 422,758 $(1,991,018) $ 55,570,041 $ 54,001,781
========= =========== ============ ============
</TABLE>
The Partners' capital accounts for financial reporting purposes vary from
the tax capital accounts.
The accompanying notes are an integral part of the consolidated financial
statements.
F-191
<PAGE> 421
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL INFORMATION
Rifkin Acquisition Partners, L.L.L.P. ("the Partnership") was formed
pursuant to the laws of the State of Colorado. The Partnership and its
subsidiaries are hereinafter referred to on a consolidated basis as the
"Company." The Company owns, operates, and develops cable television systems in
Georgia, Tennessee, and Illinois. Rifkin Acquisition Management, L.P., an
affiliate of Rifkin & Associates, Inc. (Note 7), is the general partner of the
Partnership ("General Partner").
The Partnership operates under a limited liability limited partnership
agreement (the "Partnership Agreement") which establishes contribution
requirements, enumerates the rights and responsibilities of the partners and
advisory committee, provides for allocations of income, losses and
distributions, and defines certain items relating thereto. The Partnership
Agreement provides that net income or loss, certain defined capital events, and
cash distributions, all as defined in the Partnership Agreement, are generally
allocated 99% to the limited partners and 1% to the general partner.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the following
entities:
<TABLE>
<S> <C>
- - Rifkin Acquisition Partners, L.L.L.P. - Cable Equities of Colorado, Ltd. (CEC)
- - Cable Equities of Colorado - Cable Equities, Inc. (CEI)
Management Corp. (CEM) - Rifkin Acquisition Capital Corp. (RACC)
</TABLE>
The financial statements for 1997 and 1996 also included the following
entities:
<TABLE>
<S> <C>
- - Rifkin/Tennessee, Ltd. (RTL) - FNI Management Corp. (FNI)
</TABLE>
Effective January 1, 1998, both the RTL and FNI entities were dissolved and
the assets were transferred to the Partnership.
All significant intercompany accounts and transactions have been
eliminated.
REVENUE AND PROGRAMMING
Customer fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the customer.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion expenses are charged to income during the year in
which they are incurred and were not significant for the periods shown.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are recorded at cost, which in
the case of assets constructed, includes amounts for material, labor, overhead
and interest, if applicable. Upon sale or retirement of an asset, the related
costs and accumulated depreciation are removed from the accounts and any gain or
loss is recognized. Capitalized interest was not significant for the periods
shown.
F-192
<PAGE> 422
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings................................................. 27-30 years
Cable television transmission and distribution systems and
related equipment......................................... 3-15 years
Vehicles and furniture and fixtures....................... 3-5 years
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
FRANCHISE COSTS
Franchise costs are amortized using the straight-line method over the
remaining lives of the franchises as of the date they were acquired, ranging
from one to twenty years. The carrying value of franchise costs is assessed for
recoverability by management based on an analysis of undiscounted future
expected cash flows from the underlying operations of the Company. Management
believes that there has been no impairment thereof as of December 31, 1998.
OTHER INTANGIBLE ASSETS
Certain loan costs have been deferred and are amortized to interest expense
utilizing the straight-line method over the remaining term of the related debt.
Use of the straight-line method approximates the results of the application of
the interest method. The net amounts remaining at December 31, 1998 and 1997
were $6,176,690 and $7,166,450, respectively.
CASH AND CASH EQUIVALENTS
All highly liquid debt instruments purchased with an original maturity of
three months or less are considered to be cash equivalents.
REDEEMABLE PARTNERS' INTERESTS
The Partnership Agreement provides that if a certain partner dies or
becomes disabled, that partner (or his personal representative) shall have the
option, exercisable by notice given to the partners at any time within 270 days
after his death or disability (except that if that partner dies or becomes
disabled prior to August 31, 2000, the option may not be exercised until August
31, 2000 and then by notice by that partner or his personal representative given
to the partners within 270 days after August 31, 2000) to sell, and require the
General Partner and certain trusts controlled by that partner to sell, and the
Partnership to purchase, up to 50% of the partnership interests owned by any of
such partners and certain current and former members of management of Rifkin &
Associates, Inc. that requests to sell their interest, for a purchase price
equal to the fair market value of those interests determined by appraisal in
accordance with the Partnership Agreement. Accordingly, the current fair value
of such partnership interests have been reclassified outside of partners'
capital.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
F-193
<PAGE> 423
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities," which requires the Partnership to expense all start up costs
related to organizing a new business. This new standard also includes one-time
activities related to opening a new facility, introduction of a new product or
service, or conducting business with a new class of customer or in a new
territory. This standard is effective for the Partnership's 1999 fiscal year.
Management believes that SOP 98-5 will have no material effect on its financial
position or the results of operations.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 financial statement presentation. Such
reclassification had no effect on the net loss as previously stated.
2. SUBSEQUENT EVENT
On February 12, 1999, the Company signed a letter of intent for the
partners to sell all of their partnership interests to Charter Communications
("Charter"). The Company and Charter are expected to sign a purchase agreement
and complete the sale during the third quarter of 1999.
3. ACQUISITION OF CABLE PROPERTIES
1998 ACQUISITIONS
At various times during the second half of 1998, the Company completed
three separate acquisitions of cable operating assets. Two of the acquisitions
serve communities in Gwinnett County, Georgia (the "Georgia Systems"). These
acquisitions were accounted for using the purchase method of accounting.
The third acquisition resulted from a trade of the Company's systems
serving the communities of Paris and Piney Flats, Tennessee for the operating
assets of another cable operator serving primarily the communities of Lewisburg
and Crossville, Tennessee (the "Tennessee Trade"). The trade was for cable
systems that are similar in size and was accounted for based on fair market
value. Fair market value was established at $3,000 per customer relinquished,
which was based on recent sales transactions of similar cable systems. The
transaction included the payment of approximately $719,000, net, of additional
cash (Note 4).
F-194
<PAGE> 424
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The combined purchase price was allocated based on estimated fair values
from an independent appraisal to property, plant and equipment and franchise
cost as follows (dollars in thousands):
<TABLE>
<CAPTION>
GEORGIA TENNESSEE
SYSTEMS TRADE TOTAL
------- --------- -------
<S> <C> <C> <C>
Fair value of assets relinquished (Note 4)............ $ -- $46,668 $46,668
Cash paid............................................. 1,392 719 2,111
Acquisition Costs (appraisal, transfer fees and direct
costs).............................................. 26 76 102
------ ------- -------
Total acquisition cost................................ $1,418 $47,463 $48,881
====== ======= =======
Allocation:
Current assets........................................ $ (2) $ 447 $ 445
Current liabilities................................... (1) (397) (398)
Property, plant and equipment......................... 333 11,811 12,144
Franchise Cost........................................ 1,088 35,602 36,690
------ ------- -------
Total cost allocated.................................. $1,418 $47,463 $48,881
====== ======= =======
</TABLE>
The fair value of assets relinquished from the Tennessee Trade was treated
as a noncash transaction on the Consolidated Statement of Cash Flows. The cash
acquisition costs were funded by proceeds from the Company's reducing revolving
loan with a financial institution.
The following combined pro forma information presents a summary of
consolidated results of operations for the Company as if the Tennessee Trade
acquisitions had occurred at the beginning of 1997, with pro forma adjustments
to show the effect on depreciation and amortization for the acquired assets,
management fees on additional revenues and interest expense on additional debt
(dollars in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------
12/31/98 12/31/97
-------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenues.................................. $89,921 $ 84,325
Net income (loss)............................... 19,447 (29,631)
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Tennessee Trade actually been
acquired on January 1, 1997.
1997 ACQUISITIONS
On April 1, 1997, the Company acquired the cable operating assets of two
cable systems serving the Tennessee communities of Shelbyville and Manchester
(the "Manchester Systems"), for an aggregate purchase price of approximately
$19.7 million of which $495,000 was paid as escrow in 1996. The acquisition was
accounted for using the purchase method of accounting, and was funded by
proceeds from the Company's reducing revolving loan with a financial
institution. No pro forma information giving the effect of the acquisitions is
shown due to the results being immaterial.
F-195
<PAGE> 425
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 ACQUISITIONS
On March 1, 1996, the Company acquired certain cable operating assets
("Mid-Tennessee Systems") from Mid-Tennessee CATV, L.P., and on April 1, 1996
acquired the cable operating assets ("RCT Systems") from Rifkin Cablevision of
Tennessee, Ltd. Both Mid-Tennessee CATV, L.P. and Rifkin Cablevision of
Tennessee, Ltd. were affiliates of the General Partner. The acquisition costs
were funded by $15 million of additional partner contributions and the remainder
from a portion of the proceeds received from the issuance of $125 million of
11 1/8% Senior Subordinated Notes due 2006 (see Note 6).
The acquisitions were recorded using the purchase method of accounting. The
results of operations of the Mid-Tennessee Systems have been included in the
consolidated financial statements since March 1, 1996, and the results of the
RCT Systems have been included in the consolidated financial statements since
April 1, 1996. The combined purchase price was allocated based on estimated fair
values from an independent appraisal to property, plant and equipment and
franchise cost as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash paid, net of acquired cash............................. $71,582
Acquisition costs (appraisal, transfer fees, and direct
costs)...................................................... 215
-------
Total acquisition cost...................................... $71,797
=======
Allocation:
Current assets.............................................. $ 624
Current liabilities......................................... (969)
Property, plant and equipment............................... 24,033
Franchise cost and other intangible assets.................. 48,109
-------
Total cost allocated........................................ $71,797
=======
</TABLE>
The following combined pro forma information presents a summary of
consolidated results of operations for the Company as if the Mid-Tennessee
Systems and the RCT Systems acquisitions had occurred at the beginning of 1996,
with pro forma adjustments to show the effect on depreciation and amortization
for the acquired assets, management fees on additional revenues and interest
expense on additional debt (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-----------
12/31/96
-----------
(UNAUDITED)
<S> <C>
Total revenues............................................. $ 74,346
Net loss................................................... (22,558)
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Mid-Tennessee Systems and the
RCT Systems actually been acquired on January 1, 1996.
4. SALE OF ASSETS
On February 4, 1998, the Company sold all of its operating assets in the
state of Michigan (the "Michigan Sale") to another cable operator for cash. In
addition, on December 31, 1998,
F-196
<PAGE> 426
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company traded certain cable systems in Tennessee (the "Tennessee Trade")
for similar-sized cable systems (Note 3). Both sales resulted in a gain
recognized by the Company as follows (dollars in thousands):
<TABLE>
<CAPTION>
MICHIGAN TENNESSEE
SALE TRADE TOTAL
-------- --------- -------
<S> <C> <C> <C>
Fair value of assets relinquished............. $ -- $46,668 $46,668
Original cash proceeds........................ 16,931 -- 16,931
Adjustments for value of assets and
liabilities assumed......................... 120 (17) 103
------- ------- -------
Net proceeds.................................. 17,051 46,651 63,702
Net book value of assets sold................. 11,061 9,778 20,839
------- ------- -------
Net gain from sale............................ $ 5,990 $36,873 $42,863
======= ======= =======
</TABLE>
The Michigan Sale proceeds amount includes $500,000 that is currently being
held in escrow. This amount and the fair value of assets relinquished, related
to the Tennessee Trade, were both treated as noncash transactions on the
Consolidated Statement of Cash Flows.
The cash proceeds from the Michigan Sale were used by the Company to reduce
its revolving and term loans with a financial institution.
5. INCOME TAXES
Although the Partnership is not a taxable entity, two corporations (the
"subsidiaries") are included in the consolidated financial statements. These
subsidiaries are required to pay taxes on their taxable income, if any.
F-197
<PAGE> 427
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents a reconciliation of pre-tax losses as reported in
accordance with generally accepted accounting principles and the losses
attributable to the partners and included in their individual income tax
returns:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/98 12/31/97 12/31/96
------------ ------------ ------------
<S> <C> <C> <C>
Pre-tax income (loss) as reported....... $ 20,241,286 $(31,378,648) $(25,277,061)
(Increase) decrease due to:
Separately taxed book results of
corporate subsidiaries............. 9,397,000 15,512,000 9,716,000
Effect of different depreciation and
amortization methods for tax and
book purposes...................... (1,360,000) (2,973,000) (3,833,000)
Additional tax gain from the sale of
Michigan(Note 4)...................... 2,068,000 -- --
Book gain from trade sale of Tennessee
assets(Note 4)........................ (36,873,000) -- --
Additional tax loss from dissolution of
FNI stock............................. (7,235,000) -- --
Other................................... 81,714 (45,052) (22,539)
------------ ------------ ------------
Tax loss attributed to the partners..... $(13,680,000) $(18,884,700) $(19,416,600)
============ ============ ============
</TABLE>
The Company accounts for income taxes under the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
As a result of a change in control in 1995, the book value of the Company's
net assets was increased to reflect their fair market value. In connection with
this revaluation, a deferred income tax liability in the amount of $22,801,000
was established to provide for future taxes payable on the revised valuation of
the net assets. A deferred tax benefit of $4,196,000, $5,335,000 and $3,654,000
was recognized for the years ended December 31, 1998, 1997 and 1996,
respectively, reducing the liability to $7,942,000.
Deferred tax assets (liabilities) were comprised of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
12/31/98 12/31/97
------------ ------------
<S> <C> <C>
Deferred tax assets resulting from loss
carryforwards.......................... $ 11,458,000 $ 9,499,000
Deferred tax liabilities resulting from
depreciation and amortization............ (19,400,000) (21,637,000)
------------ ------------
Net deferred tax liability............... $ (7,942,000) $(12,138,000)
============ ============
</TABLE>
F-198
<PAGE> 428
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998 and 1997, the subsidiaries have net operating loss
carryforwards ("NOLs") for income tax purposes of $30,317,000 and $25,264,000,
respectively, substantially all of which are limited. The NOLs will expire at
various times between the years 2000 and 2013.
In 1998, one of the corporate entities was dissolved. The existing NOL's
were used to offset taxable income down to $87,751, resulting in a current tax
for 1998 of $18,075.
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
subsidiaries generally would be entitled to reduce their future federal income
tax liabilities by carrying the unused NOLs forward for a period of 15 years to
offset their future income taxes. The subsidiaries' ability to utilize any NOLs
in future years may be restricted, however, in the event the subsidiaries
undergo an "ownership change" as defined in Section 382 of the Code. In the
event of an ownership change, the amount of NOLs attributable to the period
prior to the ownership change that may be used to offset taxable income in any
year thereafter generally may not exceed the fair market value of the subsidiary
immediately before the ownership change (subject to certain adjustments)
multiplied by the applicable long-term, tax exempt rate published by the
Internal Revenue Service for the date of the ownership change. Two of the
subsidiaries underwent an ownership change on September 1, 1995 pursuant to
Section 382 of the Code. As such, the NOLs of the subsidiaries are subject to
limitation from that date forward. It is the opinion of management that the NOLs
will be released from this limitation prior to their expiration dates and, as
such, have not been limited in their calculation of deferred taxes.
The provision for income tax expense (benefit) differs from the amount
which would be computed by applying the statutory federal income tax rate of 35%
to pre-tax income before extraordinary loss as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
12/31/98 12/31/97 12/31/96
------------ ------------ -----------
<S> <C> <C> <C>
Tax expense (benefit) computed at statutory
rate...................................... $ 7,084,450 $(10,982,527) $(8,846,971)
Increase (decrease) due to:
Tax benefit (expense) for non-corporate
loss................................... (10,373,252) 5,900,546 5,446,721
Permanent differences between financial
statement income and taxable income.... (36,200) 84,500 48,270
State income tax.......................... (247,000) (377,500) (252,590)
Tax benefit from dissolved corporation.... (148,925) -- --
Other..................................... (456,998) 39,981 (41,149)
------------ ------------ -----------
Income Tax Benefit........................ $ (4,177,925) $ (5,335,000) $(3,645,719)
============ ============ ===========
</TABLE>
F-199
<PAGE> 429
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Senior Subordinated Notes................ $125,000,000 $125,000,000
Tranche A Term Loan...................... 21,575,000 25,000,000
Tranche B Term Loan...................... 40,000,000 40,000,000
Reducing Revolving Loan.................. 35,000,000 36,500,000
Senior Subordinated Debt................. 3,000,000 3,000,000
------------ ------------
$224,575,000 $229,500,000
============ ============
</TABLE>
The Notes and loans are collateralized by substantially all of the assets
of the Company.
On January 26, 1996, the Company and its wholly-owned subsidiary, RACC (the
"Issuers"), co-issued $125,000,000 of 11 1/8% Senior Subordinated Notes (the
"Notes") to institutional investors. These notes were subsequently exchanged on
June 18, 1996 for publicly registered notes with identical terms. Interest on
the Notes is payable semi-annually on January 15 and July 15 of each year. The
Notes, which mature on January 15, 2006, can be redeemed in whole or in part, at
the Issuers' option, at any time on or after January 15, 2001, at redeemable
prices contained in the Notes plus accrued interest. In addition, at any time on
or prior to January 15, 1999, the Issuers, at their option, may redeem up to 25%
of the principle amount of the Notes issued to institutional investors of not
less than $25,000,000. At December 31, 1998 and 1997, all of the Notes were
outstanding (see also Note 10).
The Company has a $25,000,000 Tranche A term loan with a financial
institution. This loan requires quarterly payments of $1,875,000 plus interest
commencing on March 31, 2000. Any unpaid balance is due March 31, 2003. The
agreement requires that what it defines as excess proceeds from the sale of a
cable system be used to retire Tranche A term debt. As a result of the Michigan
sale (Note 4), there was $3,425,000 of excess proceeds used to pay principal in
1998. The interest rate on the Tranche A term loan is either the bank's prime
rate plus .25% to 1.75% or LIBOR plus 1.5% to 2.75%.
The specific rate is dependent upon the senior funded debt ratio which is
recalculated quarterly. The weighted average effective interest rate at December
31, 1998 and 1997 was 7.59% and 8.24%, respectively.
In addition, the Company has a $40,000,000 Tranche B term loan, which
requires principal payments of $2,000,000 on March 31, 2002, $18,000,000 on
March 31, 2003, and $20,000,000 on March 31, 2004. The Tranche B term loan bears
an interest rate of 9.75% and is payable quarterly.
The Company also has a reducing revolving loan providing for borrowing up
to $20,000,000 at the Company's discretion, subject to certain restrictions, and
an additional $60,000,000 available to finance acquisitions subject to certain
restrictions. On March 4, 1998, the reducing revolving loan agreement was
amended to revise the scheduled reduction in revolving commitments. The
additional financing amounts available at December 31, 1998 and 1997 were
$45,000,000 and $52,500,000, respectively. At December 31, 1998, the full
$20,000,000 available had been borrowed, and $15,000,000 had been drawn against
the $45,000,000 commitment. At
F-200
<PAGE> 430
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997, the full $20,000,000 available had been borrowed, and
$16,500,000 had been drawn against the $52,500,000 commitment. The amount
available for borrowing will decrease annually during its term with changes over
the four years following December 31, 1998 as follows: 1999 -- $2,500,000
reduction per quarter, and 2000 through 2002 -- $3,625,000 per quarter. Any
unpaid balance is due on March 31, 2003. The revolving loan bears an interest
rate of either the bank's prime rate plus .25% to 1.75% or LIBOR plus 1.5% to
2.75%. The specific rate is dependent upon the senior funded debt ratio which is
recalculated quarterly. The weighted average effective interest rates at
December 31, 1998 and 1997 was 8.08% and 8.29%, respectively. The reducing
revolving loan includes a commitment fee of 1/2% per annum on the unborrowed
balance.
Certain mandatory prepayments may also be required, commencing in fiscal
1997, on the Tranche A term loan, the Tranche B term loan, and the reducing
revolving credit based on the Company's cash flow calculations, proceeds from
the sale of a cable system or equity contributions. Based on the 1998
calculation and the Michigan sale, $3,425,000 of prepayments were required.
Optional prepayments are allowed, subject to certain restrictions. The related
loan agreement contains covenants limiting additional indebtedness, dispositions
of assets, investments in securities, distribution to partners, management fees
and capital expenditures. In addition, the Company must maintain certain
financial levels and ratios. At December 31, 1998, the Company was in compliance
with these covenants.
The Company also has $3,000,000 of senior subordinated debt payable to a
Rifkin Partner. The debt has a scheduled maturity, interest rate and interest
payment schedule identical to that of the Notes, as discussed above.
Based on the outstanding debt as of December 31, 1998, the minimum
aggregate maturities for the five years following 1998 are none in 1999,
$7,500,000 in 2000, $16,500,000 in 2001, $23,075,000 in 2002 and $29,500,000 in
2003.
7. RELATED PARTY TRANSACTIONS
The Company entered into a management agreement with Rifkin & Associates,
Inc. (Rifkin). The management agreement provides that Rifkin will act as manager
of the Company's CATV systems and be entitled to annual compensation of 3.5% of
the Company's revenue. Effective September 1, 1998, Rifkin conveyed its CATV
management business to R & A Management, LLC (RML). The result of this
transaction included the conveyance of the Rifkin management agreement (Rifkin
Agreement) to RML (RML Agreement). Expenses incurred pursuant to the Rifkin
Agreement and the RML Agreement are disclosed in total on the Consolidated
Statement of Operations.
The Company is associated with a company to purchase certain cable
television programming at a discount. Rifkin acted as the agent and held the
deposit funds required for the Company to participate.
Effective September 1, 1998, Rifkin conveyed this contract and deposit
amount to RML. The deposit amount recorded at December 31, 1998 and 1997 was
$2,139,274 and $1,225,274, respectively. The Company subsequently received
$1,225,274 of the December 31, 1998 balance.
The Company paid approximately $550,000 to a law firm in connection with
the public offering in 1996. A partner of this law firm is a relative of one of
the Company's partners.
F-201
<PAGE> 431
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND RENTAL EXPENSE
The Company leases certain real and personal property under noncancelable
operating leases expiring through the year 2007. Future minimum lease payments
under such noncancelable leases as of December 31, 1998 are: $316,091 in 1999;
$249,179 in 2000; $225,768 in 2001; $222,669 in 2002; and $139,910 in 2003; and
$344,153 thereafter, totaling $1,497,770.
Total rental expense and the amount included therein which pertains to
cancelable pole rental agreements were as follows for the periods indicated:
<TABLE>
<CAPTION>
TOTAL CANCELABLE
RENTAL POLE RENTAL
PERIOD EXPENSE EXPENSE
- ------ ---------- -----------
<S> <C> <C>
Year Ended December 31, 1998................. $1,592,080 $1,109,544
Year Ended December 31, 1997................. $1,577,743 $1,061,722
Year Ended December 31, 1996................. $1,294,084 $ 874,778
</TABLE>
9. COMPENSATION PLANS AND RETIREMENT PLANS
EQUITY INCENTIVE PLAN
In 1996, the Company implemented an Equity Incentive Plan (the "Plan") in
which certain Rifkin & Associates' executive officers and key employees, and
certain key employees of the Company are eligible to participate. Plan
participants in the aggregate, have the right to receive (i) cash payments of up
to 2.0% of the aggregate value of all partnership interests of the Company (the
"Maximum Incentive Percentage"), based upon the achievement of certain annual
Operating Cash Flow (as defined in the Plan) targets for the Company for each of
the calendar years 1996 through 2000, and (ii) an additional cash payment equal
to up to 0.5% of the aggregate value of all partnership interests of the Company
(the "Additional Incentive Percentage"), based upon the achievement of certain
cumulative Operating Cash Flow targets for the Company for the five-year period
ended December 31, 2000. Subject to the achievement of such annual targets and
the satisfaction of certain other criteria based on the Company's operating
performance, up to 20% of the Maximum Incentive Percentage will vest in each
such year; provided, that in certain events vesting may accelerate. Payments
under the Plan are subject to certain restrictive covenants contained in the
Notes.
No amounts are payable under the Plan except upon (i) the sale of
substantially all of the assets or partnership interests of the Company or (ii)
termination of a Plan participant's employment with Rifkin & Associates or the
Company, as applicable, due to (a) the decision of the Advisory Committee to
terminate such participant's employment due to disability, (b) the retirement of
such participant with the Advisory Committee's approval or (c) the death of such
Participant. The value of amounts payable pursuant to clause (i) above will be
based upon the aggregate net proceeds received by the holders of all of the
partnership interests in the Company, as determined by the Advisory Committee,
and the amounts payable pursuant to clause (ii) above will be based upon the
Enterprise Value determined at the time of such payment. For purposes of the
Plan, Enterprise Value generally is defined as Operating Cash Flow for the
immediately preceding calendar year times a specified multiple and adjusted
based on the Company's working capital.
The amount expensed for the years ended December 31, 1998, 1997 and 1996
relating to this plan were $1,119,996, $859,992 and $660,000, respectively.
F-202
<PAGE> 432
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RETIREMENT BENEFITS
The Company has a 401(k) plan for employees that have been employed by the
Company for at least one year. Employees of the Company can contribute up to 15%
of their salary, on a before-tax basis, with a maximum 1998 contribution of
$10,000 (as set by the Internal Revenue Service). The Company matches
participant contributions up to a maximum of 50% of the first 3% of a
participant's salary contributed. All participant contributions and earnings are
fully vested upon contribution and Company contributions and earnings vest 20%
per year of employment with the Company, becoming fully vested after five years.
The Company's matching contributions for the years ended December 31, 1998, 1997
and 1996 were $50,335, $72,707 and $42,636, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The following method and assumptions were used by the
Company to estimate the fair values of financial instruments as disclosed
herein:
Cash and Cash Equivalents, Customer Accounts Receivable, Other Receivables,
Accounts Payable and Accrued Liabilities and Customer Deposits and Prepayments:
The carrying value amount approximates fair value because of the short period to
maturity.
Debt: The fair value of bank debt is estimated based on interest rates for
the same or similar debt offered to the Company having the same or similar
remaining maturities and collateral requirements. The fair value of public
Senior Subordinated Notes is based on the market quoted trading value. The fair
value of the Company's debt is estimated at $236,137,500 and is carried on the
balance sheet at $224,575,000.
11. CABLE REREGULATION
Congress enacted the Cable Television Consumer Protection and Competition
Act of 1992 (the Cable Act) and has amended it at various times since.
The total effects of the present law are, at this time, still unknown.
However, one provision of the present law further redefines a small cable
system, and exempts these systems from rate regulation on the upper tiers of
cable service. The Partnership is awaiting an FCC rulemaking implementing the
present law to determine whether its systems qualify as small cable systems.
12. SUMMARIZED FINANCIAL INFORMATION
CEM, CEI and CEC (collective, the "Guarantors") are all wholly-owned
subsidiaries of the Company and, together with RACC, constitute all of the
Partnership's direct and indirect subsidiaries. As discussed in Note 1, RTL and
FNI were dissolved on January 1, 1998 and the assets were transferred to the
Company, however, prior thereto, RTL and FNI, as wholly-owned subsidiaries of
the Company, were Guarantors. Each of the Guarantors provides a full,
unconditional, joint and several guaranty of the obligations under the Notes
discussed in Note 6. Separate financial statements of the Guarantors are not
presented because management has determined that they would not be material to
investors.
F-203
<PAGE> 433
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present summarized financial information of the
Guarantors on a combined basis as of December 31, 1998 and 1997 and for the
years ended December 31, 1998, and 1997 and 1996.
<TABLE>
<CAPTION>
12/31/98 12/31/97
BALANCE SHEET ------------ ------------
<S> <C> <C> <C>
Cash............................ $ 373,543 $ 780,368
Accounts and other receivables,
net............................. 3,125,830 3,012,571
Prepaid expenses................ 791,492 970,154
Property, plant and equipment
net........................... 48,614,536 66,509,120
Franchise costs and other
intangible assets, net........ 56,965,148 103,293,631
Accounts payable and accrued
liabilities................... 22,843,354 18,040,588
Other liabilities............... 980,536 1,122,404
Deferred taxes payable.......... 7,942,000 12,138,000
Notes payable................... 140,050,373 167,200,500
Equity (deficit)................ (61,945,714) (23,935,648)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
12/31/98 12/31/97 12/31/96
STATEMENTS OF OPERATIONS ------------ ------------ ------------
<S> <C> <C> <C>
Total revenue................... $ 29,845,826 $ 47,523,592 $ 42,845,044
Total costs and expenses........ (31,190,388) (53,049,962) (43,578,178)
Interest expense................ (14,398,939) (17,868,497) (16,238,221)
Income tax benefit.............. 4,177,925 5,335,000 3,645,719
------------ ------------ ------------
Net loss........................ $(11,565,576) $(18,059,867) $(13,325,636)
============ ============ ============
</TABLE>
13. QUARTERLY INFORMATION (UNAUDITED)
The following interim financial information of the Company presents the
1998 and 1997 consolidated results of operations on a quarterly basis (in
thousands):
<TABLE>
<CAPTION>
QUARTERS ENDED 1998
------------------------------------------------
MARCH 31(a) JUNE 30 SEPT. 30 DEC. 31(b)
----------- ------- -------- ----------
<S> <C> <C> <C> <C>
Revenue........................ $22,006 $22,296 $22,335 $23,284
Operating income (loss)........ 295 511 (1,522) 1,756
Net income (loss).............. 1,437 (4,458) (5,907) 33,347
</TABLE>
- -------------------------
(a) First quarter includes a $5,900 gain from the sale of Michigan assets
(Note 4).
(b) Fourth quarter includes a $36,873 gain from the trade sale of certain
Tennessee assets (Note 4).
F-204
<PAGE> 434
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
QUARTERS ENDED 1997
------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue............................. $19,337 $21,331 $21,458 $22,199
Operating loss...................... (1,220) (2,818) (2,777) (798)
Net loss............................ (5,998) (6,890) (8,127) (5,029)
</TABLE>
14. LITIGATION
The Company could possibly be named as defendant in various actions and
proceedings arising from the normal course of business. In all such cases, the
Company will vigorously defend itself against the litigation and, where
appropriate, will file counterclaims. Although the eventual outcome of potential
lawsuits cannot be predicted, it is management's opinion that any such lawsuit
will not result in liabilities that would have a material affect on the
Company's financial position or results of operations.
F-205
<PAGE> 435
REPORT OF INDEPENDENT AUDITORS
The Partners
Indiana Cable Associates, Ltd.
We have audited the accompanying balance sheet of Indiana Cable Associates, Ltd.
as of December 31, 1997 and 1998, and the related statements of operations,
partners' deficit and cash flows for the years ended December 31, 1996, 1997 and
1998. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Indiana Cable Associates, Ltd.
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1997 and 1998 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Denver, Colorado
February 19, 1999
F-206
<PAGE> 436
INDIANA CABLE ASSOCIATES, LTD.
BALANCE SHEET
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS (PLEDGED)
Cash and cash equivalents.................................. $ 82,684 $ 108,619
Customer accounts receivable, less allowance for doubtful
accounts of $18,311 in 1997 and $24,729 in 1998.......... 87,154 85,795
Other receivables.......................................... 257,236 295,023
Prepaid expenses and deposits.............................. 172,614 152,575
Property, plant and equipment, at cost:
Buildings................................................ 78,740 91,682
Transmission and distribution systems and related
equipment............................................. 10,174,650 11,336,892
Office furniture and equipment........................... 144,137 161,327
Spare parts and construction inventory................... 435,554 742,022
----------- -----------
10,833,081 12,331,923
Less accumulated depreciation............................ 7,624,570 8,008,158
----------- -----------
Net property, plant and equipment..................... 3,208,511 4,323,765
Other assets, at cost less accumulated amortization (Note
3)....................................................... 5,817,422 5,083,029
----------- -----------
Total assets..................................... $ 9,625,621 $10,048,806
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable and accrued liabilities................. $ 718,716 $ 897,773
Customer prepayments..................................... 50,693 47,458
Interest payable......................................... 32,475 --
Long-term debt (Note 4).................................. 10,650,000 --
Interpartnership debt (Note 4)........................... -- 9,606,630
----------- -----------
Total liabilities................................ 11,451,884 10,551,861
Commitments (Notes 5 and 6)
Partners' deficit:
General partner.......................................... (66,418) (20,106)
Limited partner.......................................... (1,759,845) (482,949)
----------- -----------
Total partners' deficit.................................... (1,826,263) (503,055)
----------- -----------
Total liabilities and partners' deficit.......... $ 9,625,621 $10,048,806
=========== ===========
</TABLE>
See accompanying notes.
F-207
<PAGE> 437
INDIANA CABLE ASSOCIATES, LTD.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
12/31/96 12/31/97 12/31/98
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Service............................................ $6,272,049 $6,827,504 $7,165,843
Installation and other............................. 538,158 622,699 773,283
---------- ---------- ----------
Total revenue............................ 6,810,207 7,450,203 7,939,126
COSTS AND EXPENSES:
Operating expense.................................. 989,456 1,142,932 974,617
Programming expense................................ 1,474,067 1,485,943 1,727,089
Selling, general and administrative expense........ 1,112,441 1,142,247 1,128,957
Depreciation....................................... 889,854 602,554 537,884
Amortization....................................... 718,334 718,335 707,539
Management fees.................................... 340,510 372,510 396,956
Loss on disposal of assets......................... 6,266 639 74,714
---------- ---------- ----------
Total costs and expenses................. 5,530,928 5,465,160 5,547,756
---------- ---------- ----------
Operating income................................... 1,279,279 1,985,043 2,391,370
Interest expense................................... 1,361,415 1,292,469 970,160
---------- ---------- ----------
Net income (loss) before extraordinary item........ (82,136) 692,574 1,421,210
Extraordinary item--loss on early retirement of
debt (Note 3 and 4).............................. -- -- 98,002
---------- ---------- ----------
Net income (loss).................................. $ (82,136) $ 692,574 $1,323,208
========== ========== ==========
</TABLE>
See accompanying notes.
F-208
<PAGE> 438
INDIANA CABLE ASSOCIATES, LTD.
STATEMENT OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' deficit at December 31, 1995......... $(87,783) $(2,348,918) $(2,436,701)
Net loss for the year ended December 31, 1996.. (2,875) (79,261) (82,136)
-------- ----------- -----------
Partners' deficit at December 31, 1996......... (90,658) (2,428,179) (2,518,837)
Net income for the year ended December 31,
1997...................................... 24,240 668,334 692,574
-------- ----------- -----------
Partners' deficit at December 31, 1997......... (66,418) (1,759,845) (1,826,263)
Net income for the year ended December 31,
1998...................................... 46,312 1,276,896 1,323,208
-------- ----------- -----------
Partners' deficit at December 31, 1998......... $(20,106) $ (482,949) $ (503,055)
======== =========== ===========
</TABLE>
The partners' capital accounts for financial reporting purposes vary from
the tax capital accounts.
See accompanying notes.
F-209
<PAGE> 439
INDIANA CABLE ASSOCIATES, LTD.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
12/31/96 12/31/97 12/31/98
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $ (82,136) $ 692,574 $ 1,323,208
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................. 1,608,188 1,320,889 1,245,423
Amortization of deferred loan costs............ 48,764 72,922 23,149
Loss on disposal of assets..................... 6,266 639 74,714
Loss on write-off of deferred loan cost
associated with early retirement of debt..... -- -- 95,832
Decrease (increase) in customer accounts
receivable................................... (13,110) 1,536 1,359
Increase in other receivables.................. (80,843) (108,256) (37,787)
Decrease (increase) in prepaid expenses and
deposits..................................... (53,259) (5,928) 20,039
Increase (decrease) in accounts payable and
accrued liabilities.......................... (190,357) (147,971) 179,057
Increase (decrease) in customer prepayments.... 16,355 (13,190) (3,235)
Decrease in interest payable................... (12,314) (39,471) (32,475)
----------- ----------- ------------
Net cash provided by operating
activities.............................. 1,247,554 1,773,744 2,889,284
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........ (675,244) (592,685) (1,732,831)
Proceeds from sale of assets...................... 227,025 23,662 4,979
----------- ----------- ------------
Net cash used in investing activities..... (448,219) (569,023) (1,727,852)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt...................... 2,000,000 1,450,000 10,636,421
Proceeds from interpartnership debt............... -- -- 9,606,630
Deferred loan cost................................ (70,000) (29,776) (92,127)
Payments of long-term debt........................ (2,200,000) (3,100,000) (21,286,421)
----------- ----------- ------------
Net cash used in financing activities..... (270,000) (1,679,776) (1,135,497)
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents....................................... 529,335 (475,055) 25,935
Cash and cash equivalents at beginning of year...... 28,404 557,739 82,684
----------- ----------- ------------
Cash and cash equivalents at end of year............ $ 557,739 $ 82,684 $ 108,619
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..................................... $ 1,324,965 $ 1,258,078 $ 947,606
=========== =========== ============
</TABLE>
See accompanying notes.
F-210
<PAGE> 440
INDIANA CABLE ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION
GENERAL INFORMATION:
Indiana Cable Associates, Ltd. (the "Partnership"), a Colorado limited
partnership, was organized in March 1987 for the purpose of acquiring and
operating cable television systems and related operations in Indiana and
Illinois.
For financial reporting purposes, Partnership profits or losses are
allocated 3.5% to the general partners and 96.5% to the limited partners.
Limited partners are not required to fund any losses in excess of their capital
contributions.
ACQUISITION BY INTERLINK COMMUNICATIONS PARTNERS, LLLP:
Interlink Communications Partners, LLLP ("ICP") agreed to purchase all of
the interests of the Partnership. ICP acquired all of the limited partner
interests, effective December 31, 1998, and is currently in the process of
obtaining the necessary consents to transfer all of the Partnership's franchises
to ICP. Once these are obtained, ICP will then purchase the general partner
interest in the Partnership, and the Partnership will, by operation of law, be
consolidated into ICP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY, PLANT AND EQUIPMENT:
The Partnership records additions to property, plant and equipment at cost,
which in the case of assets constructed includes amounts for material, labor,
overhead and capitalized interest, if applicable.
For financial reporting purposes, the Partnership uses the straight-line
method of depreciation over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements................................. 5-30 years
Transmission and distribution systems and related
equipment.................................................. 3-15 years
Office furniture and equipment............................. 5 years
</TABLE>
OTHER ASSETS:
Other assets are carried at cost and are amortized on a straight-line basis
over the following lives:
<TABLE>
<S> <C> <C>
Franchises -- the terms of the franchises
(10-19 1/2 years)
Goodwill -- the term of the Partnership agreement
(12 3/4 years)
Deferred loan costs -- the term of the debt (1-6 years)
Organization costs -- 5 years
</TABLE>
F-211
<PAGE> 441
INDIANA CABLE ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES:
No provision for the payment or refund of income taxes has been provided
for the Partnership since the partners are responsible for reporting their
distributive share of Partnership net income or loss in their personal
capacities.
CASH AND CASH EQUIVALENTS:
The Partnership considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION:
Customer fees are recorded as revenue in the period the service is
provided.
FAIR VALUE OF FINANCIAL INVESTMENTS:
The carrying values of cash and cash equivalents, customer accounts
receivable, accounts payable and interpartnership debt approximate fair value.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPACT OF YEAR 2000 (UNAUDITED):
The Partnership recognizes that certain of its time-sensitive computer
programs and product distribution equipment may be affected by conversion to the
year 2000. During 1998, management began their evaluation of the information
systems, product distribution facilities, and vendor and supplier readiness. To
date, considerable progress has been made to complete the evaluation process, to
integrate and test compliance installations, and to prepare contingency plans.
In addition, third party suppliers are either fully compliant or are expected to
be compliant by December 31, 1999. Management expects to have all systems
compliant, or have a contingency plan in effect that will result in minimal
impact on the operations.
NEW ACCOUNTING PRONOUNCEMENT:
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities," which requires the Partnerships to expense all start-up costs
related to organizing a new business. This new standard also includes one-time
activities related to opening a new facility, introduction of a new product or
service, or conducting business with a new class of customer or in a new
territory. This standard is effective for the Partnerships' 1999 fiscal year.
Organization costs are all fully amortized resulting in SOP 98-5 having no
material effect on its financial position or the results of operations.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION:
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform with the 1998 financial statement presentation. Such
reclassifications had no effect on the net income or loss as previously stated.
F-212
<PAGE> 442
INDIANA CABLE ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. OTHER ASSETS
At December 31, 1997 and 1998, other assets consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Franchises......................................... $13,144,332 $12,996,580
Goodwill........................................... 378,336 378,336
Deferred loan costs................................ 26,854 --
Organization costs................................. 63,393 63,393
----------- -----------
13,612,915 13,438,309
Less accumulated amortization...................... 7,795,493 8,355,280
----------- -----------
$ 5,817,422 $ 5,083,029
=========== ===========
</TABLE>
On December 31, 1997, the loan agreement with a financial institution was
amended (Note 4). At that time, the original loan's costs, which were fully
amortized, and the accumulated amortization were written off. The bank loan
amendment required the payment of additional loan costs which will be amortized
over the remaining term of the bank loan.
On August 31, 1998, the loan with a financial institution and the
subordinated debt loan with two investor groups were paid in full (Note 4). The
related deferred loan costs and associated accumulated amortization were written
off and $9,263 was recorded as an extraordinary loss. On December 30, 1998, the
new loan agreement with a financial institution was paid in full (Note 4). The
related deferred loan costs and associated accumulated amortization were written
off and $86,569 was recorded as an extraordinary loss.
4. DEBT
The Partnership had a revolving credit agreement with a financial
institution which provided for borrowing up to $7,000,000 with a maturity date
of December 31, 1997, at which time the balance of the loan was $4,650,000. On
December 31, 1997, the credit agreement was amended to reduce the amount
available to borrow to $5,200,000 and extend the maturity date to December 31,
1998. The Partnership also had subordinated term notes with two investors
totalling $6,000,000 at December 31, 1997. Total outstanding loans at December
31, 1997 were $10,650,000. On August 31, 1998, the revolving credit loan and
subordinated term notes had a balance of $3,450,000 and $6,000,000,
respectively; at that date, the total balance of $10,650,000 and accrued
interest were paid in full. On that same date, the Partnership obtained a new
credit agreement with a financial institution. The new credit agreement provided
for a senior term note payable in the amount of $7,500,000 and a revolving
credit loan which provided for borrowing up to $7,500,000. At December 30, 1998,
the term note and revolving credit had a balance of $7,500,000 and $1,950,000,
respectively; at that date, the total balance of $9,450,000 and accrued interest
were paid in full. The Partnership also incurred a LIBOR break fee of $2,170 in
conjunction with the retirement of debt which was recorded as an extraordinary
item.
Also on December 30, 1998, the Partnership obtained a new interpartnership
loan agreement with ICP (Note 1). Borrowing under the interpartnership loan, as
well as interest and principal payments are due at the discretion of the
management of ICP, resulting in no minimum required annual principal payments.
The balance of the interpartnership loan at December 31, 1998 was $9,606,630.
The effective interest rate at December 31, 1998 was 8.5%.
F-213
<PAGE> 443
INDIANA CABLE ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. MANAGEMENT AGREEMENT
The Partnership has entered into a management agreement with Rifkin and
Associates, Inc., (Rifkin) whose sole stockholder is affiliated with a general
partner of the Partnership. The agreement provides that Rifkin shall manage the
Partnership and shall receive annual compensation equal to 2 1/2% of gross
revenues and an additional 2 1/2% if a defined cash flow level is met. Effective
September 1, 1998, Rifkin conveyed its CATV management business to R & A
Management, LLC (RML). The result of this transaction was the conveyance of the
Rifkin management agreement (Rifkin Agreement) to RML (RML Agreement). Expenses
incurred pursuant to the Rifkin Agreement and the RML Agreement are disclosed on
the Statement of Operations.
6. LEASE COMMITMENTS
At December 31, 1998, the Partnership had lease commitments under long-term
operating leases as follows:
<TABLE>
<S> <C>
1999........................................................ $27,408
2000........................................................ 6,300
2001........................................................ 2,700
2002........................................................ 1,500
2003........................................................ 1,500
Thereafter.................................................. 10,500
-------
Total............................................. $49,908
=======
</TABLE>
Rent expense, including pole rent, was as follows for the periods
indicated:
<TABLE>
<CAPTION>
TOTAL
RENTAL
PERIOD EXPENSE
- ------ --------
<S> <C>
Year Ended December 31, 1996................................ $105,590
Year Ended December 31, 1997................................ 98,693
Year Ended December 31, 1998................................ 104,155
</TABLE>
7. RETIREMENT BENEFITS
The Partnership has a 401(k) plan for its employees that have been employed
by the Partnership for at least one year. Employees of the Partnership can
contribute up to 15% of their salary, on a before-tax basis, with a maximum 1998
contribution of $10,000 (as set by the Internal Revenue Service). The
Partnership matches participant contributions up to a maximum of 50% of the
first 3% of a participant's salary contributed. All participant contributions
and earnings are fully vested upon contribution and Partnership contributions
and earnings vest 20% per year of employment with the Partnership, becoming
fully vested after five years. The Partnership's matching contributions for the
years ended December 31, 1996, 1997 and 1998 were $4,723, $8,769 and $8,639,
respectively.
F-214
<PAGE> 444
REPORT OF INDEPENDENT AUDITORS
The Partners
R/N South Florida Cable Management
Limited Partnership
We have audited the accompanying consolidated balance sheet of R/N South Florida
Cable Management Limited Partnership as of December 31, 1997 and 1998, and the
related consolidated statements of operations, partners' equity (deficit) and
cash flows for the years ended December 31, 1996, 1997 and 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of R/N
South Florida Cable Management Limited Partnership at December 31, 1997 and
1998, and the consolidated results of its operations and its cash flows for the
years ended December 31, 1996, 1997 and 1998 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 19, 1999
F-215
<PAGE> 445
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
ASSETS (PLEDGED) ----------- -----------
<S> <C> <C>
Cash and cash equivalents.................................. $ 362,619 $ 678,739
Customer accounts receivable, less allowance for doubtful
accounts of $85,867 in 1997 and $84,474 in 1998............ 569,296 455,339
Other receivables.......................................... 1,180,507 1,691,593
Prepaid expenses and deposits.............................. 416,455 393,022
Property, plant and equipment, at cost:
Transmission and distribution system and related
equipment................................................ 22,836,588 27,981,959
Office furniture and equipment............................. 704,135 755,398
Leasehold improvements..................................... 546,909 549,969
Construction in process and spare parts inventory.......... 718,165 744,806
----------- -----------
24,805,797 30,032,132
Less accumulated depreciation.............................. 9,530,513 11,368,764
----------- -----------
Net property, plant and equipment................ 15,275,284 18,663,368
Other assets, at cost less accumulated amortization (Note
2)....................................................... 6,806,578 5,181,012
----------- -----------
Total assets..................................... $24,610,739 $27,063,073
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued liabilities................... $ 2,994,797 $ 2,356,540
Interest payable........................................... 287,343 --
Customer prepayments....................................... 699,332 690,365
Long-term debt (Note 3).................................... 29,437,500 --
Interpartnership debt (Note 3)............................. -- 31,222,436
----------- -----------
Total liabilities................................ 33,418,972 34,269,341
Commitments (Notes 4 and 5)
Partners' equity (deficit):
General partner.......................................... (96,602) (81,688)
Limited partner.......................................... (9,582,050) (8,104,718)
Special limited partner.................................. 870,419 980,138
----------- -----------
Total partners' equity (deficit)........................... (8,808,233) (7,206,268)
----------- -----------
Total liabilities and partners' deficit.......... $24,610,739 $27,063,073
=========== ===========
</TABLE>
See accompanying notes.
F-216
<PAGE> 446
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
12/31/96 12/31/97 12/31/98
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Service......................................... $16,615,767 $17,520,883 $18,890,202
Installation and other.......................... 1,732,681 2,425,742 3,158,742
----------- ----------- -----------
18,348,448 19,946,625 22,048,944
COSTS AND EXPENSES:
Operating expense............................... 2,758,704 3,489,285 3,707,802
Programming expense............................. 4,075,555 4,014,850 4,573,296
Selling, general and administrative expense..... 3,979,002 4,087,845 4,537,535
Depreciation.................................... 1,787,003 1,912,905 2,256,765
Amortization.................................... 1,350,195 1,287,588 1,293,674
Management fees................................. 733,938 797,863 881,958
Loss on disposal of assets...................... 373,860 513,177 178,142
----------- ----------- -----------
Total costs and expenses.............. 15,058,257 16,103,513 17,429,172
----------- ----------- -----------
Operating income................................ 3,290,191 3,843,112 4,619,772
Interest expense................................ 2,528,617 2,571,976 2,583,338
----------- ----------- -----------
Net income before extraordinary item............ 761,574 1,271,136 2,036,434
Extraordinary item -- loss on early retirement
of debt (Note 2).............................. -- -- 434,469
----------- ----------- -----------
Net income...................................... $ 761,574 $ 1,271,136 $ 1,601,965
=========== =========== ===========
</TABLE>
See accompanying notes.
F-217
<PAGE> 447
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SPECIAL
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNERS TOTAL
--------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Partners' equity (deficit) at December
31, 1995............................ $(115,526) $(11,456,616) $731,199 $(10,840,943)
Net income for the year ended December
31, 1996.............................. 7,090 702,324 52,160 761,574
--------- ------------ -------- ------------
Partners' equity (deficit) at December
31, 1996............................ (108,436) (10,754,292) 783,359 (10,079,369)
Net income for the year ended
December 31, 1997................ 11,834 1,172,242 87,060 1,271,136
--------- ------------ -------- ------------
Partners' equity (deficit) at December
31, 1997............................ (96,602) (9,582,050) 870,419 (8,808,233)
Net income for the year ended
December 31, 1998................ 14,914 1,477,332 109,719 1,601,965
--------- ------------ -------- ------------
Partners' equity (deficit) at December
31, 1998............................ $ (81,688) $ (8,104,718) $980,138 $ (7,206,268)
========= ============ ======== ============
</TABLE>
The partners' capital accounts for financial reporting purposes vary from
the tax capital accounts.
See accompanying notes.
F-218
<PAGE> 448
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
12/31/96 12/31/97 12/31/98
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 761,574 $ 1,271,136 $ 1,601,965
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 3,137,198 3,200,493 3,550,439
Amortization of deferred loan cost.... 68,898 79,108 89,788
Loss on early retirement of debt...... -- -- 434,469
Loss on disposal of assets............ 373,860 513,177 178,142
Decrease (increase) in customer
accounts receivable................. 1,420 (152,229) 113,957
Increase in other receivables......... (377,553) (506,325) (511,086)
Decrease (increase) in prepaid
expenses and deposits............... (114,720) 115,734 23,433
Increase (decrease) in accounts
payable and accrued liabilities..... 122,512 513,839 (638,257)
Increase (decrease) in customer
prepayments......................... 362 208,021 (8,967)
Increase (decrease) in interest
payable............................. 180 16,207 (287,343)
----------- ----------- ------------
Net cash provided by operating
activities.................... 3,973,731 5,259,161 4,546,540
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment............................. (4,000,631) (4,288,776) (5,915,434)
Additions to other assets, net of
refranchises.......................... (10,600) (164,560) (186,790)
Proceeds from the sale of assets......... 16,674 70,865 92,443
----------- ----------- ------------
Net cash used in investing
activities.................... (3,994,557) (4,382,471) (6,009,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............. 2,750,000 3,850,000 5,550,000
Proceeds from interpartnership debt...... -- -- 31,222,436
Payments of long-term debt............... (2,604,913) (4,562,500) (34,987,500)
Deferred loan costs...................... -- (132,727) (5,575)
----------- ----------- ------------
Net cash provided by (used in)
financing activities.......... 145,087 (845,227) 1,779,361
----------- ----------- ------------
Net increase in cash and cash
equivalents.............................. 124,261 31,463 316,120
Cash and cash equivalents at beginning of
the year................................. 206,895 331,156 362,619
----------- ----------- ------------
Cash and cash equivalents at end of year... $ 331,156 $ 362,619 $ 678,739
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................ $ 2,412,038 $ 2,441,662 $ 2,780,893
=========== =========== ============
</TABLE>
See accompanying notes
F-219
<PAGE> 449
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION:
The accompanying consolidated financial statements include the accounts of
R/N South Florida Cable Management Limited Partnership (the "Partnership") and
its substantially wholly-owned subsidiary Rifkin/Narragansett South Florida CATV
Limited Partnership (the "Operating Partnership"). Each partnership is a Florida
Limited Partnership. The Partnership was organized in 1988 for the purpose of
being the general partner to the Operating Partnership which is engaged in the
installation, ownership, operation and management of cable television systems in
Florida.
In 1992, the Partnership adopted an amendment to the Partnership agreement
(the "Amendment") and entered into a Partnership Interest Purchase Agreement
whereby certain Special Limited Partnership interests were issued in the
aggregate amount of $1,250,000. These new Special Limited Partners are
affiliated with the current General and Limited Partners of the Partnership. The
Amendment provides for the methods under which the gains, losses, adjustments
and distributions are allocated to the accounts of the Special Limited Partners.
For financial reporting purposes, partnership profits or losses are
allocated to the limited partners, special limited partners and general partners
in the following ratios: 92.22%, 6.849% and .931%, respectively. Limited
partners and special limited partners are not required to fund any losses in
excess of their capital contributions.
ACQUISITION BY INTERLINK COMMUNICATIONS PARTNERS, LLLP:
InterLink Communications Partners, LLLP ("ICP") agreed to purchase all of
the interests of the Partnerships. ICP acquired all of the limited partner
interests of the Operating Partnership, effective December 31, 1998, and is
currently in the process of obtaining the necessary consents to transfer all of
the Operating Partnership's franchises to ICP. Once obtained, ICP will then
purchase the general partner interest, and the Partnership, by operation of law,
will consolidate into ICP.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment additions are recorded at cost, which in the
case of assets constructed includes amounts for material, labor, overhead and
capitalized interest, if applicable.
For financial reporting purposes, the Operating Partnership uses the
straight-line method of depreciation over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Transmission and distribution systems and related
equipment............................................... 15 years
Office furniture and equipment............................ 3-15 years
Leasehold improvements.................................... 5-8 years
</TABLE>
OTHER ASSETS:
Other assets are carried at cost and are amortized on a straight-line basis
over the following lives:
<TABLE>
<S> <C>
Franchises................... -- the terms of the franchises (3-13
years)
Goodwill..................... -- 40 years
Organization costs........... -- 5 years
Deferred loan costs.......... -- the term of the debt (8 years)
</TABLE>
F-220
<PAGE> 450
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES:
No provision for the payment or refund of income taxes has been provided
since the partners are responsible for reporting their distributive share of
partnerships net income or loss in their personal capacities.
CASH AND CASH EQUIVALENTS:
The Partnerships consider all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION:
Customer fees are recorded as revenue in the period the service is
provided.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying values of cash and cash equivalents, customer accounts
receivable, accounts payable and interpartnership debt approximate fair value.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPACT OF YEAR 2000 (UNAUDITED):
The Partnerships recognize that certain of its time-sensitive computer
programs and product distribution equipment may be affected by conversion to the
year 2000. During 1998, management began their evaluation of the information
systems, product distribution facilities, and vendor and supplier readiness. To
date, considerable progress has been made to complete the evaluation process, to
integrate and test compliance installations, and to prepare contingency plans.
In addition, third party suppliers are either fully compliant or are expected to
be compliant by December 31, 1999. Management expects to have all systems
compliant, or have a contingency plan in effect that will result in minimal
impact on the operations.
NEW ACCOUNTING PRONOUNCEMENT:
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5 "Reporting on the costs of Start-Up
Activities," which requires the Partnerships to expense all start-up costs
related to organizing a new business. This new standard also includes one-time
activities related to opening a new facility, introduction of a new product or
service, or conducting business with a new class of customer or in a new
territory. This standard is effective for the Partnerships' 1999 fiscal year.
The organization costs are fully amortized, resulting in SOP 98-5 having no
material effect on its financial position or the results of operations.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION:
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform with the 1998 financial statement presentation. Such
reclassifications had no effect on the net income as previously stated.
F-221
<PAGE> 451
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. OTHER ASSETS
At December 31, 1997 and 1998, other assets consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Franchises and other....................... $14,348,984 $14,535,774
Goodwill................................... 3,429,845 3,429,845
Deferred loan costs........................ 694,819 --
Organization costs......................... 23,218 23,218
----------- -----------
18,496,866 17,988,837
Less accumulated amortization.............. 11,690,288 12,807,825
----------- -----------
$ 6,806,578 $ 5,181,012
=========== ===========
</TABLE>
On December 30, 1998, the Partnerships' loan with a financial institution
was paid in full (Note 3). The related deferred loan costs and associated
accumulated amortization were written off and an extraordinary loss of $434,469
was recorded.
3. DEBT
The Partnerships had senior term note payable and a revolving credit loan
agreement with a financial institution. The senior term note payable was a
$29,500,000 loan which required varying quarterly payments which commenced on
September 30, 1996. On June 30, 1997, the loan agreement was amended to defer
the June 30, 1997 and September 30, 1997 principal payments and restructured the
required principal payment amounts due through December 31, 2003. The revolving
credit loan provided for borrowing up to $3,000,000 at the discretion of the
Partnerships. On June 30, 1997, the loan agreement was amended to increase the
amount provided for borrowing under the revolving credit loan to $3,750,000. At
December 31, 1997, the term notes and the revolving credit loan had a balance of
$28,387,500 and $1,050,000, respectively, with a total balance of $29,437,500.
At December 30, 1998, the term notes and the revolving credit loan had a balance
of $27,637,500 and $3,300,000, respectively; at that date, the total balance of
$30,937,500 and accrued interest were paid in full.
Also on December 30, 1998, the Partnerships obtained a new interpartnership
loan agreement with ICP (Note 1). Borrowing under the interpartnership loan, as
well as interest and principal payments are due at the discretion of the
management of ICP, resulting in no minimum required annual principal payments.
The balance of the interpartnership loan at December 31, 1998 was $31,222,436.
The effective interest rate at December 31, 1998 was 8.5%.
4. MANAGEMENT AGREEMENT
The Partnerships have entered into a management agreement with Rifkin &
Associates, Inc. (Rifkin). The management agreement provides that Rifkin shall
manage the Operating Partnership and shall be entitled to annual compensation of
4% of gross revenues. Effective September 1, 1998, Rifkin conveyed its CATV
management business to R & A Management, LLC (RML). The result of this
transaction was the conveyance of the Rifkin management agreement (Rifkin
Agreement) to RML (RML Agreement). Expenses incurred pursuant to the Rifkin
Agreement and the RML Agreement are disclosed on the Consolidated Statement of
Operations.
F-222
<PAGE> 452
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASE COMMITMENTS
At December 31, 1998, the Operating Partnership had lease commitments under
long-term operating leases as follows:
<TABLE>
<S> <C>
1999........................................................ $195,437
2000........................................................ 189,643
2001........................................................ 116,837
--------
Total............................................. $501,917
========
</TABLE>
Rent expense, including pole rent, was as follows for the periods
indicated:
<TABLE>
<CAPTION>
TOTAL
RENTAL
PERIOD EXPENSE
- ------ --------
<S> <C>
Year Ended December 31, 1996............................... $262,231
Year Ended December 31, 1997............................... 279,655
Year Ended December 31, 1998............................... 295,107
</TABLE>
6. RETIREMENT BENEFITS
The Operating Partnership has a 401(k) plan for its employees that have
been employed by the Operating Partnership for at least one year. Employees of
the Operating Partnership can contribute up to 15% of their salary, on a
before-tax basis, with a maximum 1998 contribution of $10,000 (as set by the
Internal Revenue Service). The Operating Partnership matches participant
contributions up to a maximum of 50% of the first 3% of a participant's salary
contributed. All participant contributions and earnings are fully vested upon
contribution and Operating Partnership contributions and earnings vest 20% per
year of employment with the Operating Partnership, becoming fully vested after
five years. The Operating Partnership's matching contributions for the years
ended December 31, 1996, 1997 and 1998 were $15,549, $23,292 and $20,652,
respectively.
F-223
<PAGE> 453
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Charter Communications Holdings, LLC:
We have audited the accompanying statements of operations and changes in
net assets and cash flows of Sonic Communications Cable Television Systems for
the period from April 1, 1998, through May 20, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Sonic
Communications Cable Television Systems for the period from April 1, 1998,
through May 20, 1998, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 5, 1999
F-224
<PAGE> 454
SONIC COMMUNICATIONS CABLE TELEVISION SYSTEMS
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1,
1998, THROUGH
MAY 20,
1998
-------------
<S> <C>
REVENUES.................................................... $ 6,343,226
-----------
OPERATING EXPENSES:
Operating costs........................................... 1,768,393
General and administrative................................ 1,731,471
Depreciation and amortization............................. 1,112,057
-----------
4,611,921
-----------
Income from operations................................. 1,731,305
INTEREST EXPENSE............................................ 289,687
-----------
Income before provision for income taxes............... 1,441,618
PROVISION IN LIEU OF INCOME TAXES........................... 602,090
-----------
Net income............................................. 839,528
NET ASSETS, April 1, 1998................................... 55,089,511
-----------
NET ASSETS, May 20, 1998.................................... $55,929,039
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-225
<PAGE> 455
SONIC COMMUNICATIONS CABLE TELEVISION SYSTEMS
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1,
1998, THROUGH
MAY 20,
1998
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 839,528
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 1,112,057
Changes in assets and liabilities --
Accounts receivable, net............................. 49,980
Prepaid expenses and other........................... 171,474
Accounts payable and accrued expenses................ (1,479,682)
-----------
Net cash provided by operating activities......... 693,357
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (470,530)
Payments of franchise costs............................... (166,183)
-----------
Net cash used in investing activities............. (636,713)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................ (41,144)
-----------
Net cash used in financing activities............. (41,144)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 15,500
-----------
CASH AND CASH EQUIVALENTS, beginning of period.............. 532,238
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 547,738
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-226
<PAGE> 456
SONIC COMMUNICATIONS CABLE TELEVISION SYSTEMS
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
Sonic Communications Cable Television Systems (the Company) operates cable
television systems in California and Utah.
Effective May 21, 1998, the Company's net assets were acquired by Charter
Communications Holdings, LLC.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
The Company depreciates its cable distribution systems using the
straight-line method over estimated useful lives of 5 to 15 years for systems
acquired on or after April 1, 1981. Systems acquired before April 1, 1981, are
depreciated using the declining balance method over estimated useful lives of 8
to 20 years.
Vehicles, machinery, office, and data processing equipment and buildings
are depreciated using the straight-line or declining balance method over
estimated useful lives of 3 to 25 years. Capital leases and leasehold
improvements are amortized using the straight-line or declining balance method
over the shorter of the lease term or the estimated useful life of the asset.
INTANGIBLES
The excess of amounts paid over the fair values of tangible and
identifiable intangible assets acquired in business combinations are amortized
using the straight-line method over the life of the franchise. Identifiable
intangible assets such as franchise rights, noncompete agreements and subscriber
lists are amortized using the straight-line method over their useful lives,
generally 3 to 15 years.
REVENUES
Cable television 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. As of May 20, 1998, no installation revenue has been
deferred, as direct selling costs exceeded installation revenue.
INTEREST EXPENSE
Interest expense relates to a note payable to a stockholder of the Company,
which accrues interest at 7.8% per annum.
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
F-227
<PAGE> 457
SONIC COMMUNICATIONS CABLE TELEVISION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
2. COMMITMENTS AND CONTINGENCIES:
FRANCHISES
The Company has committed to provide cable television services under
franchise agreements with various governmental bodies for remaining terms up to
13 years. Franchise fees of up to 5% of gross revenues are payable under these
agreements.
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Leases and rental costs charged to expense for the period from
April 1, 1998, through May 20, 1998, were $59,199.
The Company also rents utility poles in its operations. Generally, pole
rentals are cancelable on short notice, but the Company anticipates that such
rentals will recur. Rent expense incurred for pole rental attachments for the
period from April 1, 1998, through May 20, 1998, was $64,159.
3. INCOME TAXES:
The results of the Company are included in the consolidated federal income
tax return of its parent, Sonic Enterprises, Inc., which is responsible for tax
payments applicable to the Company. The financial statements reflect a provision
in lieu of income taxes as if the Company was filing on a separate company
basis. Accordingly, the Company has included the provision in lieu of income
taxes in the accompanying statement of operations.
The provision in lieu of income taxes approximates the amount of tax
computed using U.S. statutory rates, after reflecting state income tax expense
of $132,510 for the period from April 1, 1998, through May 20, 1998.
4. REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject to
judicial proceeding and administrative or legislative proposals. Legislation and
regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
F-228
<PAGE> 458
SONIC COMMUNICATIONS CABLE TELEVISION SYSTEMS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. For the period from
April 1, 1998, through May 20, 1998, the amount refunded by the Company has been
insignificant. The Company may be required to refund additional amounts in the
future.
The Company believes that it has complied in all material respects with the
ownership of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company are unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Systems.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation.
F-229
<PAGE> 459
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Long Beach Acquisition Corp.:
We have audited the accompanying statements of operations, stockholder's
equity and cash flows of Long Beach Acquisition Corp. (a Delaware corporation)
for the period from April 1, 1997, through May 23, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Long Beach
Acquisition Corp. for the period from April 1, 1997, through May 23, 1997, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 31, 1998
F-230
<PAGE> 460
LONG BEACH ACQUISITION CORP.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1997, THROUGH MAY 23, 1997
<TABLE>
<S> <C>
SERVICE REVENUES............................................ $ 5,313,282
-----------
EXPENSES:
Operating costs........................................... 1,743,493
General and administrative................................ 1,064,841
Depreciation and amortization............................. 3,576,166
Management fees -- related parties........................ 230,271
-----------
6,614,771
-----------
Loss from operations................................... (1,301,489)
INTEREST EXPENSE............................................ 753,491
-----------
Net loss............................................... $(2,054,980)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-231
<PAGE> 461
LONG BEACH ACQUISITION CORP.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM APRIL 1, 1997, THROUGH MAY 23, 1997
<TABLE>
<CAPTION>
CLASS A, SENIOR
VOTING REDEEMABLE ADDITIONAL TOTAL
COMMON PREFERRED PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK STOCK CAPITAL DEFICIT EQUITY
-------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE,
April 1, 1997........... $100 $11,000,000 $33,258,723 $(51,789,655) $(7,530,832)
Net loss.................. -- -- -- (2,054,980) (2,054,980)
---- ----------- ----------- ------------ -----------
BALANCE,
May 23, 1997............ $100 $11,000,000 $33,258,723 $(53,844,635) $(9,585,812)
==== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-232
<PAGE> 462
LONG BEACH ACQUISITION CORP.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1997, THROUGH MAY 23, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(2,054,980)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization.......................... 3,576,166
Changes in assets and liabilities, net of effects from
acquisition-
Accounts receivable, net............................. (830,725)
Prepaid expenses and other........................... (19,583)
Accounts payable and accrued expenses................ (528,534)
Other current liabilities............................ 203,282
-----------
Net cash provided by operating activities......... 345,626
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (596,603)
-----------
Net cash used in investing activities............. (596,603)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (250,977)
CASH AND CASH EQUIVALENTS, beginning of period.............. 3,544,462
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 3,293,485
===========
CASH PAID FOR INTEREST...................................... $ 1,316,462
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-233
<PAGE> 463
LONG BEACH ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
MAY 23, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
Long Beach Acquisition Corp. (LBAC or the "Company") was a wholly owned
corporation of KC Cable Associates, L.P., a partnership formed through a joint
venture agreement between Kohlberg, Kravis, Roberts & Co. (KKR) and Cablevision
Industries Corporation (CVI). The Company was formed to acquire cable television
systems serving Long Beach, California, and surrounding areas.
On May 23, 1997, the Company executed a stock purchase agreement with
Charter Communications Long Beach, Inc. (CC-LB) whereby CC-LB purchased all of
the outstanding stock of the Company for an aggregate purchase price, net of
cash acquired, of $150.9 million. Concurrent with this stock purchase, CC-LB was
acquired by Charter Communications, Inc. (Charter) and Kelso Investment
Associates V, L.P., an investment fund (Kelso).
As of May 23, 1997, LBAC provided cable television service to subscribers
in southern California.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, including all direct and
certain indirect costs associated with the construction of cable transmission
and distribution facilities, and the cost of new customer installation. The
costs of disconnecting a customer are charged to expense in the period incurred.
Expenditures for repairs and maintenance are charged to expense as incurred, and
equipment replacement costs and betterments are capitalized.
Depreciation is provided on a straight-line basis over the estimated useful
life of the related asset as follows:
<TABLE>
<S> <C>
Leasehold improvements.................................. Life of respective lease
Cable systems and equipment............................. 5-10 years
Subscriber devices...................................... 5 years
Vehicles................................................ 5 years
Furniture, fixtures and office equipment................ 5-10 years
</TABLE>
FRANCHISES
Franchises include the assigned fair value of the franchise from purchased
cable television systems. These franchises are amortized on a straight-line
basis over six years, the remaining life of the franchise at acquisition.
INTANGIBLE ASSETS
Intangible assets include goodwill, which is amortized over fifteen years;
subscriber lists, which are amortized over seven years; a covenant not to
compete which is amortized over five
F-234
<PAGE> 464
LONG BEACH ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
years; organization costs which are amortized over five years and debt issuance
costs which are amortized over ten years, the life of the loan.
IMPAIRMENT OF ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If a review indicates that the carrying value of
such asset is not recoverable based on projected undiscounted cash flows related
to the asset over its remaining life, the carrying value of such asset is
reduced to its estimated fair value.
REVENUES
Cable television 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
average estimated period that customers are expected to remain connected to the
cable television system. As of May 23, 1997, no installation revenue has been
deferred, as direct selling costs have exceeded installation service revenues.
INCOME TAXES
LBAC's income taxes are recorded in accordance with SFAS No. 109,
"Accounting for Income Taxes."
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.
2. STOCKHOLDER'S EQUITY:
For the period from April 1, 1997, through May 23, 1997, stockholder's
equity consisted of the following:
<TABLE>
<S> <C>
Stockholder's (deficit) equity:
Common stock -- Class A, voting $1 par value, 100 shares
authorized, issued and outstanding.......................... $ 100
Common stock -- Class B, nonvoting, $1 par value, 1,000
shares authorized, no shares issued.................... --
Senior redeemable preferred stock, no par value, 110,000
shares authorized, issued and outstanding, stated at
redemption value....................................... 11,000,000
Additional paid-in capital................................ 33,258,723
Accumulated deficit....................................... (53,844,635)
------------
Total stockholder's (deficit) equity................... $ (9,585,812)
============
</TABLE>
F-235
<PAGE> 465
LONG BEACH ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INTEREST EXPENSE:
The Company has the option of paying interest at either the Base Rate of
the Eurodollar rate, as defined, plus a margin which is based on the attainment
of certain financial ratios. The weighted average interest rate for the period
from April 1, 1997, through May 23, 1997, was 7.3%.
4. REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and together with
the 1984 Cable Act, the "Cable Acts"), and the Telecommunications Act of 1996
(the "1996 Telecom Act"), establish a national policy to guide the development
and regulation of cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing the policies of
the Cable Acts. Many aspects of such regulation are currently the subject to
judicial proceeding and administrative or legislative proposals. Legislation and
regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. As of May 23, 1997,
the amount refunded by the Company has been insignificant. The Company may be
required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
ownership of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company are unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates
for certain small cable operators and in certain limited circumstances rates on
the basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Company cannot predict the ultimate effect of the 1996 Telecom Act on
the Company's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
F-236
<PAGE> 466
LONG BEACH ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation.
5. RELATED-PARTY TRANSACTIONS:
The Company has entered into a management agreement (the "Management
Agreement") with CVI under which CVI manages the operations of the Company for
an annual management fee equal to 4% of gross operating revenues, as defined.
Management fees under this agreement amounted to $210,100 for the period from
April 1, 1997, through May 23, 1997. In addition, the Company has agreed to pay
a monitoring fee of two dollars per basic subscriber, as defined, per year for
services provided by KKR. Monitoring fees amounted to $20,171 for the period
from April 1, 1997, through May 23, 1997.
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Rent expense incurred under these leases for the period from
April 1, 1997, through May 23, 1997, was $67,600.
The Company rents utility poles in its operations. Generally, pole rental
agreements are short term, but LBAC anticipates that such rentals will recur.
Rent expense for pole attachments for the period from April 1, 1997, through May
23, 1997, was $12,700.
LITIGATION
The Company is a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel, the
outcome of these lawsuits will not have a material adverse effect on the
Company's financial position or results of operations.
7. INCOME TAXES:
The Company has not recognized the tax benefit associated with its taxable
loss for the period from April 1, 1997, through May 23, 1997, as the Company
believes the benefit will likely not be realized.
8. EMPLOYEE BENEFIT PLANS:
Substantially all employees of the Company are eligible to participate in a
defined contribution plan containing a qualified cash or deferred arrangement
pursuant to IRC Section 401(k). The plan provides that eligible employees may
contribute up to 10% of their compensation to the plan. The Company made no
contributions to the plan for the period from April 1, 1997, through May 23,
1997.
F-237
<PAGE> 467
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
-----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 434,183 $ 9,573
Accounts receivable, net of allowance for doubtful
accounts of $4,327 and $1,728, respectively.......... 48,470 15,108
Note receivable from parent company..................... 51,458 --
Prepaid expenses and other.............................. 27,374 2,519
----------- ----------
Total current assets............................ 561,485 27,200
----------- ----------
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment........................... 2,279,489 716,242
Franchises.............................................. 8,268,021 3,590,054
----------- ----------
10,547,510 4,306,296
----------- ----------
OTHER ASSETS.............................................. 126,196 2,031
----------- ----------
$11,235,191 $4,335,527
=========== ==========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................... $ -- $ 10,450
Accounts payable........................................ 40,781 7,439
Accrued expenses........................................ 341,784 120,147
Payables to manager of cable television
systems -- related party............................. 8,036 4,334
----------- ----------
Total current liabilities....................... 390,601 142,370
----------- ----------
LONG-TERM DEBT............................................ 6,244,632 1,991,756
----------- ----------
DEFERRED MANAGEMENT FEES - RELATED PARTY.................. 17,004 15,561
----------- ----------
OTHER LONG-TERM LIABILITIES............................... 68,648 38,461
----------- ----------
MEMBER'S EQUITY........................................... 4,514,306 2,147,379
----------- ----------
$11,235,191 $4,335,527
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-238
<PAGE> 468
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------------
1999 1998
SUCCESSOR PREDECESSOR
------------------------
<S> <C> <C>
REVENUES.................................................... $ 845,182 $ 32,532
--------- --------
OPERATING EXPENSES:.........................................
Operating, general and administrative..................... 436,057 17,498
Depreciation and amortization............................. 441,391 11,236
Stock option compensation expense......................... 59,288 --
Corporate expense charges -- related party................ 18,309 1,499
--------- --------
955,045 30,233
--------- --------
(Loss) income from operations.......................... (109,863) 2,299
--------- --------
OTHER INCOME (EXPENSE):.....................................
Interest expense.......................................... (288,750) (11,831)
Interest income........................................... 18,326 23
Other, net................................................ (177) 6
--------- --------
(270,601) (11,802)
--------- --------
Loss before extraordinary item......................... (380,464) (9,503)
EXTRAORDINARY ITEM -- Loss from early extinguishment of
debt...................................................... 7,794 --
--------- --------
Net loss............................................... $(388,258) $ (9,503)
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-239
<PAGE> 469
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1999 1998
SUCCESSOR PREDECESSOR
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (388,258) $ (9,503)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........................... 441,391 11,236
Stock option compensation expense....................... 59,288 --
Amortization of non-cash interest expense............... 66,028 802
Loss from early extinguishment of debt.................. 7,794 --
Changes in assets and liabilities, net of effects from
acquisitions --
Accounts receivable, net................................ (2,358) (1,380)
Prepaid expenses and other.............................. (11,665) (229)
Accounts payable and accrued expenses................... 76,591 15,265
Payables to manager of cable television systems,
including deferred management fees................... 17,887 1,974
Other operating activities.............................. (1,087) --
----------- ---------
Net cash provided by operating activities............ 265,611 18,165
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net........... (385,301) (6,896)
Note receivable from parent company....................... (51,458) --
Payments for acquisitions, net of cash acquired........... (2,659,384) (167,484)
Loan to Marcus Cable Holdings............................. (1,680,142) --
Other investing activities................................ (11,106) 8
----------- ---------
Net cash used in investing activities................ (4,787,391) (174,372)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. 6,464,188 201,200
Repayments of long-term debt.............................. (2,539,340) (48,500)
Payments for debt issuance costs.......................... (107,562) (3,440)
Capital contributions..................................... 1,144,290 7,000
Distributions............................................. (14,786) --
Other financing activities................................ (400) --
----------- ---------
Net cash provided by financing activities............ 4,946,390 156,260
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 424,610 53
CASH AND CASH EQUIVALENTS, beginning of period.............. 9,573 626
----------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 434,183 $ 679
=========== =========
CASH PAID FOR INTEREST...................................... $ 136,626 $ 9,248
=========== =========
NON CASH TRANSACTIONS:
Transfer of Marcus Holdings' net assets to the Company.... $ 1,252,370 $ --
=========== =========
Transfer of Rifkin equity interests to the Company and
preferred equity retained by former Rifkin owners in the
Company................................................. $ 314,022 $ --
=========== =========
Preferred equity retained by former Helicon owners in the
Company................................................. $ 25,000 $ --
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
F-240
<PAGE> 470
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Charter Communications Holdings, LLC (Charter Holdings) owns and operates
cable television systems currently serving approximately 3.7 million customers.
Charter Holdings offers a full range of traditional cable television services
and has begun to offer digital cable television services, interactive video
programming and high-speed Internet access. Charter Holdings is a subsidiary of
Charter Communications Holding Company, LLC (Charter Holdco), which is a
subsidiary of Charter Communications, Inc. In November 1999, Charter
Communications, Inc. completed an initial public offering of the sale of 195.5
million shares of Class A common stock. Proceeds from the offering were used by
Charter Communications, Inc. to purchase membership units in Charter Holdco,
which is using the funds received from Charter Communications, Inc. for the
acquisition of additional cable television systems (See Note 8).
ORGANIZATION AND BASIS OF PRESENTATION
Charter Holdings was formed in February 1999 as a wholly owned subsidiary
of Charter Investment, Inc. (Charter Investment) (formerly Charter
Communications, Inc.) Charter Investment, through its wholly owned subsidiary,
Charter Communications Properties Holdings, LLC (CCPH), commenced operations
with the acquisition of a cable television system on September 30, 1995.
Effective December 23, 1998, through a series of transactions, Paul G.
Allen acquired approximately 94% of Charter Investment for an aggregate purchase
price of $2.2 billion, excluding $2.0 billion in debt assumed (the "Paul Allen
Transaction"). In conjunction with the Paul Allen Transaction, Charter
Investment acquired, for fair value from unrelated third parties 100% of the
interests it did not already own in CharterComm Holdings, LLC (CharterComm
Holdings) and CCA Group (comprised of CCA Holdings Corp., CCT Holdings Corp. and
Charter Communications Long Beach, Inc.), all cable television operating
companies, for $2.0 billion, excluding $1.8 billion in debt assumed. Charter
Investment previously managed and owned minority interests in these companies.
These acquisitions were accounted for using the purchase method of accounting,
and accordingly, results of operations of CharterComm Holdings and CCA Group are
included in the financial statements from the date of acquisition. In February
1999, Charter Investment transferred all of its cable television operating
subsidiaries to a wholly owned subsidiary of Charter Holdings, Charter
Communications Operating, LLC (Charter Operating). This transfer was accounted
for as a reorganization of entities under common control similar to a pooling of
interests.
As a result of the change in ownership of CCPH, CharterComm Holdings and
CCA Group, Charter Holdings has applied push-down accounting in the preparation
of the consolidated financial statements. Accordingly, on December 23, 1998,
Charter Holdings increased its member's equity by $2.2 billion to reflect the
amounts paid by Paul G. Allen and Charter Investment. The purchase price was
allocated to assets acquired and liabilities assumed based on their relative
fair values, including amounts assigned to franchises of $3.6 billion. The
allocation of the purchase price is based, in part, on preliminary information
which is subject to adjustment upon obtaining complete appraisal and valuation
information of intangible assets. The valuation information is expected to be
finalized in the fourth quarter of 1999. Management believes that finalization
of the purchase price will not have a material impact on the results of
operations or financial position of Charter Holdings.
F-241
<PAGE> 471
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 23, 1998, Paul G. Allen and a company controlled by Paul G. Allen,
(the "Paul G. Allen Companies") purchased substantially all of the outstanding
partnership interests in Marcus Cable Company, L.L.C. (Marcus Cable) for $1.4
billion, excluding $1.8 billion in assumed liabilities. The owner of the
remaining partnership interest retained voting control of Marcus Cable. In
February 1999, Marcus Cable Holdings, LLC (Marcus Holdings) was formed and Mr.
Allen's interests in Marcus Cable were transferred to Marcus Holdings. On March
31, 1999, Paul G. Allen purchased the remaining partnership interests in Marcus
Cable, including voting control. On April 7, 1999, Marcus Holdings was merged
into Charter Holdings and Marcus Cable was transferred to Charter Holdings. For
financial reporting purposes, the merger was accounted for as an acquisition of
Marcus Cable effective March 31, 1999, the date Paul G. Allen obtained voting
control of Marcus Cable. Accordingly, the results of operations of Marcus Cable
have been included in the financial statements from April 1, 1999. The assets
and liabilities of Marcus Cable have been recorded in the financial statements
using historical carrying values reflected in the accounts of the Paul G. Allen
Companies. Total member's equity increased by $1.3 billion as a result of the
Marcus Cable acquisition. Previously, on April 23, 1998, the Paul G. Allen
Companies recorded the assets acquired and liabilities assumed of Marcus Cable
based on their relative fair values.
The consolidated financial statements of Charter Holdings include the
accounts of Charter Operating and CCPH, the accounts of CharterComm Holdings and
CCA Group and their subsidiaries since December 23, 1998 (date acquired by
Charter Investment), and the accounts of Marcus Cable since March 31, 1999, and
are collectively referred to as the "Company" herein. All subsidiaries are,
directly or indirectly, wholly owned by Charter Holdings. All material
intercompany transactions and balances have been eliminated.
As a result of the Paul Allen Transaction and the application of push-down
accounting, the financial information of the Company in the accompanying
financial statements and notes thereto as of December 31, 1998, and September
30, 1999, and for the Successor Period (January 1, 1999 through September 30,
1999) is presented on a different cost basis than the financial information of
the Company for the Predecessor Period (January 1, 1998 through September 30,
1998) and therefore, such information is not comparable.
Pursuant to a membership interests purchase agreement, as amended, Vulcan
Cable III, Inc. a company controlled by Paul G. Allen, contributed $500 million
on August 10, 1999 to Charter Holdco, contributed an additional $180.7 million
in certain equity interests acquired in connection with the acquisition of
Rifkin Acquisitions Partners, L.L.L.P. and Interlink Communications Partners,
LLLP (collectively, "Rifkin") in September 1999 and contributed $644.3 million
in September 1999 to Charter Holdco. All funds and equity interests were
contributed by Charter Holdco to Charter Holdings. In addition, certain Rifkin
sellers received $133.3 million of the purchase price in the form of preferred
equity in Charter Holdco.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The accompanying consolidated financial statements are unaudited; however,
in the opinion of management, such statements include all adjustments necessary
for a fair presentation of the results for the periods presented. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto as of and for the period
ended December 31, 1998, included in the form S-4 Registration Statement of
Charter Holdings. Interim results are not necessarily indicative of results for
a full year.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with the rules and regulations of the
Securities and Exchange
F-242
<PAGE> 472
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
3. ACQUISITIONS:
In addition to the Paul Allen Transaction and the acquisitions by Charter
Investment of CharterComm Holdings, CCA Group and Marcus Holdings, the Company
acquired cable television systems for an aggregate purchase price, net of cash
acquired, of $291,800 in 1998, and completed the sale of certain cable
television systems for an aggregate sales price of $405,000 in 1998, all prior
to December 24, 1998. Through September 30, 1999, the Company has acquired cable
television systems in seven separate transactions for an aggregate purchase
price, net of cash, acquired of $2.7 billion, excluding debt assumed of $354
million. In connection with two of the acquisitions, Charter Holdco issued
equity interests totaling $133.3 million and a subsidiary of Charter Holdings
issued preferred equity interests totaling $25 million to the sellers. Charter
Holdco contributed the acquired net assets to Charter Holdings increasing
member's equity by $133.3 million. The purchase price was allocated to assets
acquired and liabilities assumed based on their relative fair values, including
amounts assigned to franchises of $2.9 billion. The allocation of the purchase
prices for these acquisitions are based, in part, on preliminary information,
which is subject to adjustment upon obtaining complete valuation information.
Management believes that finalization of the purchase prices will not have a
material impact on the consolidated results of operations or financial position
of the Company.
The above acquisitions were accounted for using the purchase method of
accounting, and accordingly, results of operations of the acquired assets have
been included in the financial statements from the dates of acquisition. The
purchase prices were allocated to tangible and intangible assets based on
estimated fair values at the acquisition dates.
Pro forma operating results as though the acquisitions discussed above,
including the Paul Allen Transaction and the acquisition of Marcus Holdings, and
the refinancing discussed herein, had occurred on January 1, 1998, with
adjustments to give effect to amortization of franchises, interest expense and
certain other adjustments are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues............................................. $1,264,090 $1,154,204
Loss from operations................................. (111,400) (144,408)
Net loss............................................. (512,967) (560,444)
</TABLE>
The pro forma information has been presented for comparative purposes and
does not purport to be indicative of the results of operations had these
transactions been completed as of the assumed date or which may be obtained in
the future.
F-243
<PAGE> 473
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Charter Holdings:
Credit Agreements (including CCPH, CCA Group and
CharterComm Holdings)............................. $ -- $1,726,500
Senior Secured Discount Debentures.............. -- 109,152
11.250% Senior Notes............................ -- 125,000
8.250% Senior Notes............................. 600,000 --
8.625% Senior Notes............................. 1,500,000 --
9.920% Senior Discount Notes.................... 1,475,000 --
Charter Operating Credit Facilities............... 2,850,000 --
Renaissance:
10.0% Senior Discount Notes..................... 114,413 --
Rifkin:
11.125% Senior Subordinated Notes............... 125,000 --
Note payable to former owner.................... 3,000 --
Helicon:
11.0% Senior Secured Notes...................... 115,000 --
---------- ----------
6,782,413 1,960,652
Current maturities.............................. -- (10,450)
Unamortized net (discount) premium.............. (537,781) 41,554
---------- ----------
$6,244,632 $1,991,756
========== ==========
</TABLE>
In March 1999, the Company extinguished substantially all existing
long-term debt, excluding borrowings of the Company under its credit agreements,
and refinanced substantially all existing credit agreements at various
subsidiaries with a new credit agreement entered into by Charter Operating (the
"Charter Operating Credit Facilities"). The excess of the amount paid over the
carrying value of the Company's long-term debt was recorded as an extraordinary
item-loss on early extinguishment of debt in the accompanying consolidated
statement of operations.
CHARTER HOLDINGS NOTES
In March 1999, Charter Holdings and Charter Communications Holdings Capital
Corporation (Charter Holdings Capital), a wholly owned subsidiary of Charter
Holdings, issued $600.0 million 8.250% Senior Notes due 2007 (the "8.250% Senior
Notes") for net proceeds of $598.4 million, $1.5 billion 8.625% Senior Notes due
2009 (the "8.625% Senior Notes") for net proceeds of $1,495.4 million, and
$1,475.0 million 9.920% Senior Discount Notes due 2011 (the "9.920% Senior
Discount Notes") for net proceeds of $905.6 million, (collectively with the
8.250% Senior Notes and the 8.625% Senior Notes, referred to as the "Charter
Holdings Notes").
The 8.250% Senior Notes are not redeemable prior to maturity. Interest is
payable semiannually in arrears on April 1 and October 1, beginning October 1,
1999 until maturity.
F-244
<PAGE> 474
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 8.625% Senior Notes are redeemable at the option of the Company at
amounts decreasing from 104.313% to 100% of par value beginning on April 1,
2004, plus accrued and unpaid interest, to the date of redemption. At any time
prior to April 1, 2002, the Company may redeem up to 35% of the aggregate
principal amount of the 8.625% Senior Notes at a redemption price of 108.625% of
the principal amount under certain conditions. Interest is payable semi-
annually in arrears on April 1 and October 1, beginning October 1, 1999 until
maturity.
The 9.920% Senior Discount Notes are redeemable at the option of the
Company at amounts decreasing from 104.960% to 100% of accreted value beginning
April 1, 2004. At any time prior to April 1, 2002, the Company may redeem up to
35% of the aggregate principal amount of the 9.920% Senior Discount Notes at a
redemption price of 109.920% of the accreted value under certain conditions. No
interest will be payable until April 1, 2004. Thereafter, interest is payable
semi-annually in arrears on April 1 and October 1 beginning April 1, 2004 until
maturity. The discount on the 9.920% Senior Discount Notes is being accreted
using the effective interest method at a rate of 9.920% per year. The
unamortized discount was $520.9 million at September 30, 1999.
The Charter Holdings Notes rank equally with current and future unsecured
and unsubordinated indebtedness (including trade payables of the Company). The
Company is required to make an offer to repurchase all of the Charter Holdings
Notes, at a price equal to 101% of the aggregate principal or 101% of the
accreted value, together with accrued and unpaid interest, upon a Change of
Control of the Company, as defined.
RENAISSANCE NOTES
In connection with the acquisition of Renaissance Media Group LLC
(Renaissance) during the second quarter of 1999, the Company assumed $163,175
principal amount of senior discount notes due April 2008 (the "Renaissance
Notes"). As a result of the change in control of Renaissance, the Company was
required to make an offer to repurchase the Renaissance Notes at 101% of their
accreted value plus accrued interest. In May 1999, the Company made an offer to
repurchase the Renaissance Notes pursuant to this requirement, and the holders
of the Renaissance Notes tendered an amount representing 30% of the total
outstanding principal amount for repurchase.
As of September 30, 1999, $114.4 million aggregate principal amount of
Renaissance Notes with an accreted value of $83.8 million remains outstanding.
Interest on the Renaissance Notes shall be paid semi-annually at a rate of 10%
per annum beginning on October 15, 2003.
The Renaissance Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after April 15, 2003, initially at 105% of their
principal amount at maturity, plus accrued interest, declining to 100% of the
principal amount at maturity, plus accrued interest, on or after April 15, 2006.
In addition, at any time prior to April 15, 2001, the Company may redeem up to
35% of the original principal amount at maturity with the proceeds of one or
more sales of membership units at 110% of their accreted value plus accrued
interest on the redemption date, provided that after any such redemption, at
least $106 million aggregate principal amount at maturity remains outstanding.
HELICON NOTES
The Company acquired Helicon I. L.P. and affiliates in July 1999. As of
September 30, 1999, Helicon had outstanding $115.0 million in principal amount
of 11% senior secured notes due 2003 (the "Helicon Notes"). On November 1, 1999,
the Company redeemed all of the Helicon Notes
F-245
<PAGE> 475
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at a purchase price equal to 103% of their principal amount, plus accrued
interest, for $124.8 million using borrowings from the Charter Operating Credit
Facilities. Accordingly, the Helicon Notes have been classified as long-term
debt in the accompanying consolidated balance sheet as of September 30, 1999.
RIFKIN NOTES
The Company acquired Rifkin in September 1999. As of September 30, 1999,
Rifkin had outstanding $125.0 million in principal amount of 11 1/8% senior
subordinated notes due 2006 (the "Rifkin Notes"). Interest on the Rifkin
subordinated notes is payable semi-annually on January 15 and July 15 of each
year. In September 1999, the Company commenced an offer to repurchase any and
all of the outstanding Rifkin Notes, together with a $3.0 million promissory
note payable to Monroe Rifkin, for cash at a premium over the principal amounts.
In conjunction with this tender offer, the Company sought and obtained the
consent of a majority in principal amount of the note holders of the outstanding
Rifkin Notes to proposed amendments to the indenture governing the Rifkin Notes,
which eliminated substantially all of the restrictive covenants. In November
1999, the Company repurchased the Rifkin Notes with a total outstanding
principal amount of $124.1 million for a total of $140.6 million, including a
consent fee of $30 per $1000 to the holders who delivered timely consents to
amending the indenture, and repurchased the promissory note issued to Monroe
Rifkin for $3.4 million. These notes were paid using borrowings from the Charter
Operating Credit Facilities. Accordingly, the Rifkin Notes and note payable to
Monroe Rifkin have been classified as long-term debt in the accompanying
consolidated balance sheet as of September 30, 1999.
CHARTER OPERATING CREDIT AGREEMENT
The Charter Operating Credit Facilities provides for two term facilities,
one with a principal amount of $1.0 billion that matures September 2008 (Term
A), and the other with the principal amount of $1.85 billion that matures March
2009 (Term B). The Charter Operating Credit Facilities also provides for a $1.25
billion revolving credit facility with a maturity date of September 2008.
Amounts under the Charter Operating Credit Facilities bear interest at the Base
Rate or the Eurodollar rate, as defined, plus a margin of up to 2.75% (7.53% as
of September 30, 1999). A quarterly commitment fee of between 0.25% and 0.375%
per annum is payable on the unborrowed balance of Term A and the revolving
credit facility.
The indentures governing the debt agreements require the Company and/or its
subsidiaries to comply with various financial and other covenants, including the
maintenance of certain operating and financial ratios. These debt instruments
also contain substantial limitations on, or prohibitions of distributions,
additional indebtedness, liens, asset sales and certain other items. As a result
of limitations and prohibitions of distributions, substantially all of the net
assets of the consolidated subsidiaries are restricted for distribution to
Charter Holdings, the parent company.
F-246
<PAGE> 476
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based upon outstanding indebtedness at September 30, 1999, the amortization
of term loans, scheduled reductions in available borrowings of the revolving
credit facility, and the maturity dates for all senior and subordinated notes,
aggregate future principal payments on the total borrowings under all debt
agreements at September 30, 1999, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ----------
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ 88,875
2003........................................................ 156,000
2004........................................................ 168,500
Thereafter.................................................. 6,369,038
----------
$6,782,413
==========
</TABLE>
5. RELATED-PARTY TRANSACTIONS:
The Company is charged a management fee equal to 3.5% percent of gross
revenues payable quarterly. To the extent management fees charged to the Company
are greater (less) than the corporate expenses incurred by Charter Investment,
the Company records a distribution to (capital contribution from) parent. For
the three and nine months ended September 30, 1999, the Company recorded a
distribution of $5,069 and $14,786, respectively. As of September 30, 1999,
management fees currently payable of $12,210 are included in payables to manager
of cable television systems -- related party.
In the second quarter of 1999, Charter Holdings loaned $50 million to
Charter Holdco. The promissory note bears interest at 7.5% compounded annually.
For the three and nine months ended September 30, 1999, Charter Holdings
recognized $1.0 million and $1.5 million of interest income pertaining to this
promissory note.
6. STOCK OPTION PLAN
In accordance with an employment agreement between the President and Chief
Executive Officer of Charter Communications, Inc. and a related option agreement
with the President and Chief Executive Officer, an option to purchase 3% of the
equity value of Charter Holdco, or 7,044,121 membership interests, was issued to
the President and Chief Executive Officer. The option vests over a four year
period from the date of grant and expires ten years from the date of grant.
In February 1999, the Company adopted an option plan providing for the
grant of options to purchase up to an aggregate of 10% of the equity value of
the Company. The plan was assumed by Charter Holdco. The option plan provides
for grants of options to employees, officers and directors of Charter Holdco and
its affiliates and consultants who provide services to Charter Holdco. Options
granted vest over five years from the grant date commencing 15 months after the
date of grant. Options not exercised accumulate and are exercisable, in whole or
in part, in any subsequent period, but not later than ten years from the date of
grant.
Membership units received upon exercise of the options will be
automatically exchanged for shares of Class A common stock of Charter
Communications, Inc. on a one-for-one basis.
F-247
<PAGE> 477
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options outstanding as of November 12, 1999, are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS
------------------------------------------------------------ EXERCISABLE
REMAINING -----------
NUMBER OF EXERCISE TOTAL CONTRACT NUMBER OF
OPTIONS PRICE DOLLARS LIFE (IN YEARS) OPTIONS
---------- -------------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding as of
January 1, 1999....... 7,044,127 $ 20.00 $140,882,540 9.2(1) 1,761,032
Granted:
February 9, 1999...... 9,050,881 20.00 181,017,620 130,000
April 5, 1999......... 443,200 20.73 9,187,536 --
November 8, 1999...... 4,600,000 19.00 87,400,000 --
Cancelled............... (378,400) 20.00 - 20.73 (7,595,886) --
---------- -------------- ------------ --- ---------
Outstanding as of
November 12, 1999..... 20,759,808 $ 19.79(1) $410,891,810 9.4(1) 1,891,032
========== ============== ============ === =========
</TABLE>
- ---------------
(1) Weighted average
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" to account for the option plans. Stock option
compensation expense of $21.1 and $59.3 million for the three and nine months
ended September 30, 1999, respectively, has been recorded in the financial
statements since the exercise prices were less than the estimated fair values of
the underlying membership interests on the date of grant. Estimated fair values
were determined by the Company using the valuation inherent in the Paul Allen
Transaction and valuations of public companies in the cable television industry
adjusted for factors specific to the Company. Compensation expense is being
accrued over the vesting period of each grant that varies from four to five
years. As of September 30, 1999, deferred compensation remaining to be
recognized in future periods totaled $104 million. No stock option compensation
expense will be recorded for the November 8, 1999 options since the exercise
price is equal to the estimated fair value of the underlying membership
interests on the date of grant. Since the membership units are exchangeable into
Class A common stock of Charter Communications, Inc. on a one-for-one basis, the
estimated fair value was equal to the initial offering price of Class A common
stock.
7. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 -- An
Amendment of FASB Statement No. 133" has delayed the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. We have not yet quantified
the impact of adopting SFAS No. 133 on our consolidated financial statements nor
have we determined the timing or method of our adoption of SFAS No. 133.
However, SFAS No. 133 could increase volatility in earnings (losses).
8. SUBSEQUENT EVENTS:
In October 1999, the Company acquired cable television systems from
InterMedia in a transaction for an aggregate purchase price of $873 million plus
adjustments and exchanged company-operated cable television systems serving
approximately 144,000 customers. At the closing, Charter Holdings retained a
cable television system serving approximately 30,000 customers for which Charter
Holdings was unable to obtain the necessary regulatory approvals. If the
necessary regulatory approvals cannot be obtained for the transfer of this
system by March 20, 2000 and Charter Holdings is unable to transfer to
InterMedia satisfactory replacement systems before April 1, 2000, Charter
Holdings must pay InterMedia $88.2 million. In addition, if Charter Holdings
transfers cash or property other than the retained system to InterMedia, in
certain circumstances, Charter Holdings must indemnify InterMedia 50% of all
taxes and related
F-248
<PAGE> 478
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs incurred or arising out of any claim that InterMedia suffered tax losses
to which it would not have been subject if Charter Holdings had transferred the
retained system. The exchange of cable television systems will be recorded at
the fair value of the systems exchanged.
In October 1999, Charter Communications, LLC, an indirect subsidiary of
Charter Holdings, acquired certain cable systems from InterMedia Capital
Partners IV, L.P., InterMedia Partners and affiliates (collectively InterMedia)
in a transaction for an aggregate purchase price of $873 million in cash plus
adjustments and exchanged company-operated cable systems serving approximately
142,000 customers. At the closing, Charter Holdings retained a cable system
serving approximately 30,000 customers for which Charter Holdings was unable to
obtain the necessary regulatory approvals. If the necessary regulatory approvals
cannot be obtained for the transfer of this system by March 28, 2000 and Charter
Holdings is unable to transfer to InterMedia satisfactory replacement systems
before April 1, 2000, Charter Holdings must pay InterMedia $88.2 million. In
addition, if Charter Holdings transfers cash or property other than the retained
system to InterMedia, in certain circumstances, Charter Holdings must indemnify
InterMedia 50% of all taxes and related costs incurred or arising out of any
claim that InterMedia suffered tax losses to which it would not have been
subject if Charter Holdings had transferred the retained system. The exchange of
cable systems will be recorded at the fair value of the systems exchanged.
In November 1999, Charter Holdco acquired cable systems from Fanch
Cablevision L.P. (Fanch), Falcon, and Avalon. These transactions had an
aggregate purchase price of $6.7 billion plus adjustments. The purchase price
consisted of cash of $4.0 billion, assumed debt of $2.0 billion and the issuance
of 20.8 million membership units of Charter Holdco with a value of $550.0
million. All of these membership units were exchanged for Class A common stock
of Charter on a one-for-one basis and 1.6 million shares were put to Mr. Allen.
All remaining shares held by the Falcon sellers are putable to Mr. Allen for two
years.
In June 1999, Charter Holdco entered into an agreement to purchase the
cable systems of Bresnan Communications Company Limited Partnership (Bresnan).
The purchase price will be paid with a portion of the net proceeds from Charter
Communications Inc.'s initial public offering, borrowings under credit
facilities (that have not yet been arranged), $1.0 billion of equity of Charter
Holdco to be issued to specified sellers in the acquisition, the assumption of
indebtedness and/or debt or equity securities to be issued. The Bresnan
acquisition is anticipated to close in the first quarter of 2000.
In January 2000, Charter Holdings and Charter Holdings Capital completed a
Rule 144A debt offering of $1.5 billion of Senior Notes and Senior Discount
Notes (the "January 2000 High Yield Notes") yielding proceeds of $1.3 billion.
Charter Holdings will use the proceeds to repurchase certain notes of Falcon,
Avalon and Bresnan related to change of control provisions and to repay other
debt. Charter Holdings and Charter Holdings Capital have commenced an offer to
exchange all of the privately placed and outstanding January 2000 High Yield
Notes for notes registered under the Securities Act of 1933, as amended.
Charter Holdings and Charter Holdco effected a number of transactions to
transfer the recently acquired Fanch, Falcon and Avalon cable systems. As a
result of these transactions, Charter Holdings became the indirect parent of the
Fanch, Falcon and Avalon cable systems. Shortly after the consummation of the
Bresnan acquisition, which is expected to be completed in the first quarter of
2000, the Bresnan cable systems will be transferred to Charter Holdings from
Charter Holdco.
On December 1, 1999, Charter and AT&T entered into a non-binding letter of
intent to exchange certain of its cable systems for cable systems owned by AT&T.
As part of this transaction, Charter will be required to pay AT&T approximately
$108 million in cash. This payment represents the difference in the agreed
values of the systems to be exchanged.
F-249
<PAGE> 479
MARCUS CABLE HOLDINGS, LLC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
1999
------------
<S> <C>
REVENUES.................................................... $ 125,180
---------
OPERATING EXPENSES:
Operating costs........................................... 45,309
General and administrative................................ 23,675
Transaction and severance costs........................... --
Management fees........................................... 4,381
Depreciation and amortization............................. 51,688
---------
125,053
---------
(Loss) income from operations.......................... 127
---------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (26,963)
Other, net................................................ (158)
---------
(27,121)
---------
Loss before extraordinary item......................... (26,994)
EXTRAORDINARY ITEM -- Loss from early extinguishment of
debt...................................................... (107,978)
---------
Net loss $(134,972)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-250
<PAGE> 480
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1999
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (134,972)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 51,688
Gain on sale of assets................................. --
Loss from early extinguishment of debt................. 107,978
Amortization of debt issuance costs, debt discount and
interest rate cap agreements.......................... 868
Changes in assets and liabilities, net of effects from
acquisitions --
Receivables, net..................................... 2,650
Prepaid expenses and other........................... 2,882
Accounts payable and accrued expenses................ (13,170)
Other operating activities........................... 9,022
-----------
Net cash used in operating activities................ 26,946
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable systems.............................. --
Purchases of property, plant and equipment................ (57,057)
Proceeds from sale of assets.............................. --
Other investing activities................................ --
-----------
Net cash used in investing activities................ (57,057)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............................. 38,768
Repayments of long-term debt.............................. (1,680,142)
Loan from Charter Holdings................................ 1,680,142
Cash contributed by member................................ --
Payments of debt issuance costs........................... --
Payments of other long-term liabilities................... --
-----------
Net cash provided by financing activities............ 38,768
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 8,657
CASH AND CASH EQUIVALENTS, beginning of period.............. 813
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 9,470
===========
CASH PAID FOR INTEREST...................................... $ 12,807
===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-251
<PAGE> 481
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
Marcus Cable Holdings, LLC (MCHLLC) was formed in February 1999 as parent
of Marcus Cable Company, L.L.C. (MCCLLC), formerly Marcus Cable Company, L.P.
(MCCLP). MCCLP was formed as a Delaware limited partnership and was converted to
a Delaware limited liability company on June 9, 1998. MCHLLC and its
subsidiaries (collectively, the "Company") derive their primary source of
revenues by providing various levels of cable television programming and
services to residential and business customers. The Company's operations are
conducted through Marcus Cable Operating Company, L.L.C. (MCOC), a wholly owned
subsidiary of the Company. The Company has operated its cable television systems
primarily in Texas, Wisconsin, Indiana, California and Alabama.
The accompanying consolidated financial statements include the accounts of
MCCLLC, which is the predecessor of MCHLLC, and its subsidiary limited liability
companies and corporations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
On April 23, 1998, Vulcan Cable, Inc. and Paul G. Allen (collectively
referred to as "Vulcan") acquired all of the outstanding limited partnership
interest and substantially all of the general partner interest in MCCLP for cash
payments of $1,392,000 (the "Vulcan Acquisition"). Under the terms of the
purchase agreement, the owner of the remaining 0.6% general partner interest in
the Company, (the "Minority Interest"), which represents 100% of the voting
control of the Company, could cause Vulcan to purchase the 0.6% general partner
interest under certain conditions, or Vulcan could cause the Minority Interest
to sell its interest to Vulcan under certain conditions, at a fair value of not
less than $8,000. On March 31, 1999, Vulcan acquired voting control of the
Company by its acquisition of the Minority Interest for cash consideration.
Effective December 23, 1998, through a series of transactions, Paul G.
Allen acquired approximately 94% of Charter Communications, Inc. (Charter).
Beginning in October 1998, Charter managed the operations of the Company.
In March 1999, Charter transferred all of its cable television operating
subsidiaries to a subsidiary, Charter Communications Holdings, LLC (Charter
Holdings) in connection with the issuance of Senior Notes and Senior Discount
Notes totaling $3.6 billion. These operating subsidiaries were then transferred
to Charter Communications Operating, LLC (Charter Operating). On April 7, 1999,
the cable television operating subsidiaries of the Company were transferred to
Charter Operating subsequent to the purchase of Paul G. Allen of the Minority
Interest.
As a result of the Vulcan Acquisition, the Company recognized severance and
stay-on bonus compensation of $16,034, during the fourth quarter of 1998. As of
March 31, 1999, 85 employees and officers of the Company had been terminated.
The remaining balance of $2,400 is to be paid by April 30, 1999 and an
additional $400 in stay-on bonuses will be recorded as compensation in 1999 as
the related services are provided.
F-252
<PAGE> 482
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
INTERIM FINANCIAL INFORMATION
The accompanying financial statements are unaudited; however, in the
opinion of management, such statements include all adjustments necessary for a
fair presentation of the results for the periods presented. The interim
financial statements should be read in conjunction with the financial statements
and notes thereto as of and for the period ended December 31, 1998. Interim
results are not necessarily indicative of results for a full year.
2. ACQUISITIONS AND DISPOSITIONS
On April 1, 1998, the Company completed the acquisition of the Mountain
Brook and Shelby Cable System form Mountain Brook and Shelby Cable for an
aggregate purchase price of $57,500. The communities served by this system are
adjacent to the Company's existing systems in the suburban Birmingham, Alabama
area. As of the date of the acquisition, this system served approximately 23,000
basic customers. The excess of the cost of properties acquired over the amounts
assigned to net tangible assets and noncompetition agreements as of the date of
acquisition was approximately $44,603 and is included in franchises.
Additionally, in 1998, the Company completed the sale of certain cable
television systems for an aggregate net sales price of $401,432, resulting in a
total gain of $201,278. No gains or losses were recognized on the sale of the
cable television systems divested after the Vulcan Acquisition as such amounts
are considered to be an adjustment of the purchase price allocation as these
systems were designated as assets to be sold at the date of the Vulcan
Acquisition.
3. LONG-TERM DEBT:
In March 1999, concurrent with the issuance of Senior Notes and Senior
Discount Notes, the combined company (Charter and the Company) extinguished all
long-term debt, excluding borrowings of Charter and the Company under their
respective credit agreements, and refinanced all existing credit agreements at
various subsidiaries of the Company and Charter with a new credit agreement
entered into by a wholly owned subsidiary of the combined company. The excess of
the amount paid over the carrying value of the Company's long-term debt was
recorded as Extraordinary item -- loss on early extinguishment of debt in the
accompanying statement of operations
4. RELATED-PARTY TRANSACTIONS:
The Company and Charter entered into a management agreement on October 6,
1998 whereby Charter began to manage the day-to-day operations of the Company.
In consideration for the management consulting services provided by Charter, the
Company pays Charter an annual fee equal to 3% of the gross revenues of the
cable system operations, plus expense. For the three months ended March 31,
1999, management fees under this agreement were $2,432. In connection with the
transfer of the Company's operating subsidiaries to Charter Operating, the
annual fee paid by the Company to Charter increased to 3.5%, plus expense.
Prior to consummation of the Vulcan Acquisition, affiliates of Goldman
Sachs owned limited partnership interests in MCCLP. Maryland Cable Partners,
L.P. ("Maryland Cable"), which was controlled by an affiliate of Goldman Sachs,
owned the Maryland Cable systems. MCOC
F-253
<PAGE> 483
MARCUS CABLE HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
managed the Maryland Cable systems under the Maryland Cable agreement. Pursuant
to such agreement, MCOC earned a management fee equal to 4.7% of the revenues of
Maryland Cable.
Effective January 31, 1997, Maryland Cable was sold to a third party.
Although MCOC is no longer involved in the active management of the Maryland
Cable systems, MCOC has entered into an agreement with Maryland Cable to oversee
the activities, if any, of Maryland Cable through the liquidation of the
partnership. Pursuant to such agreement, MCOC earns a nominal monthly fee.
During the three months ended March 31, 1999 and 1998, MCOC earned total
management fees of $0 and $355, respectively.
5. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. In June
1999, the FASB issued SFAS No. 137 "Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 delays the effective date of SFAS No. 133 for
one year to fiscal years beginning after June 15, 2000 and thus the Company will
adopt SFAS No. 133 at that time. The Company has not yet quantified the impacts
of adopting SFAS No. 133 on its consolidated financial statements nor has it
determined the timing or method of its adoption of SFAS No. 133. However, SFAS
No. 133 could increase volatility in earnings (loss).
F-254
<PAGE> 484
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED APRIL 30, ENDED SEPTEMBER 30,
1999 1998
--------------- -------------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues........................................... $20,396 $27,167
Cost and expenses:
Operating, general and administrative............ 9,382 13,855
Depreciation and amortization.................... 8,912 12,259
------- -------
Operating income.............................. 2,102 1,053
Interest income.................................... 122 91
Interest expense................................... (6,321) (9,069)
------- -------
Loss before provision (benefit) for taxes.......... (4,097) (7,925)
Provision (benefit) for taxes...................... (65) 105
------- -------
Net loss........................................... $(4,032) $(8,030)
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-255
<PAGE> 485
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
ENDED APRIL 30, ENDED SEPTEMBER 30,
1999 1998
--------------- -------------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net loss........................................... $(4,032) $ (8,030)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 8,912 12,259
Accretion on senior discount notes and
non-cash interest expense................... 3,850 4,835
Changes in operating assets and liabilities, net
of effects from acquisitions:
Accounts receivable, net...................... 298 (1,546)
Prepaid expenses and other assets............. (75) (530)
Accounts payable and accrued expenses......... (5,046) 8,574
Deferred marketing support.................... -- 478
Advances from affiliates...................... (135) 104
------- ---------
Net cash provided by operating activities... 3,772 16,144
------- ---------
Investing Activities:
Acquisitions of cable systems.................... (2,770) (309,600)
Escrow deposit................................... 150 --
Capital expenditures............................. (4,250) (2,260)
Cable television franchises...................... -- (1,510)
Other intangible assets.......................... 16 (463)
------- ---------
Net cash used in investing activities....... (6,854) (313,833)
------- ---------
Financing Activities:
Debt acquisition costs........................... -- (8,344)
Repayments on bank debt.......................... -- (7,500)
Proceeds from bank debt.......................... -- 110,000
Net proceeds from issuance of 10% senior discount
notes......................................... -- 100,012
Capital contributions............................ -- 108,600
------- ---------
Net cash provided by financing activities... -- 302,768
------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... (3,082) 5,079
Cash and cash equivalents at beginning of period... 8,482 --
------- ---------
Cash and cash equivalents at end of period......... $ 5,400 $ 5,079
======= =========
Cash paid for interest............................. $ 4,210 $ 2,464
======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-256
<PAGE> 486
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT WHERE INDICATED)
(UNAUDITED)
1. ORGANIZATION
Renaissance Media Group LLC ("Group") was formed on March 13, 1998, by
Renaissance Media Holdings LLC ("Holdings"). On March 20, 1998, Holdings
contributed to Group its membership interests in two wholly owned subsidiaries;
Renaissance Media (Louisiana) LLC ("Louisiana") and Renaissance Media
(Tennessee) LLC ("Tennessee"). Louisiana and Tennessee acquired a 76% interest
and 24% interest, respectively, in Renaissance Media LLC ("Media") from Morgan
Stanley Capital Partners III, Inc. ("MSCP III") on February 13, 1998 for a
nominal amount. As a result, Media became a subsidiary of Holdings. The transfer
was accounted for as a reorganization of entities under common control similar
to a pooling of interests since an entity affiliated with MSCP III had a
controlling interest in Holdings. Group and its subsidiaries are collectively
referred to as the "Company" herein. On April 9, 1998, the Company acquired six
cable television systems (the "TWI Acquisition") from TWI Cable, Inc. a
subsidiary of Time Warner Inc. ("Time Warner"). Prior to this Acquisition, the
Company had no operations other than start-up related activities.
On February 23, 1999, Holdings, Charter Communications, Inc. (now known as
Charter Investment, Inc. and referred to herein as "Charter") and Charter
Communications, LLC ("CC LLC") executed a purchase agreement, providing for
Holdings to sell and CC LLC to purchase, all the outstanding limited liability
company membership interests in Group held by Holdings (the "Charter
Transaction") subject to certain covenants and restrictions pending closing and
satisfaction of certain conditions prior to closing. On April 30, 1999, the
Charter Transaction was consummated for a purchase price of $459 million,
consisting of $348 million in cash and $111 million in carrying value of debt
assumed.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles. The interim financial statements
are unaudited but include all adjustments, which are of normal recurring nature
that the Company considers necessary for a fair presentation of the financial
position and the results of operations and cash flows for such periods.
Operating results of interim periods are not necessarily indicative of results
for a full year.
Additional disclosures and information are included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
3. ACQUISITIONS
On February 3, 1999, Media acquired the cable television assets of Bayou
Vision, Inc. and Gulf South Cable, Inc. serving approximately 1,950 subscribers
in the Villages of Estherwood, Morse and Mermentau and Acadia and Livingston
Parish, Louisiana. The cash purchase price was approximately $2,700 and was paid
out of available Company funds.
F-257
<PAGE> 487
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Media maintained a credit agreement (the "Credit Agreement") with aggregate
commitments under the Credit Agreement totaling $150,000, consisting of a
$40,000 revolver, $60,000 Tranche A Term Loans and $50,000 Tranche B Term Loans.
On April 30, 1999, in connection with the Charter Transaction all amounts
outstanding, including accrued interest and fees, under the Credit Agreement
were paid in full and the Credit Agreement was terminated.
The Charter Transaction resulted in a "change of control" of the Company.
On May 28, 1999, in accordance with the terms and conditions of the indenture
governing the 10% senior discount notes (the "Notes"), the Company made an offer
(the "Purchase Offer") to purchase any and all of the Notes at 101% of their
accreted value, plus accrued and unpaid interest, if any, through June 28, 1999.
The Purchase Offer expired on June 23, 1999, and 48,737 notes ($1,000 face
amount at maturity) were validly tendered. On June 28, 1999, CC LLC made a
capital contribution in the amount of $34,205 enabling the Company to purchase
the Notes.
The indenture governing the Notes limits cash payments by the Company to
the sum of: i) the amount by which consolidated EBITDA (as defined) exceeds 130%
of consolidated interest expense (as defined) determined on a cumulative basis,
ii) capital contributions, and iii) an amount equal to the net reduction in
investments (as defined). To the extent permitted by the indenture excess cash
will be distributed to CC LLC, including repayments of borrowings under Charter
Communications Operating, LLC's ("CCO") credit facility (the "CCO Credit
Agreement").
The Company and all subsidiaries of CCO have guaranteed payment and
performance by CCO of its obligations under the CCO Credit Agreement. In
addition, Group and its wholly owned subsidiaries, and all subsidiaries of CCO
have pledged their ownership interests as collateral to the CCO Credit
Agreement.
5. RELATED PARTY TRANSACTIONS
In connection with the TWI Acquisition, Media entered into an agreement
with Time Warner, pursuant to which Time Warner would manage the Company's
programming in exchange for providing the Company access to certain Time Warner
programming arrangements (the "Time Warner Agreement"). Management believes that
these programming rates made available through its relationship with Time Warner
are lower than the Company could obtain separately. Such volume rates are not
available after the Charter Transaction.
For the four months ended April 30, 1999, the Company incurred $2,716 for
programming services under this agreement. For the period from April 9, 1998 to
September 30, 1998 the programming services incurred under this agreement were
$2,737. In addition, the Company incurred programming costs of $958 and $2,171
for programming services owned directly or indirectly by Time Warner entities
for the four months ended April 30, 1999 and for the period from April 9, 1998
to September 30, 1998, respectively.
In connection with the Charter Transaction, the Time Warner Agreement was
terminated on April 30, 1999, and Media returned to Time Warner $650 in deferred
marketing credits owed to program providers under the programming arrangements.
The Company has utilized the law firm of one of its board members for legal
services related to the TWI Acquisition, financing agreements and various
ongoing legal matters. These fees totaled approximately $154 and $-0- for the
four months ended April 30, 1999 and for the period from April 9, 1998 to
September 30, 1998, respectively.
F-258
<PAGE> 488
RENAISSANCE MEDIA GROUP LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the consummation of the TWI Acquisition, Media paid fees to six
senior managers of the Company who are investors in the Company for services
rendered relating to the Acquisition and the Credit Agreement. These fees
totaled $287 for the period from April 9, 1998 to September 30, 1998 and were
recorded as transaction and financing costs.
6. EMPLOYEE BENEFIT PLAN
Beginning April 9, 1998, the Company sponsored a defined contribution plan
that covered substantially all employees (the "Plan"). The Plan provided for
contributions from eligible employees up to 15% of their compensation subject to
a maximum limit as determined by the Internal Revenue Service. The Company's
contribution to the Plan was limited to 50% of each eligible employee's
contribution up to 10% of his or her compensation. The Company had the right to
change the amount of the Company's matching contribution percentage. The Company
matching contributions totaled $54 for the four months ended April 30, 1999 and
$62 for the period from April 9, 1998 to September 30, 1998.
In connection with the Charter Transaction, the Plan's assets were frozen
as of April 30, 1999, and employees became fully vested. Effective July 1, 1999,
the Company's employees with two months of service are eligible to participate
in the Charter Communications, Inc. 401(k) Plan (the "Charter Plan"). Employees
that qualify for participation in the Charter Plan can contribute up to 15% of
their salary, on a before tax basis, subject to a maximum contribution limit as
determined by the Internal Revenue Service.
F-259
<PAGE> 489
HELICON PARTNERS I, L.P. AND AFFILIATES
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD ENDED ENDED
JULY 30, SEPTEMBER 30,
1999 1998
------------ -------------
<S> <C> <C>
Revenues................................................. $ 49,564,581 $ 56,187,697
------------ ------------
Operating expenses:
Operating expenses..................................... 16,488,934 16,919,420
General and administrative expenses.................... 9,021,484 9,515,464
Marketing expenses..................................... 1,327,669 2,499,641
Depreciation and amortization.......................... 16,616,529 17,881,302
Management fee charged by affiliate.................... 2,511,416 2,527,426
Corporate and other expenses........................... 4,855,873 278,202
------------ ------------
Total operating expenses............................ 50,821,905 49,621,455
------------ ------------
Operating income....................................... (1,257,324) 6,566,242
------------ ------------
Interest expense......................................... (20,681,592) (20,704,146)
Interest income.......................................... 124,486 72,579
------------ ------------
Net loss............................................... $(21,814,430) $(14,065,325)
============ ============
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-260
<PAGE> 490
HELICON PARTNERS I, L.P. AND AFFILIATES
UNAUDITED CONDENSED COMBINED STATEMENTS OF
CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
PARTNERS' DEFICIT
PREFERRED ----------------------------- CAPITAL
LIMITED GENERAL CLASS A LIMITED CONTRIBUTION
PARTNERS PARTNER PARTNERS RECEIVABLE TOTAL
---------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1997....................... $7,649,988 $ (666,758) $(102,810,361) $(1,000) $ (95,828,131)
Distribution of additional
preferred partnership
interests.................... 917,479 (9,175) (908,304) -- --
Accretion of redeemable
partnership interests...... -- (98,168) (9,718,596) -- (9,816,764)
Net loss..................... -- (215,861) (21,370,309) -- (21,586,170)
---------- ----------- ------------- ------- -------------
Balance at December 31,
1998....................... 8,567,467 (989,962) (134,807,570) (1,000) (127,231,065)
Distribution of additional
preferred partnership
interests.................. 609,621 (6,097) (603,524) -- --
Accretion of redeemable
partnership interests...... -- (269,961) (26,726,132) -- (26,996,093)
Capital contribution......... -- 36,283 3,591,967 -- 3,628,250
Net loss..................... -- (218,144) (21,596,286) -- (21,814,430)
---------- ----------- ------------- ------- -------------
Balance at July 30, 1999..... $9,177,088 $(1,447,881) $(180,141,545) $(1,000) $(172,413,338)
========== =========== ============= ======= =============
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-261
<PAGE> 491
HELICON PARTNERS I, L.P. AND AFFILIATES
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD ENDED ENDED
JULY 30, SEPTEMBER 30,
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(21,814,430) $(14,065,325)
------------ ------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization....................... 16,616,529 17,881,302
Amortization of debt discount and deferred financing
costs............................................. 2,801,895 690,015
Gain on sale of equipment........................... (22,536) (16,498)
Interest on 12% subordinated notes paid through the
issuance of additional notes...................... 2,706,044 2,408,370
Change in operating assets and liabilities:
Receivables from subscribers...................... 101,737 51,835
Prepaid expenses and other assets................. 2,773,824 (1,328,573)
Accounts payable and accrued expenses............. (4,286,285) (1,382,723)
Subscriptions received in advance................. 803,151 (262,454)
Accrued interest.................................. 2,557,212 4,535,570
------------ ------------
Total adjustments.............................. 24,051,571 22,576,844
------------ ------------
Net cash provided by operating activities...... 2,237,141 8,511,519
------------ ------------
Cash flows from investing activities:
Purchases of property, plant, and equipment............ (6,505,848) (8,420,530)
Proceeds from sale of equipment........................ 32,288 106,128
Cash paid for net assets of cable television systems
acquired............................................ (6,217,143) --
Increase in intangible assets.......................... (487,595) (321,740)
------------ ------------
Net cash used in investing activities.......... (13,178,298) (8,636,142)
------------ ------------
Cash flows from financing activities:
Proceeds from bank loans............................... 13,000,000 4,000,000
Repayment of bank loans................................ (6,312) (7,989)
Repayment of other notes payable....................... (476,866) (1,069,744)
Capital contributions.................................. 3,628,250 --
Repayments by (advances to) affiliates................. (247,042) 38,114
Payment of financing costs............................. (240,000) --
------------ ------------
Net cash provided by financing activities...... 15,658,030 2,960,381
------------ ------------
Net increase in cash and cash equivalents...... 4,716,873 2,835,758
Cash and cash equivalents at beginning of period......... 5,130,561 4,372,281
------------ ------------
Cash and cash equivalents at end of period............... $ 9,847,434 $ 7,208,039
============ ============
Supplemental cash flow information:
Interest paid.......................................... $ 12,582,725 $ 13,070,191
============ ============
Other non-cash items:
Acquisition of property, plant and equipment through
issuance of other notes payable................... $ 389,223 $ 816,223
============ ============
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-262
<PAGE> 492
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
JULY 30, 1999
1. ORGANIZATION AND NATURE OF BUSINESS
Helicon Partners I, L.P. ("the Partnership") was organized as a limited
partnership on November 30, 1994 under the laws of the State of Delaware. On
April 8, 1996, Baum Investments, Inc. acquired a 1% general partnership interest
in the Partnership through an initial capital contribution of $1,500 and the
existing limited partners of The Helicon Group, L.P. ("THGLP"), formed in 1993,
exchanged their limited partnership interests in THGLP for all Class A Common
Limited Partnership Interests and Preferred Limited Partnership Interests in the
Partnership. As a result of this exchange, THGLP became 99% owned by the
Partnership. The Partnership now owns all of the limited partnership interests
in THGLP and Baum Investments, Inc. ("Baum") continues to be the general partner
of THGLP and to own a 1% general partnership interest in THGLP. The Partnership
also owns a 99% interest and THGLP a 1% interest in HPI Acquisition Co., LLC
("HPIAC"), a Delaware limited liability company formed on February 7, 1996. The
Partnership also owns a 89% limited partnership interest and Baum Investments,
Inc. a 1% general partnership interest in Helicon OnLine, L. P. ("HOL"), a
Delaware limited partnership formed May 31, 1997. The Partnership, THGLP, HPIAC
and HOL are referred to collectively herein as the Company.
The Partnership operates in one business segment offering cable television
services in the states of Pennsylvania, West Virginia, North Carolina, South
Carolina, Louisiana, Vermont and New Hampshire, Georgia and Tennessee. The
Company also offers to customers advanced services, such as paging, cable modems
and private data network systems under the name of "Helicon Network Solutions",
as well as, dial up internet service in Pennsylvania and Vermont under the name
of "Helicon OnLine".
On July 30, 1999, Charter-Helicon, LLC ("Charter-Helicon"), acquired a 1%
interest in THGLP previously owned by Baum Investments, Inc. and became the
General Partner of THGLP. Concurrently, Charter-Helicon and Charter
Communications, LLC ("CC-LLC"), parent of Charter-Helicon, acquired all of the
partnership interests of the Partnership. These transactions are collectively
referred to as the "Helicon/Charter Deal" herein. In connection with the
Helicon/Charter Deal, $228,985,000 of cash was paid to the equity holders; Baum
retained a $25,000,000 limited liability company membership interest in
Charter-Helicon; debt of $197,447,000 was repaid; debt of $115,000,000 was
assumed; and other costs totaling $4,285,000 were incurred. Effective with this
change of ownership, the Company will be managed by Charter Investment, Inc.
In the opinion of management, the accompanying unaudited condensed combined
financial statements of the Partnership reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the Partnership's
combined results of operations and cash flows for the period ended July 30, 1999
and nine months ended September 30, 1998. The post-closing process associated
with the Helicon/Charter deal has not been finalized, accordingly, the
accompanying unaudited condensed combined financial statements do not give
effect to all the post-closing adjustments arising from the change of ownership
of the Partnership. The results of operations for the period ended July 30, 1999
and nine months ended September 30, 1998 are not necessarily indicative of the
results for a full year.
2. ACQUISITIONS
On December 31, 1998, HPIAC acquired the net assets of cable television
systems serving approximately 11,225 (unaudited) subscribers primarily in the
North Carolina community of Roanoke Rapids. The aggregate purchase price was
$26,063,284 including acquisition costs of
F-263
<PAGE> 493
HELICON PARTNERS I, L.P. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$535,875 and was allocated to the net assets acquired, which included property,
equipment and intangible assets, based on their estimated fair value.
On January 7, 1999, THGLP acquired the cable television systems, serving
approximately 4,350 (unaudited) subscribers in the North Carolina counties of
Carter, Johnson and Unicol. The aggregate purchase price was approximately
$5,228,097 and was allocated to the net assets acquired, which included property
and equipment and intangible assets.
On March 1, 1999, HPIAC acquired a cable television system serving
approximately 551 (unaudited) subscribers in the communities of Abbeville,
Donalds and Due West, South Carolina. The aggregate purchase price was
approximately $723,356 and was allocated to the net assets acquired, which
included property, equipment and intangible assets, based on their estimated
fair value.
On April 6, 1999, the HPIAC acquired a cable television system serving
approximately 314 (unaudited) subscribers in the communities of Mentone and part
of DeKalb, Alabama. The aggregate purchase price was approximately $265,690 and
was allocated to the net assets acquired, which included property, equipment and
intangible assets, based on their estimated fair value.
The operating results relating to the above acquisitions, effective with
their acquisition dates, are included in the accompanying unaudited condensed
combined financial statements.
3. LOANS PAYABLE TO BANKS
On January 5, 1999, THGLP entered into a $12,000,000 Senior Subordinated
Loan Agreement with Paribas Capital Funding, LLC ("the 1999 Credit Facility").
The Facility is non-amortizing and is due January 5, 2003. Initial borrowings of
$7,000,000 under this Facility financed the acquisition of certain cable
television assets in North Carolina. On February 19, 1999, the Company borrowed
the remaining $5,000,000 available under the 1999 Credit Facility. Interest on
the $12,000,000 is payable at 11.5% per annum.
F-264
<PAGE> 494
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS
AND INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Accounts receivable, net of allowance for doubtful
accounts of $903 and $899, respectively................... $ 14,971 $ 14,425
Receivables from affiliates............................... 7,966 5,623
Prepaid expenses.......................................... 1,100 423
Other current assets...................................... 186 350
-------- --------
Total current assets............................ 24,223 20,821
Intangible assets, net.................................... 214,182 255,356
Property and equipment, net............................... 228,676 218,465
Deferred income taxes..................................... 15,279 12,598
Investments and other non-current assets.................. 544 2,804
-------- --------
Total assets.................................... $482,904 $510,044
======== ========
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities.................. $ 15,504 $ 19,230
Deferred revenue.......................................... 11,151 11,104
Payables to affiliates.................................... 2,265 3,158
-------- --------
Total current liabilities....................... 28,920 33,492
Note payable to InterMedia Partners IV, L.P............... 406,975 396,579
Deferred channel launch revenue........................... 3,583 4,045
-------- --------
Total liabilities............................... 439,478 434,116
-------- --------
Commitments and contingencies
Mandatorily redeemable preferred shares................... 14,934 14,184
Equity.................................................... 28,492 61,744
-------- --------
Total liabilities and equity.................... $482,904 $510,044
======== ========
</TABLE>
See accompanying notes to the condensed combined financial statements.
F-265
<PAGE> 495
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Basic and cable services.................................... $105,275 $ 93,516
Pay services................................................ 20,699 17,830
Other services.............................................. 26,815 18,714
-------- --------
152,789 130,060
COSTS AND EXPENSES:
Program fees................................................ 35,579 29,055
Other direct expenses....................................... 15,280 12,512
Selling, general and administrative expenses................ 33,315 22,843
Management and consulting fees.............................. 2,356 2,356
Depreciation and amortization............................... 79,325 63,883
-------- --------
165,855 130,649
-------- --------
Loss from operations........................................ (13,066) (589)
-------- --------
OTHER INCOME (EXPENSE):
Interest expense............................................ (17,636) (20,152)
Interest and other income................................... 187 298
Gain on sale of investment.................................. 1,678 --
Other expense............................................... (4,397) (484)
-------- --------
(20,168) (20,338)
-------- --------
Loss before income tax benefit.............................. (33,234) (20,927)
Income tax benefit.......................................... 2,681 3,636
-------- --------
Net Loss.................................................... $(30,553) $(17,291)
======== ========
</TABLE>
See accompanying notes to the condensed combined financial statements.
F-266
<PAGE> 496
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED STATEMENT OF CHANGES IN EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1998.................................. $ 58,713
Net loss.................................................... (3,521)
Accretion for mandatorily redeemable preferred shares....... (945)
Net cash contributions from parent.......................... 6,350
In-kind contribution from parent............................ 1,147
--------
Balance at December 31, 1998................................ 61,744
Net loss (unaudited)........................................ (30,553)
Accretion for mandatorily redeemable preferred shares
(unaudited)............................................... (750)
Net cash distributions to parent (unaudited)................ (1,949)
--------
Balance at September 30, 1999 (unaudited)................... $ 28,492
========
</TABLE>
See accompanying notes to the condensed combined financial statements.
F-267
<PAGE> 497
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(30,553) $(17,291)
Adjustments to reconcile net loss to cash flows from
operating activities:
Depreciation and amortization.......................... 79,325 63,883
Loss on disposal of fixed assets....................... 1,497 137
Gain on sale of investment............................. (1,678) --
Changes in assets and liabilities:
Accounts receivable.................................. (546) (945)
Receivables from affiliates.......................... (2,343) (2,849)
Prepaid expenses..................................... (677) (167)
Other current assets................................. 164 10
Deferred income taxes................................ (2,681) (3,636)
Investments and other non-current assets............. 1,088 (616)
Accounts payable and accrued liabilities............. 134 (3,180)
Deferred revenue..................................... 740 1,018
Payables to affiliates............................... (893) 196
Accrued interest..................................... 17,636 20,152
Deferred channel launch revenue...................... (1,155) 3,907
-------- --------
Cash flows from operating activities...................... 60,058 60,619
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (52,848) (53,513)
Intangible assets......................................... (871) (1,705)
Proceeds from sale of investment.......................... 2,850 --
-------- --------
Cash flows from investing activities...................... 50,869 (55,218)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (distributions) contributions to/from parent.......... (1,949) 4,869
Net repayments of intercompany debt....................... (7,240) (10,270)
-------- --------
Cash flows from financing activities...................... (9,189) (5,401)
Net change in cash.......................................... -- --
Cash at beginning of period................................. -- --
-------- --------
Cash at end of period....................................... $ -- $ --
======== ========
</TABLE>
See accompanying notes to the condensed combined financial statements.
F-268
<PAGE> 498
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
THE CHARTER TRANSACTIONS
InterMedia Partners, a California limited partnership ("IP-I"), and
InterMedia Capital Partners IV, L.P., a California limited partnership,
("ICP-IV", together with IP-I, "InterMedia") are affiliated through common
control and management. Robin Media Group, Inc., a Nevada corporation, ("RMG")
is a majority owned subsidiary of ICP-IV. On April 20, 1999, InterMedia and
certain of its affiliates entered into agreements (the "Agreements") with
affiliates of Charter Communications, Inc. ("Charter") to sell and exchange
certain of their cable television systems ("the Charter Transactions"). The
Charter Transactions closed on October 1, 1999.
Specifically, ICP-IV and its affiliates sold certain of their cable
television systems in Tennessee and Gainesville, Georgia through a combination
of asset sales and the sale of their equity interests in RMG, and exchanged
their systems in and around Greenville and Spartanburg, South Carolina for
Charter systems located in Indiana, Kentucky, Utah and Montana. Immediately upon
Charter's acquisition of RMG, IP-I exchanged its cable television systems in
Athens, Georgia, Asheville and Marion, North Carolina and Cleveland, Tennessee
for RMG's cable television systems located in middle Tennessee.
The cable systems retained by Charter upon consummation of the Charter
Transactions, together with RMG, are referred to as the "InterMedia Cable
Systems," or the "Systems."
PRESENTATION
The Systems sold or exchanged do not individually or collectively comprise
a separate legal entity. Accordingly, the accompanying condensed combined
financial statements have been carved-out from the historical accounting records
of InterMedia prior to the close of the Charter Transactions.
The accompanying unaudited interim condensed combined financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, certain footnote disclosures
have been condensed or omitted. In the management's opinion, the interim
unaudited combined financial statements reflect all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of the
Systems' financial position as of September 30, 1999, and their results of
operations and cash flows for the nine months ended September 30, 1999 and 1998.
The results of operations and cash flows for these periods are not necessarily
indicative of results that may be expected for the year ending December 31,
1999. These condensed combined financial statements should be read in
conjunction with the Systems' audited combined financial statements and notes
thereto for the year ended December 31, 1998.
CARVE-OUT METHODOLOGY
Throughout the periods covered by the condensed combined financial
statements, the individual cable systems were operated and accounted for
separately. However, the Charter Transactions exclude certain systems (the
"Excluded Systems") which were operated as part of the Marion, North Carolina
and western Tennessee systems throughout 1998 and 1999. For
F-269
<PAGE> 499
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
(UNAUDITED)
purposes of carving out and excluding the results of operations and financial
position of the Excluded Systems from the condensed combined financial
statements, management has estimated the revenues, expenses, assets and
liabilities associated with each Excluded System based on the ratio of each
Excluded System's basic subscribers to the total basic subscribers served by the
Marion, North Carolina and western Tennessee systems, respectively. Management
believes the basis used for these allocations is reasonable. The Systems'
results of operations are not necessarily indicative of future operating results
or the results that would have occurred if the Systems were a separate legal
entity.
Management and consulting fees represent an allocation of management fees
charged to IP-I and ICP-IV by InterMedia Capital Management, a California
limited partnership ("ICM") and InterMedia Management, Inc. ("IMI"),
respectively. ICM is a limited partner of IP-I. IMI is the managing member of
each of the general partners of IP-I and ICP-IV. These fees are charged at a
fixed amount per annum and have been allocated to the Systems based upon the
allocated contributed capital of the individual systems as compared to the total
contributed capital of InterMedia's subsidiaries.
As more fully described in Note 4 -- "Related Party Transactions," certain
administrative services are also provided by IMI and are charged to all
affiliates based on relative basic subscriber percentages.
CASH AND INTERCOMPANY ACCOUNTS
Under InterMedia's centralized cash management system, cash requirements of
its individual operating units were generally provided directly by InterMedia
and the cash generated or used by the Systems was transferred to/from
InterMedia, as appropriate, through intercompany accounts. The intercompany
account balances between InterMedia and the individual operating units, except
RMG's intercompany note payable to InterMedia Partners IV, L.P. ("IP-IV"), as
described in Note 3 -- "Note Payable to InterMedia Partners IV, L.P.," are not
intended to be settled. Accordingly, the balances, other than RMG's note payable
to IP-IV, are included in equity and all net cash flows from operations,
investing activities and financing activities have been included in the Systems'
net (distributions) contributions to/from parent in the combined statements of
cash flows.
IP-I and ICP-IV or its subsidiaries maintain all external debt to fund and
manage InterMedia's operations on a centralized basis. The condensed combined
financial statements present only the debt and related interest expense of RMG,
which was assumed and repaid by Charter pursuant to the Charter Transactions.
See Note 3 -- "Note Payable to InterMedia Partners IV, L.P." Debt, unamortized
debt issue costs and interest expense related to the financing of the cable
systems not owned by RMG have not been allocated to the InterMedia Cable
Systems. As such, the level of debt, unamortized debt issue costs and related
interest expense presented in the condensed combined financial statements are
not representative of the debt that would be required or interest expense
incurred if the InterMedia Cable Systems were a separate legal entity.
F-270
<PAGE> 500
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
(UNAUDITED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 these estimates.
2. EXCHANGE OF CABLE PROPERTIES
EXCHANGE
On December 31, 1998, certain of the Systems' cable television assets
located in and around western and eastern Tennessee ("Exchanged Assets"),
serving approximately 10,600 (unaudited) basic subscribers, plus cash of $398
were exchanged for other cable television assets located in and around western
and eastern Tennessee, serving approximately 10,000 (unaudited) basic
subscribers.
The exchange resulted in a gain of $26,218 calculated as the difference
between the fair value of the assets received and the net book value of the
Exchanged Assets less cash paid of $398.
3. NOTE PAYABLE TO INTERMEDIA PARTNERS IV, L.P.
RMG's note payable to IP-IV consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Intercompany revolving credit facility, $1,200,000
commitment as of September 30, 1999, interest
currently at 6.60% payable on maturity, matures
December 31, 2006............................... $406,975 $396,579
======== ========
</TABLE>
RMG's debt is outstanding under an intercompany revolving credit facility
executed with IP-IV. The revolving credit facility currently provides for
$1,200,000 of available credit.
RMG's intercompany revolving credit facility requires repayment of the
outstanding principal and accrued interest on the earlier of (i) December 31,
2006, or (ii) acceleration of any of IP-IV's obligations to repay under its bank
debt outstanding under its revolving credit facility ("IP-IV Revolving Credit
Facility") and term loan agreement ("IP-IV Term Loan", together with the IP-IV
Revolving Credit Facility, the "IP-IV Bank Facility") dated July 30, 1996.
On October 1, 1999, Charter assumed and repaid RMG's intercompany revolving
credit facility pursuant to the Charter Transactions.
Interest rates under RMG's intercompany revolving credit facility are
calculated monthly and are referenced to those made available under the IP-IV
Bank Facility. Interest rates ranged from 6.21% to 6.96% during the nine months
ended September 30, 1999.
F-271
<PAGE> 501
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Advances under the IP-IV Bank Facility are available under interest rate
options related to the base rate of the administrative agent for the IP-IV Bank
Facility ("ABR") or LIBOR. Interest rates on borrowings under the IP-IV Term
Loan vary from LIBOR plus 1.75% to LIBOR plus 2.00% or ABR plus 0.50% to ABR
plus 0.75% based on IP-IV's ratio of debt outstanding to annualized quarterly
operating cash flow ("Senior Debt Ratio"). Interest rates on borrowings under
the IP-IV Revolving Credit Facility also vary from LIBOR plus 0.625% to LIBOR
plus 1.50% or ABR to ABR plus 0.25% based on IP-IV's Senior Debt Ratio. The
IP-IV Bank Facility requires quarterly payment of fees on the unused portion of
the IP-IV Revolving Credit Facility of 0.375% per annum when the Senior Debt
Ratio is greater than 4.0:1.0 and at 0.25% when the Senior Debt Ratio is less
than or equal to 4.0:1.0.
The terms and conditions of RMG's intercompany debt agreement are not
necessarily indicative of the terms and conditions which would be available if
the Systems were a separate legal entity.
4. RELATED PARTY TRANSACTIONS
ICM and IMI provide certain management services to IP-I and ICP-IV,
respectively, for per annum fixed fees, of which 20% per annum is deferred and
payable in each following year in order to support InterMedia's debt. Management
fees charged to InterMedia were $4,059 for the nine months ended September 30,
1999 and 1998. Of the fees charged to InterMedia, $2,356 were charged to the
Systems for the nine months ended September 30, 1999 and 1998.
IMI has entered into agreements with both IP-I and ICP-IV to provide
accounting and administrative services at cost. Under the terms of the
agreements, the expenses associated with rendering these services are charged to
the Systems and other affiliates based upon relative basic subscriber
percentages. Management believes this method to be reflective of the actual
cost. IMI also pays on behalf of the Systems and other affiliates "pass through
costs" that are specifically identifiable to the Systems and other affiliates.
These include, but are not limited to programming fees and copyright fees.
During the nine months ended September 30, 1999 and 1998, IMI administrative
fees charged to the Systems totaled $3,093 and $2,749, respectively. Receivables
from affiliates at September 30, 1999 and December 31, 1998 include $5,873 and
$52, respectively, of advances to IMI, net of administrative fees charged by IMI
and operating expenses paid by IMI on behalf of the Systems.
IP-I is majority-owned, and ICP-IV is owned in part, by AT&T Broadband &
Internet Services ("AT&TBIS"), formerly Tele-Communications, Inc. As affiliates
of AT&TBIS, IP-I and ICP-IV are able to purchase programming services from a
subsidiary of AT&TBIS. Management believes that the overall programming rates
made available through this relationship are lower than the Systems could obtain
separately. Such volume rates may not continue to be available in the future
should AT&TBIS's ownership interest in InterMedia significantly decrease.
Program fees charged by the AT&TBIS subsidiary to the Systems for the nine
months ended September 30, 1999 and 1998 amounted to $26,352 and $22,197,
respectively. Payables to affiliates include programming fees payable to the
AT&TBIS subsidiary of $2,918 at December 31, 1998. There were no programming
fees payable to the AT&TBIS subsidiary at September 30, 1999.
F-272
<PAGE> 502
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
(UNAUDITED)
On January 1, 1998 an affiliate of AT&TBIS entered into agreements with
InterMedia to manage the Systems' advertising business and related services for
an annual fixed fee per advertising sales subscriber as defined by the
agreements. In addition to the annual fixed fee AT&TBIS is entitled to varying
percentage shares of the incremental growth in annual cash flows from
advertising sales above specified targets. Management fees charged by the
AT&TBIS subsidiary for the nine months ended September 30, 1999 and 1998
amounted to $227. Receivables from affiliates at September 30, 1999 and December
31, 1998 include $2,034 and $3,437, respectively, of receivable from AT&TBIS for
advertising sales.
As part of its normal course of business the Systems are involved in
transactions with affiliates of InterMedia which own and operate cable
television systems. Such transactions include purchases and sales at cost of
inventories used in construction of cable plant. Receivables from affiliates at
September 30, 1999 and December 31, 1998 include $59 and $2,134, respectively,
of receivables from affiliated systems. Payables to affiliates at September 30,
1999 and December 31, 1998 include $2,265 and $208, respectively, of payables to
affiliated systems.
5. COMMITMENTS AND CONTINGENCIES
The Systems are committed to provide cable television services under
franchise agreements with remaining terms of up to eighteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Systems have entered into long-term retransmission agreements with
all applicable stations in exchange for in-kind and/or other consideration.
InterMedia has been named in purported and certified class actions in
various jurisdictions concerning late fee charges and practices. Certain cable
systems owned by InterMedia charge late fees to customers who do not pay their
cable bills on time. These late fee cases challenge the amount of the late fees
and the practices under which they are imposed. The plaintiffs raise claims
under state consumer protection statutes, other state statutes and common law.
The plaintiffs generally allege that the late fees charged by InterMedia's cable
systems, including the Systems in the States of Tennessee, South Carolina and
Georgia are not reasonably related to the costs incurred by the cable systems as
a result of the late payment. The plaintiffs seek to require cable systems to
reduce their late fees on a prospective basis and to provide compensation for
alleged excessive late fee charges for past periods. These cases are either at
the early stages of the litigation process or are subject to a case management
order that sets forth a process leading to mediation. Based upon the facts
available management believes that, although no assurances can be given as to
the outcome of these actions, the ultimate disposition of these matters should
not have a material adverse effect upon the financial condition of the Systems.
In the Spring of 1999 Tennessee Department of Revenue ("TDOR") proposed
legislation that was passed by the Tennessee State Legislature which replaced
the former Amusement Tax with a new sales tax on all cable service revenues in
excess of fifteen dollars per month effective
F-273
<PAGE> 503
INTERMEDIA CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF INTERMEDIA PARTNERS AND
INTERMEDIA CAPITAL PARTNERS IV, L.P.)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED
(DOLLARS IN THOUSANDS)
(UNAUDITED)
September 1, 1999. The new tax is computed at a rate approximately equal to the
former effective tax rate.
Prior to the passage of this legislation, the TDOR suggested that under its
interpretation of the former legislation it could assess, for prior periods up
to three years, additional taxes on expanded basic service revenue. Management
believes based on its correspondence with the TDOR that the TDOR will not pursue
additional taxes under the former amusement tax legislation.
The Systems are subject to other claims and litigation in the ordinary
course of business. In the opinion of management, the ultimate outcome of any
existing litigation or other claims will not have a material effect on the
Systems' financial position or results of operations.
6. CHANNEL LAUNCH REVENUE
During 1997 and 1998, the Systems were credited with amounts representing
their share of payments received or to be received by InterMedia from certain
programmers to launch and promote their new channels. Of the total amount
credited the Systems recognized advertising revenue of $434 during the nine
months ended September 30, 1999 for advertisements provided by the Systems to
promoted the new channels. The remaining amounts credited to the Systems are
being amortized over the respective terms of the program agreements which range
between five to ten years. For the nine months ended September 30, 1999 and 1998
the Systems amortized and recorded as other service revenues $721 and $676,
respectively.
7. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Total accretion on RMG's Redeemable Preferred Stock for the nine months
ended September 30, 1999 and 1998 amounted to $750 and $700, respectively.
F-274
<PAGE> 504
RIFKIN CABLE INCOME PARTNERS, L.P.
BALANCE SHEET
AS OF SEPTEMBER 13, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 145,036 $ 65,699
Customer accounts receivable, net of allowance for doubtful
accounts of $2,349 and $18,278 in 1999 and 1998,
respectively............................................. 109,874 51,523
Accounts receivable, related party......................... 7,328 --
Accounts receivable, intercompany.......................... 13,638,312 --
Other receivables.......................................... 96,318 133,278
Prepaid expenses and deposits.............................. 20,920 70,675
Property, plant and equipment, at cost:
Transmission and distribution systems and related
equipment............................................. 11,038,202 8,675,367
Vehicles, office furniture and fixtures.................. 426,977 471,892
Land, buildings and leasehold improvements............... 125,000 151,388
Construction in process and spare parts inventory........ 66,122 83,159
----------- -----------
11,656,301 9,381,806
Less accumulated depreciation.............................. (831,684) (4,354,685)
----------- -----------
Net property, plant and equipment..................... 10,824,617 5,027,121
Intangibles, net of accumulated amortization of $792,708
and $2,033,405 in 1999 and 1998, respectively............ 12,706,195 1,772,345
----------- -----------
Total assets..................................... $37,548,600 $ 7,120,641
=========== ===========
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and accrued liabilities................. $ 161,084 $ 396,605
Customer deposits and prepayments........................ 321,419 126,212
Interpartnership debt.................................... 15,621,000 2,865,426
----------- -----------
Total liabilities................................ 16,103,503 3,388,243
Equity:
General partner.......................................... -- 822,837
Limited partner.......................................... -- 2,909,561
Divisional equity........................................ 21,445,097 --
----------- -----------
Total equity..................................... 21,445,097 3,732,398
----------- -----------
Total liabilities and equity..................... $37,548,600 $ 7,120,641
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-275
<PAGE> 505
RIFKIN CABLE INCOME PARTNERS, L.P.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUE
Service..................................................... $3,533,718 $3,595,684
Installation and other...................................... 273,757 268,977
---------- ----------
Total revenue..................................... 3,807,475 3,864,661
COSTS AND EXPENSES
Operating expense........................................... 455,528 573,933
Programming expense......................................... 862,317 797,974
Selling, general and administrative expense................. 472,088 466,500
Depreciation................................................ 836,050 470,270
Amortization................................................ 792,708 150,218
Management fees............................................. 190,374 193,233
Loss (gain) on disposal of assets........................... 52,885 (1,399)
---------- ----------
Total costs and expenses.......................... 3,661,950 2,650,729
---------- ----------
Operating income............................................ 145,525 1,213,932
Interest expense............................................ 536,877 285,292
---------- ----------
Net income (loss)......................................... $ (391,352) $ 928,640
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-276
<PAGE> 506
RIFKIN CABLE INCOME PARTNERS, L.P.
STATEMENT OF EQUITY
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Equity, December 31, 1997...................... $263,171 $ 2,170,336 $ 2,433,507
Net income..................................... 400,134 528,506 928,640
-------- ----------- -----------
Equity, September 30, 1998..................... $663,305 $ 2,698,842 $ 3,362,147
======== =========== ===========
- ---------------------------------------------------------------------------------------
<CAPTION>
DIVISIONAL
EQUITY TOTAL
----------- -----------
<S> <C> <C> <C>
Equity contribution............................ $21,836,449 $21,836,449
Net loss....................................... (391,352) (391,352)
----------- -----------
Equity, September 13, 1999..................... $21,445,097 $21,445,097
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-277
<PAGE> 507
RIFKIN CABLE INCOME PARTNERS, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 13, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................... $ (391,352) $ 928,640
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 1,628,758 620,488
Amortization of deferred loan cost....................... -- 14,231
Loss (gain) on disposal of fixed assets.................. 52,885 (1,399)
Decrease (increase) in customer accounts receivable...... (58,351) 114,012
Increase in accounts receivable, related party........ (7,328) --
Increase in accounts receivable, intercompany......... (13,638,312) --
Decrease in other receivables............................ 36,960 --
Decrease in prepaid expenses and deposits................ 49,755 --
Increase (decrease) in accounts payable and Accrued
liabilities........................................... (235,521) 73,447
Increase in customer deposits and prepayments............ 195,207 --
------------ ----------
Net cash provided by (used in) operating activities... (12,367,299) 1,749,419
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Initial cash acquisition cost, net of cash acquired........ (24,638,318) --
Additions to property, plant and equipment................. (289,533) (295,538)
Additions to intangibles................................... (20,108) --
Net proceeds from sale of assets........................... 1,500 4,088
------------ ----------
Net cash used in investing activities................. (24,946,459) (291,450)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions...................................... 21,836,449 --
Proceeds from debt......................................... 15,557,443 --
Payments of long-term debt................................. -- (697,125)
------------ ----------
Net cash provided by (used in) financing activities... 37,393,892 (697,125)
------------ ----------
Net increase in cash and cash equivalents.................. 80,134 760,844
Cash and cash equivalents, beginning of period............. 64,902 381,378
------------ ----------
Cash and cash equivalents, end of period................... $ 145,036 $1,142,222
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.............................................. $ 621,956 $ 216,679
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-278
<PAGE> 508
RIFKIN CABLE INCOME PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND ACQUISITION BY INTERLINK COMMUNICATION PARTNERS,
LLP
The accompanying financial statements are unaudited. However, in the
opinion of management, the financial statements reflects all adjustments,
consisting of normal recurring adjustments, necessary for fair presentation in
accordance with generally accepted accounting principles. Interim results of
operations are not necessarily indicative of results for the full year. The
accompanying financial statements should be read in conjunction with the
December 31, 1998 audited financial statements of Rifkin Cable Income Partners,
L.P.(the "Partnership" or "RCIP").
As of December 31, 1998, InterLink Communication Partners, LLP ("ICP")
agreed to purchase all of the Partnership interests, for a total purchase price
of approximately $24.7 million. The acquisition of the Partnership by ICP was
accounted for as a purchase and a new basis of accounting was established
effective January 1, 1999. The new basis resulted in assets and liabilities
being recorded at their fair market value resulting in a increase in property,
plant, and equipment and franchise costs of approximately $6.4 million and
approximately $11.7 million, respectively. Accordingly, the 1999 interim
unaudited financial statements are not comparable to the 1998 interim unaudited
or the December 31, 1998 audited financial statements of the Partnership, which
are based on historical costs.
Effective April 1, 1999, ICP completed the purchase of the remaining
general partner interest in the Partnership and the Partnership was merged into
ICP and ceased to exist as a separate legal entity. RCIP's financial statements
subsequent to that date represent a divisional carve-out from ICP. These
financial statements include all the direct costs of operating RCIP's business;
however, certain assets, liabilities and costs not specifically related to the
Partnership's activities were allocated and reflected in the financial position
as of September 13, 1999, and the results of its operations and its cash flows
for the period January 1, 1999 to September 13, 1999. In addition, receivables
and payables to ICP are presented in the accompanying financial statements net
as amounts due to/due from intercompany. Management believes these allocations
were made on a reasonable basis. Nonetheless, the financial information included
herein may not necessarily reflect what the financial position and results of
operations of the Partnership would have been as a stand-alone entity.
2. ACQUISITION BY CHARTER COMMUNICATIONS HOLDINGS, LLC
On February 12, 1999, ICP signed a letter of intent to sell all of its
partnership interests, including RCIP, to Charter Communications Holdings, LLC
("Charter"). On April 26, 1999, ICP signed a definitive Purchase and Sales
Agreement with Charter for the sale of the individual partner's interest. The
sales transaction closed on September 13, 1999. These statements represent the
Partnership just prior to the transaction and do not reflect any adjustments
related thereto.
3. LITIGATION
The Partnership could possible be named as defendant in various actions and
proceedings arising from the normal course of business. In all such cases, the
Partnership will vigorously defend itself against the litigation and, where
appropriate, will file counterclaims. Although the eventual outcome of potential
lawsuits cannot be predicted, it is management's opinion that any such lawsuit
will not result in liabilities that would have a material effect on the
partnership's financial position or results of operations.
F-279
<PAGE> 509
RIFKIN ACQUISITION PARTNERS, L.L.L.P
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 13, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 4,475,108 $ 2,324,892
Customer accounts receivable, net of allowance for
doubtful accounts of $292,183 and $444,839 in 1999 and
1998, respectively..................................... 1,258,522 1,932,140
Other receivables........................................ 3,384,472 5,637,771
Prepaid expenses and other............................... 1,616,219 2,398,528
Property, plant and equipment, at cost:
Cable television transmission and distribution system
and related Equipment............................... 171,842,780 149,376,914
Land, buildings, vehicles and furniture and fixtures... 8,946,860 7,421,960
------------ ------------
180,789,640 156,798,874
Less accumulated depreciation............................ (45,505,661) (35,226,773)
------------ ------------
Net property, plant and equipment...................... 135,283,979 121,572,101
Franchise costs and other intangible assets, net of
accumulated amortization of $80,047,118 and $67,857,545
in 1999 and 1998, respectively......................... 164,685,102 183,438,197
------------ ------------
Total assets........................................ $310,703,402 $317,303,629
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities............... $ 21,109,515 $ 11,684,594
Customer deposits and prepayments...................... 1,514,732 1,676,900
Payable to Affiliates.................................. 303,047 --
Interest payable....................................... 3,234,019 7,242,954
Deferred tax liability, net............................ 5,967,000 7,942,000
Notes payable.......................................... 236,075,000 224,575,000
------------ ------------
Total liabilities................................... 268,203,313 253,121,448
Commitments
Redeemable partners' interests........................... 16,128,800 10,180,400
Partners' capital (deficit):
General partner........................................ (2,950,894) (1,991,018)
Limited partners....................................... 29,029,520 55,570,041
Preferred equity interest.............................. 292,663 422,758
------------ ------------
Total partners' capital............................. 26,371,289 54,001,781
------------ ------------
Total liabilities and partners' capital............. $310,703,402 $317,303,629
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-280
<PAGE> 510
RIFKIN ACQUISITION PARTNERS, L.L.L.P
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED
------------------------------
SEPTEMBER 13, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
REVENUE:
Service.................................................. $ 62,252,012 $61,466,011
Installation and other................................... 6,577,154 5,171,316
------------ -----------
Total revenue....................................... 68,829,166 66,637,327
COSTS AND EXPENSES:
Operating expense........................................ 10,060,135 10,216,752
Programming expense...................................... 15,312,179 14,086,215
Selling, general and administrative expense.............. 17,566,230 9,867,338
Depreciation............................................. 11,760,429 11,262,373
Amortization............................................. 17,681,246 16,709,219
Management fees.......................................... 2,406,596 2,332,307
Loss on disposal of assets............................... 996,459 2,878,535
------------ -----------
Total costs and expenses....................... 75,783,274 67,352,739
------------ -----------
Operating loss........................................... (6,954,108) (715,412)
Gain from the sale of assets............................. -- (5,989,846)
Interest expense......................................... 16,591,877 17,687,612
------------ -----------
Loss before income taxes................................. (23,545,985) (12,413,178)
Income tax benefit....................................... (1,975,000) (3,484,925)
------------ -----------
Loss before cumulative effect of accounting change....... (21,570,985) (8,928,253)
Cumulative effect of accounting change for organizational
costs.................................................. 111,607 --
------------ -----------
Net loss............................................ $(21,682,592) $(8,928,253)
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-281
<PAGE> 511
RIFKIN ACQUISITION PARTNERS, L.L.L.P
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED
EQUITY GENERAL LIMITED
INTEREST PARTNERS PARTNERS TOTAL
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital (deficit),
December 31, 1998......... $ 422,758 $(1,991,018) $ 55,570,041 $ 54,001,781
Accretion of redeemable
partners' interest........ -- (743,550) (5,204,850) (5,948,400)
Net loss.................... (130,095) (216,826) (21,335,671) (21,682,592)
Partners' contribution...... -- 500 -- 500
--------- ----------- ------------ ------------
Partners' capital (deficit),
September 13, 1999........ $ 292,663 $(2,950,894) $ 29,029,520 $ 26,371,289
========= =========== ============ ============
Partners' capital (deficit),
December 31, 1997......... $ 276,243 $(1,885,480) $ 34,044,912 $ 32,435,675
Accretion of redeemable
partners' interest........ -- (85,040) (595,280) (680,320)
Net loss.................... (53,570) (89,282) (8,785,401) (8,928,253)
Partners' equity
distribution.............. -- (600) (59,476) (60,076)
--------- ----------- ------------ ------------
Partners' capital (deficit),
September 30, 1998........ $ 222,673 $(2,060,402) $ 24,604,755 $ 22,767,026
========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-282
<PAGE> 512
RIFKIN ACQUISITION PARTNERS, L.L.L.P
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
------------------------------
SEPTEMBER 13, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................. $(21,682,592) $ (8,928,253)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 29,441,675 27,971,592
Amortization of deferred loan costs.................... 684,095 742,320
Gain on sale of assets................................. -- (5,989,846)
Loss on disposal of fixed assets....................... 996,459 2,878,535
Decrease in deferred tax benefit....................... (1,975,000) (3,503,000)
Amortization of organizational costs................... 111,607 --
(Increase) decrease in customer accounts receivables... 673,618 (1,203)
Decrease in other receivables.......................... 2,253,299 336,629
(Increase) decrease in prepaid expenses and other...... 782,309 (9,166)
Increase in accounts payable and accrued liabilities... 9,424,921 307,296
Decrease in customer deposits and prepayments.......... (162,168) (126,736)
Decrease in interest payable........................... (4,008,935) (3,716,837)
Increase in payable to affiliates...................... 303,047 --
------------ ------------
Net cash provided by operating activities........... 16,842,335 9,961,331
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment............... (26,692,423) (22,583,508)
Additions to cable television franchises, net of
retirements............................................ -- (875,107)
Net proceeds from the sale of cable systems.............. 276,147 17,050,564
Net proceeds from the sale of other assets............... 223,657 194,579
------------ ------------
Net cash used in investing activities............. (26,192,619) (6,213,472)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term bank debt........................ 11,500,000 21,500,000
Payments of long-term bank debt.......................... -- (24,925,000)
Partners' capital contributions.......................... 500 --
Equity distributions to partners......................... -- (60,076)
------------ ------------
Net cash provided by (used in) financing
activities..................................... 11,500,500 (3,485,076)
------------ ------------
NET INCREASE IN CASH..................................... 2,150,216 262,783
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 2,324,892 1,902,555
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 4,475,108 $ 2,165,338
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-283
<PAGE> 513
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL INFORMATION AND TRANSFER OF NET ASSETS
Rifkin Acquisition Partners, L.P. ("RAP L.P.") was formed on December 16,
1988, pursuant to the laws of the State of Colorado, for the purpose of
acquiring and operating cable television (CATV) systems. On September 1, 1995,
RAP L.P. registered as a limited liability limited partnership, Rifkin
Acquisition Partners, L.L.L.P. (the "Partnership"), pursuant to the laws of the
State of Colorado. Rifkin Acquisition Management, L.P., was the general partner
of RAP L.P. and is the general partner of the Partnership ("General Partner").
The Partnership and its subsidiaries are hereinafter referred to on a
consolidated basis as the "Company."
The Partnership operates under a limited liability limited partnership
agreement (the "Partnership Agreement") which establishes contribution
requirements, enumerates the rights and responsibilities of the partners and
advisory committee, provides for allocations of income, losses and
distributions, and defines certain items relating thereto.
These statements have been completed in conformity with the SEC
requirements for unaudited consolidated financial statements for the Company and
does not contain all of the necessary footnote disclosures required for a fair
presentation of the balance sheets, statements of operations, of partners'
capital(deficit), and of cash flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data includes
all adjustments, consisting of normal recurring accruals necessary to present
fairly the Company's consolidated financial position at September 13, 1999 and
December 31, 1998, and its consolidated results of operations and cash flows for
the period January 1, 1999 to September 13, 1999 and for the nine months ended
September 30, 1998. The consolidated financial statements should be read in
conjunction with the Company's annual consolidated financial statements and
notes thereto included on Form 10-K for the year ended December 31, 1998.
2. PURCHASE AGREEMENT
On February 12, 1999, the Company signed a letter of intent for the
partners to sell their partnership interests to Charter Communications, Inc.
("Charter"). On April 26, 1999, the Company signed a definitive Purchase and
Sale Agreement with Charter for the sale of the individual partners' interest.
The sales transaction closed on September 13, 1999. These statements represent
the Company just prior to the transaction and do not reflect any adjustment
related thereto.
3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1999, the Company adopted the Accounting Standards
Executive Committee's Statement of Position (SOP) 98-5 "Reporting on the Costs
of Start-Up Activities," which requires the Company to expense all start-up
costs related to organizing a new business. During the first quarter of 1999,
the Company wrote off the organization costs capitalized in prior years along
with the accumulated amortization, resulting in the recognition of a cumulative
effect of accounting change loss of $111,607.
4. SENIOR SUBORDINATED NOTES
On January 26, 1996, the Company and its wholly-owned subsidiary, Rifkin
Acquisition Capital Corp (RAC), co-issued a $125 million aggregate principal
amount of 11 1/8% Senior Subordinated Notes (the "Notes") to institutional
investors. These Notes were subsequently
F-284
<PAGE> 514
RIFKIN ACQUISITION PARTNERS, L.L.L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exchanged on June 18, 1996 for publicly registered notes with identical terms.
Interest on the Notes is payable in cash, semi-annually on January 15 and July
15 of each year, commencing on July 15, 1996. The Notes, which mature on January
15, 2006, can be redeemed in whole or in part, at the Issuers' option, at any
time on or after January 15, 2001, at redeemable prices contained in the Notes
plus accrued interest. In addition, at any time on or prior to January 15, 1999,
the Issuers, at their option, were allowed to redeem up to 25% of the principle
amount of the notes issued to institutional investors of not less than $25
million. Such redemption did not take place. The Senior Subordinated Notes had a
balance of $125 million at September 13, 1999 and September 30, 1999.
Subsequent to September 13, 1999, $124.1 million of the $125 million in
notes outstanding were purchased by Charter Communication and will be reflected
as intercompany payable between Charter and RAP. The remaining $900,000 of
outstanding notes were delisted and is no longer public.
F-285
<PAGE> 515
INDIANA CABLE ASSOCIATES, LTD.
BALANCE SHEET
AS OF SEPTEMBER 13, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 166,550 $ 108,619
Customer accounts receivable, less allowance for doubtful
accounts of $6,523 and $24,729 in 1999 and 1998,
respectively............................................. 211,069 85,795
Accounts receivable -- intercompany........................ 13,814,907
Other receivables.......................................... 436,723 295,023
Prepaid expenses and deposits.............................. 50,196 152,575
Property, plant and equipment, at cost:
Transmission and distribution systems and related
equipment............................................. 10,025,106 11,336,892
Buildings and leasehold improvements..................... 55,480 91,682
Vehicles, office furniture and fixtures.................. 493,607 161,327
Spare parts and construction inventory................... 101,334 742,022
----------- -----------
10,675,527 12,331,923
Less accumulated depreciation.............................. 838,673 8,008,158
----------- -----------
Net property, plant and equipment..................... 9,836,854 4,323,765
Intangibles, net of accumulated amortization of $2,910,123
and $8,355,280 in 1999 and 1998, respectively............ 18,944,392 5,083,029
----------- -----------
Total assets..................................... $43,460,691 $10,048,806
=========== ===========
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities...................................... $ 263,342 $ 897,773
Customer deposits and prepayments........................ 314,413 47,458
Accounts payable -- related party........................ 20,514 --
Interpartnership debt.................................... 24,003,000 9,606,630
----------- -----------
Total liabilities................................ 24,601,269 10,551,861
Equity:
General partner deficit.................................. -- (20,106)
Limited partner deficit.................................. -- (482,949)
Divisional equity..................................... 18,859,422 --
----------- -----------
Total equity (deficit)........................... 18,859,422 (503,055)
----------- -----------
Total liabilities and equity..................... $43,460,691 $10,048,806
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-286
<PAGE> 516
INDIANA CABLE ASSOCIATES, LTD.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
REVENUE
Service..................................................... $ 5,267,890 $5,379,236
Installation and other...................................... 765,902 546,770
----------- ----------
Total revenue..................................... 6,033,792 5,926,006
COSTS AND EXPENSES
Operating expense........................................... 631,956 877,911
Programming expense......................................... 1,268,904 1,289,253
Selling, general and administrative expense................. 1,143,407 828,877
Depreciation................................................ 1,009,515 392,353
Amortization................................................ 2,910,123 533,946
Management fees............................................. 301,890 296,300
Loss on disposal of assets.................................. 2,481,838 87,168
----------- ----------
Total costs and expenses.......................... 9,747,633 4,305,808
----------- ----------
Operating income (loss)..................................... (3,713,841) 1,620,198
Interest expense............................................ 621,956 809,085
----------- ----------
Net income (loss)......................................... $(4,335,797) $ 811,113
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-287
<PAGE> 517
INDIANA CABLE ASSOCIATES, LTD.
STATEMENT OF EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1998
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Deficit, December 31, 1997..................... $(66,418) $(1,759,845) $(1,826,263)
Net income..................................... 28,389 782,724 811,113
-------- ----------- -----------
Deficit, September 30, 1998.................... $(38,029) $ (977,121) $(1,015,150)
======== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVISIONAL
EQUITY TOTAL
----------- -----------
<S> <C> <C> <C>
Equity contribution.............................. $23,195,219 $23,195,219
Net loss......................................... (4,335,797) (4,335,797)
----------- -----------
Equity, September 13, 1999....................... $18,859,422 $18,859,422
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-288
<PAGE> 518
INDIANA CABLE ASSOCIATES, LTD.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 TO SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ (4,335,797) $ 811,113
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 3,919,638 926,299
Amortization of deferred loan cost..................... -- 14,815
Loss on disposal of assets............................. 2,481,838 87,168
Decrease (increase) in customer accounts receivable.... (125,274) 14,719
Increase in accounts receivable -- intercompany..... (13,814,907) --
Increase in accounts payable -- related party....... 20,514 --
Increase in other receivables.......................... (141,700) --
Decrease (increase) in prepaid expenses and deposits... 102,379 (20,154)
Increase (decrease) in accounts payable and accrued
liabilities......................................... (634,431) 211,024
Increase (decrease) in customer deposits and
prepayments......................................... 266,955 (5,691)
Decrease in interest payable........................... -- (29,611)
------------ ------------
Net cash provided by (used in) operating
activities........................................ (12,260,785) 2,009,682
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Initial cash acquisition, net of cash acquired......... (32,693,781) --
Purchases of property, plant and equipment............. (2,054,791) (485,902)
Additions to intangibles............................... (25,597) --
Proceeds from sale of assets........................... 2,734 1,335
------------ ------------
Net cash used in investing activities............... (34,771,435) (484,567)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions.................................. 23,195,219 --
Proceeds from long-term debt........................... 23,894,932 10,286,421
Deferred loan cost..................................... -- (78,184)
Payments of long-term debt............................. -- (11,736,421)
------------ ------------
Net cash provided by (used in) financing
activities........................................ 47,090,151 (1,528,184)
------------ ------------
Net increase (decrease) in cash and cash equivalents..... 57,931 (3,069)
Cash and cash equivalents, beginning of period........... 108,619 82,684
------------ ------------
Cash and cash equivalents, end of period................. $ 166,550 $ 79,615
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.......................................... $ 621,956 $ 792,398
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-289
<PAGE> 519
INDIANA CABLE ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND ACQUISITION BY INTERLINK COMMUNICATIONS PARTNERS,
LLLP
The accompanying financial statements are unaudited. However, in the
opinion of management, the financial statements reflect all adjustments,
consisting of normal recurring adjustments, necessary for fair presentation in
accordance with generally accepted accounting principles. Interim results of
operations are not necessarily indicative of results for the full year. The
accompanying financial statements should be read in conjunction with the audited
consolidated financial statements of Indiana Cable Associates, Ltd. (the
"Partnership" or "Indiana").
As of December 31, 1998, InterLink Communication Partners, LLP ("ICP")
agreed to purchase all of the Partnership interest for a total purchase price of
approximately $32.7 million. The acquisition of the Partnership by ICP was
accounted for as a purchase and a new basis of accounting was established
effective January 1, 1999. The new basis resulted in assets and liabilities
bring recorded at their fair market value resulting in a increase in property,
plant and equipment and franchise cost of approximately $7.0 million and
approximately $16.8 million, respectively. Accordingly, the 1999 interim
unaudited financial statements are not comparable to the 1998 interim unaudited
or the December 31, 1998 audited financial statements of the Partnership, which
are based on historical cost.
Effective April 1, 1999, ICP completed the purchase of the remaining
general partner interest in the Partnership and the Partnership was merged into
ICP and ceased to exist as a separate legal entity. The Partnership's financial
statements subsequent to that date represent a divisional carve-out from ICP.
These financial statements include all the direct costs of operating its
business; however, certain assets, liabilities and costs not specifically
related to the Partnership's activities were allocated and reflected in the
financial position as of September 13, 1999 and the results of its operations
and its cash flows for the period January 1, 1999 to September 13, 1999. In
addition, receivables and payables with ICP are presented in the accompanying
financial statements net as due to/due from intercompany. Management believes
these allocations were made on a reasonable basis. Nonetheless, the financial
information included herein may not necessarily reflect what the financial
position and results of operations of the Partnership would have been as a
stand-alone entity.
2. ACQUISITION BY CHARTER COMMUNICATIONS HOLDINGS, LLC
On February 12, 1999, ICP signed a letter of intent to sell all of its
partnership interest, including Indiana, to Charter Communications Holdings, LLC
("Charter"). On April 26, 1999, ICP signed a definitive Purchase and Sales
Agreement with Charter for the sale of the individual partner's interest. The
sales transaction closed on September 13, 1999. These statements represent the
Partnership just prior to the transaction and do not reflect any adjustments
related thereto.
3. LITIGATION
The Partnership could possible be named as defendant in various actions and
proceedings arising from the normal course of business. In all such cases, the
Partnership will vigorously defend itself against the litigation and, where
appropriate, will file counterclaims. Although the eventual outcome of potential
lawsuits cannot be predicted, it is management's opinion that any such lawsuit
will not result in liabilities that would have a material effect on the
partnership's financial position or results of operations.
F-290
<PAGE> 520
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 13, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 453,963 $ 678,739
Customer accounts receivable, less allowance for doubtful
accounts of $27,131 and $84,474 in 1999 and 1998,
respectively............................................ 933,646 455,339
Other receivables......................................... 780,723 1,691,593
Accounts receivable, intercompany......................... 30,273,104
Accounts receivables, related party....................... 394,142
Prepaid expenses and deposits............................. 195,198 393,022
Property, plant and equipment:
Transmission and distribution systems and related
equipment............................................ 24,629,591 27,981,959
Vehicles, office furniture and equipment................ 1,131,040 755,398
Leasehold improvements.................................. 6,759 549,969
Construction in process and spare parts inventory....... 1,519,099 744,806
------------ -----------
27,286,489 30,032,132
Less accumulated depreciation............................. 1,935,932 11,368,764
------------ -----------
Net property, plant and equipment............... 25,350,557 18,663,368
Intangibles, net of accumulated amortization of
$17,527,564 and $12,807,825 in 1999 and 1998,
respectively............................................ 65,160,673 5,181,012
------------ -----------
Total assets.................................... $123,542,006 $27,063,073
============ ===========
LIABILITIES AND EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued liabilities................ $ 2,074,095 $ 2,356,540
Customer prepayments and deposits....................... 1,209,481 690,365
Interpartnership debt................................... 60,960,000 31,222,436
------------ -----------
Total liabilities............................... 64,243,576 34,269,341
Equity:
General partner......................................... -- (81,688)
Limited partner......................................... -- (8,104,718)
Special limited partner................................. -- 980,138
Divisional equity....................................... 59,298,430 --
------------ -----------
Total equity (deficit).......................... 59,298,430 (7,206,268)
------------ -----------
Total liabilities equity........................ $123,542,006 $27,063,073
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-291
<PAGE> 521
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1999 THROUGH SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
REVENUE
Service................................................... $ 14,790,346 $13,961,384
Installation and other.................................... 2,725,293 2,284,061
------------ -----------
Total revenue................................... 17,515,639 16,245,445
COSTS AND EXPENSES
Operating expense......................................... 2,958,925 2,703,535
Programming expense....................................... 3,957,126 3,570,894
Selling, general and administrative expense............... 4,532,320 3,447,670
Depreciation.............................................. 1,997,656 1,660,151
Amortization.............................................. 17,527,564 971,402
Management fees........................................... 700,626 649,818
Loss on disposal of assets................................ 685,800 63,957
------------ -----------
Total costs and expenses........................ 32,360,017 13,067,427
------------ -----------
Operating income (loss)................................... (14,844,378) 3,178,018
Interest expense.......................................... 760,517 1,950,746
------------ -----------
Net income (loss)......................................... $(15,604,895) $ 1,227,272
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-292
<PAGE> 522
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 THROUGH SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SPECIAL
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNERS TOTAL
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Equity (deficit), December 31,
1997............................. $(96,602) $(9,582,050) $870,419 $(8,808,233)
Net income......................... 11,426 1,131,790 84,056 1,227,272
-------- ----------- -------- -----------
Equity (deficit), September 30,
1998............................. $(85,176) $(8,450,260) $954,475 $(7,580,961)
======== =========== ======== ===========
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVISIONAL
EQUITY TOTAL
------------ ------------
<S> <C> <C>
Equity contributions..................................... $ 74,903,325 $ 74,903,325
Net loss................................................. (15,604,895) (15,604,895)
------------ ------------
Equity, September 13, 1999............................... $ 59,298,430 $ 59,298,430
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-293
<PAGE> 523
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1999 THROUGH SEPTEMBER 13, 1999 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ (15,604,895) $ 1,227,272
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 19,525,221 2,631,553
Amortization of deferred loan cost..................... -- 67,188
Loss on disposal of assets............................. 685,800 63,957
Decrease (increase) in customer accounts receivable.... (478,307) 78,738
Change in accounts receivable -- intercompany.......... (30,273,104) --
Increase in accounts receivable -- related party....... (394,142) --
Increase in other receivables.......................... 910,870 --
Decrease (increase) in prepaid expenses and deposits... 197,824 (217,082)
Decrease in accounts payable and accrued liabilities... (282,445) (134,643)
Increase (decrease) in customer deposits prepayments... 519,116 (44,590)
Increase in interest payable........................... -- 20,838
------------- -----------
Net cash provided by (used in) operating
activities........................................ (25,194,062) 3,693,231
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Initial cash acquisition, net of cash acquired........... (105,447,622) --
Purchases of property, plant and equipment............... (4,487,237) (4,938,380)
Additions to intangibles................................. (383,932) (170,921)
Proceeds from the sale of assets......................... 102,891 76,409
------------- -----------
Net cash used in investing activities............... (110,215,900) (5,032,892)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions.................................... 74,903,325 --
Proceeds from long-term debt............................. 60,281,861 5,450,000
Payments of long-term debt............................... -- (3,800,000)
------------- -----------
Net cash provided by financing activities........... 135,185,186 1,650,000
------------- -----------
Net (decrease) increase in cash and cash equivalents..... (224,776) 310,339
Cash and cash equivalents, beginning of period........... 678,739 362,619
------------- -----------
Cash and cash equivalents, end of period................. $ 453,963 $ 672,958
============= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................ $ 760,517 $ 1,871,468
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-294
<PAGE> 524
R/N SOUTH FLORIDA CABLE MANAGEMENT LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND ACQUISITION BY INTERLINK COMMUNICATIONS PARTNERS,
LLLP
The accompanying consolidated financial statements are unaudited. However,
in the opinion of management, the financial statements reflect all adjustments,
consisting of normal recurring adjustments, necessary for fair presentation in
accordance with generally accepted accounting principles applicable. Interim
results of operations are not necessarily indicative of results for the full
year. The accompanying financial statements should be read in conjunction with
the December 31, 1998 audited consolidated financial statements of R/N South
Florida Cable Management Limited Partnership (the "Partnership" or "Florida").
As of December 31, 1998, InterLink Communication Partners, LLP ("ICP")
agreed to purchase all of the Partnership interest for a total purchase price of
approximately $105.5 million. The acquisition of the Partnership by ICP was
accounted for as a purchase and a new basis of accounting was established
effective January 1, 1999. The new basis resulted in assets and liabilities
bring recorded at their fair market value resulting in a increase in property,
plant and equipment and franchise cost of approximately $5.0 million and
approximately $77.1 million, respectively. Accordingly, the 1999 interim
unaudited financial statements are not comparable to the 1998 interim unaudited
or the December 31, 1998 audited financial statements of the Partnership, which
are based on historical cost.
Effective April 1, 1999, ICP completed the purchase of the remaining
general partner interest in the Partnership and the Partnership was merged into
ICP and ceased to exist as a separate legal entity. The Partnership's financial
statements subsequent to that date represent a divisional carve-out from ICP.
These financial statements include all the direct costs of operating its
business; however, certain assets, liabilities and costs not specifically
related to the Partnership's activities were allocated and reflected in the
financial position as of September 13, 1999 and the results of its operations
and its cash flow for the period January 1, 1999 to September 13, 1999. In
addition, receivables and payables to ICP are presented in the accompanying
financial statements net as due to/due from intercompany. Management believes
these allocations were made on a reasonable basis. Nonetheless, the financial
information included herein may not necessarily reflect what the financial
position and results of operations of the Partnership would have been as a
stand-alone entity.
2. ACQUISITION BY CHARTER COMMUNICATIONS HOLDINGS, LLC
On February 12, 1999, ICP signed a letter of intent to sell all of its
partnership interest, including Florida, to Charter Communications Holdings, LLC
("Charter"). On April 26, 1999, ICP signed a definitive Purchase and Sales
Agreement with Charter for the sale of the individual partner's interest. The
sales transaction closed on September 13, 1999. These statements represent the
Partnership just prior to the transaction and do not reflect any adjustments
related thereto.
3. LITIGATION
The Partnership could possible be named as defendant in various actions and
proceedings arising from the normal course of business. In all such cases, the
Partnership will vigorously defend itself against the litigation and, where
appropriate, will file counterclaims. Although the eventual outcome of potential
lawsuits cannot be predicted, it is management's opinion that any such lawsuit
will not result in liabilities that would have a material effect on the
partnership's financial position or results of operations.
F-295
<PAGE> 525
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
of Avalon Cable LLC
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in members' interest and
cash flows present fairly, in all material respects, the financial position of
Avalon Cable LLC and its subsidiaries (the "Company") at December 31, 1997 and
1998 and the results of their operations, changes in members' interest and their
cash flows for the period from September 4, 1997 (inception), through December
31, 1997 and for the year ended December 31, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on the financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 30, 1999, except for Note 12,
as to which the date is May 13, 1999
F-296
<PAGE> 526
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 9,288 $ --
Subscriber receivables, less allowance for doubtful accounts
of $943................................................... 5,862 --
Accounts receivable-affiliate............................... 124 --
Deferred income taxes....................................... 479 --
Prepaid expenses and other current assets................... 580 504
-------- ----
Total current assets........................................ 16,333 504
Property, plant and equipment, net.......................... 111,421 --
Intangible assets, net...................................... 462,117 --
Other assets................................................ 227 --
-------- ----
Total assets................................................ $590,098 $504
======== ====
LIABILITIES AND MEMBERS' INTEREST
CURRENT LIABILITIES:
Current portion of notes payable............................ $ 20 $ --
Accounts payable and accrued expenses....................... 11,646 --
Accounts payable, net-affiliate............................. 2,023 500
Advance billings and customer deposits...................... 3,171 --
-------- ----
Total current liabilities................................... 16,860 500
Note payable, net of current portion........................ 402,949 --
Note payable-affiliate...................................... 3,341 --
Deferred income taxes....................................... 1,841 --
-------- ----
Total liabilities........................................... 424,991 500
-------- ----
Minority interest........................................... 13,855 --
Commitments and contingencies (Note 10)
MEMBERS' INTEREST:
Members' capital............................................ 166,630 --
Accumulated earnings (deficit).............................. (15,378) 4
-------- ----
Total member's interest..................................... 151,252 4
-------- ----
Total liabilities and member's interest..................... $590,098 $504
======== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-297
<PAGE> 527
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR SEPTEMBER 4, 1997
ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REVENUE:
Basic services.......................................... $ 14,976 $--
Premium services........................................ 1,468 --
Other................................................... 1,743 --
-------- --
Total revenues.......................................... 18,187 --
Operating expenses:
Selling, general and administrative..................... 4,207 --
Programming............................................. 4,564 --
Technical and operations................................ 1,951 --
Depreciation and amortization........................... 8,183 --
-------- --
Loss from operations.................................... (718) --
Other income (expense):
Interest income......................................... 173 4
Interest expense........................................ (8,223) --
Other expense, net...................................... (65) --
-------- --
Income (loss) before income taxes....................... (8,833) 4
Provision for income taxes.............................. (186) --
-------- --
Income (loss) before minority interest and extraordinary
item.................................................. (9,019) 4
Minority interest in consolidated entity................ (398) --
-------- --
Income (loss) before the extraordinary loss on early
extinguishment of debt................................ (9,417) 4
Extraordinary loss on early extinguishment of debt...... (5,965) --
-------- --
Net income (loss)....................................... $(15,382) $4
======== ==
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-298
<PAGE> 528
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' INTEREST
FROM THE PERIOD FROM SEPTEMBER 4, 1997 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B-1 ACCUMULATED TOTAL
-------------------- ------------------ EARNINGS MEMBERS'
UNITS $ UNITS $ (DEFICIT) INTEREST
--------- -------- ------- -------- ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net income for the period from
September 4, 1997 through
December 31, 1997............. -- $ -- -- $ -- $ 4 $ 4
Issuance of Class A units....... 45,000 45,000 -- -- -- 45,000
Issuance of Class B-1 units in
consideration for Avalon Cable
of New England LLC............ -- -- 64,696 4,345 -- 4,345
Contribution of assets and
liabilities of Avalon Cable of
Michigan Inc.................. -- -- 510,994 117,285 -- 117,285
Net loss for the year ended
December 31, 1998............. -- -- -- -- (15,382) (15,382)
------ ------- ------- -------- -------- --------
Balance at December 31, 1998.... 45,000 $45,000 575,690 $121,630 $(15,378) $151,252
====== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-299
<PAGE> 529
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 31, 1997
ENDED (INCEPTION)
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (15,382) $ 4
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization........................... 8,183 --
Deferred income taxes, net.............................. 1,010 --
Extraordinary loss on extinguishment of debt............ 5,965 --
Provision for loss on accounts receivable............... 75 --
Minority interest in consolidated entity................ 398 --
Accretion of senior discount notes...................... 1,083 --
Changes in operating assets and liabilities Increase in
subscriber receivables................................ (1,679)
Increase in accounts receivable-affiliates.............. (124) --
Increase in prepaid expenses and other current assets... (76) (4)
Increase in accounts payable and accrued expenses....... 4,863 --
Increase in accounts payable-affiliates................. 1,523 --
Increase in advance billings and customer deposits...... 1,684 --
Change in Other, net.................................... (227) --
--------- ---
Net cash provided by operating activities............... 7,296 --
--------- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (11,468) --
Acquisitions, net of cash acquired...................... (554,402) --
--------- ---
Net cash used in investing activities................... (565,870) --
--------- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of credit facility............... 265,888 --
Principal payment on credit facility.................... (125,013) --
Proceeds from issuance of senior subordinated debt...... 150,000 --
Proceeds from issuance of note payable-affiliate........ 3,341 --
Proceeds from issuance of senior discount notes......... 110,411 --
Proceeds from other notes payable....................... 600 --
Payments for debt issuance costs........................ (3,995) --
Contribution by members................................. 166,630 --
--------- ---
Net cash provided by financing activities............... 567,862 --
Increase in cash........................................ 9,288 --
Cash, beginning of period............................... -- --
--------- ---
Cash, end of period..................................... $ 9,288 $--
========= ===
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................ $ 3,480 $--
========= ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-300
<PAGE> 530
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Avalon Cable LLC ("Avalon"), and its wholly owned subsidiaries Avalon Cable
Holdings Finance, Inc. ("Avalon Holdings Finance") and Avalon Cable of Michigan
LLC ("Avalon Michigan"), were formed in October 1998, pursuant to the laws of
the State of Delaware, as a wholly owned subsidiary of Avalon Cable of New
England Holdings, Inc. ("Avalon New England Holdings").
On November 6, 1998, Avalon New England Holdings contributed its 100%
interest in Avalon Cable of New England LLC ("Avalon New England") to Avalon in
exchange for a membership interest in Avalon. This contribution was between
entities under common control and was accounted for similar to a
pooling-of-interests. Under this pooling-of-interests method, the results of
operations for Avalon include the results of operations from the date of
inception (September 4, 1997) of Avalon New England. On that same date, Avalon
received $63,000 from affiliated entities, which was comprised of (i) a $45,000
capital contribution by Avalon Investors, LLC ("Avalon Investors") and (ii) a
$18,000 promissory note from Avalon Cable Holdings LLC ("Avalon Holdings"),
which was used to make a $62,800 cash contribution to Avalon New England.
The cash contribution received by Avalon New England was used to (i)
extinguish existing indebtedness of $29,600 and (ii) fund a $33,200 loan to
Avalon Holdings Finance which matures on December 31, 2001.
On December 10, 1998, Avalon received a dividend distribution from Avalon
New England in the amount of $18,206, which was used by Avalon to pay off the
promissory note payable to Avalon Holdings, plus accrued interest.
Avalon Cable of Michigan, Inc. was formed in June 1998, pursuant to the
laws of the state of Delaware, as a wholly owned subsidiary of Avalon Cable of
Michigan Holdings, Inc. ("Michigan Holdings".) On June 3, 1998, Avalon Cable of
Michigan, Inc. entered into an Agreement and Plan of Merger (the "Agreement")
among Avalon Cable of Michigan, Inc., Michigan Holdings and Cable Michigan, Inc.
("Cable Michigan"), pursuant to which Avalon Cable of Michigan, Inc. will merge
into Cable Michigan and Cable Michigan will become a wholly owned subsidiary of
Michigan Holdings (the "Merger"). As part of the Merger, the name of the company
was changed to Avalon Cable of Michigan, Inc.
In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of Cable Michigan outstanding prior
to the effective time of the Merger (other than treasury stock shares owned by
Michigan Holdings or its subsidiaries, or shares as to which dissenters' rights
have been exercised) shall be converted into the right to receive $40.50 in cash
(the "Merger Consideration"), subject to certain possible closing adjustments.
In conjunction with the acquisition of Cable Michigan, Avalon Cable of
Michigan, Inc. acquired Cable Michigan's 62% ownership interest in Mercom, Inc.
("Mercom").
On November 6, 1998, Avalon Cable of Michigan, Inc. completed its Merger.
The total consideration payable in conjunction with the Merger, including fees
and expenses is $431,629, including repayment of all existing Cable Michigan
indebtedness and accrued interest of $135,205. Subsequent to the Merger, the
arrangements with RCN and CTE for certain support
F-301
<PAGE> 531
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services were terminated. The Agreement also permitted Avalon Cable of Michigan,
Inc. to agree to acquire the remaining shares of Mercom that it did not own.
Michigan Holdings contributed $137,375 in cash to Avalon Cable of Michigan,
Inc., which was used to consummate the Merger. On November 5, 1998, Michigan
Holdings received $105,000 in cash in exchange for promissory notes to lenders
(the "Bridge Agreement"). On November 6, 1998, Michigan Holdings contributed the
proceeds received from the Bridge Agreement and an additional $35,000 in cash to
Avalon Cable of Michigan Inc. in exchange for 100 shares of common stock.
On March 26, 1999, Avalon completed a series of transactions to facilitate
certain aspects of its financing between affiliated entities under common
control. As a result of these transactions:
- Avalon Cable of Michigan Inc. contributed its assets and liabilities
excluding deferred tax liabilities, net to Avalon in exchange for an
approximate 88% voting interest in Avalon. Avalon contributed these
assets and liabilities to its wholly-owned subsidiary, Avalon Cable of
Michigan.
- Avalon Michigan has become the operator of the Michigan cluster replacing
Avalon Cable of Michigan, Inc.
- Avalon Michigan is an obligor on the Senior Subordinated Notes replacing
Avalon Cable of Michigan, Inc., and
- Avalon Cable of Michigan, Inc. is a guarantor of the obligations of
Avalon Michigan under the Senior Subordinated Notes. Avalon Cable of
Michigan, Inc. does not have significant assets, other than its
investment in Avalon.
- Avalon is an obligor on the Senior Discount Notes replacing Avalon Cable
of Michigan Holdings, Inc.
As a result of the reorganization between entities under common control,
Avalon accounted for the reorganization similar to a pooling-of-interests. Under
the pooling-of-interests method, the results of operations for Avalon include
the results of operations from the date of inception (June 2, 1998) inception of
Avalon Cable of Michigan, Inc. and the date of acquisition of the completed
acquisitions.
Avalon New England and Avalon Michigan provide cable service to the western
New England area and the state of Michigan, respectively. Avalon cable systems
offer customer packages of basic and premium cable programming services which
are offered at a per channel charge or are packaged together to form a tier of
services offered at a discount from the combined channel rate. Avalon cable
systems also provide premium cable services to their customers for an extra
monthly charge. Customers generally pay initial connection charges and fixed
monthly fees for cable programming and premium cable services, which constitute
the principal sources of revenue for Avalon.
Avalon Holdings Finance was formed for the sole purpose of facilitating
financings associated with the acquisitions of various cable operating
companies. Avalon Holdings Finance conducts no other activities.
F-302
<PAGE> 532
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements of Avalon and its subsidiaries,
include the accounts of Avalon and its wholly owned subsidiaries, Avalon New
England, Avalon Michigan and Avalon Holdings Finance (collectively, the
"Company"). All significant transactions between Avalon and its subsidiaries
have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and the
disclosure for contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reported period. Actual results may vary from estimates used.
Revenue recognition
Revenue is recognized as cable services are provided. Installation fee
revenue is recognized in the period in which the installation occurs to the
extent that direct selling costs meet or exceed installation revenues.
Advertising costs
Advertising costs are charged to operations as incurred. Advertising costs
were $82 for the year ended December 31, 1998.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentration of credit risk include cash and subscriber and other receivables.
The Company had cash in excess of federally insured deposits at financial
institutions at December 31, 1998. The Company does not believe that such
deposits are subject to any unusual credit risk beyond the normal credit risk
associated with operating its business. The Company extends credit to customers
on an unsecured basis in the normal course of business. The Company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations. The Company's trade receivables
reflect a customer base centered in the state of Michigan and New England. The
Company routinely assesses the financial strength of its customers; as a result,
concentrations of credit risk are limited.
Property, plant and equipment
Property, plant and equipment is stated at its fair value for items
acquired from Cable Michigan, historical cost for the minority interests share
of Mercom property, plant and equipment and cost for additions subsequent to the
merger. Initial subscribers installation costs, including materials, labor and
overhead costs, are capitalized as a component of cable plant and equipment. The
cost of disconnection and reconnection are charged to expense when incurred.
F-303
<PAGE> 533
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is computed for financial statement purposes using the
straight-line method based upon the following lives:
<TABLE>
<S> <C>
Vehicles.................................................... 5 years
Cable plant and equipment................................... 5-12 years
Office furniture and equipment.............................. 5-10 years
Buildings and improvements.................................. 10-25 years
</TABLE>
Intangible assets
Intangible assets represent the estimated fair value of cable franchises
and goodwill resulting from acquisitions. Goodwill is the excess of the purchase
price over the fair value of the net assets acquired, determined through an
independent appraisal. Deferred financing costs represent direct costs incurred
to obtain long-term financing and are amortized to interest expense over the
term of the underlying debt utilizing the effective interest method.
Amortization is computed for financial statement purposes using the
straight-line method based upon the anticipated economic lives:
<TABLE>
<S> <C>
Cable franchises............................................ 13-15 years
Goodwill.................................................... 15 years
Non-compete agreement....................................... 5 years
</TABLE>
Accounting for impairments
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 -- "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
estimates the net future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected net future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles expected to be held and used
is based on the fair value of the asset.
No impairment losses have been recognized by the Company pursuant to SFAS
121.
Financial instruments
The Company estimates that the fair value of all financial instruments at
December 31, 1998 does not differ materially from the aggregate carrying values
of its financial instruments recorded in the accompanying balance sheet. The
fair value of the notes payable-affiliate are considered to be equal to carrying
values since the Company believes that its credit risk has not changed from the
time this debt instrument was executed and therefore, would obtain a similar
rate in the current market.
Income taxes
The Company is not subject to federal and state income taxes since the
income or loss of the Company is included in the tax returns of Avalon Cable of
Michigan, Inc. and the Company's
F-304
<PAGE> 534
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
minority partners. However, Mercom, its majority-owned subsidiary is subject to
taxes that are accounted for using Statement of Financial Accounting Standards
No. 109 -- "Accounting for Income Taxes". The statement requires the use of an
asset and liability approach for financial reporting purposes. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between financial reporting basis and tax basis of assets and liabilities. If it
is more likely than not that some portion or all of a deferred tax asset will
not be realized, a valuation allowance is recognized.
3. MEMBERS' CAPITAL
Avalon has authorized two classes of equity units; class A units ("Class A
Units") and class B units ("Class B Units") (collectively, the "Units"). Each
class of the Units represents a fractional part of the membership interests in
Avalon and has the rights and obligations specified in Avalon's Limited
Liability Company Agreement. Each Class B Unit is entitled to voting rights
equal to the percentage such units represents of the aggregate number of
outstanding Class B Units. The Class A Units are not entitled to voting rights.
Class A Units
The Class A Units are participating preferred equity interests. A preferred
return accrues annually (the Company's "Preferred Return") on the initial
purchase price (the Company's "Capital Value") of each Class A Unit at a rate of
15, or 17% under certain circumstances, per annum. The Company cannot pay
distributions in respect of other classes of securities including distributions
made in connection with a liquidation until the Company's Capital Value and
accrued Preferred Return in respect of each Class A Unit is paid to the holders
thereof (such distributions being the Company's "Priority Distributions"). So
long as any portion of the Company's Priority Distributions remains unpaid, the
holders of a majority of the Class A Units are entitled to block certain actions
by the Company including the payment of certain distributions, the issuance of
senior or certain types of pari passu equity securities or the entering into or
amending of certain related-party agreements. In addition to the Company's
Priority Distributions, each Class A Unit is also entitled to participate in
common distributions, pro rata according to the percentage such unit represents
of the aggregate number of the Company's units then outstanding.
Class B Units
The Class B Units are junior equity securities which are divided into two
identical subclasses, Class B-1 Units and Class B-2 Units. After the payment in
full of Avalon's Priority Distributions, each Class B Unit is entitled to
participate in distributions pro rata according to the percentage such unit
represents of the aggregate number of the Avalon units then outstanding.
4. MERGER AND ACQUISITIONS
The Merger was accounted for using the purchase method of accounting.
Accordingly, the consideration was allocated to the net assets acquired based on
their fair market values at the date of the Merger. The purchase price was
allocated as follows: current assets and liabilities at fair values of $470,
approximately $94,000 to property, plant and equipment, $315,000 to cable
franchises and the excess of consideration paid over the fair market value of
the net assets acquired, or goodwill, of $81,705, offset by deferred taxes net
of $60,000.
F-305
<PAGE> 535
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Merger agreement between Michigan Holdings and Avalon Cable of
Michigan, Inc. permitted Avalon Cable of Michigan, Inc. to agree to acquire the
1,822,810 shares (approximately 38% of the outstanding stock) of Mercom that it
did not own (the "Mercom Acquisition"). On September 10, 1998 Avalon Cable of
Michigan, Inc. and Mercom entered into a definitive agreement (the "Mercom
Merger Agreement") providing for the acquisition by Avalon Cable of Michigan,
Inc. of all of such shares at a price of $12.00 per share. Avalon Cable of
Michigan, Inc. completed this acquisition in March 1999. The total estimated
consideration payable in conjunction with the Mercom Acquisition, excluding fees
and expenses was $21,900.
In March 1999, Avalon Michigan acquired the cable television systems of
Nova Cablevision, Inc., Nova Cablevision VI, L.P. and Nova Cablevision VII, L.P.
for approximately $7,800, excluding transaction fees.
On May 29, 1998, the Company acquired certain assets of Amrac Clear View, A
Limited Partnership ("Amrac") for consideration of $8,124, including acquisition
costs of $589. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the consideration was allocated to the net assets
acquired based on the fair market values at the date of acquisition as
determined through the use of an independent appraisal. The excess of the
consideration paid over the estimated fair market value of the net assets
acquired, or goodwill, was $256.
On July 21, 1998, the Company acquired certain assets and liabilities from
Pegasus Cable Television, Inc. and Pegasus Cable Television of Connecticut, Inc.
(collectively, "Pegasus") for consideration of $30,467, including acquisition
costs of $175. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the consideration was allocated to the net assets
acquired based on the fair market values at the date of acquisition as
determined through use of an independent appraisal. The excess of the
consideration paid over the estimated fair market value of the net assets
acquired, or goodwill, was $977.
Unaudited pro forma results of operations of the Company for the year ended
December 31, 1998, as if the Merger and acquisitions occurred on January 1,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(UNAUDITED)
<S> <C>
Revenues.................................................... $ 96,751
========
Loss from operations........................................ $ (5,292)
========
Net loss.................................................... $(22,365)
========
</TABLE>
In September 1998, the Company entered into a definitive agreement to
purchase all of the cable systems of Taconic Technology Corporation ("Taconic")
for approximately $8,525 (excluding transaction fees). As of December 31, 1998,
the Company incurred $41 of transaction costs related to the acquisition of
Taconic. This merger is expected to close in the second quarter of 1999.
F-306
<PAGE> 536
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1998, property, plant and equipment consists of the
following:
<TABLE>
<S> <C>
Cable plant and equipment................................... $106,602
Vehicles.................................................... 2,572
Office furniture and fixtures............................... 1,026
Buildings and improvements.................................. 2,234
Construction in process..................................... 768
--------
113,202
Less: accumulated depreciation.............................. (1,781)
--------
$111,421
========
</TABLE>
Depreciation expense charged to operations was $1,781 for the year ended
December 31, 1998.
6. INTANGIBLE ASSETS
At December 31, 1998, intangible assets consist of the following:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Cable franchises............................................ $374,773
Goodwill.................................................... 82,928
Deferred financing costs.................................... 10,658
Non-compete agreement....................................... 100
--------
468,459
Less: accumulated amortization.............................. (6,342)
--------
$462,117
========
</TABLE>
Amortization expense was $6,342 for the year ended December 31, 1998.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At December 31, 1998, accounts payable and accrued expenses consist of the
following:
<TABLE>
<S> <C>
Accounts payable............................................ $ 5,321
Accrued corporate expenses.................................. 404
Accrued programming costs................................... 2,388
Taxes payable............................................... 1,383
Other....................................................... 2,150
-------
$11,646
=======
</TABLE>
F-307
<PAGE> 537
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. DEBT
At December 31, 1998, Long-term debt consists of the following:
<TABLE>
<S> <C>
Senior Credit Facility...................................... $140,875
Senior Subordinated Notes................................... 150,000
Senior Discount Notes....................................... 111,494
Other Note Payable.......................................... 600
--------
402,969
Less: current portion of notes payable...................... 20
--------
$402,949
========
</TABLE>
Credit Facilities
On May 28, 1998, Avalon New England entered into a term loan and revolving
credit agreement with a major commercial lending institution (the "Credit
Agreement"). The Credit Agreement allowed for aggregate borrowings under Term
Loans A and B (collectively, the "Term Loans") and a revolving credit facility
of $30,000 and $5,000, respectively. The proceeds from the Term Loans and
revolving credit facility were used to fund the acquisitions made by Avalon New
England and to provide for Avalon New England's working capital requirements.
In December 1998, Avalon New England retired the Term Loans and revolving
credit agreement through the proceeds of a capital contribution from Avalon. The
fees and associated costs relating to the early retirement of this debt was
$1,110.
On November 6, 1998, Avalon New England became a co-borrower along with
Avalon Michigan and Avalon Cable Finance, Inc. ("Avalon Finance"), affiliated
companies (collectively referred to as the "Co-Borrowers"), on a $320,888 senior
credit facility, which includes term loan facilities consisting of (i) tranche A
term loans of $120,888 and (ii) tranche B term loans of $170,000, and a
revolving credit facility of $30,000 (collectively, the "Credit Facility").
Subject to compliance with the terms of the Credit Facility, borrowings under
the Credit Facility will be available for working capital purposes, capital
expenditures and pending and future acquisitions. The ability to advance funds
under the tranche A term loan facility terminated on March 31, 1999. The tranche
A term loans are subject to minimum quarterly amortization payments commencing
on January 31, 2001 and maturing on October 31, 2005. The tranche B term loans
are subject to minimum quarterly payments commencing on January 31, 2001 with
substantially all of tranche B term loans scheduled to be repaid in two equal
installments on July 31, 2006 and October 31, 2006. The revolving credit
facility borrowings are scheduled to be repaid on October 31, 2005.
On November 6, 1998, Avalon Michigan borrowed $265,888 under the Credit
Facility. In connection with the Senior Subordinated Notes and Senior Discount
Notes offerings, Avalon Michigan repaid $125,013 of the Credit Facility, and the
availability under the Credit Facility was reduced to $195,000. Avalon Michigan
had borrowings of $11,300 and $129,575 outstanding under the tranche A and
tranche B term note facilities, respectively, and had available $30,000 for
borrowings under the revolving credit facility. Avalon New England and Avalon
Finance had no borrowings outstanding under the Credit Facility at December 31,
1998.
The interest rate under the Credit Facility is a rate based on either (i)
the Base Rate (a rate per annum equal to the greater of the prime rate and the
federal funds rate plus one-half of 1%) or (ii) the Eurodollar Rate (a rate per
annum equal to the Eurodollar base rate divided by 1.00 less the Eurocurrency
reserve requirement plus, in either case, the applicable margin). As of
F-308
<PAGE> 538
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998, the applicable margin was (a) with respect to the tranche B
term loans was 2.75% per annum for Base Rate loans and 3.75% per annum for
Eurodollar loans and (b) with respect to tranche A term loans and the revolving
credit facility was 2.00% per annum for Base Rate loans and 3.00% for Eurodollar
loans. The applicable margin for the tranche A term loans and the revolving
credit facility are subject to performance based grid pricing which is
determined based upon the consolidated leverage ratio of the Co-Borrowers. The
interest rate for the tranche A and tranche B term loans outstanding at December
31, 1998 was 8.58% and 9.33%, respectively. Interest is payable on a quarterly
basis. Accrued interest on the borrowings incurred by Avalon Cable of Michigan
Inc. under the credit facility was $1,389 at December 31, 1998.
The Credit Facility contains restrictive covenants which among other things
require the Co-Borrowers to maintain certain ratios including consolidated
leverage ratios and the interest coverage ratio, fixed charge ratio and debt
service coverage ratio.
The obligations of the Co-Borrowers under the Credit Facility are secured
by substantially all of the assets of the Co-Borrowers. In addition, the
obligations of the Co-Borrowers under the Credit Facility are guaranteed by
affiliated companies; Avalon Cable of Michigan Holdings, Inc., Avalon Cable
Finance Holdings, Inc., Avalon New England Holdings, Inc., Avalon Cable
Holdings, LLC and the Company.
A Change of Control as defined under the Credit Facility agreement would
constitute an event of default under the Credit Facility giving the lender the
right to terminate the credit commitment and declare all amounts outstanding
immediately due and payable.
Subordinated Debt
In December 1998, Avalon New England and Avalon Michigan became co-issuers
of a $150,000 principal balance, Senior Subordinated Notes ("Subordinated
Notes") offering. In conjunction with this financing, Avalon New England
received $18,130 from Avalon Michigan as a partial payment against the Company's
note receivable-affiliate from Avalon Michigan. Avalon Michigan paid $75 in
interest during the period from October 21, 1998 (inception) through December
31, 1998. The cash proceeds received by Avalon New England of $18,206 was paid
to Avalon as a dividend.
The Subordinated Notes mature on December 1, 2008, and interest accrued at
a rate of 9.375% per annum. Interest is payable semi-annually in arrears on June
1 and December 1 of each year, commencing on June 1, 1999. Accrued interest on
the Subordinated Notes was $1,078 at December 31, 1998.
The Senior Subordinated Notes will not be redeemable at the Co-Borrowers'
option prior to December 1, 2003. Thereafter, the Senior Subordinated Notes will
be subject to redemption at any time at the option of the Co-Borrowers, in whole
or in part at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003..................................................... 104.688%
2004..................................................... 103.125%
2005..................................................... 101.563%
2006 and thereafter...................................... 100.000%
</TABLE>
F-309
<PAGE> 539
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The scheduled maturities of the long-term debt are $2,000 in 2001, $4,000
in 2002, $7,000 in 2003, and the remainder thereafter.
At any time prior to December 1, 2001, the Co-Borrowers may on any one or
more occasions redeem up to 35% of the aggregate principal amount of Senior
Subordinate Notes originally issued under the Indenture at a redemption price
equal to 109.375% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, with the net cash proceeds of any
equity offering and/or the net cash proceeds of a strategic equity investment;
provided that at least 65% of the aggregate principal amount at maturity of
Senior Subordinated Notes originally issued remain outstanding immediately after
each such redemption.
As used in the preceding paragraph, "Equity Offering and Strategic Equity
Investment" means any public or private sale of Capital Stock of any of the
Co-Borrowers pursuant to which the Co-Borrowers together receive net proceeds of
at least $25 million, other than issuances of Capital Stock pursuant to employee
benefit plans or as compensation to employees; provided that to the extent such
Capital Stock is issued by the Co-Borrowers, the net cash proceeds thereof shall
have been contributed to one or more of the Co-Borrowers in the form of an
equity contribution.
The Indentures provide that upon the occurrence of a change of control (a
"Change of Control") each holder of the Notes has the right to require the
Company to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of such holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereon plus accrued and unpaid interest and
Liquidated Damages (as defined in the Indentures) thereof, if any, to the date
of purchase.
The Senior Discount Notes
On December 3, 1998, the Company, Avalon Michigan and Avalon Cable Holdings
Finance, Inc. (the "Holding Co-Borrowers") issued $196.0 million aggregate
principal amount at maturity of 117/8% Senior Discount Notes ("Senior Discount
Notes") due 2008.
The Senior Discount Notes were issued at a substantial discount from their
principal amount at maturity, to generate gross proceeds of approximately $110.4
million. Interest on the Senior Discount Notes will accrue but not be payable
before December 1, 2003. Thereafter, interest on the Senior Discount Notes will
accrue on the principal amount at maturity at a rate of 11.875% per annum, and
will be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing December 1, 2003. Prior to December 1, 2003, the accreted value of
the Senior Discount Notes will increase, representing amortization of original
issue discount, between the date of original issuance and December 1, 2003 on a
semi-annual basis using a 360-day year comprised of twelve 30-day months, such
that the accreted value shall be equal to the full principal amount at maturity
of the Senior Discount Notes on December 1, 2003. Original issue discount
accretion on the Senior Discount Notes was $1,083 at December 31, 1998.
On December 1, 2003, the Holding Co-Borrowers will be required to redeem an
amount equal to $369.79 per $1,000 principal amount at maturity of each Senior
Discount Note then outstanding on a pro rata basis at a redemption price of 100%
of the principal amount at maturity of the Senior Discount Notes so redeemed.
On or after December 1, 2003, the Senior Discount Notes will be subject to
redemption at any time at the option of the Holding Co-borrowers, in whole or in
part, at the redemption prices, which are expressed as percentages of principal
amount, shown below plus accrued and unpaid
F-310
<PAGE> 540
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest, if any, and liquidated damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003................................................... 105.938%
2004................................................... 103.958%
2005................................................... 101.979%
2006 and thereafter.................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time before December 1, 2001, the
holding companies may on any one or more occasions redeem up to 35% of the
aggregate principal amount at maturity of senior discount notes originally
issued under the Senior Discount Note indenture at a redemption price equal to
111.875% of the accreted value at the date of redemption, plus liquidated
damages, if any, to the redemption date, with the net cash proceeds of any
equity offering and/or the net cash proceeds of a strategic equity investment;
provided that at least 65% of the aggregate principal amount at maturity of
Senior Discount Notes originally issued remain outstanding immediately after
each occurrence of such redemption.
Upon the occurrence of a Change of Control, each holder of Senior Discount
Notes will have the right to require the Holding Co-Borrowers to repurchase all
or any part of such holder's Senior Discount Notes pursuant to a Change of
Control offer at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and liquidated damages thereon,
if any, to the date of purchase.
Mercom debt
In August 1997, the Mercom revolving credit agreement for $2,000 expired.
Mercom had no borrowings under the revolving credit agreement in 1996 or 1997.
On September 29, 1997, Cable Michigan, Inc. purchased and assumed all of
the bank's interest in the term credit agreement and the note issued thereunder.
Immediately after the purchase, the term credit agreement was amended in order
to, among other things, provide for less restrictive financial covenants,
eliminate mandatory amortization of principal and provide for a bullet maturity
of principal on December 31, 2002, and remove the change of control event of
default. Mercom's borrowings under the term credit agreement contain pricing and
security provisions substantially the same as those in place prior to the
purchase of the loan. The borrowings are secured by a pledge of the stock of
Mercom's subsidiaries and a first lien on certain of the assets of Mercom and
its subsidiaries, including inventory, equipment and receivables. At December
31, 1998, $14,151 of principal was outstanding. The borrowings under the term
credit agreement are eliminated in the Company's consolidated balance sheet.
Note payable
Avalon New England issued a note payable for $500 which is due on May 29,
2003, and bears interest at a rate of 7% per annum (which approximates Avalon
New England's incremental borrowing rate) payable annually. Additionally, Avalon
New England has a $100 non-compete agreement. The agreement calls for five
annual payments of $20, commencing on May 29, 1999.
F-311
<PAGE> 541
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The income tax provision in the accompanying consolidated financial
statements of operations relating to Mercom, Inc., a majority-owned subsidiary,
is comprised of the following:
<TABLE>
<CAPTION>
1998
----
<S> <C>
CURRENT
Federal..................................................... $ --
State....................................................... --
----
Total Current............................................... --
----
DEFERRED
Federal..................................................... 171
State....................................................... 15
----
Total Deferred.............................................. 186
----
Total provision for income taxes............................ $186
====
</TABLE>
The benefit for income taxes is different from the amounts computed by
applying the U.S. statutory federal tax rate of 35% for 1998. The differences
are as follows:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Loss before provision for income taxes...................... $(8,833)
=======
Federal tax provision at statutory rates.................... $(3,092)
State income taxes.......................................... (182)
Allocated to members........................................ 3,082
Goodwill.................................................... 6
-------
Provision for income taxes.................................. $ 186
=======
</TABLE>
<TABLE>
<CAPTION>
TAX NET
OPERATING EXPIRATION
YEAR LOSSES DATE
- ---- --------- ----------
<S> <C> <C>
1998................................................... $922 2018
</TABLE>
Temporary differences that give rise to significant portion of deferred tax
assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
NOL carryforwards........................................... $ 922
Reserves.................................................... 459
Other, net.................................................. 20
-------
Total deferred assets....................................... 1,401
-------
Property, plant and equipment............................... (2,725)
Intangible assets........................................... (38)
-------
Total deferred liabilities.................................. (2,763)
-------
Subtotal.................................................... (1,362)
-------
Valuation allowance......................................... --
-------
Total deferred taxes........................................ $(1,362)
=======
</TABLE>
F-312
<PAGE> 542
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Leases
Avalon New England and Avalon Michigan rent poles from utility companies
for use in their operations. While rental agreements are generally short-term,
Avalon New England and Avalon Michigan anticipate such rentals will continue in
the future. Avalon New England and Avalon Michigan also lease office facilities
and various items of equipment under month-to-month operating leases. Rent
expense was $58 for the year ended December 31, 1998. Rental commitments are
expected to continue at approximately $1 million a year for the foreseeable
future, including pole rental commitments which are cancelable.
Legal matters
Avalon and its subsidiaries are subject to regulation by the Federal
Communications Commission ("FCC") and other franchising authorities.
Avalon and its subsidiaries are subject to the provisions of the Cable
Television Consumer Protection and Competition Act of 1992, as amended, and the
Telecommunications Act of 1996. Avalon and its Subsidiaries have either settled
challenges or accrued for anticipated exposures related to rate regulation;
however, there is no assurance that there will not be further additional
challenges to its rates.
In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial condition or results of operations of
Avalon and its subsidiaries.
11. RELATED PARTY TRANSACTIONS AND BALANCES
During 1998, Avalon New England received $3,341 from Avalon Holdings. In
consideration for this amount, Avalon New England executed a note payable to
Avalon Holdings. This note is recorded as note payable-affiliate on the balance
sheet at December 31, 1998. Interest accrues at a rate of 5.57% per year and
Avalon New England has recorded accrued interest on this note of $100 at
December 31, 1998.
12. SUBSEQUENT EVENT
In May 1999, the Company signed an agreement with Charter Communications,
Inc. ("Charter Communications") under which Charter Communications agreed to
purchase Avalon Cable LLC's cable television systems and assume some of their
debt. The acquisition by Charter Communications is subject to regulatory
approvals. The Company expects to consummate this transaction in the fourth
quarter of 1999.
This agreement, if closed, would constitute a change in control under the
Indenture pursuant to which the Senior Subordinated Notes and the Senior
Discount Notes (collectively, the "Notes") were issued. The Indenture provides
that upon the occurrence of a change of control of the Company (a "Change of
Control") each holder of the Notes has the right to require the Company to
purchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereon (or 101% of the accreted value for the Senior Discount
Notes as of the date of purchase if prior to the full accretion date) plus
accrued and unpaid interest and Liquidated Damages (as defined in the Indenture)
thereof, if any, to the date of purchase.
F-313
<PAGE> 543
AVALON CABLE LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This agreement, if closed, would represent a Change of Control which, on
the closing date, constitutes an event of default under the Credit Facility
giving the lender the right to terminate the credit commitment and declare all
amounts outstanding immediately due and payable. Charter Communications has
agreed to repay all amounts due under the Credit Facility or cause all events of
default under the Credit Facility arising from the Change of Control to be
waived.
F-314
<PAGE> 544
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 9,288 $ 2,995
Subscriber receivables, net of allowance for doubtful
accounts of $943 and $1,275............................ 5,862 7,059
Accounts receivable -- affiliate.......................... 124 --
Deferred income taxes..................................... 479 --
Prepaid expenses and other current assets................. 580 879
-------- --------
Total current assets................................... 16,333 10,933
Property, plant and equipment, net........................ 111,421 121,973
Intangible assets, net.................................... 462,117 468,855
Other assets.............................................. 227 46
-------- --------
Total assets........................................... $590,098 $601,807
======== ========
LIABILITIES AND MEMBERS' INTEREST
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 20 $ 25
Accounts payable and accrued expenses..................... 11,646 22,242
Accounts payable, net -- affiliate........................ 2,023 2,968
Deferred revenue.......................................... 3,171 3,272
-------- --------
Total current liabilities.............................. 16,860 28,507
Note payable, net of current portion...................... 402,949 451,827
Note payable -- affiliate................................. 3,341 --
Deferred income taxes..................................... 1,841 --
Other liabilities......................................... 951
-------- --------
Total liabilities...................................... 424,991 481,285
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5):
Minority interest........................................... 13,855 --
-------- --------
MEMBERS' INTEREST:
Members' capital.......................................... 166,630 166,630
Accumulated deficit....................................... (15,378) (46,108)
-------- --------
Total members' interest................................ 151,252 120,522
-------- --------
Total liabilities and members' interest................ $590,098 $601,807
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-315
<PAGE> 545
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
REVENUE:
Basic services............................................ $ 65,225 $2,123
Premium services.......................................... 6,174 85
Other..................................................... 8,799 161
-------- ------
Total revenues......................................... 80,198 2,369
-------- ------
OPERATING EXPENSES:
Selling, general and administrative....................... 14,576 439
Programming............................................... 21,372 662
Technical and operations.................................. 9,171 216
Depreciation and amortization............................. 33,574 654
-------- ------
Income from operations...................................... 1,505 398
-------- ------
OTHER INCOME (EXPENSE):
Interest income........................................... 743 --
Interest expense.......................................... (34,340) (680)
-------- ------
Loss before income taxes.................................... (32,092) (282)
Benefit from income taxes................................... 1,362 --
-------- ------
Net loss.................................................. $(30,730) $ (282)
======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-316
<PAGE> 546
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' INTEREST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
-------------------------------------------------------------------
CLASS A CLASS B-1 TOTAL
------------------- -------------------- ACCUMULATED MEMBERS'
UNITS UNITS DEFICIT INTEREST
-------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998......... 45,000 $45,000 575,690 $121,630 $(15,378) $151,252
Net loss for the nine months ended
September 30, 1999............... -- -- -- -- (30,730) (30,730)
------ ------- ------- -------- -------- --------
BALANCE, SEPTEMBER 30, 1999........ 45,000 $45,000 575,690 $121,630 $(46,108) $120,522
====== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-317
<PAGE> 547
AVALON CABLE LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (282) $(30,730)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization.......................... 654 33,574
Accretion of Senior Discount Notes..................... -- 10,102
Net change in certain assets and liabilities, net of
business acquisitions
Increase in subscriber receivables..................... 100 (587)
Increase in accounts receivable, net -- affiliate...... 124
Increase in prepaid expenses and other assets.......... (24) (230)
Increase in accounts payable and accrued expenses...... 774 10,582
Increase in accounts payable, net -- affiliate......... -- 684
Increase in deferred revenues.......................... 17 101
Increase in accrued interest........................... 564
Increase in long term liabilities...................... 951
Decrease in deferred income taxes, net................. -- (1,362)
-------- --------
Net cash provided by operating activities............ 1,803 23,209
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (72) (15,009)
Change in restricted cash................................. 500
Payment for acquisitions, net............................. (38,426) (49,928)
-------- --------
Net cash used in investing activities................ (37,998) (64,937)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable -- affiliate.......... 2,841 (3,341)
Capital contribution...................................... 4,862 45,300
Proceeds from the issuance of the Credit Facility......... 29,600
Payment of deferred financing costs....................... (470)
Proceeds from the issuance of notes payable............... 500 --
Payment of term loans and revolving credit facility....... -- (6,524)
-------- --------
Net cash provided by financing activities............ 37,333 35,435
-------- --------
NET INCREASE (DECREASE) IN CASH............................. 1,138 (6,293)
CASH at beginning of the period............................. -- 9,288
-------- --------
CASH at end of the period................................... $ 1,138 $ 2,995
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-318
<PAGE> 548
AVALON CABLE, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
Avalon Cable LLC ("the Company"), and its wholly-owned subsidiaries Avalon
Cable Holdings Finance, Inc. ("Avalon Holdings Finance") and Avalon Cable of
Michigan LLC ("Avalon Michigan"), were formed in October 1998, pursuant to the
laws of the State of Delaware, as a wholly-owned subsidiary of Avalon Cable of
New England Holdings, Inc. ("Avalon New England Holdings").
On November 6, 1998, Avalon New England Holdings contributed its 100%
interest in Avalon Cable of New England LLC ("Avalon New England") to the
Company in exchange for a membership in the Company. This contribution was
between entities under common control and was accounted for similar to a
pooling-of-interests. Under the pooling-of-interests method, the results of
operations for the Company include the results of operations from the date of
inception (September 4, 1997) of Avalon New England. On November 6, 1998, the
Company received $63,000 from affiliated entities, which was comprised of (i) a
$45,000 capital contribution by Avalon Investors LLC ("Avalon Investors") and
(ii) an $18,000 promissory note from Avalon Cable Holdings LLC ("Avalon
Holdings"), which was used to make a $62,800 cash contribution to Avalon New
England.
The cash contribution received by Avalon New England was used to (i)
extinguish existing indebtedness of $29,600 and (ii) fund a $33,200 loan to
Avalon Cable Finance, Inc. which matures on December 31, 2001.
On December 10, 1998, the Company received a dividend distribution from
Avalon New England in the amount of $18,206, which was used by the Company to
pay off the promissory note payable to Avalon Holdings, plus accrued interest.
Avalon Cable of Michigan, Inc. was formed in June 1998, pursuant to the
laws of the state of Delaware, as a wholly-owned subsidiary of Avalon Cable of
Michigan Holdings, Inc. ("Michigan Holdings"). On June 3, 1998, Avalon Cable of
Michigan, Inc. entered into an Agreement and Plan of Merger (the "Agreement")
among Avalon Cable of Michigan, Inc., Michigan Holdings and Cable Michigan, Inc.
("Cable Michigan"), pursuant to which Avalon Cable of Michigan, Inc. will merge
into Cable Michigan and Cable Michigan will become a wholly-owned subsidiary of
Michigan Holdings (the "Merger"). As part of the Merger, the name of Cable
Michigan was changed to Avalon Cable of Michigan, Inc.
In accordance with the terms of the Agreement, each share of common stock,
par value of $1.00 per share ("common stock"), of Cable Michigan outstanding
prior to the effective time of the Merger (other than treasury stock, shares
owned by Michigan Holdings or its subsidiaries, or shares as to which
dissenters' rights have been exercised) shall be converted into the right to
receive $40.50 in cash (the "Merger Consideration"), subject to certain possible
closing adjustments.
In conjunction with the acquisition of Cable Michigan, Avalon Cable of
Michigan, Inc. acquired Cable Michigan's 62% ownership interest in Mercom, Inc.
("Mercom").
On November 6, 1998, Avalon Cable of Michigan, Inc. completed its Merger.
The total consideration payable in conjunction with the Merger, including fees
and expenses is $431,629, including repayment of all existing Cable Michigan
indebtedness and accrued interest of $135,205. Subsequent to the Merger, the
arrangements with RCN and CTE for certain support services were terminated. The
Agreement also permitted Avalon Cable of Michigan, Inc. to agree to acquire the
remaining shares of Mercom that it did not own.
F-319
<PAGE> 549
AVALON CABLE, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Michigan Holdings contributed $137,375 in cash to Avalon Cable of Michigan,
Inc., which was used to consummate the Merger. On November 5, 1998, Michigan
Holdings received $105,000 in cash in exchange for promissory notes to lenders
(the "Bridge Agreement"). On November 6, 1998, Michigan Holdings contributed the
proceeds received from the Bridge Agreement and an additional $35,000 in cash to
Avalon Cable of Michigan, Inc. in exchange for 100 shares of common stock.
On March 26, 1999, the Company completed a series of transactions to
facilitate certain aspects of its financing between affiliated companies under
common control. As a result of these transactions:
- Avalon Cable of Michigan Inc. contributed its assets and liabilities,
excluding deferred tax liabilities, net to the Company in exchange for an
approximate 88% voting interest in the Company, which then transferred
those assets and liabilities to its wholly-owned subsidiary Avalon
Michigan;
- Avalon Michigan now operates the Michigan cluster, replacing Avalon Cable
of Michigan, Inc;
- Avalon Cable of Michigan Holdings, Inc. ceased to be an obligor on the
senior discount notes and together with Avalon Cable of Michigan, Inc.
became a guarantor of the obligations of the Company under the senior
discount notes;
- Avalon Michigan became an additional obligor on the Senior Subordinated
Notes replacing Avalon Cable of Michigan, Inc.; and
- Avalon Cable of Michigan, Inc. ceased to be an obligor on the Senior
Subordinated Notes and the credit facility and became a guarantor of the
obligations of Avalon Michigan under the Senior Subordinated Notes and
the credit facility.
As a result of the reorganization between entities under common control,
the Company accounted for the reorganization similar to a pooling-of-interests.
Under the pooling-of-interests method, the results of operations for the Company
include the results of operations from the date of inception (September 4, 1998)
of Avalon New England and the date of acquisition of the completed acquisitions.
Avalon New England and Avalon Michigan provide cable service to the western
New England area and the state of Michigan, respectively. Avalon New England and
Avalon Michigan's cable systems offer customer packages of basic and premium
cable programming services which are offered at a per channel charge or are
packaged together to form a tier of services offered at a discount from the
combined channel rate. Avalon New England and Avalon Michigan's cable systems
also provide premium cable services to their customers for an extra monthly
charge. Customers generally pay initial connection charges and fixed monthly
fees for cable programming and premium cable services, which constitute the
principle sources of revenue for Avalon New England and Avalon Michigan.
Avalon Holdings Finance was formed for the sole purpose of facilitating
financings associated with the acquisitions of various cable operating
companies. Avalon Holdings Finance conducts no other activities.
2. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.
F-320
<PAGE> 550
AVALON CABLE, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated financial statements herein include the accounts of the
Company and its wholly-owned subsidiaries.
These condensed financial statements should be read in conjunction with the
Company's audited financial statements as of December 31, 1998 and notes thereto
as included in the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") and declared effective with the SEC
on July 22, 1999.
The financial statements as of September 30,1999 and for the three and nine
month periods ended September 30,1999 and 1998 are unaudited; however, in the
opinion of management, such statements include all adjustments (consisting
solely of normal and recurring adjustments except for the acquisition of Cross
Country Cable, LLC ("Cross Country"), Nova Cablevision, Inc., Nova Cablevision
VI, L.P. and Nova Cablevision VII, L.P. ("Nova Cable"), Novagate Communication
Corporation ("Novagate"), Traverse Internet, R/Com. L.C., Taconic Technology
Corporation ("Taconic"), the Mercom merger and the contribution of assets and
liabilities by Avalon Cable of Michigan, Inc.) necessary to present fairly the
financial information included therein.
3. MERGER AND ACQUISITIONS
The Merger agreement between Michigan Holdings and Avalon Cable of
Michigan, Inc. permitted Avalon Cable of Michigan, Inc. to agree to acquire the
1,822,810 shares (approximately 38% of the outstanding stock) of Mercom that it
did not own (the "Mercom Acquisition"). On September 10, 1998 Avalon Cable of
Michigan, Inc. and Mercom entered into a definitive agreement (the "Mercom
Merger Agreement") providing for the acquisition by Avalon Cable of Michigan,
Inc. of all of such shares at a price of $12.00 per share. Avalon Cable of
Michigan, Inc. completed this acquisition in March 1999. The total estimated
consideration paid in conjunction with the Mercom Acquisition, excluding fees
and expenses was $21,900. The purchase price was allocated as follows:
approximately $13,800 to the elimination of minority interest, $1,170 to
property, plant and equipment, $6,700 to cable franchises and the excess of
consideration paid over the fair market value of the net assets acquired, or
goodwill, of $240.
In March 1999, Avalon Cable of Michigan, Inc. acquired the cable television
systems of Nova Cable for approximately $7,800, excluding transaction fees.
On January 21, 1999, the Company through its subsidiary, Avalon New
England, acquired Novagate for a purchase price of $2,900.
On March 26, 1999, the Company through its subsidiary, Avalon Michigan,
acquired the assets of R/Com, L.C., for a total purchase price of approximately
$450.
In January 1999, the Company acquired all of the issued and outstanding
common Stock of Cross Country for a purchase price of approximately $2,500,
excluding transaction fees.
On April 1, 1999, the Company, through its subsidiary, Avalon New England,
acquired Traverse Internet for $2,400.
The acquisitions have been accounted for as purchases and the results of
the companies acquired have been included in the accompanying financial
statements since their acquisition dates. Accordingly, the consideration was
allocated to the net assets based on their respective fair market values. The
excess of the consideration paid over the estimated fair market values of the
net assets acquired was $12,940 and is being amortized using the straight line
method over 15 years.
In July 1999, Avalon New England purchased all of the cable systems of
Taconic Technology Corporation for approximately $8,525 (excluding transaction
fees).
F-321
<PAGE> 551
AVALON CABLE, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
Upon the closure of the Mercom merger, Mercom was dissolved as a separate
taxable entity which resulted in a changed in tax status from a taxable entity
to a nontaxable entity. As a result, the Company recognized a tax benefit of
$1,362 in its results of operations and eliminated its deferred taxes, net in
the balance sheet.
5. COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of Mercom, former shareholders of Mercom
holding approximately 731,894 Mercom common shares or approximately 15.3% of all
outstanding Mercom common shares gave notice of their election to exercise
appraisal rights as provided by Delaware law. On July 2, 1999, former
shareholders of Mercom holding 535,501 shares of Mercom common stock filed a
petition for appraisal of stock in the Court of Chancery in the State of
Delaware. With respect to 209,893 of the total number of shares for which the
Company received notice, the Company received the notice of election from
beneficial holders of Mercom common shares and not from holders of record. The
Company believes that the notice with respect to the 209,893 shares did not
comply with Delaware law and is ineffective. The Company cannot predict at this
time the effect of the elections to exercise appraisal rights on the Company
since the Company does not know the extent to which these former shareholders
will continue to pursue appraisal rights under Delaware law or choose to abandon
these efforts and accept the consideration payable in the Mercom merger. If
these former shareholders continue to pursue their appraisal rights and if a
Delaware court were to find that the fair value of the Mercom common shares,
exclusive of any element of value arising from our acquisition of Mercom,
exceeded $12.00 per share, the Company would have to pay the additional amount
for each Mercom common share to the appraisal subject to the appraisal
proceedings together with a fair rate of interest. The Company could be ordered
by the Delaware court to pay reasonable attorney's fees and the fees and
expenses of experts for the shareholders. In addition, the Company would have to
pay their own litigation costs. The Company has already provided for the
consideration of $12.00 per Mercom common share due under the terms of our
merger with Mercom with respect to these shares but has not provided for any
additional amounts or costs. The Company can provide no assurance as to what a
Delaware court would find in any appraisal proceeding or when this matter will
be resolved. Accordingly, the Company cannot assure you that the ultimate
outcome would not have a material adverse effect on the Company.
The Company is subject to the provisions of the Cable Television Consumer
Protection and Competition Act of 1992, as amended, and the Telecommunications
Act of 1996. The Company has either settled challenges or accrued for
anticipated exposures related to rate regulation; however, there is no assurance
that there will not be further additional challenges to its rates.
In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company.
6. PENDING MERGER
In May 1999, the Company signed an agreement with Charter Communications,
Inc. ("Charter Communications") under which Charter Communications agreed to
purchase Avalon Cable LLC's cable television systems and assume some of their
debt. The acquisition by Charter Communication is subject to regulatory
approvals. The Company expects to consummate this transaction in the fourth
quarter of 1999.
This agreement, if closed, would constitute a change in control under the
Indenture pursuant to which the Senior Subordinated Notes and the Senior
Discount Notes (collectively, the
F-322
<PAGE> 552
AVALON CABLE, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Notes") were issued. The Indenture provides that upon the occurrence of a
change of control of the Company (a "Change of Control") each holder of the
Notes has the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes at an offer price
in cash equal to 101% of the aggregate principal amount thereon (or 101% of the
accreted value for the Senior Discount Notes as of the date of purchase if prior
to the full accretion date) plus accrued and unpaid interest and Liquidated
Damages (as defined in the Indenture) thereof, if any, to the date of purchase.
This agreement, if closed, would represent a Change of Control which, on
the closing date, constitutes an event of default under the Credit Facility
giving the lender the right to terminate the credit commitment and declare all
amounts outstanding immediately due and payable. Charter Communications has
agreed to repay all amounts due under the Credit Facility or cause all events of
default under the Credit Facility arising from the Change of Control to be
waived.
F-323
<PAGE> 553
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
Avalon Cable of Michigan Holdings, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows present fairly, in all material respects, the financial position
of Avalon Cable of Michigan Holdings, Inc. and subsidiaries (collectively, the
"Company") at December 31, 1997 and 1998, and the results of their operations,
changes in shareholders' equity and their cash flows for the period from
September 4, 1997 (inception) through December 31, 1997, and for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statements presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 30, 1999, except for Note 13,
as to which the date is May 13, 1999
F-324
<PAGE> 554
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash........................................................ $ 9,288 $ --
Accounts receivable, net of allowance for doubtful accounts
of $943................................................... 5,862 --
Prepayments and other current assets........................ 1,388 504
Accounts receivable from related parties.................... 124 --
Deferred income taxes....................................... 377 --
-------- ----
Current assets.............................................. 17,039 504
Property, plant and equipment, net.......................... 111,421 --
Intangible assets, net...................................... 462,117 --
Deferred charges and other assets........................... 1,302 --
-------- ----
Total assets................................................ $591,879 $504
======== ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of notes payable............................ $ 20 $ --
Accounts payable and accrued expenses....................... 11,646 --
Advance billings and customer deposits...................... 3,171 --
Accounts payable-affiliate.................................. 2,023 500
-------- ----
Current liabilities......................................... 16,860 500
Long-term debt.............................................. 402,949 --
Notes payable-affiliate..................................... 3,341 --
Deferred income taxes....................................... 80,811 --
-------- ----
Total liabilities........................................... 503,961 500
-------- ----
Commitments and contingencies (Note 11)..................... -- --
Minority interest........................................... 61,836 4
-------- ----
Stockholders equity:
Common stock................................................ -- --
Additional paid-in capital.................................. 35,000 --
Accumulated deficit......................................... (8,918) --
-------- ----
Total shareholders' equity.................................. 26,082 --
-------- ----
Total liabilities and shareholders' equity.................. $591,879 $504
======== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-325
<PAGE> 555
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR SEPTEMBER 4, 1997
ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REVENUE:
Basic services.......................................... $14,976 $ --
Premium services........................................ 1,468 --
Other................................................... 1,743 --
------- -------
18,187 --
OPERATING EXPENSES:
Selling, general and administrative..................... 4,207 --
Programming............................................. 4,564 --
Technical and operations................................ 1,951 --
Depreciation and amortization........................... 8,183 --
------- -------
Loss from operations.................................... (718) --
Interest income......................................... 173 4
Interest expense........................................ (8,223) --
Other expense, net...................................... (65) --
------- -------
Income (loss) before income taxes....................... (8,833) 4
(Benefit) from income taxes............................. (2,754) --
------- -------
Income (loss) before minority interest and extraordinary
item.................................................. (6,079) 4
Minority interest in income of consolidated entity...... 1,331 (4)
------- -------
Income (loss) before extraordinary item................. (4,748) --
Extraordinary loss on extinguishment of debt (net of tax
of $1,743)............................................ (4,170) --
------- -------
Net income (loss)....................................... $(8,918) $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-326
<PAGE> 556
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 4, 1997 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
SHARES COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT EQUITY
----------- ------ ---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net income from date of
inception through December
31, 1997.................... -- $-- $ -- $ -- $ --
Balance, January 1, 1998...... 100 -- -- -- --
Net loss...................... -- -- -- (8,918) (8,918)
Contributions by parent....... -- -- 35,000 -- 35,000
--- -- ------- ------- -------
Balance, December 31, 1998.... 100 $-- $35,000 $(8,918) $26,082
=== == ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-327
<PAGE> 557
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
SEPTEMBER 4, 1997
FOR THE YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (8,918) $ 4
Extraordinary loss on extinguishment of debt............ 4,170 --
Depreciation and amortization........................... 8,183 --
Deferred income taxes, net.............................. 82,370 --
Provision for loss on accounts receivable............... 75 --
Increase in minority interest........................... 1,331 --
Accretion on senior discount notes...................... 1,083
Net change in certain assets and liabilities, net of
business acquisitions Increase in accounts
receivable............................................ (1,679) --
Increase in accounts receivable from related parties.... (124) --
Increase in prepayment and other current assets......... (884) (4)
Increase in accounts payable and accrued expenses....... 4,863 --
Increase in accounts payable to related parties......... 1,523 --
Increase in deferred revenue............................ 1,684 --
Change in Other, net.................................... 1,339
--------- ---------
Net cash provided by operating activities............... 92,338 --
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.............. (11,468) --
Payment for acquisition................................. (554,402) --
--------- ---------
Net cash used in investing activities................... 565,870 --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of the Credit Facility....... 265,888 --
Principal payment on debt............................... (125,013) --
Proceeds from the issuance of senior subordinated
notes................................................. 150,000 --
Payments made on bridge loan............................ (105,000) --
Proceeds from bridge loan............................... 105,000 --
Proceeds from the senior discount notes................. 110,411 --
Proceeds from sale to minority interest................. 46,588 --
Proceeds from other notes payable....................... 600 --
Proceeds from the issuance of note payable affiliate.... 3,341 --
Payments made for debt financing costs.................. (3,995) --
Proceeds from the issuance of common stock.............. 35,000 --
--------- ---------
Net cash provided by financing activities............... 482,820 --
--------- ---------
Net increase in cash.................................... 9,288 --
Cash at beginning of the period......................... -- --
--------- ---------
Cash at end of the period............................... $ 9,288 $ --
--------- ---------
Supplemental disclosures of cash flow information.......
Cash paid during the year for Interest.................. $ 3,480 $ --
Income taxes............................................ -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-328
<PAGE> 558
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Avalon Cable of Michigan Holdings, Inc. ("the Company") was formed in June
1998, pursuant to the laws of the state of Delaware. Avalon Cable of Michigan
Inc. ("Avalon Michigan") was formed in June 1998, pursuant to the laws of the
state of Delaware as a wholly owned subsidiary of the Company. On June 3, 1998,
Avalon Michigan entered into an Agreement and Plan of Merger (the "Agreement")
among the Company, Cable Michigan, Inc. ("Cable Michigan") and Avalon Michigan,
pursuant to which Avalon Michigan will merge into Cable Michigan and Cable
Michigan will become a wholly owned subsidiary of the Company (the "Merger").
In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of Cable Michigan outstanding prior
to the effective time of the Merger (other than treasury stock shares owned by
the Company or its subsidiaries, or shares as to which dissenters' rights have
been exercised) shall be converted into the right to receive $40.50 in cash (the
"Merger Consideration"), subject to certain possible closing adjustments.
In conjunction with the acquisition of Cable Michigan, Avalon Michigan
acquired Cable Michigan's 62% ownership interest in Mercom, Inc. ("Mercom").
On November 6, 1998, Avalon Michigan completed its merger into and with
Cable Michigan. The total consideration paid in conjunction with the merger,
including fees and expenses was $431,629, including repayment of all existing
Cable Michigan indebtedness and accrued interest of $135,205. Subsequent to the
merger, the arrangements with RCN and CTE for certain support services were
terminated. The Agreement also permitted Avalon Michigan to agree to acquire the
remaining shares of Mercom that it did not own.
The Company contributed $137,375 in cash to Avalon Michigan, which was used
to consummate the Merger. On November 5, 1998, the Company received $105,000 in
cash in exchange for promissory notes to lenders (the "Bridge Agreement"). On
November 6, 1998, the Company contributed the proceeds received from the Bridge
Agreement and an additional $35,000 in cash to Avalon Michigan in exchange for
100 shares of common stock.
On November 6, 1998, Avalon Cable of New England Holdings, Inc. contributed
its 100% interest in Avalon Cable of New England LLC ("Avalon New England") to
Avalon Cable LLC in exchange for a membership interest in Avalon Cable LLC. This
contribution was between entities under common control and was accounted for
similar to a pooling-of-interests. Under this pooling-of-interests method, the
results of operations for Avalon include the results of operations from the date
of inception (September 4, 1997) of Avalon New England. On that same date,
Avalon Cable LLC received $63,000 from affiliated entities, which was comprised
of (i) a $45,000 capital contribution by Avalon Investors, LLC ("Avalon
Investors") and (ii) a $18,000 promissory note from Avalon Cable Holdings LLC
("Avalon Holdings"), which was used to make a $62,800 cash contribution to
Avalon New England.
The cash contribution received by Avalon New England was used to (i)
extinguish existing indebtedness of $29,600 and (ii) fund a $33,200 loan to
Avalon Holdings Finance which matures on December 31, 2001.
F-329
<PAGE> 559
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
On December 10, 1998, Avalon Cable LLC received a dividend distribution
from Avalon New England in the amount of $18,206, which was used by Avalon Cable
LLC to pay off the promissory note payable to Avalon Holdings, plus accrued
interest.
On March 26, 1999, after the acquisition of Mercom, Inc., the Company
completed a series of transactions to facilitate certain aspects of its
financing between affiliated entities under common control. As a result of these
transactions:
- Avalon Michigan contributed its assets and liabilities excluding deferred
tax liabilities, net to Avalon Cable LLC in exchange for an approximate
88% voting interest in Avalon Cable LLC. Avalon Cable LLC contributed
these assets and liabilities to its wholly-owned subsidiary, Avalon Cable
of Michigan LLC ("Avalon Michigan LLC");
- Avalon Michigan LLC has become the operator of the Michigan cluster
replacing Avalon Michigan;
- Avalon Michigan LLC is an obligor on the Senior Subordinated Notes
replacing Avalon Michigan; and
- Avalon Michigan is a guarantor of the obligations of Avalon Michigan LLC
under the Senior Subordinated Notes. Avalon Michigan does not have
significant assets, other than its investment in Avalon Cable LLC.
- The Company contributed the Senior Discount Notes to Avalon Cable LLC and
became a guarantor of the Senior Discount Notes. The Company does not
have significant assets, other than its 88% investment in Avalon Cable
LLC.
As a result of this reorganization between entities under common control,
the Company accounted for the reorganization similar to a pooling-of-interests.
Under the pooling-of-interests method, the results of operations include the
results of operations from the earliest date that a member became a part of the
control group by inception or acquisition. For the Company, the results of
operations are from the date of inception (September 4, 1997) for Avalon New
England, a wholly-owned subsidiary of Avalon Cable LLC.
Avalon Michigan has a majority-interest in Avalon Cable LLC. Avalon Cable
LLC wholly-owns Avalon Cable Holdings Finance, Avalon New England, and Avalon
Michigan LLC.
Avalon New England and Avalon Michigan provide cable service to the western
New England area and the state of Michigan, respectively. Avalon New England and
Avalon Michigan LLC's cable systems offer customer packages for basic cable
programming services which are offered at a per channel charge or packaged
together to form a tier of services offered at a discount from the combined
channel rate. Avalon New England and Avalon Michigan LLC's cable systems also
provide premium cable services to their customers for an extra monthly charge.
Customers generally pay initial connection charges and fixed monthly fees for
cable programming and premium cable services, which constitute the principle
sources of revenue for the Company.
Avalon Holdings Finance was formed for the sole purpose of facilitating
financings associated with the acquisitions of various cable operating
companies. Avalon Holdings Finance conducts no other activities.
F-330
<PAGE> 560
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements of the Company include the accounts
of the Company and of all its wholly and majority owned subsidiaries. All
significant transactions between the Company and its subsidiaries have been
eliminated.
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.
Revenue recognition
Revenues from cable services are recorded in the month the service is
provided. Installation fee revenue is recognized in the period in which the
installation occurs to the extent that direct selling costs meet or exceed
installation revenues.
Advertising expense
Advertising costs are expensed as incurred. Advertising expense charged to
operations was $82 for the year ended December 31, 1998.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentration of credit risk include cash and subscriber and other receivables.
The Company had cash in excess of federally insured deposits at financial
institutions at December 31, 1998. The Company does not believe that such
deposits are subject to any unusual credit risk beyond the normal credit risk
associated with operating its business. The Company extends credit to customers
on an unsecured basis in the normal course of business. The Company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
historically exceeded management's expectations. The Company's trade receivables
reflect a customer base centered in Michigan and New England. The Company
routinely assesses the financial strength of its customers; as a result,
concentrations of credit risk are limited.
Property, plant and equipment
Property, plant and equipment is stated at its fair value for items
acquired from Cable Michigan, historical cost for the minority interests' share
of Mercom property, plant and equipment and cost for additions subsequent to the
merger. Initial subscribers installation costs, including materials, labor and
overhead costs, are capitalized as a component of cable plant and equipment. The
cost of disconnection and reconnection are charged to expense when incurred.
F-331
<PAGE> 561
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
Depreciation is computed for financial statement purposes using the
straight-line method based on the following lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10-25 years
Cable plant and equipment................................... 5-12 years
Vehicles.................................................... 5 years
Office furniture and equipment.............................. 5-10 years
</TABLE>
Intangible assets
Intangible assets represent the estimated fair value of cable franchises
and goodwill resulting from acquisitions. Cable franchises are amortized over a
period ranging from 13 to 15 years on a straight-line basis. Goodwill is the
excess of the purchase price over the fair value of the net assets acquired,
determined through an independent appraisal, and is amortized over 15 years
using the straight-line method. Deferred financing costs represent direct costs
incurred to obtain long-term financing and are amortized to interest expense
over the term of the underlying debt utilizing the effective interest method.
Accounting for impairments
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 -- "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
estimates the net future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected net future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles expected to be held and used
is based on the fair value of the asset.
No impairment losses have been recognized by the Company pursuant to SFAS
121.
Fair value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
a. The Company estimates that the fair value of all financial
instruments at December 31, 1998 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The fair value of the notes payable-affiliate
are considered to be equal to carrying values since the Company believes
that its credit risk has not changed from the time this debt instrument was
executed and therefore, would obtain a similar rate in the current market.
b. The fair value of the cash and temporary cash investments
approximates fair value because of the short maturity of these instruments.
F-332
<PAGE> 562
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
Income taxes
The Company and Mercom file separate consolidated federal income tax
returns. The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 -- "Accounting for Income Taxes". The statement
requires the use of an asset and liability approach for financial reporting
purposes. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between financial reporting basis and tax basis of assets and
liabilities. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
3. MERGER AND ACQUISITIONS
The Merger was accounted for using the purchase method of accounting.
Accordingly, the consideration was allocated to the net assets acquired based on
their fair market values at the date of the Merger. The purchase price was
allocated as follows: current assets and liabilities at fair values of $470,
approximately $94,000 to property, plant and equipment, $315,000 to cable
franchises and the excess of consideration paid over the fair market value of
the net assets acquired, or goodwill, of $81,705, offset by deferred taxes, net
of $60,000.
The Merger agreement between the Company and Avalon Michigan permitted
Avalon Michigan to agree to acquire the 1,822,810 shares (approximately 38% of
the outstanding stock) of Mercom that it did not own (the "Mercom Acquisition").
On September 10, 1998 Avalon Michigan and Mercom entered into a definitive
agreement (the "Mercom Merger Agreement") providing for the acquisition by
Avalon Michigan of all of such shares at a price of $12.00 per share. Avalon
Michigan completed this acquisition in March 1999. The total estimated
consideration payable in conjunction with the Mercom Acquisition, excluding fees
and expenses was $21,900.
On May 29, 1998, the Company acquired certain assets of Amrac Clear View, A
Limited Partnership ("Amrac") for consideration of $8,124, including acquisition
costs of $589. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the consideration was allocated to the net assets
acquired based on the fair market values at the date of acquisition as
determined through the use of an independent appraisal. The excess of the
consideration paid over the estimated fair market value of the net assets
acquired, or goodwill, was $256.
On July 21, 1998, the Company acquired certain assets and liabilities from
Pegasus Cable Television, Inc. and Pegasus Cable Television of Connecticut, Inc.
(collectively, "Pegasus") for consideration of $30,467, including acquisition
costs of $175. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the consideration was allocated to the net assets
acquired based on the fair market values at the date of acquisition as
determined through use of an independent appraisal. The excess of the
consideration paid over the estimated fair market value of the net assets
acquired, or goodwill, was $977.
F-333
<PAGE> 563
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
Following is the unaudited pro forma results of operations for the year
ended December 31, 1998, as if the Merger and acquisitions occurred on January
1, 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(UNAUDITED)
<S> <C>
Revenue..................................................... $ 96,751
========
Loss from operations........................................ $ (5,292)
========
Net loss.................................................... $(22,365)
========
</TABLE>
In March 1999, Avalon Michigan acquired the cable television systems of
Nova Cablevision, Inc., Nova Cablevision VI, L.P. and Nova Cablevision VII, L.P.
for approximately $7,800, excluding transaction fees.
In September 1998, the Company entered into a definitive agreement to
purchase all of the cable systems of Taconic Technology Corporation ("Taconic")
for approximately $8,525 (excluding transaction fees). As of December 31, 1998,
the Company incurred $41 of transaction costs related to the acquisition of
Taconic. This merger is expected to close in the second quarter of 1999.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<S> <C>
Cable plant and equipment................................... $106,602
Vehicles.................................................... 2,572
Buildings and improvements.................................. 1,026
Office furniture and equipment.............................. 2,234
Construction in process..................................... 768
--------
Total property, plant and equipment......................... 113,202
Less-accumulated depreciation............................... (1,781)
--------
Property, plant and equipment, net.......................... $111,421
========
</TABLE>
Depreciation expense was $1,781 for the year ended December 31, 1998.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<S> <C>
Cable Franchise............................................. $374,773
Goodwill.................................................... 82,928
Deferred Financing Costs.................................... 10,658
Non-compete agreement....................................... 100
--------
Total....................................................... 468,459
Less-accumulated amortization............................... (6,342)
--------
Intangible assets, net...................................... $462,117
========
</TABLE>
F-334
<PAGE> 564
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
Amortization expense for the year ended December 31, 1998 was $6,342.
6. ACCOUNT PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<S> <C>
Accounts payable............................................ $ 5,321
Accrued corporate expenses.................................. 404
Accrued cable programming costs............................. 2,388
Accrued taxes............................................... 1,383
Other....................................................... 2,150
-------
$11,646
=======
</TABLE>
7. INCOME TAXES
The income tax provision (benefit) in the accompanying consolidated
financial statements of operations is comprised of the following:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Current
Federal..................................................... $ 243
State....................................................... --
-------
Total Current............................................... 243
-------
Deferred
Federal..................................................... (2,757)
State....................................................... (240)
-------
Total Deferred.............................................. (2,997)
-------
Total (benefit) for income taxes............................ $(2,754)
=======
</TABLE>
The benefit for income taxes is different from the amounts computed by
applying the U.S. statutory federal tax rate of 35% for 1998. The differences
are as follows:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
(Loss) before (benefit) for income taxes.................... $(8,833)
=======
Federal tax (benefit) at statutory rates.................... $(3,092)
State income taxes.......................................... (177)
Goodwill.................................................... 77
Benefit for taxes allocated to minority partners............ 84
-------
(Benefit) for income taxes.................................. $(3,108)
=======
</TABLE>
<TABLE>
<CAPTION>
TAX NET
OPERATING EXPIRATION
YEAR LOSSES DATE
- ---- --------- ----------
<S> <C> <C>
1998................................................... $10,360 2018
</TABLE>
F-335
<PAGE> 565
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
Temporary differences that give rise to significant portion of deferred tax
assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
NOL carryforwards........................................... $ 5,363
Alternative minimum tax credits............................. 141
Reserves.................................................... 210
Other, net.................................................. 309
--------
Total deferred assets....................................... 6,023
--------
Property, plant and equipment............................... (10,635)
Intangible assets........................................... (76,199)
--------
Total deferred liabilities.................................. (86,834)
--------
Subtotal.................................................... (80,811)
--------
Valuation allowance......................................... --
--------
Total deferred taxes........................................ $(80,811)
========
</TABLE>
The tax benefit related to the loss on extinguishment of debt results in
deferred tax, and it approximates the statutory U.S. tax rate. The tax benefit
of $2,036 related to the exercise of certain stock options of Cable Michigan
Inc. was charged directly to goodwill in conjunction with the closing of the
merger.
8. DEBT
At December 31, 1998, long-term debt consists of the following:
<TABLE>
<S> <C>
Senior Credit Facility...................................... $140,875
Senior Subordinated Notes................................... 150,000
Senior Discount Notes....................................... 111,494
Other Note Payable.......................................... 600
--------
402,969
Current portion............................................. 20
--------
$402,949
========
</TABLE>
Credit Facilities
On May 28, 1998, Avalon New England entered into a term loan and revolving
credit agreement with a major commercial lending institution (the "Credit
Agreement"). The Credit Agreement allowed for aggregate borrowings under Term
Loans A and B (collectively, the "Term Loans") and a revolving credit facility
of $30,000 and $5,000, respectively. The proceeds from the Term Loans and
revolving credit facility were used to fund the acquisitions made by Avalon New
England and to provide for Avalon New England's working capital requirements.
In December 1998, Avalon New England retired the Term Loans and revolving
credit agreement through the proceeds of a capital contribution from Avalon
Cable LLC. The fees and associated costs relating to the early retirement of
this debt was $1,110.
F-336
<PAGE> 566
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
On November 6, 1998, Avalon Michigan became a co-borrower along with Avalon
New England and Avalon Cable Finance, Inc. (Avalon Finance), affiliated
companies, collectively referred to as the ("Co-Borrowers") on a $320,888 senior
credit facility, which includes term loan facilities consisting of (i) tranche A
term loans of $120,888 and (ii) tranche B term loans of $170,000 and a revolving
credit facility of $30,000 (collectively, the "Credit Facility"). Subject to
compliance with the terms of the Credit Facility, borrowings under the Credit
Facility will be available for working capital purposes, capital expenditures
and pending and future acquisitions. The ability to advance funds under the
tranche A term loan facility terminated on March 31, 1999. The tranche A term
loans are subject to minimum quarterly amortization payments commencing on
January 31, 2001 and maturing on October 31, 2005. The tranche B term loans are
scheduled to be repaid in two equal installments on July 31, 2006 and October
31, 2006. The revolving credit facility borrowings are scheduled to be repaid on
October 31, 2005.
On November 6, 1998, Avalon Michigan borrowed $265,888 under the Credit
Facility in order to consummate the Merger. In connection with the Senior
Subordinated Notes (as defined below) and Senior Discount Notes (as defined
below) offerings, Avalon Michigan repaid $125,013 of the Credit Facility, and
the availability under the Credit Facility was reduced to $195,000. Avalon
Michigan had borrowings of $11,300 and $129,575 outstanding under the tranche A
and tranche B term note facilities, and had available $30,000 for borrowings
under the revolving credit facility. Avalon New England and Avalon Finance had
no borrowings outstanding under the Credit Facility at December 31, 1998.
The interest rate under the Credit Facility is a rate based on either (i)
the base rate (a rate per annum equal to the greater of the Prime Rate and the
Federal Funds Effective Rate plus 1/2 of 1%) or (ii) the Eurodollar rate (a rate
per annum equal to the Eurodollar Base Rate divided by 1.00 less the
Eurocurrency Reserve Requirements) plus, in either case, the applicable margin.
As of December 31, 1998, the applicable margin was (a) with respect to the
tranche B term loans was 2.75% per annum for Base Rate loans and 3.75% per annum
for Eurodollar loans and (b) with respect to tranche A term loans and the
revolving credit facility was 2.00% per annum for Base Rate loans and 3.00% for
Eurodollar loans. The applicable margin for the tranche A term loans and the
revolving credit facility are subject to performance based grid pricing which is
determined based on upon the consolidated leverage ratio of the Co-Borrowers.
The interest rate for the tranche B term loans outstanding at December 31, 1998
was 9.19%. Interest is payable on a quarterly basis. Accrued interest on the
borrowings under the credit facility was $1,389 at December 31, 1998.
The Credit Facility contains restrictive covenants which among other things
require the Co-Borrowers to maintain certain ratios including consolidated
leverage ratios and the interest coverage ratio, fixed charge ratio and debt
service coverage ratio.
The obligations of the Co-Borrowers under the Credit Facility are secured
by substantially all of the assets of the Co-Borrowers. In addition, the
obligations of the Co-Borrowers under the Credit Facility are guaranteed by the
Company, Avalon Cable LLC, Avalon Cable Finance Holdings, Inc., Avalon Cable of
New England Holdings, Inc. and Avalon Cable Holdings, LLC.
A Change of Control as defined under the Credit Facility agreement would
constitute an event of default under the Credit Facility giving the lender the
right to terminate the credit commitment and declare all amounts outstanding
immediately due and payable.
F-337
<PAGE> 567
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
Subordinated Debt
In December 1998, Avalon Michigan became a co-issuer of a $150,000
principal balance, Senior Subordinated Notes ("Subordinated Notes") offering and
Michigan Holdings became a co-issuer of a $196,000, gross proceeds, Senior
Discount Notes (defined below) offering. In conjunction with these financings,
Avalon Michigan paid $18,130 to Avalon Finance as a partial payment against
Avalon Michigan's note payable-affiliate. Avalon Michigan paid $76 in interest
on this note payable-affiliate during the period from inception (June 2, 1998)
through December 31, 1998.
The Subordinated Notes mature on December 1, 2008, and interest accrued at
a rate of 9.375% per annum. Interest is payable semi-annually in arrears on June
1 and December 1 of each year, commencing on June 1, 1999. Accrued interest on
the Subordinated Notes was $1,078 at December 31, 1998.
The Senior Subordinated Notes will not be redeemable at the Co-Borrowers'
option prior to December 1, 2003. Thereafter, the Senior Subordinated Notes will
be subject to redemption at any time at the option of the Co-Borrowers, in whole
or in part at the redemption prices (expressed as percentages of principal
amount) plus accrued and unpaid interest, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003..................................................... 104.688%
2004..................................................... 103.125%
2005..................................................... 101.563%
2006 and thereafter...................................... 100.000%
</TABLE>
The scheduled maturities of the long-term debt are $2,000 in 2001, $4,000
in 2002, $72,479 in 2003, and the remainder thereafter.
At any time prior to December 1, 2001, the Co-Borrowers may on any one or
more occasions redeem up to 35% of the aggregate principal amount of Senior
Subordinate Notes originally issued under the Indenture at a redemption price
equal to 109.375% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, with the net cash proceeds of any
equity offering and/or the net cash proceeds of a strategic equity investment;
provided that at least 65% of the aggregate principal amount at maturity of
Senior Subordinated Notes originally issued remain outstanding immediately after
each such redemption.
As used in the preceding paragraph, "Equity Offering and Strategic Equity
Investment" means any public or private sale of Capital Stock of any of the
Co-Borrowers pursuant to which the Co-Borrowers together receive net proceeds of
at least $25 million, other than issuances of Capital Stock pursuant to employee
benefit plans or as compensation to employees; provided that to the extent such
Capital Stock is issued by the Co-Borrowers, the net cash proceeds thereof shall
have been contributed to one or more of the Co-Borrowers in the form of an
equity contribution.
The Indentures provide that upon the occurrence of a change of control (a
"Change of Control") each holder of the Notes has the right to require the
Company to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of such holder's Notes at an offer price in
F-338
<PAGE> 568
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
cash to 101% of the aggregate principal amount thereon plus accrued and unpaid
interest and Liquidated Damages (as defined in the Indentures) thereof, if any,
to the date of purchase.
The Senior Discount Notes
On December 3, 1998, the Company, Avalon Cable LLC and Avalon Cable
Holdings Finance, Inc. ("Holdings Co-Borrowers") issued $196.0 million aggregate
principal amount at maturity of 11 7/8% Senior Discount Notes ("Senior Discount
Notes") due 2008.
The Senior Discount Notes were issued at a substantial discount from their
principal amount at maturity, to generate gross proceeds of approximately $110.4
million. Interest on the Senior Discount Notes will accrue but not be payable
before December 1, 2003. Thereafter, interest on the Senior Discount Notes will
accrue on the principal amount at maturity at a rate of 11.875% per annum, and
will be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing December 1, 2003. Prior to December 1, 2003, the accreted value of
the Senior Discount Notes will increase, representing amortization of original
issue discount, between the date of original issuance and December 1, 2003 on a
semi-annual basis using a 360-day year comprised of twelve 30-day months, such
that the accreted value shall be equal to the full principal amount at maturity
of the Senior Discount Notes on December 1, 2003. Original issue discount
accretion on the Senior Discount Notes was $1,083 at December 31, 1998.
On December 1, 2003, the Holding Co-borrowers will be required to redeem an
amount equal to $369.79 per $1,000 principal amount at maturity of each Senior
Discount Note then outstanding on a pro rata basis at a redemption price of 100%
of the principal amount at maturity of the Senior Discount Notes so redeemed.
On or after December 1, 2003, the Senior Discount Notes will be subject to
redemption at any time at the option of the Holding Co-borrowers, in whole or in
part, at the redemption prices, which are expressed as percentages of principal
amount, shown below plus accrued and unpaid interest, if any, and liquidated
damages, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003..................................................... 105.938%
2004..................................................... 103.958%
2005..................................................... 101.979%
2006 and thereafter...................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time before December 1, 2001, the
holding companies may on any one or more occasions redeem up to 35% of the
aggregate principal amount at maturity of senior discount notes originally
issued under the Senior Discount Note indenture at a redemption price equal to
111.875% of the accreted value at the date of redemption, plus liquidated
damages, if any, to the redemption date, with the net cash proceeds of any
equity offering and/or the net cash proceeds of a strategic equity investment;
provided that at least 65% of the aggregate principal amount at maturity of
Senior Discount Notes originally issued remain outstanding immediately after
each occurrence of such redemption.
Upon the occurrence of a Change of Control, each holder of Senior Discount
Notes will have the right to require the Holding Co-borrowers to repurchase all
or any part of such holder's Senior Discount Notes pursuant to a Change of
Control offer at an offer price in cash equal to
F-339
<PAGE> 569
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
101% of the aggregate principal amount thereof plus accrued and unpaid interest
and liquidated damages thereon, if any, to the date of purchase.
Note Payable
Avalon New England issued a note payable for $500 which is due on May 29,
2003, and bears interest at a rate of 7% per annum (which approximates Avalon
New England's incremental borrowing rate) payable annually. Additionally, Avalon
New England has a $100 non-compete agreement. The agreement calls for five
annual payments of $20, commencing on May 29, 1999.
Mercom debt
In August 1997, the Mercom revolving credit agreement for $2,000 expired.
Mercom had no borrowings under the revolving credit agreement in 1996 or 1997.
On September 29, 1997, Avalon Michigan purchased and assumed all of the
bank's interest in the term credit agreement and the note issued thereunder.
Immediately after the purchase, the term credit agreement was amended in order
to, among other things, provide for less restrictive financial covenants,
eliminate mandatory amortization of principal and provide for a bullet maturity
of principal on December 31, 2002, and remove the change of control event of
default. Mercom's borrowings under the term credit agreement contain pricing and
security provisions substantially the same as those in place prior to the
purchase of the loan. The borrowings are secured by a pledge of the stock of
Mercom's subsidiaries and a first lien on certain of the assets of Mercom and
its subsidiaries, including inventory, equipment and receivables at December 31,
1998, $14,151 of principal was outstanding. The borrowings under the term credit
agreement are eliminated in the Company's consolidated balance sheet.
9. MINORITY INTEREST
The activity in minority interest for the year ended December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
AVALON
CABLE
MERCOM LLC TOTAL
------- ------- -------
<S> <C> <C> <C>
Issuance of Class A units by Avalon Cable LLC....... $ -- $45,000 $45,000
Issuance of Class B-1 units by Avalon Cable LLC..... -- 4,345 4,345
Allocated to minority interest prior to
restructuring..................................... -- 365 365
Purchase of Cable Michigan, Inc..................... 13,457 -- 13,457
Income (loss) allocated to minority interest........ 398 (1,729) (1,331)
------- ------- -------
Balance at December 31, 1998........................ $13,855 $47,981 $61,836
======= ======= =======
</TABLE>
10. EMPLOYEE BENEFIT PLANS
Avalon Michigan has a qualified savings plan under Section 401(K) of the
Internal Revenue Code. Contributions charged to expense for the period from
November 5, 1998 to December 31, 1998 was $30.
F-340
<PAGE> 570
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
11. COMMITMENTS AND CONTINGENCIES
Leases
Avalon New England and Avalon Michigan rent poles from utility companies
for use in their operations. While rental agreements are generally short-term,
Avalon New England and Avalon Michigan anticipate such rentals will continue in
the future. Avalon New England and Avalon Michigan also lease office facilities
and various items of equipment under month-to-month operating leases. Rent
expense was $58 for the year ended December 31, 1998. Rental commitments are
expected to continue at approximately $1 million a year for the foreseeable
future, including pole rental commitments which are cancelable.
Legal Matters
The Company and its subsidiaries are subject to regulation by the Federal
Communications Commission ("FCC") and other franchising authorities.
The Company and its subsidiaries are subject to the provisions of the Cable
Television Consumer Protection and Competition Act of 1992, as amended, and the
Telecommunications Act of 1996. The Company and its subsidiaries have either
settled challenges or accrued for anticipated exposures related to rate
regulation; however, there is no assurance that there will not be further
additional challenges to its rates.
In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company and its subsidiaries.
12. RELATED PARTY TRANSACTIONS AND BALANCES
During 1998, Avalon New England received $3,341 from Avalon Holdings. In
consideration for this amount, Avalon New England executed a note payable to
Avalon Holdings. This note is recorded as note payable-affiliate on the balance
sheet at December 31, 1998. Interest accrues at the rate of 5.57% per year and
Avalon New England has recorded accrued interest on this note of $100 at
December 31, 1998.
13. SUBSEQUENT EVENT
In May 1999, the Company signed an agreement with Charter Communications,
Inc. ("Charter Communications") under which Charter Communications agreed to
purchase Avalon Cable LLC's cable television systems and assume some of their
debt. The acquisition by Charter Communications is subject to regulatory
approvals. The Company expects to consummate this transaction in the fourth
quarter of 1999.
This agreement, if closed, would constitute a change in control under the
Indenture pursuant to which the Senior Subordinated Notes and the Senior
Discount Notes (collectively, the "Notes") were issued. The Indenture provides
that upon the occurrence of a change of control of the Company (a "Change of
Control") each holder of the Notes has the right to require the Company to
purchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereon (or 101% of the accreted value for the Senior Discount
Notes as of the date of purchase if prior
F-341
<PAGE> 571
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
to the full accretion date) plus accrued and unpaid interest and Liquidated
Damages (as defined in the Indenture) thereof, if any, to the date of purchase.
This agreement, if closed, would represent a Change of Control which, on
the closing date, constitutes an event of default under the Credit Facility
giving the lender the right to terminate the credit commitment and declare all
amounts outstanding immediately due and payable. Charter Communications has
agreed to repay all amounts due under the Credit Facility or cause all events of
default under the Credit Facility arising from the Change of Control to be
waived.
F-342
<PAGE> 572
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 9,288 $ 2,995
Accounts receivable, net of allowance for doubtful
accounts of $943 and $1,275............................ 5,862 7,564
Prepayments and other current assets...................... 1,388 1,586
Accounts receivable from related parties.................. 124 --
Deferred income taxes..................................... 377 --
-------- --------
Total current assets................................... 17,039 12,145
Property, plant and equipment, net........................ 111,421 121,973
Intangible assets, net.................................... 462,117 468,856
Deferred charges and other assets......................... 1,302 1,121
-------- --------
Total assets........................................... $591,879 $604,095
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.......................... $ 20 $ 25
Accounts payable and accrued expenses..................... 11,646 22,242
Advance billings and customer deposits.................... 3,171 3,272
Accounts payable -- affiliate............................. 2,023 3,160
-------- --------
Total current liabilities.............................. 16,860 28,699
Long-Term Debt............................................ 402,949 452,778
Notes Payable -- affiliate................................ 3,341 --
Deferred income taxes..................................... 80,811 67,136
-------- --------
Total liabilities...................................... 503,961 548,613
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5):
Minority Interest........................................... 61,836 44,512
-------- --------
STOCKHOLDERS' EQUITY:
Common stock.............................................. -- --
Additional paid-in capital................................ 35,000 35,000
Accumulated deficit....................................... (8,918) (24,030)
-------- --------
Total stockholders' equity............................. 26,082 10,970
-------- --------
Total liabilities and shareholders' equity............. $591,879 $604,095
======== ========
</TABLE>
F-343
<PAGE> 573
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
REVENUE:
Basic services............................................ $ 65,225 $2,123
Premium services.......................................... 6,174 85
Other..................................................... 8,799 161
-------- ------
Total revenues......................................... 80,198 2,369
OPERATING EXPENSES:
Selling, general and administrative....................... 14,765 439
Programming............................................... 21,372 662
Technical and operations.................................. 9,171 216
Depreciation and amortization............................. 33,574 654
-------- ------
Income from operations.................................... 1,316 398
OTHER INCOME (EXPENSE):
Interest income........................................... 743 --
Interest expense.......................................... (34,340) (680)
-------- ------
Loss before income taxes.................................... (32,281) (282)
Benefit from income taxes................................... 13,700 --
-------- ------
Loss before minority interest............................... (18,581) (282)
Minority interest in loss of consolidated entity............ 3,469 --
-------- ------
Net loss.................................................. $(15,112) $ (282)
======== ======
</TABLE>
F-344
<PAGE> 574
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
---------------------------------------------------------------
COMMON ADDITIONAL TOTAL
SHARES COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT EQUITY
----------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998.......... 100 $-- $35,000 $ (8,918) $ 26,082
Net loss for the nine months ended
September 30, 1999............. -- -- -- (15,112) (15,112)
--- -- ------- -------- --------
BALANCE, September 30, 1999......... 100 $-- $35,000 $(24,030) $ 10,970
=== == ======= ======== ========
</TABLE>
F-345
<PAGE> 575
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (282) $(15,112)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization.......................... 654 33,574
Accretion of Senior Discount Notes..................... -- 10,102
Decrease in minority interest.......................... -- (3,469)
Net change in certain assets and liabilities, net of
business acquisitions
Decrease (increase) in subscriber receivables.......... 100 (1,092)
Decrease in accounts receivables....................... -- 124
Increase in prepayment and other assets................ (24) (129)
Increase in accounts payable and accrued expenses...... 774 10,582
Increase in deferred revenue........................... 17 101
Increase in accounts payable, net -- affiliate......... -- 876
Increase in accrued interest........................... 564 --
Increase in long-term debt............................. -- 951
Decrease in deferred income taxes, net................. -- (13,298)
-------- --------
Net cash provided by operating activities............ 1,803 23,210
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (72) (15,009)
Change in restricted cash................................. 500 --
Payment for acquisitions, net............................. (38,426) (49,929)
-------- --------
Net cash used in investing activities................ (37,998) (64,938)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in note payable -- affiliate.......... 2,841 (3,341)
Capital contribution...................................... 4,862 --
Proceeds from the issuance of the Credit Facility......... 29,600 45,300
Payment of deferred financing costs....................... (470) --
Proceeds from the issuance of notes payable............... 500 --
Payment of term loans and revolving credit facility....... -- (6,524)
-------- --------
Net cash provided by financing activities............ 37,333 35,435
-------- --------
NET INCREASE (DECREASE) IN CASH............................. 1,138 (6,293)
CASH at beginning of the period............................. -- 9,288
-------- --------
CASH at end of the period................................... $ 1,138 $ 2,995
======== ========
</TABLE>
The accompanying notes are an integral part off these consolidated financial
statements.
F-346
<PAGE> 576
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS
Avalon Cable of Michigan Holdings, Inc. ("the Company") was formed in June
1998, pursuant to the laws of the state of Delaware. Avalon Cable of Michigan
Inc. ("Avalon Michigan") was formed in June 1998, pursuant to the laws of the
state of Delaware as a wholly-owned subsidiary of the Company. On June 3, 1998,
Avalon Michigan entered into an Agreement and Plan of Merger (the "Agreement")
among the Company, Cable Michigan, Inc. ("Cable Michigan") and Avalon Michigan,
pursuant to which Avalon Michigan will merge into Cable Michigan and Cable
Michigan will become a wholly-owned subsidiary of the Company (the "Merger").
In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of Cable Michigan outstanding prior
to the effective time of the Merger (other than treasury stock, shares owned by
the Company or its subsidiaries, or shares as to which dissenters' rights have
been exercised) shall be converted into the right to receive $40.50 in cash (the
"Merger Consideration"), subject to certain possible closing adjustments.
In conjunction with the acquisition of Cable Michigan, Avalon Michigan
acquired Cable Michigan's 62% ownership interest in Mercom, Inc. ("Mercom").
On November 6, 1998, Avalon Michigan completed its merger into and with
Cable Michigan. The total consideration paid in conjunction with the Merger,
including fees and expenses was $431,629, including repayment of all existing
Cable Michigan indebtedness and accrued interest of $135,205. The Agreement also
permitted Avalon Michigan to agree to acquire the remaining shares of Mercom
that it did not own.
The Company contributed $137,375 in cash to Avalon Michigan, which was used
to consummate the Merger. On November 5, 1998, the Company received $105,000 in
cash in exchange for promissory notes to lenders (the "Bridge Agreement"). On
November 6, 1998, the Company contributed the proceeds received from the Bridge
Agreement and an additional $35,000 in cash to Avalon Michigan in exchange for
100 shares of common stock.
On November 6, 1998, Avalon Cable of New England Holdings, Inc. contributed
its 100% interest in Avalon Cable of New England LLC ("Avalon New England") to
Avalon Cable LLC in exchange for a membership interest in Avalon Cable LLC. This
contribution was between entities under common control and was accounted for
similar to a pooling-of-interests. Under this pooling-of-interests method, the
results of operations for the Company include the results of operations from the
date of inception (September 4, 1997) of Avalon New England. On November 6,
1998, Avalon Cable LLC received $63,000 from affiliated entities, which was
comprised of (i) a $45,000 capital contribution by Avalon Investors ,LLC
("Avalon Investors") and (ii) a $18,000 promissory note from Avalon Cable
Holdings LLC ("Avalon Holdings"), which was used to make a $62,800 cash
contribution to Avalon New England.
The cash contribution received by Avalon New England was used to (i)
extinguish existing indebtedness of $29,600 and (ii) fund a $33,200 loan to
Avalon Cable Finance, Inc. which matures on December 31, 2001.
On December 10, 1998, Avalon Cable LLC received a dividend distribution
from Avalon New England in the amount of $18,206, which was used by Avalon Cable
LLC to pay off the promissory note payable to Avalon Holdings, plus accrued
interest.
F-347
<PAGE> 577
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 26, 1999, after the acquisition of Mercom, the Company completed a
series of transactions to facilitate certain aspects of its financing between
affiliated entities under common control. As a result of these transactions:
- The Company contributed the Senior Discount Notes and associated debt
finance costs to Avalon Cable LLC and became a guarantor of the Senior
Discount Notes;
- Avalon Michigan contributed its assets and liabilities, excluding
deferred tax liabilities, net to Avalon Cable LLC in exchange for an
approximate 88% voting interest in Avalon Cable LLC. Avalon Cable LLC
contributed these assets and liabilities, excluding the Senior Discount
Notes and associated debt finance costs, to its wholly-owned subsidiary,
Avalon Cable of Michigan LLC;
- Avalon Cable of Michigan LLC has become the operator of the Michigan
cluster replacing Avalon Michigan;
- Avalon Cable of Michigan LLC is an obligor on the Senior Subordinated
Notes replacing Avalon Michigan; and
- Avalon Michigan is a guarantor of the obligations of Avalon Cable of
Michigan LLC under the Senior Subordinated Notes. Avalon Michigan does
not have significant assets, other than its 88% investment in Avalon
Cable LLC at September 30, 1999.
As a result of this reorganization between entities under common control,
the Company accounted for the reorganization similar to a pooling-of-interests.
Under the pooling-of-interests method, the results of operations include the
results of operations from the earliest date that a member becomes a part of the
control group by inception or acquisition. For the Company, the results of
operations are from the date of inception (September 4, 1997) for Avalon New
England, a wholly-owned subsidiary of Avalon Cable LLC.
The Company has a majority interest in Avalon Cable LLC. Avalon Cable LLC
wholly owns Avalon Cable Holdings Finance, Inc., Avalon New England and Avalon
Cable of Michigan LLC.
Avalon Cable of Michigan LLC and Avalon New England provide cable services
to various areas in Michigan and New England, respectively. Avalon New England
and Avalon Cable of Michigan LLC's cable systems offer customer packages for
basic cable programming services which are offered at a per channel charge or
packaged together to form a tier of services offered at a discount from the
combined channel rate. Avalon New England and Avalon Cable of Michigan LLC's
cable systems also provide premium cable services to their customers for an
extra monthly charge. Customers generally pay initial connection charges and
fixed monthly fees for cable programming and premium cable services, which
constitute the principal sources of revenue for the Company.
Avalon Cable Holdings Finance, Inc. was formed for the sole purpose of
facilitating financings associated with the acquisition of various cable
operating companies. Avalon Cable Holdings Finance, Inc. conducts no other
activities.
2. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, certain financial information has been condensed and certain
footnote disclosures have been omitted. Such information and disclosures are
normally included in financial statements prepared in accordance with generally
accepted accounting principles.
F-348
<PAGE> 578
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These condensed financial statements should be read in conjunction with the
Company's audited financial statements as of December 31, 1998 and notes thereto
as included in the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") and declared effective with the SEC
on July 22, 1999.
The financial statements as of September 30,1999 and for the three and nine
month periods ended September 30, 1999 and 1998 are unaudited; however, in the
opinion of management, such statements include all adjustments (consisting
solely of normal and recurring adjustments except for the acquisition of Cross
Country Cable, LLC ("Cross Country"), Nova Cablevision, Inc., Nova Cablevision
VI, L.P. and Nova Cablevision VII, L.P. ("Nova Cable"), Novagate Communication
Corporation ("Novagate"), Traverse Internet, R/Com, L.C., Taconic Technology
Corporation ("Taconic"), the Mercom merger and the contribution of assets and
liabilities by Avalon Michigan) necessary to present fairly the financial
information included therein.
3. MERGER AND ACQUISITIONS
The Merger agreement between the Company and Avalon Michigan permitted
Avalon Michigan to agree to acquire the 1,822,810 shares (approximately 38% of
the outstanding stock) of Mercom that it did not own (the "Mercom Acquisition").
On September 10, 1998, Avalon Michigan and Mercom entered into a definitive
agreement (the "Mercom Merger Agreement") providing for the acquisition by
Avalon Michigan of all of such shares at a price of $12.00 per share. Avalon
Michigan completed this acquisition in March 1999. The total estimated
consideration payable in conjunction with the Mercom Acquisition, excluding fees
and expenses was $21,900. The purchase price was allocated as follows:
approximately $13,800 to the elimination of minority interest, $1,170 to
property, plant and equipment, $6,700 to cable franchises and the excess of
consideration paid over the fair market value of the net assets acquired, or
goodwill, of $240.
In March 1999, Avalon Cable of Michigan Inc. acquired the cable television
systems of Nova Cable for approximately $7,800, excluding transaction fees.
On January 21, 1999, the Company through its subsidiary, Avalon New
England, acquired Novagate for a purchase price of $2,900.
On March 26, 1999, the Company through its subsidiary, Avalon Cable of
Michigan, LLC, acquired the assets of R/Com, L.C., for a total purchase price of
approximately $450.
In January 1999, the Company acquired all of the issued and outstanding
common stock of Cross Country for a purchase price of approximately $2,500,
excluding transaction fees.
On April 1, 1999, the Company, through its subsidiary, Avalon New England,
acquired Traverse Internet for $2,400.
The acquisitions have been accounted for as purchases and the results of
the companies acquired have been included in the accompanying financial
statements since their acquisition dates. Accordingly, the consideration was
allocated to the net assets based on their respective fair market values. The
excess of the consideration paid over the estimated fair market values of the
net assets acquired was $12,940 and is being amortized using the straight line
method over 15 years.
In July 1999, Avalon New England purchased all of the cable systems of
Taconic Technology Corporation for approximately $8,525 (excluding transaction
fees).
F-349
<PAGE> 579
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. MINORITY INTEREST
The activity in minority interest for the nine months ended September 30,
1999 is as follows:
AVALON CABLE
<TABLE>
<CAPTION>
MERCOM LLC TOTAL
-------- ------- --------
<S> <C> <C> <C>
Balance at December 31, 1998........................ $ 13,855 $47,981 $ 61,836
Purchase of the minority interest of Mercom......... (13,855) -- (13,855)
Loss allocated to minority interest................. -- (3,469) (3,469)
-------- ------- --------
$ -- $44,512 $ 44,512
======== ======= ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of Mercom, former shareholders of Mercom
holding approximately 731,894 Mercom common shares or approximately 15.3% of all
outstanding Mercom common shares gave notice of their election to exercise
appraisal rights as provided by Delaware law. On July 2, 1999, former
shareholders of Mercom holding 535,501 shares of Mercom common stock filed a
petition for appraisal of stock in the Court of Chancery in the State of
Delaware. With respect to 209,893 of the total number of shares for which the
Company received notice, the Company received the notice of election from
beneficial holders of Mercom common shares and not from holders of record. The
Company believes that the notice with respect to the 209,893 shares did not
comply with Delaware law and is ineffective. The Company cannot predict at this
time the effect of the elections to exercise appraisal rights on the Company
since the Company does not know the extent to which these former shareholders
will continue to pursue appraisal rights under Delaware law or choose to abandon
these efforts and accept the consideration payable in the Mercom merger. If
these former shareholders continue to pursue their appraisal rights and if a
Delaware court were to find that the fair value of the Mercom common shares,
exclusive of any element of value arising from our acquisition of Mercom,
exceeded $12.00 per share, the Company would have to pay the additional amount
for each Mercom common share subject to the appraisal proceedings together with
a fair rate of interest. The Company could be ordered by the Delaware court also
to pay reasonable attorney's fees and the fees and expenses of experts for the
shareholders. In addition, the Company would have to pay their own litigation
costs. The Company has already provided for the consideration of $12.00 per
Mercom common share due under the terms of our merger with Mercom with respect
to these shares but has not provided for any additional amounts or costs. The
Company can provide no assurance as to what a Delaware court would find in any
appraisal proceeding or when this matter will be resolved. Accordingly, the
Company cannot assure you that the ultimate outcome would not have a material
adverse effect on the Company.
The Company is subject to the provisions of the Cable Television Consumer
Protection and Competition Act of 1992, as amended, and the Telecommunications
Act of 1996. The Company has either settled challenges or accrued for
anticipated exposures related to rate regulation; however, there is no assurance
that there will not be further additional challenges to its rates.
In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company.
F-350
<PAGE> 580
AVALON CABLE OF MICHIGAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PENDING MERGER
In May 1999, the Company signed an agreement with Charter Communications,
Inc. ("Charter Communications") under which Charter Communications agreed to
purchase the Company's cable television systems and assume some of their debt.
The acquisition by Charter Communications is subject to regulatory approvals.
The Company expects to consummate this transaction in the fourth quarter of
1999.
This agreement, if closed, would constitute a change in control under the
indentures pursuant to which the Senior Subordinated Notes and the Senior
Discount Notes (collectively, the "Notes") were issued. The Indentures provide
that upon the occurrence of a change of control (a "Change of Control") each
holder of the Notes has the right to require the Company to purchase all or any
part (equal to $1,000 or an integral multiple thereof) of such holder's Notes at
an offer price in cash equal to 101% of the aggregate principal amount thereon
(or 101% of the accreted value for the Senior Discount Notes as of the date of
purchase if prior to the full accretion date) plus accrued and unpaid interest
and Liquidated Damages (as defined in the Indentures) thereof, if any, to the
date of purchase.
This agreement, if closed, would represent a Change of Control which, on
the closing date, constitutes an event of default under the Credit Facility
giving the lender the right to terminate the credit commitment and declare all
amounts outstanding immediately due and payable. Charter Communications has
agreed to repay all amounts due under the Credit Facility or cause all events of
default under the Credit Facility arising from the Change of Control to be
waived.
F-351
<PAGE> 581
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Avalon Cable of Michigan, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and changes in shareholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of Cable Michigan, Inc. and subsidiaries (collectively, the
"Company") at December 31, 1996 and 1997 and November 5, 1998, and the results
of their operations and their cash flows for each of the two years ended
December 31, 1996 and 1997 and the period from January 1, 1998 to November 5,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 30, 1999
F-352
<PAGE> 582
CABLE MICHIGAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 5,
1997 1998
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and temporary cash investments......................... $ 17,219 $ 6,093
Accounts receivable, net of reserve for doubtful accounts of
$541 at December 31, 1997 and $873 at November 5, 1998.... 3,644 4,232
Prepayments and other....................................... 663 821
Accounts receivable from related parties.................... 166 396
Deferred income taxes....................................... 1,006 541
-------- --------
Total current assets........................................ 22,698 12,083
Property, plant and equipment, net.......................... 73,836 77,565
Intangible assets, net...................................... 45,260 32,130
Deferred charges and other assets........................... 803 9,442
-------- --------
Total assets................................................ $142,597 $131,220
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of long-term debt........................... $ -- $ 15,000
Accounts payable............................................ 5,564 8,370
Advance billings and customer deposits...................... 2,242 1,486
Accrued taxes............................................... 167 1,035
Accrued cable programming expense........................... 2,720 5,098
Accrued expenses............................................ 4,378 2,052
Accounts payable to related parties......................... 1,560 343
-------- --------
Total current liabilities................................... 16,631 33,384
Long-term debt.............................................. 143,000 120,000
Deferred income taxes....................................... 22,197 27,011
-------- --------
Total liabilities........................................... 181,828 180,395
-------- --------
Minority interest........................................... 14,643 14,690
-------- --------
Commitments and contingencies (Note 11)..................... -- --
Preferred Stock............................................. -- --
Common stock................................................ -- --
Common shareholders' deficit................................ (53,874) (63,865)
-------- --------
Total Liabilities and Shareholders' Deficit................. $142,597 $131,220
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-353
<PAGE> 583
CABLE MICHIGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
DECEMBER 31, PERIOD FROM
------------------------ JANUARY 1, 1998 TO
1996 1997 NOVEMBER 5, 1998
---------- ---------- ------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AND SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues....................................... $ 76,187 $ 81,299 $ 74,521
Costs and expenses, excluding management fees
and depreciation and amortization.............. 40,593 44,467 41,552
Management fees................................ 3,498 3,715 3,156
Depreciation and amortization.................. 31,427 32,082 28,098
Merger related expenses........................ -- -- 5,764
---------- ---------- ----------
Operating income............................... 669 1,035 (4,049)
Interest income................................ 127 358 652
Interest expense............................... (15,179) (11,751) (8,034)
Gain on sale of Florida cable system........... -- 2,571 --
Other (expense), net........................... (736) (738) (937)
---------- ---------- ----------
(Loss) before income taxes..................... (15,119) (8,525) (12,368)
(Benefit) from income taxes.................... (5,712) (4,114) (1,909)
---------- ---------- ----------
(Loss) before minority interest and equity in
unconsolidated entities...................... (9,407) (4,411) (10,459)
Minority interest in loss (income) of
consolidated entity.......................... 1,151 53 (75)
---------- ---------- ----------
Net (Loss)..................................... $ (8,256) $ (4,358) $ (10,534)
========== ========== ==========
Basic and diluted earnings per average common
share Net (loss) to shareholders............. $ (1.20) $ (.63) $ (1.53)
Average common shares and common stock
equivalents outstanding...................... 6,864,799 6,870,528 6,891,932
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-354
<PAGE> 584
CABLE MICHIGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
THE PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 5, 1998
----------------------------------------------------------------------------
COMMON ADDITIONAL SHAREHOLDER'S TOTAL
SHARES COMMON PAID-IN NET SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT INVESTMENT DEFICIT
----------- ------ ---------- -------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 1,000 $ 1 $ -- $ -- $(73,758) $(73,757)
Net loss....................... -- -- -- -- (8,256) (8,256)
Transfers from CTE............. -- -- -- -- 2,272 2,272
--------- ------ ---- -------- -------- --------
Balance, December 31, 1996..... 1,000 1 -- -- (79,742) (79,741)
Net loss from 1/1/97 through
9/30/97...................... -- -- -- -- (3,251) (3,251)
Net loss from 10/1/97 through
12/31/97..................... -- -- -- (1,107) -- (1,107)
Transfers from RCN
Corporation.................. -- -- -- -- 30,225 30,225
Common stock issued in
connection with the
Distribution................. 6,870,165 6,870 -- (59,638) 52,768 --
--------- ------ ---- -------- -------- --------
Balance, December 31, 1997..... 6,871,165 6,871 -- (60,745) -- (53,874)
Net loss from January 1, 1998
to November 5, 1998.......... -- -- -- (10,534) -- (10,534)
Exercise of stock options...... 30,267 30 351 -- -- 381
Tax benefits of stock option
exercises.................... -- -- 162 -- -- 162
--------- ------ ---- -------- -------- --------
Balance, November 5, 1998...... 6,901,432 $6,901 $513 $(71,279) $ -- $(63,865)
========= ====== ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-355
<PAGE> 585
CABLE MICHIGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, FOR THE PERIOD FROM
-------------------- JANUARY 1, 1998 TO
1996 1997 NOVEMBER 5, 1998
-------- --------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss).................................................. $ (8,256) $ (4,358) $(10,534)
Gain on pension curtailment/settlement...................... (855) -- --
Depreciation and amortization............................... 31,427 32,082 28,098
Deferred income taxes, net.................................. 988 (4,359) (3,360)
Provision for losses on accounts receivable................. 843 826 710
Gain on sale of Florida cable systems....................... -- (2,571) --
Increase (decrease) in minority interest.................... (1,151) (53) 47
Other non-cash items........................................ 2,274 1,914 --
Net change in certain assets and liabilities, net of
business acquisitions
Accounts receivable and customer deposits................... (1,226) (617) (2,054)
Accounts payable............................................ 1,365 2,234 2,806
Accrued expenses............................................ 125 580 52
Accrued taxes............................................... (99) 61 868
Accounts receivable from related parties.................... 567 1,549 (230)
Accounts payable to related parties......................... 1,314 (8,300) (1,217)
Other, net.................................................. 501 (644) (158)
-------- --------- --------
Net cash provided by operating activities................... 27,817 18,344 15,028
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (9,605) (14,041) (18,697)
Acquisitions, net of cash acquired.......................... -- (24) --
Proceeds from sale of Florida cable systems................. -- 3,496 --
Other....................................................... 390 560 --
-------- --------- --------
Net cash used in investing activities....................... (9,215) (10,009) (18,697)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt.................................. -- 128,000 --
Redemption of long-term debt................................ (1,500) (17,430) (8,000)
Proceeds from the issuance of common stock.................. -- -- 543
Transfers from CTE.......................................... -- 12,500 --
Change in affiliate notes, net.............................. (16,834) (116,836) --
Payments made for debt financing costs...................... -- (647) --
-------- --------- --------
Net cash provided by (used in) financing activities......... (18,334) 5,587 (7,457)
Net increase/(decrease) in cash and temporary cash
investments............................................... 268 13,922 (11,126)
Cash and temporary cash investments at beginning of year.... 3,029 3,297 17,219
-------- --------- --------
Cash and temporary cash investments at end of year.......... $ 3,297 $ 17,219 $ 6,093
======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for Interest...................... $ 15,199 $ 11,400 $ 7,777
Income taxes................................................ 29 370 315
</TABLE>
Supplemental Schedule of Non-cash Investing and Financing Activities:
In September 1997, in connection with the transfer of CTE's investment in
Mercom to the Company, the Company assumed CTE's $15,000 Term Credit Facility.
Certain intercompany accounts receivable and payable and intercompany note
balances were transferred to shareholders' net investment in connection with
the Distribution described in note 1.
The accompanying notes are an integral part of these consolidated financial
statements.
F-356
<PAGE> 586
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 31, 1998
1. BACKGROUND AND BASIS OF PRESENTATION
Prior to September 30, 1997, Cable Michigan, Inc. and subsidiaries (the
"Company") was operated as part of C-TEC Corporation ("C-TEC"). On September 30,
1997, C-TEC distributed 100 percent of the outstanding shares of common stock of
its wholly owned subsidiaries, RCN Corporation ("RCN") and the Company to
holders of record of C-TEC's Common Stock and C-TEC's Class B Common Stock as of
the close of business on September 19, 1997 (the "Distribution") in accordance
with the terms of the Distribution Agreement dated September 5, 1997 among
C-TEC, RCN and the Company. The Company consists of C-TEC's Michigan cable
operations, including its 62% ownership in Mercom, Inc. ("Mercom"). In
connection with the Distribution, C-TEC changed its name to Commonwealth
Telephone Enterprises, Inc. ("CTE"). RCN consists primarily of C-TEC's bundled
residential voice, video and Internet access operations in the Boston to
Washington, D.C. corridor, its existing New York, New Jersey and Pennsylvania
cable television operations, a portion of its long distance operations and its
international investment in Megacable, S.A. de C.V. C-TEC, RCN, and the Company
continue as entities under common control until the Company completes the Merger
(as described below).
On June 3, 1998, the Company entered into an Agreement and Plan of Merger
(the "Agreement") among the Company, Avalon Cable of Michigan Holdings Inc.
("Avalon Holdings") and Avalon Cable of Michigan Inc. ("Avalon Sub"), pursuant
to which Avalon Sub will merge into the Company and the Company will become a
wholly owned subsidiary of Avalon Holdings (the "Merger").
In accordance with the terms of the Agreement, each share of common stock,
par value $1.00 per share ("common stock"), of the Company outstanding prior to
the effective time of the Merger (other than treasury stock, shares owned by
Avalon Holdings or its subsidiaries, or shares as to which dissenters' rights
have been exercised) shall be converted into the right to receive $40.50 in cash
(the "Merger Consideration"), subject to certain possible closing adjustments.
On November 6, 1998, the Company completed its merger into and with Avalon
Cable Michigan, Inc. The total consideration payable in conjunction with the
merger, including fees and expenses is approximately 431,600. Subsequent to the
merger, the arrangements with RCN and CTE (as described below) were terminated.
The Merger agreement also permitted the Company to agree to acquire the
remaining shares of Mercom that it did not own.
Cable Michigan provides cable services to various areas in the state of
Michigan. Cable Michigan's cable television systems offer customer packages for
basic cable programming services which are offered at a per channel charge or
packaged together to form a tier of services offered at a discount from the
combined channel rate. Cable Michigan's cable television systems also provide
premium cable services to their customers for an extra monthly charge. Customers
generally pay initial connection charges and fixed monthly fees for cable
programming and premium cable services, which constitute the principle sources
of revenue for the Company.
The consolidated financial statements have been prepared using the
historical basis of assets and liabilities and historical results of operations
of all wholly and majority owned subsidiaries. However, the historical financial
information presented herein reflects periods during which the Company did not
operate as an independent company and accordingly, certain assumptions were made
in preparing such financial information. Such information, therefore, may not
necessarily reflect the results of operations, financial condition or cash flows
of the Company
F-357
<PAGE> 587
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the future or what they would have been had the Company been an independent,
public company during the reporting periods. All material intercompany
transactions and balances have been eliminated.
RCN's corporate services group has historically provided substantial
support services such as finance, cash management, legal, human resources,
insurance and risk management. Prior to the Distribution, the corporate office
of C-TEC allocated the cost for these services pro rata among the business units
supported primarily based on assets; contribution to consolidated earnings
before interest, depreciation, amortization, and income taxes; and number of
employees. In the opinion of management, the method of allocating these costs is
reasonable; however, such costs are not necessarily indicative of the costs that
would have been incurred by the Company on a stand-alone basis.
CTE, RCN and the Company have entered into certain agreements subsequent to
the Distribution, and governing various ongoing relationships, including the
provision of support services between the three companies, including a
distribution agreement and a tax-sharing agreement.
The fee per year for support services from RCN will be 4.0% of the revenues
of the Company plus a direct allocation of certain consolidated cable
administration functions of RCN. The direct charge for customer service along
with the billing service and the cable guide service will be a pro rata share
(based on subscribers) of the expenses incurred by RCN to provide such customer
service and to provide such billing and cable guide service for RCN and the
Company.
CTE has agreed to provide or cause to be provided to RCN and the Company
certain financial data processing services for a transitional period after the
Distribution. The fees for such services will be an allocated portion (based on
relative usage) of the cost incurred by CTE to provide such financial data
processing services to all three groups.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Cash and temporary cash investments
For purposes of reporting cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be temporary cash investments. Temporary cash investments are stated at cost,
which approximates market.
Property, plant and equipment and depreciation
Property, plant and equipment reflects the original cost of acquisition or
construction, including payroll and related costs such as taxes, pensions and
other fringe benefits, and certain general administrative costs.
F-358
<PAGE> 588
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is provided on the straight-line method based on the useful
lives of the various classes of depreciable property. The average estimated
lives of depreciable cable property, plant and equipment are:
<TABLE>
<S> <C>
Buildings................................................... 12-25 years
Cable television distribution equipment..................... 8.5-12 years
Vehicles.................................................... 5 years
Other equipment............................................. 12 years
</TABLE>
Maintenance and repair costs are charged to expense as incurred. Major
replacements and betterments are capitalized. Gain or loss is recognized on
retirements and dispositions.
Intangible assets
Intangible assets are amortized on a straight-line basis over the expected
period of benefit ranging from 5 to 19.3 years. Intangible assets include cable
franchises. The cable systems owned or managed by the Company are constructed
and operated under fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") that are generally
nonexclusive and are granted by local governmental authorities. The provisions
of these local franchises are subject to federal regulation. Costs incurred to
obtain or renew franchises are capitalized and amortized over the term of the
applicable franchise agreement.
Accounting for impairments
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 -- "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the Company
estimates the net future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected net future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles expected to be held and used
is based on the fair value of the asset.
No impairment losses have been recognized by the Company pursuant to SFAS
121.
Revenue recognition
Revenues from cable programming services are recorded in the month the
service is provided. Installation fee revenue is recognized in the period in
which the installation occurs.
Advertising expense
Advertising costs are expensed as incurred. Advertising expense charged to
operations was $514, $560, and $505 in 1996, 1997, and for the period from
January 1, 1998 to November 5, 1998 respectively.
F-359
<PAGE> 589
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-based compensation
The Company applies Accounting Principles Board Opinion No.
25 -- "Accounting for Stock Issued to Employees" ("APB 25") in accounting for
its stock plans. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 -- "Accounting for
Stock-Based Compensation" ("SFAS 123").
Earnings (loss) per share
The Company has adopted statement of Financial Accounting Standards No.
128 -- "Earnings Per Share" ("SFAS 128"). Basic earnings (loss) per share is
computed based on net income (loss) divided by the weighted average number of
shares of common stock outstanding during the period.
Diluted earnings (loss) per share is computed based on net income (loss)
divided by the weighted average number of shares of common stock outstanding
during the period after giving effect to convertible securities considered to be
dilutive common stock equivalents. The conversions of stock options during
periods in which the Company incurs a loss from continuing operations is not
assumed since the effect is anti-dilutive. The number of stock options which
would have been converted in 1997 and in 1998 and had a dilutive effect if the
Company had income from continuing operations are 55,602 and 45,531,
respectively.
For periods prior to October 1, 1997, during which the Company was a wholly
owned subsidiary of C-TEC, earnings (loss) per share was calculated by dividing
net income (loss) by one-fourth the average common shares of C-TEC outstanding,
based upon a distribution ratio of one share of Company common stock for each
four shares of C-TEC common equity owned.
Income taxes
The Company and Mercom file separate consolidated federal income tax
returns. Prior to the Distribution, income tax expense was allocated to C-TEC's
subsidiaries on a separate return basis except that C-TEC's subsidiaries receive
benefit for the utilization of net operating losses and investment tax credits
included in the consolidated tax return even if such losses and credits could
not have been used on a separate return basis. The Company accounts for income
taxes using Statement of Financial Accounting Standards No. 109 -- "Accounting
for Income Taxes". The statement requires the use of an asset and liability
approach for financial reporting purposes. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between financial reporting
basis and tax basis of assets and liabilities. If it is more likely than not
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
Reclassification
Certain amounts have been reclassified to conform with the current year's
presentation.
3. BUSINESS COMBINATION AND DISPOSITIONS
The Agreement between Avalon Cable of Michigan Holdings, Inc. and the
Company permitted the Company to agree to acquire the 1,822,810 shares
(approximately 38% of the outstanding stock) of Mercom that it did not own (the
"Mercom Acquisition"). On September 10, 1998 the Company and Mercom entered into
a definitive agreement (the "Mercom Merger Agreement") providing for the
acquisition by the Company of all of such shares at a price of $12.00 per share.
The Company completed this acquisition in March 1999.
F-360
<PAGE> 590
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total estimated consideration payable in conjunction with the Mercom
Acquisition, excluding fees and expenses was $21,900.
In March 1999, Avalon Michigan Inc. acquired the cable television systems
of Nova Cablevision, Inc., Nova Cablevision VI, L.P. and Nova Cablevision VII,
L.P. for approximately $7,800, excluding transaction fees.
In July 1997, Mercom sold its cable system in Port St. Lucie, Florida for
cash of approximately $3,500. The Company realized a pretax gain of $2,571 on
the transaction.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 5,
1997 1998
------------ -----------
<S> <C> <C>
Cable plant....................................... $158,655 $ 174,532
Buildings and land................................ 2,837 2,917
Furniture, fixtures and vehicles.................. 5,528 6,433
Construction in process........................... 990 401
-------- ---------
Total property, plant and equipment............... 168,010 184,283
Less accumulated depreciation..................... (94,174) (106,718)
-------- ---------
Property, plant and equipment, net................ $ 73,836 $ 77,565
======== =========
</TABLE>
Depreciation expense was $15,728, $16,431 and $14,968 for the years ended
December 31, 1996 and 1997, and the period from January 1, 1998 to November 5,
1998, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 5,
1997 1998
------------ -----------
<S> <C> <C>
Cable Franchises.................................. $134,889 $ 134,889
Noncompete agreements............................. 473 473
Goodwill.......................................... 3,990 3,990
Other............................................. 1,729 1,729
-------- ---------
Total............................................. 141,081 141,081
Less accumulated amortization..................... (95,821) (108,951)
-------- ---------
Intangible assets, net............................ $ 45,260 $ 32,130
======== =========
</TABLE>
Amortization expense charged to operations for the years ended December 31,
1996 and 1997 was $15,699 and $15,651, respectively, and $13,130 for the period
from January 1, 1998 to November 5, 1998.
F-361
<PAGE> 591
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The income tax provision (benefit) in the accompanying consolidated
financial statements of operations is comprised of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
CURRENT
Federal............................................. $(6,700) $ 245 $ 320
State............................................... -- -- 28
------- ------- -------
Total Current....................................... (6,700) 245 348
------- ------- -------
DEFERRED:
Federal............................................. 988 (4,359) (2,074)
State............................................... -- -- (183)
------- ------- -------
Total Deferred...................................... 988 (4,359) (2,257)
------- ------- -------
Total (benefit) for income taxes.................... $(5,712) $(4,114) $(1,909)
======= ======= =======
</TABLE>
The benefit for income taxes is different from the amounts computed by
applying the U.S. statutory federal tax rate of 35% for 1996, 34% for 1997 and
35% for the period from January 1, 1998 to November 5, 1998. The differences are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD FROM
------------------- JANUARY 1, 1998 TO
1996 1997 NOVEMBER 11, 1998
-------- ------- ------------------
<S> <C> <C> <C>
(Loss) before (benefit) for income
taxes.................................. $(15,119) $(8,525) $(12,368)
======== ======= ========
Federal tax (benefit) at statutory
rates.................................... $ (5,307) $(2,899) $ (4,329)
State income taxes....................... -- -- (101)
Goodwill................................. 175 171 492
Increase (decrease) in valuation
allowance.............................. (518) (1,190) --
Nondeductible expenses................... -- 147 2,029
Benefit of rate differential applied to
reversing timing differences........... -- (424) --
Other, net............................... (62) 81 --
-------- ------- --------
(Benefit) for income taxes............... $ (5,712) $(4,114) $ (1,909)
======== ======= ========
</TABLE>
Mercom, which files a separate consolidated income tax return, has the
following net operating losses available:
<TABLE>
<CAPTION>
TAX NET
OPERATING EXPIRATION
YEAR LOSSES DATE
- ---- --------- ----------
<S> <C> <C>
1992..................................................... $ 435 2007
1995..................................................... $2,713 2010
</TABLE>
In 1997, Mercom was liable for Federal Alternative Minimum Tax (AMT). At
December 31, 1997 and at November 5, 1998, the cumulative minimum tax credits
are $141 and $141, respectively. This amount can be carried forward indefinitely
to reduce regular tax liabilities that exceed AMT in future years.
F-362
<PAGE> 592
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences that give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 5,
1997 1998
------------ -----------
<S> <C> <C>
NOL carryforwards................................... $ 1,588 $ 1,132
Alternative minimum tax credits..................... 141 141
Reserves............................................ 753 210
Other, net.......................................... 230 309
-------- --------
Total deferred assets............................... 2,712 1,792
-------- --------
Property, plant and equipment....................... (11,940) (10,515)
Intangible assets................................... (11,963) (10,042)
-------- --------
Total deferred liabilities.......................... (23,903) (20,557)
-------- --------
Subtotal............................................ (21,191) (18,765)
Valuation allowance................................. -- --
-------- --------
Total deferred taxes................................ $(21,191) $(18,765)
======== ========
</TABLE>
In the opinion of management, based on the future reversal of taxable
temporary differences, primarily depreciation and amortization, the Company will
more likely than not be able to realize all of its deferred tax assets. As a
result, the net change in the valuation allowance for deferred tax assets during
1997 was a decrease of $1,262, which $72 related to Mercom of Florida.
Due to the sale of Mercom of Florida, the Company's deferred tax
liabilities decreased by $132.
7. DEBT
Long-term debt outstanding at November 5, 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 5,
1997 1998
------------ -----------
<S> <C> <C>
Term Credit Facility................................ $100,000 $100,000
Revolving Credit Facility........................... 28,000 20,000
Term Loan........................................... 15,000 15,000
-------- --------
Total............................................... 143,000 135,000
Current portion of long-term debt................... -- 15,000
-------- --------
Total Long-Term Debt................................ $143,000 $120,000
======== ========
</TABLE>
Credit Facility
The Company had an outstanding line of credit with a banking institution
for $3 million. No amounts were outstanding under this facility.
The Company has in place two secured credit facilities (the "Credit
Facilities") pursuant to a single credit agreement with a group of lenders for
which First Union National Bank acts as agent (the "Credit Agreement"), which
was effective as of July 1, 1997. The first is a five-year revolving credit
facility in the amount of $65,000 (the "Revolving Credit Facility"). The second
is an eight-year term credit facility in the amount of $100,000 (the "Term
Credit Facility").
F-363
<PAGE> 593
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest rate on the Credit Facilities will be, at the election of the
Company, based on either a LIBOR or a Base Rate option (6.25% at November 5,
1998) (each as defined in the Credit Agreement).
The entire amount of the Term Credit Facility has been drawn and as of
November 5, 1998, $100,000 of the principal was outstanding thereunder. The
entire amount of the Revolving Credit Facility is available to the Company until
June 30, 2002. As of November 5, 1998, $20,000 of principal was outstanding
thereunder. Revolving loans may be repaid and reborrowed from time to time.
The Term Credit Facility is payable over six years in quarterly
installments, from September 30, 1999 through June 30, 2005. Interest only is
due through June 1999. The Credit Agreement is currently unsecured.
The Credit Agreement contains restrictive covenants which, among other
things, require the Company to maintain certain debt to cash flow, interest
coverage and fixed charge coverage ratios and place certain limitations on
additional debt and investments. The Company does not believe that these
covenants will materially restrict its activities.
Term Loan
On September 30, 1997, the Company assumed all obligations of CTE under a
$15 million credit facility extended by a separate group of lenders for which
First Union National Bank also acts as agent (the "$15 Million Facility"). The
$15 Million Facility matures in a single installment on June 30, 1999 and is
collateralized by a first priority pledge of all shares of Mercom owned by the
Company. The $15 Million Facility has interest rate provisions (6.25% at
November 5, 1998), covenants and events of default substantially the same as the
Credit Facilities.
On November 6, 1998, the long-term debt of the Company was paid off in
conjunction with the closing of the merger.
Mercom debt
In August 1997, the Mercom revolving credit agreement for $2,000 expired.
Mercom had no borrowings under the revolving credit agreement in 1996 or 1997.
On September 29, 1997, the Company purchased and assumed all of the bank's
interest in the term credit agreement and the note issued thereunder.
Immediately after the purchase, the term credit agreement was amended in order
to, among other things, provide for less restrictive financial covenants,
eliminate mandatory amortization of principal and provide for a bullet maturity
of principal on December 31, 2002, and remove the change of control event of
default. Mercom's borrowings under the term credit agreement contain pricing and
security provisions substantially the same as those in place prior to the
purchase of the loan. The borrowings are secured by a pledge of the stock of
Mercom's subsidiaries and a first lien on certain of the assets of Mercom and
its subsidiaries, including inventory, equipment and receivables. At November 5,
1998, $14,151 of principal was outstanding. The borrowings under the term credit
agreement are eliminated in the Company's consolidated balance sheet.
8. COMMON STOCK AND STOCK PLANS
The Company has authorized 25,000,000 shares of $1 par value common stock,
and 50,000,000 shares of $1 par value Class B common stock. The Company also has
authorized
F-364
<PAGE> 594
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10,000,000 shares of $1 par value preferred stock. At November 5, 1998,
6,901,432 common shares are issued and outstanding.
In connection with the Distribution, the Company Board of Directors (the
"Board") adopted the Cable Michigan, Inc. 1997 Equity Incentive Plan (the "1997
Plan"), designed to provide equity-based compensation opportunities to key
employees when shareholders of the Company have received a corresponding benefit
through appreciation in the value of Cable Michigan Common Stock.
The 1997 Plan contemplates the issuance of incentive stock options, as well
as stock options that are not designated as incentive stock options,
performance-based stock options, stock appreciation rights, performance share
units, restricted stock, phantom stock units and other stock-based awards
(collectively, "Awards"). Up to 300,000 shares of Common Stock, plus shares of
Common Stock issuable in connection with the Distribution related option
adjustments, may be issued pursuant to Awards granted under the 1997 Plan.
All employees and outside consultants to the Company and any of its
subsidiaries and all Directors of the Company who are not also employees of the
Company are eligible to receive discretionary Awards under the 1997 Plan.
Unless earlier terminated by the Board, the 1997 Plan will expire on the
10th anniversary of the Distribution. The Board or the Compensation Committee
may, at any time, or from time to time, amend or suspend and, if suspended,
reinstate, the 1997 Plan in whole or in part.
Prior to the Distribution, certain employees of the Company were granted
stock option awards under C-TEC's stock option plans. In connection with the
Distribution, 380,013 options covering Common Stock were issued. Each C-Tec
option was adjusted so that each holder would hold options to purchase shares of
Commonwealth Telephone Enterprise Common Stock, RCN Common Stock and Cable
Michigan Common Stock. The number of shares subject to, and the exercise price
of, such options were adjusted to take into account the Distribution and to
ensure that the aggregate intrinsic value of the resulting RCN, the Company and
Commonwealth Telephone Enterprises options immediately after the Distribution
was equal to the aggregate intrinsic value of the C-TEC options immediately
prior to the Distribution.
F-365
<PAGE> 595
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information relating to the Company stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding December 31, 1995............................... 301,000
Granted..................................................... 33,750 $ 8.82
Exercised................................................... (7,250) --
Canceled.................................................... (35,500) 10.01
------- ------
Outstanding December 31, 1996............................... 292,000 8.46
Granted..................................................... 88,013 8.82
Exercised................................................... -- --
Canceled.................................................... (375) 10.01
------- ------
Outstanding December 31, 1997............................... 379,638 8.82
Granted..................................................... 47,500 31.25
Exercised................................................... (26,075) 26.21
Canceled.................................................... (10,250) --
------- ------
Outstanding November 5, 1998................................ 390,813 $11.52
======= ======
Shares exercisable November 5, 1998......................... 155,125 $ 8.45
</TABLE>
The range of exercise prices for options outstanding at November 5, 1998
was $8.46 to $31.25.
No compensation expense related to stock option grants was recorded in
1997. For the period ended November 5, 1998 compensation expense in the amount
of $161 was recorded relating to services rendered by the Board.
Under the term of the Merger Agreement the options under the 1997 Plan vest
upon the closing of the merger and each option holder will receive $40.50 per
option.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its stock options under the fair value method of SFAS 123. The fair value of
these options was estimated at the date of grant using a Black Scholes option
pricing model with the following weighted average assumptions for the period
ended November 5, 1998. The fair value of these options was estimated at the
date of grant using a Black Scholes option pricing model with weighted average
assumptions for dividend yield of 0% for 1996, 1997 and 1998; expected
volatility of 39.5% for 1996, 38.6% prior to the Distribution and 49.8%
subsequent to the Distribution for 1997 and 40% for 1998; risk-free interest
rate of 5.95%, 6.52% and 5.68% for 1996, 1997 and 1998 respectively, and
expected lives of 5 years for 1996 and 1997 and 6 years for 1998.
The weighted-average fair value of options granted during 1997 and 1998 was
$4.19 and $14.97, respectively.
F-366
<PAGE> 596
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net earnings and earnings per share were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE PERIOD
ENDED DECEMBER 31, FROM JANUARY 1,
------------------ TO NOVEMBER 5,
1996 1997 1998
------- ------- ---------------
<S> <C> <C> <C>
Net (Loss) as reported........................... $(8,256) $(4,358) $(10,534)
Net (Loss) pro forma............................. (8,256) (4,373) (10,174)
Basic (Loss) per share-as reported............... (1.20) (0.63) (1.45)
Basic (Loss) per share-pro forma................. (1.20) (0.64) (1.48)
Diluted (Loss) per share-as reported............. (1.20) (0.63) (1.45)
Diluted (Loss) per share-pro forma............... (1.20) (0.64) (1.48)
</TABLE>
In November 1996, the C-TEC shareholders approved a stock purchase plan for
certain key executives (the "Executive Stock Purchase Plan" or "C-TEC ESPP").
Under the C-TEC ESPP, participants may purchase shares of C-TEC Common Stock in
an amount of between 1% and 20% of their annual base compensation and between 1%
and 100% of their annual bonus compensation and provided, however, that in no
event shall the participant's total contribution exceed 20% of the sum of their
annual compensation, as defined by the C-TEC ESPP. Participant's accounts are
credited with the number of share units derived by dividing the amount of the
participant's contribution by the average price of a share of C-TEC Common Stock
at approximately the time such contribution is made. The share units credited to
participant's account do not give such participant any rights as a shareholder
with respect to, or any rights as a holder or record owner of, any shares of
C-TEC Common Stock. Amounts representing share units that have been credited to
a participant's account will be distributed, either in a lump sum or in
installments, as elected by the participant, following the earlier of the
participant's termination of employment with the Company or three calendar years
following the date on which the share units were initially credited to the
participant's account. It is anticipated that, at the time of distribution, a
participant will receive one share of C-TEC Common Stock for each share unit
being distributed.
Following the crediting of each share unit to a participant's account, a
matching share of Common Stock is issued in the participant's name. Each
matching share is subject to forfeiture as provided in the C-TEC ESPP. The
issuance of matching shares will be subject to the participant's execution of an
escrow agreement. A participant will be deemed to be the holder of, and may
exercise all the rights of a record owner of, the matching shares issued to such
participant while such matching shares are held in escrow. Shares of restricted
C-TEC Common Stock awarded under the C-TEC ESPP and share units awarded under
the C-TEC ESPP that relate to C-TEC Common Stock were adjusted so that following
the Distribution, each such participant was credited with an aggregate
equivalent value of restricted shares of common stock of CTE, the Company and
RCN. In September 1997, the Board approved the Cable Michigan, Inc. Executive
Stock Purchase Plan, ("the "Cable Michigan ESPP"), with terms substantially the
same as the C-TEC ESPP. The number of shares which may be distributed under the
Cable Michigan ESPP as matching shares or in payment of share units is 30,000.
9. PENSIONS AND EMPLOYEE BENEFITS
Prior to the Distribution, the Company's financial statements reflect the
costs experienced for its employees and retirees while included in the C-TEC
plans.
F-367
<PAGE> 597
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Through December 31, 1996, substantially all employees of the Company were
included in a trusteed noncontributory defined benefit pension plan, maintained
by C-TEC. Upon retirement, employees are provided a monthly pension based on
length of service and compensation. C-TEC funds pension costs to the extent
necessary to meet the minimum funding requirements of ERISA. Substantially, all
employees of C-TEC's Pennsylvania cable television operations (formerly Twin
Country Trans Video, Inc.) were covered by an underfunded plan which was merged
into C-TEC's overfunded plan on February 28, 1996.
The information that follows relates to the entire C-TEC noncontributory
defined benefit plan. The components of C-TEC's pension cost are as follows for
1996:
<TABLE>
<S> <C>
Benefits earned during the year (service costs)............. $ 2,365
Interest cost on projected benefit obligation............... 3,412
Actual return on plan assets................................ (3,880)
Other components -- net..................................... (1,456)
-------
Net periodic pension cost................................... $ 441
=======
</TABLE>
The following assumptions were used in the determination of the
consolidated projected benefit obligation and net periodic pension cost (credit)
for December 31, 1996:
<TABLE>
<S> <C>
Discount Rate............................................... 7.5%
Expected long-term rate of return on plan assets............ 8.0%
Weighted average long-term rate of compensation increases... 6.0%
</TABLE>
The Company's allocable share of the consolidated net periodic pension
costs (credit), based on the Company's proportionate share of consolidated
annualized salaries as of the valuation date, was approximately $10 for 1996.
These amounts are reflected in operating expenses. As discussed below, no
pension cost (credit) was recognized in 1997.
In connection with the restructuring, C-TEC completed a comprehensive study
of its employee benefit plans in 1996. As a result of this study, effective
December 31, 1996, in general, employees of the Company no longer accrue
benefits under the defined benefit pension plans and became fully vested in
their benefit accrued through that date. C-TEC notified affected participants in
December 1996. In December 1996, C-TEC allocated pension plan assets of $6,984
and the related liabilities to a separate plan for employees who no longer
accrue benefits after sum distributions. The allocation of assets and
liabilities resulted in a curtailment/settlement gain of $4,292. The Company's
allocable share of this gain was $855. This gain results primarily from the
reduction of the related projected benefit obligation. The curtailed plan has
assets in excess of the projected benefit obligation.
C-TEC sponsors a 401(k) savings plan covering substantially all employees
of the Company who are not covered by collective bargaining agreements.
Contributions made by the Company to the 401(k) plan are based on a specific
percentage of employee contributions. Contributions charged to expense were $128
in 1996. Contributions charged to expense in 1997 prior to the Distribution were
$107.
In connection with the Distribution, the Company established a qualified
saving plan under Section 401(k) of the Code. Contributions charged to expense
in 1997 were $53. Contributions charged to expense for the period from January
1, 1998 to November 5, 1998 were $164.
F-368
<PAGE> 598
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Total rental expense, primarily for office space and pole rental, was $984,
$908 and $1,077 for the year ended December 31, 1996, 1997 and for the period
from January 1, 1998 to November 5, 1998, respectively. Rental commitments are
expected to continue to approximate $1 million a year for the foreseeable
future, including pole rental commitments which are cancelable.
The Company is subject to the provisions of the Cable Television Consumer
Protection and Competition Act of 1992, as amended, and the Telecommunications
Act of 1996. The Company has either settled challenges or accrued for
anticipated exposures related to rate regulation; however, there is no assurance
that there will not be further additional challenges to its rates. The 1996
statements of operations include charges aggregating approximately $833 relating
to cable rate regulation liabilities. No additional charges were incurred in the
year ended December 31, 1997 and for the period from January 1, 1998 to November
5, 1998.
In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company.
The Company has agreed to indemnify RCN and C-TEC and their respective
subsidiaries against any and all liabilities which arise primarily from or
relate primarily to the management or conduct of the business of the Company
prior to the effective time of the Distribution. The Company has also agreed to
indemnify RCN and C-TEC and their respective subsidiaries against 20% of any
liability which arises from or relates to the management or conduct prior to the
effective time of the Distribution of the businesses of C-TEC and its
subsidiaries and which is not a true C-TEC liability, a true RCN liability or a
true Company liability.
The Tax Sharing Agreement, by and among the Company, RCN and C-TEC (the
"Tax Sharing Agreement"), governs contingent tax liabilities and benefits, tax
contests and other tax matters with respect to tax returns filed with respect to
tax periods, in the case of the Company, ending or deemed to end on or before
the Distribution date. Under the Tax Sharing Agreement, adjustments to taxes
that are clearly attributable to the Company group, the RCN group, or the C-TEC
group will be borne solely by such group. Adjustments to all other tax
liabilities will be borne 50% by C-TEC, 20% by the Company and 30% by RCN.
Notwithstanding the above, if as a result of the acquisition of all or a
portion of the capital stock or assets of the Company, the Distribution fails to
qualify as a tax-free distribution under Section 355 of the Internal Revenue
Code, then the Company will be liable for any and all increases in tax
attributable thereto.
F-369
<PAGE> 599
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. AFFILIATE AND RELATED PARTY TRANSACTIONS
The Company has the following transactions with affiliates:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE
ENDED PERIOD ENDED
----------------- NOVEMBER 5,
1996 1997 1998
------- ------ ------------
<S> <C> <C> <C>
Corporate office costs allocated to the Company... $ 3,498 $3,715 $1,866
Cable staff and customer service costs allocated
from RCN Cable.................................... 3,577 3,489 3,640
Interest expense on affiliate notes............... 13,952 8,447 795
Royalty fees charged by CTE....................... 585 465 --
Charges for engineering services.................. 296 -- --
Other affiliate expenses.......................... 189 171 157
</TABLE>
In addition, RCN has agreed to obtain programming from third party
suppliers for Cable Michigan, the costs of which will be reimbursed to RCN by
Cable Michigan. In those circumstances where RCN purchases third party
programming on behalf of both RCN and the Company, such costs will be shared by
each company, on a pro rata basis, based on each company's number of
subscribers.
At December 31, 1997 and November 5, 1998, the Company has accounts
receivable from related parties of $166 and $396 respectively, for these
transactions. At December 31, 1997 and November 5, 1998, the Company has
accounts payable to related parties of $1,560 and $343 respectively, for these
transactions.
The Company had a note payable to RCN Corporation of $147,567 at December
31, 1996 primarily related to the acquisition of the Michigan cable operations
and its subsequent operations. The Company repaid approximately $110,000 of this
note payable in 1997. The remaining balance was transferred to shareholder's net
investment in connection with the Distribution.
12. OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
The Company places its cash and temporary investments with high credit
quality financial institutions. The Company also periodically evaluates the
creditworthiness of the institutions with which it invests. The Company does,
however, maintain unsecured cash and temporary cash investment balances in
excess of federally insured limits.
The Company's trade receivables reflect a customer base centered in the
state of Michigan. The Company routinely assesses the financial strength of its
customers; as a result, concentrations of credit risk are limited.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
a. The fair value of the revolving credit agreement is considered to
be equal to carrying value since the debt re-prices at least every six
months and the Company believes that its credit risk has not changed from
the time the floating rate debt was borrowed and therefore, would obtain
similar rates in the current market.
F-370
<PAGE> 600
CABLE MICHIGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. The fair value of the cash and temporary cash investments
approximates fair value because of the short maturity of these instruments.
14. QUARTERLY INFORMATION (UNAUDITED)
The Company estimated the following quarterly data based on assumptions
which it believes are reasonable. The quarterly data may differ from quarterly
data subsequently presented in interim financial statements.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Revenue.................................. $20,734 $22,311 $22,735 $ 8,741
Operating income before depreciation,
amortization, and management fees...... 9,043 10,047 10,185 12,277
Operating income (loss).................. 7,000 (3,324) (674) (7,051)
Net (loss)............................... (1,401) (5,143) (2,375) (1,615)
Net (loss) per average Common Share...... (0.20) (0.75) (0.34) (0.23)
1997
Revenue.................................. $19,557 $20,673 $20,682 $20,387
Operating income before depreciation,
amortization, and management fees...... 8,940 9,592 9,287 9,013
Operating income (loss).................. 275 809 (118) 69
Net (loss)............................... N/A N/A N/A (1,107)
Net (loss) per average Common Share...... N/A N/A N/A (0.16)
</TABLE>
The fourth quarter information for the quarter ended December 31, 1998
includes the results of operations of the Company for the period from October 1,
1998 through November 5, 1998.
F-371
<PAGE> 601
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
of Avalon Cable of New England LLC
In our opinion, the accompanying balance sheet and the related statements
of operations, partners' equity (deficit) and of cash flows present fairly, in
all material respects, the financial position of Amrac Clear View, a Limited
Partnership, (the "Partnership"), as of May 28, 1998 and the results of its
operations and its cash flows for the period ended May 28, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
September 11, 1998
F-372
<PAGE> 602
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
BALANCE SHEET
MAY 28, 1998
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents................................... $ 415,844
Subscribers and other receivables, net of allowance for
doubtful accounts of $16,445.............................. 45,359
Prepaid expenses and other current assets................... 129,004
----------
Total current assets........................................ 590,207
Property, plant and equipment, net.......................... 483,134
----------
$1,073,341
==========
</TABLE>
<TABLE>
<S> <C>
LIABILITIES AND PARTNERS' EQUITY
Accounts payable............................................ $ 57,815
Accrued expenses............................................ 84,395
----------
Total current liabilities................................... 142,210
----------
Commitments and contingencies (Note 7)
Partners' equity............................................ 931,131
----------
$1,073,341
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-373
<PAGE> 603
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 28, 1998
<TABLE>
<S> <C>
REVENUE:
Basic services.............................................. $651,878
Premium services............................................ 78,365
Other....................................................... 49,067
--------
779,310
--------
OPERATING EXPENSES:
Programming................................................. 193,093
Selling, general and administrative......................... 151,914
Technical and operations.................................... 98,628
Depreciation and amortization............................... 47,268
Management fees............................................. 41,674
--------
Income from operations...................................... 246,733
Interest income............................................. 2,319
Interest (expense).......................................... (1,871)
--------
Net income.................................................. $247,181
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-374
<PAGE> 604
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 28, 1998
<TABLE>
<CAPTION>
CLASS A CLASS B INVESTOR
GENERAL LIMITED LIMITED LIMITED
PARTNER PARTNER PARTNER PARTNERS TOTAL
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Partners' (deficit) equity at
December 31, 1997................ $(6,756) $(6,756) $(2,703) $700,165 $683,950
Net income......................... 6,180 6,180 2,472 232,349 247,181
------- ------- ------- -------- --------
Partners' equity at May 28,
1998............................. $ (576) $ (576) $ (231) $932,514 $931,131
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-375
<PAGE> 605
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 28, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $247,181
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................... 47,268
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease in subscribers and other receivables............... 21,038
Increase in prepaid expenses and other current assets....... (52,746)
Increase in accounts payable................................ 9,866
Increase in accrued expenses................................ 3,127
--------
Net cash provided by operating activities................... 275,734
--------
CASH FLOWS FOR INVESTING ACTIVITIES
Capital expenditures........................................ (61,308)
--------
Cash flows for financing activities Repayment of long-term
debt...................................................... (560,500)
--------
Net increase in cash and cash equivalents................... (346,074)
--------
Cash and cash equivalents, beginning of the period.......... 761,918
--------
Cash and cash equivalents, end of the period................ $415,844
========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest.................................................... $ 6,939
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-376
<PAGE> 606
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
The Partnership is a Massachusetts limited partnership created pursuant to
a Limited Partnership Agreement, dated as of October 1, 1986, as amended (the
"Partnership Agreement"), by and among (1) Amrac Telecommunications as the
general partner (the "General Partner"), (2) Clear View Cablevision, Inc. as the
class A limited partner (the "Class A Limited Partner"), (3) Schuparra
Properties, Inc., as the class B limited partner (the "Class B Limited
Partner"), and (4) those persons admitted to the Partnership from time to time
as investor limited partners (the "Investor Limited Partner").
The Partnership provides cable television service to the towns of Hadley
and Belchertown located in western Massachusetts. At May 28, 1998, the
Partnership provided services to approximately 5,100 customers residing in those
towns.
The Partnership's cable television systems offer customer packages of basic
and cable programming services which are offered at a per channel charge or are
packaged together to form a tier of services offered at a discount from the
combined channel rate. The Partnership's cable television systems also provide
premium television services to their customers for an extra monthly charge.
Customers generally pay initial connection charges and fixed monthly fees for
cable programming and premium television services, which constitute the
principal sources of revenue for the Partnership.
On October 7, 1997, the Partnership entered into a definitive agreement
with Avalon Cable of New England LLC ("Avalon New England") whereby Avalon New
England would purchase the assets and operations of the Partnership for
$7,500,000. This transaction was consummated and became effective on May 29,
1998. The assets and liabilities at May 28, 1998, have not been adjusted or
reclassified to reflect this transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect the reported amounts of assets and liabilities and the
disclosure for contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reported period. Actual results may vary from estimates used.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments purchased with
an initial maturity of three months or less.
Revenue Recognition
Revenue is recognized as cable television services are provided.
Concentration of Credit Risk
Financial instruments which potentially expose the Partnership to a
concentration of credit risk include cash, cash equivalents and subscriber and
other receivables. The Partnership does not believe that such deposits are
subject to any unusual credit risk beyond the normal credit risk associated with
operating its business. The Partnership extends credit to customers on an
unsecured basis in the normal course of business. The Partnership maintains
reserves for
F-377
<PAGE> 607
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
potential credit losses and such losses, in the aggregate, have not historically
exceeded management's expectations.
Property and Equipment
Property and equipment is stated at cost. Initial subscriber installation
costs, including material, labor and overhead costs, are capitalized as a
component of cable plant and equipment. Depreciation is computed for financial
statement purposes using the straight-line method based upon the following
lives:
<TABLE>
<S> <C>
Cable plant and equipment................................... 10 years
Office furniture and equipment.............................. 5 to 10 years
Vehicles.................................................... 6 years
</TABLE>
Financial Instruments
The Partnership estimates that the fair value of all financial instruments
at May 28, 1998 does not differ materially from the aggregate carrying values of
its financial instruments recorded in the accompanying balance sheet.
Income Taxes
The Partnership is not subject to federal and state income taxes.
Accordingly, no recognition has been given to income taxes in the accompanying
financial statements of the Partnership since the income or loss of the
Partnership is to be included in the tax returns of the individual partners.
Allocation of Profits and Losses and Distributions of Cash Flow
Partnership profits and losses (other than those arising from capital
transactions, described below) and distributions of cash flow are allocated 94%
to the Investor Limited Partners, 2.5% to the Class A Limited Partner, 1% to the
Class B Limited Partner and 2.5% to the General Partner until Payout (as defined
in the Partnership Agreement) and after Payout, 65% to the Investor Limited
Partners, 15% to the Class A Limited Partner, 5% to the Class B Limited Partner
and 15% to the General Partner.
Partnership profits and capital transactions are allocated first, in
proportion to the partners' respective capital accounts until their respective
account balances are zero and second, in proportion to any distributed cash
proceeds resulting from the capital transaction and third, any remaining profit,
if any, is allocated 65% to the Investor Limited Partners, 15% to the Class A
Limited Partner, 5% to the Class B Limited Partner, and 15% to the General
Partner.
Partnership losses from capital transactions are allocated first, in
proportion to the partners' respective capital accounts until their respective
account balances are zero and, second, any remaining loss, if any, is allocated
65% to the Investor Limited Partners, 15% to the Class A Limited Partner, 5% to
the Class B Limited Partner, and 15% to the General Partner.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in financial
statements. SFAS No. 130 states that comprehensive income includes reported net
income of a company, adjusted for items that are
F-378
<PAGE> 608
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
currently accounted for as direct entries to equity, such as the net unrealized
gain or loss on securities available for sale. SFAS No. 130 is effective for
both interim and annual periods beginning after December 15, 1997. Management
does not anticipate that adoption of SFAS No. 130 will have a material effect on
the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which establishes standards for
reporting by public companies about operating segments of their business. SFAS
No. 131 also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is effective for
periods beginning after December 15, 1997. Management does not anticipate that
the adoption of SFAS No. 131 will have a material effect on the financial
statements.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
At May 28, 1998, prepaid expenses and other current assets consist of the
following:
<TABLE>
<S> <C>
Deferred transaction costs.................................. $ 91,024
Other....................................................... 37,980
--------
$129,004
========
</TABLE>
Deferred transaction costs consist primarily of attorney fees related to
the sale of assets of the Partnership (Note 1).
4. PROPERTY, PLANT AND EQUIPMENT
At May 28, 1998, property, plant and equipment consists of the following:
<TABLE>
<S> <C>
Cable plant and equipment................................... $ 3,460,234
Office furniture and equipment.............................. 52,531
Vehicles.................................................... 32,468
-----------
3,545,233
Accumulated depreciation.................................... (3,062,099)
-----------
$ 483,134
===========
</TABLE>
Depreciation expense was $47,018 for the period from January 1, 1998
through May 28, 1998.
5. ACCRUED EXPENSES
At May 28, 1998, accrued expenses consist of the following:
<TABLE>
<S> <C>
Accrued compensation and benefits........................... $17,004
Accrued programming costs................................... 24,883
Accrued legal costs......................................... 25,372
Other....................................................... 17,136
-------
$84,395
=======
</TABLE>
6. LONG-TERM DEBT
The Partnership repaid its term loan, due to a bank, on January 15, 1998.
Interest on the loan was paid monthly and accrued at the bank's prime rate plus
2% (10.5% at December 31,
F-379
<PAGE> 609
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997). The loan was collateralized by substantially all of the assets of the
Partnership and a pledge of all partnership interests. The total principal
outstanding at December 31, 1997 was $560,500.
7. COMMITMENTS AND CONTINGENCIES
The Partnership rents poles from utility companies for use in its
operations. These rentals amounted to approximately $15,918 of rent expense
during the period. While rental agreements are generally short-term, the
Partnership anticipates such rentals will continue in the future. The
Partnership leases office facilities and various items of equipment under
month-to-month operating leases. Rental expense under operating leases amounted
to $8,171 during the period.
The operations of the Partnership are subject to regulation by the Federal
Communications Commission and various franchising authorities.
From time to time the Partnership is also involved with claims that arise
in the normal course of business. In the opinion of management, the ultimate
liability with respect to these claims will not have a material adverse effect
on the operations, cash flows or financial position of the Partnership.
8. RELATED PARTY TRANSACTIONS
The General Partner provides management services to the Partnership for
which it receives a management fee of 5% of revenue. The General Partner also
allocates, in accordance with a management agreement, certain general,
administrative and payroll costs to the Partnership. For the period from January
1, 1998 through May 28, 1998, management fees totaled $41,674 and allocated
general, administrative and payroll costs totaled $3,625, which are included in
selling general and administrative expenses.
The Partnership believes that these fees and allocations were made on a
reasonable basis. However, the amounts paid are not necessarily indicative of
the level of expenses that might have been incurred had the Partnership
contracted directly with third parties. The Partnership has not attempted to
obtain quotes from third parties to determine what the cost of obtaining such
services from third parties would have been.
F-380
<PAGE> 610
INDEPENDENT AUDITORS' REPORT
To the Partners of
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
We have audited the accompanying balance sheets of Amrac Clear View, a
Limited Partnership as of December 31, 1996 and 1997, and the related statements
of net earnings, changes in partners' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Amrac Clear View, a Limited
Partnership as of December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
GREENFIELD, ALTMAN, BROWN, BERGER & KATZ, P.C.
Canton, Massachusetts
February 13, 1998
F-381
<PAGE> 611
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
BALANCE SHEETS
AT DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 475,297 $ 761,918
Subscribers and other receivables, net of allowance for
doubtful accounts of $2,500 in 1996 and $3,000 in 1997.... 49,868 66,397
Prepaid expenses:
Legal....................................................... -- 53,402
Miscellaneous............................................... 28,016 20,633
---------- ----------
Total current assets........................................ 553,181 902,350
---------- ----------
Property and equipment, net of accumulated depreciation
$2,892,444 in 1996 and $3,015,081 in 1997................. 473,438 468,844
---------- ----------
OTHER ASSETS:
Franchise cost, net of accumulated amortization of $6,757 in
1996 and $7,417 in 1997................................... 3,133 2,473
Deferred financing costs, net of accumulated amortization of
$60,247 in 1996 and $73,447 in 1997....................... 13,200 --
---------- ----------
16,333 2,473
---------- ----------
$1,042,952 $1,373,667
========== ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ 356,500 $ 397,500
Accounts payable-trade...................................... 34,592 47,949
Accrued expenses:
Utilities................................................... 59,668 --
Miscellaneous............................................... 50,074 81,268
---------- ----------
Total current liabilities................................... 500,834 526,717
---------- ----------
Long-term debt, net of current maturities................... 488,000 163,000
---------- ----------
Commitments and contingencies (Note 4)
Partners' equity............................................ 54,118 683,950
---------- ----------
$1,042,952 $1,373,667
========== ==========
</TABLE>
See notes to financial statements
F-382
<PAGE> 612
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
STATEMENTS OF NET EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues........................................... $1,701,322 $1,807,181 $1,902,080
Less cost of service............................... 644,736 656,881 687,433
---------- ---------- ----------
Net revenues....................................... 1,056,586 1,150,300 1,214,647
---------- ---------- ----------
Operating expenses excluding management fees and
depreciation and amortization.................... 330,574 388,284 351,031
Management fees.................................... 94,317 96,742 101,540
Depreciation and amortization...................... 330,913 340,166 136,497
---------- ---------- ----------
755,804 825,192 589,068
---------- ---------- ----------
Earnings from operations........................... 300,782 325,108 625,579
---------- ---------- ----------
OTHER EXPENSES (INCOME):
Interest income.................................... (7,250) (23,996)
Interest expense................................... 130,255 98,603 70,738
Utility refunds.................................... (50,995)
---------- ---------- ----------
130,255 91,353 (4,253)
---------- ---------- ----------
Net earnings....................................... $ 170,527 $ 233,755 $ 629,832
========== ========== ==========
</TABLE>
See notes to financial statements
F-383
<PAGE> 613
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
CLASS A CLASS B INVESTOR
GENERAL LIMITED LIMITED LIMITED
PARTNER PARTNER PARTNER PARTNERS TOTAL
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Partners' deficit at December 31,
1994............................ $(31,012) $(31,012) $(12,405) $(211,905) $(286,334)
Net earnings for the year......... 4,263 4,263 1,705 160,296 170,527
Partners' distributions during the
year............................ (1,596) (1,596) (638) (60,000) (63,830)
-------- -------- -------- --------- ---------
Partners' deficit at December 31,
1995............................ (28,345) (28,345) (11,338) (111,609) (179,637)
Net earnings for the year......... 5,844 5,844 2,337 219,730 233,755
-------- -------- -------- --------- ---------
Partners' equity (deficit) at
December 31, 1996............... (22,501) (22,501) (9,001) 108,121 54,118
Net earnings for the year......... 15,745 15,745 6,298 592,044 629,832
-------- -------- -------- --------- ---------
Partners' equity (deficit) at
December 31, 1997............... $ (6,756) $ (6,756) $ (2,703) $ 700,165 $ 683,950
======== ======== ======== ========= =========
</TABLE>
See notes to financial statements
F-384
<PAGE> 614
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings......................................... $ 170,527 $ 233,755 $ 629,832
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................ 330,913 340,166 136,497
Changes in assets and liabilities:
(Increase) decrease in:
Subscribers and other receivables.................... 4,573 (12,093) (16,529)
Prepaid expenses..................................... (3,378) (9,468) (46,019)
Increase (decrease) in accounts payable and accrued
expenses........................................... (66,424) 69,262 (15,117)
--------- --------- ---------
Net cash provided by operating activities............ 436,211 621,622 688,664
--------- --------- ---------
CASH FLOWS FOR INVESTING ACTIVITIES
Purchases of equipment............................... (116,794) (74,879) (118,043)
--------- --------- ---------
CASH FLOWS FOR FINANCING ACTIVITIES
Repayment of long-term debt.......................... (239,250) (260,750) (284,000)
Distributions to partners............................ (63,830)
--------- --------- ---------
Net cash used by financing activities................ (303,080) (260,750) (284,000)
--------- --------- ---------
Net increase in cash and cash equivalents............ 16,337 285,993 286,621
Cash and cash equivalents, beginning of year......... 172,967 189,304 475,297
--------- --------- ---------
Cash and cash equivalents, end of year............... $ 189,304 $ 475,297 $ 761,918
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest............................................. $ 133,540 $ 94,038 $ 73,124
========= ========= =========
</TABLE>
See notes to financial statements
F-385
<PAGE> 615
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1. SUMMARY OF BUSINESS ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Amrac Clear View, a
Limited Partnership (the "Partnership"), is presented to assist in understanding
the Partnership's financial statements. The financial statements and notes are
representations of the Partnership's management, which is responsible for their
integrity and objectivity. The accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Operations:
The Partnership provides cable television service to the residents of the
towns of Hadley and Belchertown in western Massachusetts.
Credit concentrations:
The Partnership maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At various times during the year the Partnership's
cash balances exceeded the federally insured limits.
Concentration of credit risk with respect to subscriber receivables are
limited due to the large number of subscribers comprising the Partnership's
customer base.
Property and equipment/depreciation:
Property and equipment are carried at cost. Minor additions and renewals
are expensed in the year incurred. Major additions and renewals are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. Total depreciation for the years ended
December 31, 1995, 1996 and 1997 was $321,872, $331,707 and $122,637,
respectively.
Other assets/amortization:
Amortizable assets are recorded at cost. The Partnership amortizes
intangible assets using the straight-line method over the useful lives of the
various items. Total amortization for the years ended December 31, 1995, 1996
and 1997 was $9,041, $8,459 and $13,860, respectively.
Cash equivalents:
For purposes of the statements of cash flows, the Partnership considers all
short-term instruments purchased with a maturity of three months or less to be
cash equivalents. There were no cash equivalents at December 31, 1995 and 1997.
Cash equivalents at December 31, 1996, amounted to $300,000.
F-386
<PAGE> 616
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Advertising:
The Partnership follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense was $1,681, $1,781 and $2,865 for the
years ended December 31, 1995, 1996 and 1997, respectively.
Income taxes:
The Partnership does not incur a liability for federal or state income
taxes. The current income or loss of the Partnership is included in the taxable
income of the partners, and therefore, no provision for income taxes is
reflected in the financial statements.
Revenues:
The principal sources of revenues are the monthly charges for basic and
premium cable television services and installation charges in connection
therewith.
Allocation of profits and losses and distributions of cash flow:
Partnership profits and losses, (other than those arising from capital
transactions, described below), and distributions of cash flow are allocated 94%
to the Investor Limited Partners, 2.5% to the Class A Limited Partner, 1% to the
Class B Limited Partner and 2.5% to the General Partner until Payout (as defined
in the Partnership Agreement) and after Payout, 65% to the Investor Limited
Partners, 15% to the Class A Limited Partner, 5% to the Class B Limited Partner
and 15% to the General Partner.
Partnership profits from capital transactions are allocated first, in
proportion to the partners' respective capital accounts until their respective
account balances are zero and second, in proportion to any distributed cash
proceeds resulting from the capital transaction and third, any remaining profit,
if any, is allocated 65% to the Investor Limited Partners, 15% to the Class A
Limited Partner, 5% to the Class B Limited Partner, and 15% to the General
Partner.
Partnership losses from capital transactions are allocated first, in
proportion to the partners' respective capital accounts until their respective
account balances are zero and, second, any remaining loss, if any, is allocated
65% to the Investor Limited Partners, 15% to the Class A Limited Partner, 5% to
the Class B Limited Partner, and 15% to the General Partner.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Cable plant and equipment......................... $3,274,684 $3,391,750
Office furniture and equipment.................... 63,373 64,350
Vehicles.......................................... 27,825 27,825
---------- ----------
$3,365,882 $3,483,925
========== ==========
</TABLE>
Depreciation is provided over the estimated useful lives of the above items
as follows:
<TABLE>
<S> <C>
Cable plant and equipment................................... 10 years
Office furniture and equipment.............................. 5-10 years
Vehicles.................................................... 6 years
</TABLE>
F-387
<PAGE> 617
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
3. LONG-TERM DEBT:
The Partnership's term loan, due to a bank, is payable in increasing
quarterly installments through June 30, 1999. Interest on the loan is paid
monthly and accrues at the bank's prime rate plus 2% (10.5% at December 31,
1997). The loan is collateralized by substantially all of the assets of the
Partnership and a pledge of all partnership interests. The total principal
outstanding at December 31, 1997 was $560,500.
Annual maturities are as follows:
<TABLE>
<S> <C>
1998........................................................ $397,500
1999........................................................ 163,000
--------
$560,500
========
</TABLE>
The loan agreement contains covenants including, but not limited to,
maintenance of certain debt ratios as well as restrictions on capital
expenditures and investments, additional indebtedness, partner distributions and
payment of management fees. The Partnership was in compliance with all covenants
at December 31, 1996 and 1997. In 1995, the Partnership obtained, from the bank,
unconditional waivers of the following covenant violations: (1) to make a one-
time cash distribution of $63,830, (2) to increase the capital expenditure limit
to $125,000, and (3) to waive certain other debt ratio and investment
restrictions, which were violated during the year.
4. COMMITMENTS AND CONTINGENCIES:
The Partnership rents poles from utility companies in its operations. These
rentals amounted to approximately $31,000, $39,500 and $49,000 for the years
ended December 31, 1995, 1996 and 1997, respectively. While rental agreements
are generally short-term, the Partnership anticipates such rentals will continue
in the future.
The Partnership leases a motor vehicle under an operating lease that
expires in December 1998. The minimum lease cost for 1998 is approximately
$6,000.
5. RELATED-PARTY TRANSACTIONS:
The General Partner provides management services to the Partnership for
which it receives a management fee of 5% of revenue. The General Partner also
allocates, in accordance with a management agreement, certain general,
administrative and payroll costs to the Partnership. For the years ended
December 31, 1995, 1996 and 1997, management fees totaled $87,800, $90,242 and
$95,040, respectively and allocated general, administrative and payroll costs
totaled $7,200, $7,450 and $8,700, respectively. During each year the
Partnership also incurred tap audit fees payable to the General Partner totaling
$4,000. At December 31, 1996, the balance due from the General Partner was
$12,263. The balance due to Amrac Telecommunications at December 31, 1997 was
$4,795.
6. SUBSEQUENT EVENTS:
On October 7, 1997, the Partnership entered into an agreement with another
cable television service provider to sell all of its assets for $7,500,000. The
Partnership received, in escrow, $250,000, which shall be released as
liquidating damages if the closing fails to occur solely as a result of a breach
of the agreement. As of December 31, 1997, the Partnership incurred $53,402
F-388
<PAGE> 618
AMRAC CLEAR VIEW, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
in legal costs associated with the sale which are included in prepaid expenses.
Subject to certain regulatory approvals, it is anticipated that the transaction
will be consummated in the Spring of 1998.
On January 15, 1998, the Partnership paid, prior to the maturity date, its
outstanding term loan due to a bank as described in Note 3.
F-389
<PAGE> 619
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
Avalon Cable of New England LLC
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, changes in stockholder's deficit and cash
flows present fairly, in all material respects, the financial position of the
Combined Operations of Pegasus Cable Television of Connecticut, Inc. and the
Massachusetts Operations of Pegasus Cable Television, Inc. at December 31, 1996
and 1997 and June 30, 1998, and the results of their operations, changes in
stockholder's deficit and their cash flows for each of the three years in the
period ended December 31, 1997 and for the six months ended June 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 30, 1999
F-390
<PAGE> 620
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 389,097 $ 1,092,084 $ 1,708,549
Accounts receivable, less allowance for doubtful
accounts at December 31, 1996 and 1997 and
June 30, 1998 of $11,174, $3,072 and $0,
respectively.................................. 140,603 116,112 144,653
Prepaid expenses and other...................... 62,556 90,500 92,648
----------- ----------- -----------
Total current assets............................ 592,256 1,298,696 1,945,850
Property and equipment, net..................... 4,164,545 3,565,597 3,005,045
Intangible assets, net.......................... 2,174,084 2,096,773 1,939,904
Accounts receivable, affiliates................. 4,216,682 5,243,384 5,692,013
Deposits and other.............................. 436,382 456,135 406,135
----------- ----------- -----------
Total assets.................................... $11,583,949 $12,660,585 $12,988,947
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt............... $ 71,744 $ 34,272 $14,993,581
Accounts payable................................ 786,284 803,573 764,588
Accrued incentive compensation.................. 117,692 149,823 220,724
Accrued franchise fees.......................... 193,369 173,735 86,332
Accrued pole rental............................. 83,910 78,345 52,954
Accrued expenses................................ 383,572 203,561 42,038
----------- ----------- -----------
Total current liabilities....................... 1,636,571 1,443,309 16,160,217
Long-term debt, net............................. 15,043,763 15,018,099 --
Accrued interest................................ 2,811,297 4,685,494 5,622,593
Other........................................... 299,030 299,030 299,030
----------- ----------- -----------
Total liabilities............................... 19,790,661 21,445,932 22,081,840
Commitments and contingent liabilities.......... -- -- --
STOCKHOLDER'S DEFICIT:
Common stock-par value $1 per share; 10,000
shares authorized; 7,673 shares issued and
outstanding................................... 7,673 7,673 7,673
Accumulated deficit............................. (8,214,385) (8,793,020) (9,100,566)
----------- ----------- -----------
Total stockholder's deficit..................... (8,206,712) (8,785,347) (9,092,893)
----------- ----------- -----------
Total liabilities and stockholder's deficit..... $11,583,949 $12,660,585 $12,988,947
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-391
<PAGE> 621
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC. AND THE
MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
----------------------------------------- ENDED
1995 1996 1997 JUNE 30, 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Basic and satellite service...... $ 4,371,736 $ 4,965,377 $ 5,353,735 $2,841,711
Premium services................. 619,035 640,641 686,513 348,628
Other............................ 144,300 169,125 150,714 86,659
----------- ----------- ----------- ----------
Total revenues................... 5,135,071 5,775,143 6,190,962 3,276,998
OPERATING EXPENSES:
Programming...................... 1,119,540 1,392,247 1,612,458 876,588
General and administrative....... 701,420 811,795 829,977 391,278
Technical and operations......... 713,239 702,375 633,384 341,249
Marketing and selling............ 20,825 15,345 19,532 12,041
Incentive compensation........... 48,794 101,945 94,600 70,900
Management fees.................. 368,085 348,912 242,267 97,714
Depreciation and amortization.... 1,658,455 1,669,107 1,565,068 834,913
----------- ----------- ----------- ----------
Income from operations........... 504,713 733,417 1,193,676 652,315
Interest expense................. (1,745,635) (1,888,976) (1,884,039) (937,662)
Interest income.................. 956 2,067 93,060 29
Other income (expense), net...... 794 (2,645) (27,800) (17,228)
----------- ----------- ----------- ----------
Loss before state income taxes... (1,239,172) (1,156,137) (625,103) (302,546)
Provision for state income
taxes.......................... 20,000 25,000 16,000 5,000
----------- ----------- ----------- ----------
Net loss......................... $(1,259,172) $(1,181,137) $ (641,103) $ (307,546)
=========== =========== =========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-392
<PAGE> 622
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------- TOTAL
NUMBER OF PAR ACCUMULATED STOCKHOLDER'S
SHARES VALUE DEFICIT DEFICIT
--------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1995.............. 7,673 $7,673 $(5,774,076) $(5,766,403)
Net loss................................. -- -- (1,259,172) (1,259,172)
----- ------ ----------- -----------
Balances at December 31, 1995............ 7,673 7,673 (7,033,248) (7,025,575)
Net loss................................. -- -- (1,181,137) (1,181,137)
----- ------ ----------- -----------
Balances at December 31, 1996............ 7,673 7,673 (8,214,385) (8,206,712)
Net loss................................. -- -- (641,103) (641,103)
Stock incentive compensation............. -- -- 62,468 62,468
----- ------ ----------- -----------
Balances at December 31, 1997............ 7,673 7,673 (8,793,020) (8,785,347)
Net loss................................. -- -- (307,546) (307,546)
----- ------ ----------- -----------
Balances at June 30, 1998................ 7,673 $7,673 $(9,100,566) $(9,092,893)
===== ====== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-393
<PAGE> 623
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
--------------------------------------- ENDED
1995 1996 1997 JUNE 30, 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $(1,259,172) $(1,181,137) $ (641,103) $ (307,546)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization.......... 1,658,455 1,669,107 1,565,068 834,913
Bad debt expense....................... 26,558 48,566 45,839 36,074
Change in assets and liabilities:
Accounts receivable.................... (75,263) (88,379) (21,348) (64,615)
Prepaid expenses and other............. (403,212) 75,208 (27,944) (2,148)
Accounts payable and accrued
expenses............................. 239,207 981,496 (93,322) 221,219
Accrued interest....................... 902,006 1,874,198 1,874,197 937,099
Deposits and other..................... 83,431 -- (19,753) 50,000
----------- ----------- ----------- ----------
Net cash provided by operating
activities........................... 1,172,010 3,379,059 2,681,634 1,704,996
----------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................... (163,588) (1,174,562) (691,269) (114,221)
Purchase of intangible assets.......... (127,340) (72,753) (197,540) (3,271)
----------- ----------- ----------- ----------
Net cash used for investing
activities........................... (290,928) (1,247,315) (888,809) (117,492)
----------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........... 37,331 -- -- --
Repayments of long-term debt........... (13,764) -- -- (10,837)
Capital lease repayments............... (19,764) (52,721) (63,136) (47,952)
Advances to affiliates, net............ (404,576) (2,562,295) (1,026,702) (912,250)
----------- ----------- ----------- ----------
Net cash used by financing
activities........................... (400,773) (2,615,016) (1,089,838) (971,039)
----------- ----------- ----------- ----------
Net increase in cash and cash
equivalents.......................... 480,309 (483,272) 702,987 616,465
Cash and cash equivalents, beginning of
year................................. 392,060 872,369 389,097 1,092,084
----------- ----------- ----------- ----------
Cash and cash equivalents, end of
year................................. $ 872,369 $ 389,097 $ 1,092,084 $1,708,549
=========== =========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for
interest............................. $ 843,629 $ 14,778 $ 9,842 $ 563
Cash paid during the year for income
taxes................................ -- -- $ 9,796 $ 25,600
Supplemental Non-Cash Investing and
Financing Activities:
Capital contribution and related
accrued incentive compensation....... -- -- $ 62,468 --
Acquisition of plant under capital
leases............................... $ 298,250 $ 48,438 -- --
</TABLE>
See accompanying notes to combined financial statements
F-394
<PAGE> 624
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
These financial statements reflect the results of operations and financial
position of Pegasus Cable Television of Connecticut, Inc. ("PCT-CT"), a wholly
owned subsidiary of Pegasus Cable Television, Inc. ("PCT"), and the
Massachusetts Operations of Pegasus Cable Television, Inc. ("PCT-MA" or the
"Massachusetts Operations") (referred herein as the "Combined Operations"). PCT
is a wholly owned subsidiary of Pegasus Media & Communications, Inc. ("PM&C").
PM&C is a wholly owned subsidiary of Pegasus Communications Corporation ("PCC").
On July 21, 1998, PCT sold the assets of its Combined Operations to Avalon
Cable of New England, LLC. for $30.1 million. In January 1997, PCT sold the
assets of its only other operating division, a cable television system that
provided service to individual and commercial subscribers in New Hampshire (the
"New Hampshire Operations") for $7.1 million.
In presenting the historical financial position, results of operations and
cash flows of the Combined Operations, it has been necessary to eliminate the
results and financial position of the New Hampshire Operations. Many items are
identifiable as relating to the New Hampshire or Massachusetts divisions as PCT
has historically separated results of operations as well as billing and
collection activity. However, in certain areas, assumptions and estimates have
been required in order to eliminate the New Hampshire Operations for periods
prior to its sale. For purposes of eliminating the following balances: Prepaid
expenses and other; Deposits and other; Accounts payable; and Accrued expenses,
balances have been apportioned between the New Hampshire Operations and the
Massachusetts Operations on the basis of subscriber counts. Amounts due to and
due from affiliates have been allocated to PCT-MA and are included in these
financial statements.
Prior to October 1996, BDI Associates, L.P. provided substantial support
services such as finance, accounting and human resources to PCT. Since October
1996, these services have been provided by PCC. All non-accounting costs of PCC
are allocated on the basis of average time spent servicing the divisions, while
the costs of the accounting function are allocated on the basis of revenue. In
the opinion of management, the methods used in allocating costs from PCC are
reasonable; however, the costs of these services as allocated are not
necessarily indicative of the costs that would have been incurred by the
Combined Operations on a stand-alone basis.
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Combined
Operations in the future or what they would have been had it been a separate,
stand-alone entity during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of Financial Statements:
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 revenues, expenses, assets and
liabilities and disclosure of contingencies. Actual results could differ from
those estimates.
Property and Equipment:
Property and equipment are stated at cost. The cost and related accumulated
depreciation of assets sold, retired, or otherwise disposed of are removed from
the respective accounts, and any
F-395
<PAGE> 625
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
resulting gains or losses are included in the statement of operations. Initial
subscriber installation costs, including material, labor and overhead costs of
the hookup, are capitalized as part of the distribution facilities. The costs of
disconnection and reconnection are charged to expense.
Depreciation is computed for financial reporting purposes using the
straight-line method based upon the following lives:
<TABLE>
<S> <C>
Reception and distribution facilities....................... 7 to 11 years
Building and improvements................................... 12 to 39 years
Equipment, furniture and fixtures........................... 5 to 10 years
Vehicles.................................................... 3 to 5 years
</TABLE>
Intangible Assets:
Intangible assets are stated at cost and amortized by the straight-line
method. Costs of successful franchise applications are capitalized and amortized
over the lives of the related franchise agreements, while unsuccessful franchise
applications and abandoned franchises are charged to expense. Financing costs
incurred in obtaining long-term financing are amortized over the term of the
applicable loan. Intangible assets are reviewed periodically for impairment or
whenever events or circumstances provide evidence that suggest that the carrying
amounts may not be recoverable. The Company assesses the recoverability of its
intangible assets by determining whether the amortization of the respective
intangible asset balance can be recovered through projected undiscounted future
cash flows.
Amortization of intangible assets is computed for financial reporting
purposes using the straight-line method based upon the following lives:
<TABLE>
<S> <C>
Organization costs.......................................... 5 years
Other intangibles........................................... 5 years
Deferred franchise costs.................................... 15 years
</TABLE>
Revenue:
The Combined Operations recognize revenue when video and audio services are
provided.
Advertising Costs:
Advertising costs are charged to operations as incurred and totaled
$20,998, $12,768, $14,706 and $8,460 for the years ended December 31, 1995, 1996
and 1997 and for the six months ended June 30, 1998, respectively.
Cash and Cash Equivalents:
Cash and cash equivalents include highly liquid investments purchased with
an initial maturity of three months or less. The Combined Operations have cash
balances in excess of the federally insured limits at various banks.
Income Taxes:
The Combined Operations is not a separate tax paying entity. Accordingly,
its results of operations have been included in the tax returns filed by PCC.
The accompanying financial statements include tax computations assuming the
Combined Operations filed separate returns
F-396
<PAGE> 626
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and reflect the application of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109").
Concentration of Credit Risk:
Financial instruments which potentially subject the Combined Operations to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Combined Operation's customer
base.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Land.................................... $ 8,000 $ 8,000 $ 8,000
Reception and distribution facilities... 8,233,341 9,009,179 9,123,402
Building and improvements............... 242,369 250,891 250,891
Equipment, furniture and fixtures....... 307,844 312,143 312,143
Vehicles................................ 259,503 287,504 287,504
Other equipment......................... 139,408 79,004 79,004
----------- ----------- -----------
9,190,465 9,946,721 10,060,944
Accumulated depreciation................ (5,025,920) (6,381,124) (7,055,899)
----------- ----------- -----------
Net property and equipment.............. $ 4,164,545 $ 3,565,597 $ 3,005,045
=========== =========== ===========
</TABLE>
Depreciation expense amounted to $1,059,260, $1,267,831, $1,290,217 and
$674,775 for the years ended December 31, 1995, 1996 and 1997 and for the six
months ended June 30, 1998, respectively.
4. INTANGIBLES:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ----------
<S> <C> <C> <C>
Deferred franchise costs.................. $4,367,594 $ 4,486,016 $4,486,333
Deferred financing costs.................. 1,042,079 1,156,075 1,159,027
Organization and other costs.............. 439,188 389,187 389,187
---------- ------------ ----------
5,848,861 6,031,278 6,034,547
---------- ------------ ----------
Accumulated amortization.................. (3,674,777) (3,934,505) (4,094,643)
---------- ------------ ----------
Net intangible assets..................... $2,174,084 $ 2,096,773 $1,939,904
========== ============ ==========
</TABLE>
Amortization expense amounted to $599,195, $401,276, $274,851 and $160,138
for the years ended December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1998, respectively.
F-397
<PAGE> 627
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Note payable to PM&C, payable by PCT,
interest is payable quarterly at an annual
rate of 12.5%. Principal is due on July 1,
2005. The note is collateralized by
substantially all of the assets of the
Combined Operations and imposes certain
restrictive covenants..................... $14,993,581 $14,993,581 $14,993,581
Capital lease obligations................... 121,926 58,790 --
----------- ----------- -----------
15,115,507 15,052,371 14,993,581
Less current maturities..................... 71,744 34,272 14,993,581
----------- ----------- -----------
Long-term debt.............................. $15,043,763 $15,018,099 $ --
=========== =========== ===========
</TABLE>
6. LEASES:
The Combined Operations lease utility pole attachments and occupancy of
underground conduits. Rent expense for the years ended December 31, 1995, 1996
and 1997 and for the six months ended June 30, 1998 was $184,386, $185,638,
$173,930 and $90,471, respectively. The Combined Operations lease equipment
under long-term leases and have the option to purchase the equipment for a
nominal cost at the termination of the leases. The related obligations are
included in long-term debt. There are no future minimum lease payments on
capital leases at June 30, 1998. Property and equipment that was leased include
the following amounts that have been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Billing and phone systems........................ $ 56,675 $ 56,675
Vehicles......................................... 166,801 129,227
-------- ---------
223,476 185,902
Accumulated depreciation......................... (69,638) (101,397)
-------- ---------
Total............................................ $153,838 $ 84,505
======== =========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
The Combined Operations pay management fees to various related parties. The
management fees are for certain administrative and accounting services, billing
and programming services, and the reimbursement of expenses incurred therewith.
For the years ended December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1998, the fees and expenses were $368,085, $348,912, $242,267 and
$97,714, respectively.
As described in Note 5, PCT has an outstanding loan from its parent
company. This loan has been allocated to PCT-MA and is included in these
financial statements. Interest expense on that loan was $916,274, $1,874,198,
$1,874,195 and $937,098 for the years ended December 31, 1995, 1996 and 1997 and
for the six months ended June 30, 1998 respectively. Other related party
transaction balances at December 31, 1996 and 1997 and June 30, 1998 included
F-398
<PAGE> 628
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$4,216,682, $5,243,384 and $5,692,013 in accounts receivable, affiliates;
$581,632, $6,433 and $331,374 in accounts payable; and $299,030, $299,030 and
$299,030 in other liabilities, respectively. These related party balances arose
primarily as a result of financing capital expenditures, interest payments,
programming and other operating expenses.
8. INCOME TAXES:
The deferred income tax assets and liabilities recorded in the balance
sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS:
Excess of tax basis over book basis from tax
gain recognized upon incorporation of PCT And
PCT-CT.......................................... $ 707,546 $ 707,546 $ 707,546
Loss carryforwards.............................. 1,324,236 1,039,849 957,318
Other........................................... 6,997 11,856 11,856
----------- ----------- -----------
Total deferred tax assets....................... 2,038,779 1,759,251 1,676,720
----------- ----------- -----------
LIABILITIES:
Excess of book basis over tax basis of property,
plant and equipment and intangible asset...... (258,311) (294,934) (335,014)
Other........................................... (118,086) (134,859) (135,267)
----------- ----------- -----------
Total deferred tax liabilities.................. (376,397) (429,793) (470,281)
----------- ----------- -----------
Net deferred tax assets......................... 1,662,382 1,329,458 1,206,439
Valuation allowance............................. (1,662,382) (1,329,458) (1,206,439)
----------- ----------- -----------
Net deferred tax liabilities.................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The Combined Operations have recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized due to the
expiration of deferred tax assets related to the incorporation of PCT and PCT-CT
and the expiration of net operating loss carryforwards.
9. EMPLOYEE BENEFIT PLANS:
The Company employees participate in PCC's stock option plan that awards
restricted stock (the "Restricted Stock Plan") to eligible employees of the
Company.
Restricted Stock Plan
The Restricted Stock Plan provides for the granting of restricted stock
awards representing a maximum of 270,000 shares (subject to adjustment to
reflect stock dividends, stock splits, recapitalizations and similar changes in
the capitalization of PCC) of Class A Common Stock of the Company to eligible
employees who have completed at least one year of service. Restricted stock
received under the Restricted Stock Plan vests over four years. The Plan
terminates in September 2006. The expense for this plan amounted to $82,425,
$80,154 and $63,533 in 1996 and 1997 and for the six months ended June 30, 1998,
respectively.
F-399
<PAGE> 629
THE COMBINED OPERATIONS OF PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
AND THE MASSACHUSETTS OPERATIONS OF PEGASUS CABLE TELEVISION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
401(k) Plans
Effective January 1, 1996, PM&C adopted the Pegasus Communications Savings
Plan (the "US 401(k) Plan") for eligible employees of PM&C and its domestic
subsidiaries. Substantially all Company employees who, as of the enrollment date
under the 401(k) Plans, have completed at least one year of service with the
Company are eligible to participate in one of the 401(k) Plans. Participants may
make salary deferral contributions of 2% to 6% of their salary to the 401(k)
Plans. The expense for this plan amounted to $19,520, $14,446 and $7,367 in 1996
and 1997 and for the six months ended June 30, 1998, respectively.
All employee contributions to the 401(k) Plans are fully vested at all
times and all Company contributions, if any, vest 34% after two years of service
with the Company (including years before the 401(k) Plans were established), 67%
after three years of service and 100% after four years of service. A participant
also becomes fully vested in Company contributions to the 401(k) Plans upon
attaining age 65 or upon his or her death or disability.
10. COMMITMENTS AND CONTINGENT LIABILITIES:
Legal Matters:
The operations of PCT-CT and PCT-MA are subject to regulation by the
Federal Communications Commission ("FCC") and other franchising authorities.
From time to time the Combined Operations are also involved with claims
that arise in the normal course of business. In the opinion of management, the
ultimate liability with respect to these claims will not have a material adverse
effect on the operations, cash flows or financial position of the Combined
Operations.
F-400
<PAGE> 630
REPORT OF INDEPENDENT AUDITORS
Partners
Falcon Communications, L.P.
We have audited the accompanying consolidated balance sheets of Falcon
Communications, L.P. (successor to Falcon Holding Group, L.P.) as of December
31, 1997 and 1998, and the related consolidated statements of operations,
partners' deficit and cash flows for each of the three years in the period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Partnership'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 consolidated financial position of
Falcon Communications, L.P. (successor to Falcon Holding Group, L.P.) at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Los Angeles, California
March 5, 1999
F-401
<PAGE> 631
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 13,917 $ 14,284
Receivables:
Trade, less allowance of $825,000 and $670,000 for
possible losses....................................... 13,174 15,760
Affiliates............................................. 11,254 2,322
Other assets.............................................. 16,352 16,779
Property, plant and equipment, less accumulated
depreciation and amortization.......................... 324,559 505,894
Franchise cost, less accumulated amortization of
$203,700,000 and $226,526,000.......................... 222,281 397,727
Goodwill, less accumulated amortization of $18,531,000 and
$25,646,000............................................ 66,879 135,308
Customer lists and other intangible costs, less
accumulated amortization of $25,517,000 and
$59,422,000............................................ 59,808 333,017
Deferred loan costs, less accumulated amortization of
$7,144,000 and $2,014,000.............................. 12,134 24,331
--------- ----------
$ 740,358 $1,445,422
========= ==========
</TABLE>
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<S> <C> <C>
LIABILITIES:
Notes payable............................................. $ 911,221 $1,611,353
Accounts payable.......................................... 9,169 10,341
Accrued expenses.......................................... 52,789 83,077
Customer deposits and prepayments......................... 1,452 2,257
Deferred income taxes..................................... 7,553 8,664
Minority interest......................................... 354 403
Equity in losses of affiliated partnerships in excess of
investment............................................. 3,202 --
--------- ----------
TOTAL LIABILITIES........................................... 985,740 1,716,095
--------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PARTNERS' EQUITY................................. 171,373 133,023
--------- ----------
PARTNERS' DEFICIT:
General partners.......................................... (13,200) (408,369)
Limited partners.......................................... (403,555) 4,673
--------- ----------
TOTAL PARTNERS' DEFICIT..................................... (416,755) (403,696)
--------- ----------
$ 740,358 $1,445,422
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-402
<PAGE> 632
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES............................................... $217,320 $255,886 $ 307,558
-------- -------- ---------
EXPENSES:
Service costs........................................ 60,302 75,643 97,832
General and administrative expenses.................. 36,878 46,437 63,401
Depreciation and amortization........................ 100,415 118,856 152,585
-------- -------- ---------
Total expenses............................... 197,595 240,936 313,818
-------- -------- ---------
Operating income (loss)...................... 19,725 14,950 (6,260)
-------- -------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net................................ (71,602) (79,137) (102,591)
Equity in net income (loss) of investee
partnerships...................................... (44) 443 (176)
Other income (expense), net.......................... 814 885 (2,917)
Income tax benefit (expense)......................... 1,122 2,021 (1,897)
-------- -------- ---------
Net loss before extraordinary item..................... (49,985) (60,838) (113,841)
Extraordinary item, retirement of debt................. -- -- (30,642)
-------- -------- ---------
NET LOSS............................................... $(49,985) $(60,838) $(144,483)
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-403
<PAGE> 633
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
UNREALIZED GAIN ON
GENERAL LIMITED AVAILABLE-FOR-SALE
PARTNERS PARTNERS SECURITIES TOTAL
--------- --------- ------------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PARTNERS' DEFICIT,
January 1, 1996.................... $ (12,091) $(399,423) $(167) $(411,681)
Sale of marketable
securities.................. -- -- 167 167
Capital contribution.......... -- 5,000 -- 5,000
Net loss for year............. (500) (49,485) -- (49,985)
--------- --------- ----- ---------
PARTNERS' DEFICIT,
December 31, 1996................ (12,591) (443,908) -- (456,499)
Reclassification from
redeemable partners'
equity...................... -- 100,529 -- 100,529
Capital contribution.......... -- 53 -- 53
Net loss for year............. (609) (60,229) -- (60,838)
--------- --------- ----- ---------
PARTNERS' DEFICIT,
December 31, 1997................ (13,200) (403,555) -- (416,755)
Reclassification of partners'
deficit..................... (408,603) 408,603 -- --
Redemption of partners'
interests................... (155,908) -- -- (155,908)
Net assets retained by the
managing general partner.... (5,392) -- -- (5,392)
Reclassification from
redeemable partners'
equity...................... 38,350 -- -- 38,350
Acquisition of Falcon Video
and TCI net assets.......... 280,409 -- -- 280,409
Capital contributions......... 83 -- -- 83
Net loss for year............. (144,108) (375) -- (144,483)
--------- --------- ----- ---------
PARTNERS' DEFICIT,
December 31, 1998................ $(408,369) $ 4,673 $ -- $(403,696)
========= ========= ===== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-404
<PAGE> 634
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
--------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $ (49,985) $(60,838) $ (144,483)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Payment-in-kind interest expense................ 26,580 20,444 --
Amortization of debt discount................... -- -- 19,342
Depreciation and amortization................... 100,415 118,856 152,585
Amortization of deferred loan costs............. 2,473 2,192 2,526
Write-off deferred loan costs................... -- -- 10,961
Gain on sale of securities...................... (2,264) -- --
Gain on casualty losses......................... -- (3,476) (314)
Equity in net (income) loss of investee
partnerships.................................. 44 (443) 176
Provision for losses on receivables, net of
recoveries.................................... 2,417 5,714 4,775
Deferred income taxes........................... (2,684) (2,748) 1,111
Other........................................... 764 1,319 278
Increase (decrease) from changes in:
Receivables..................................... (2,420) (9,703) (1,524)
Other assets.................................... (274) (4,021) 906
Accounts payable................................ 4,750 (1,357) 337
Accrued expenses................................ 10,246 13,773 24,302
Customer deposits and prepayments............... 569 (175) 633
--------- -------- -----------
Net cash provided by operating activities....... 90,631 79,537 71,611
--------- -------- -----------
Cash flows from investing activities:
Capital expenditures............................... (57,668) (76,323) (96,367)
Proceeds from sale of available-for-sale
securities...................................... 9,502 -- --
Increase in intangible assets...................... (4,847) (1,770) (7,124)
Acquisitions of cable television systems........... (247,397) -- (83,391)
Cash acquired in connection with the acquisition of
TCI and Falcon Video Communications, L.P. ...... -- -- 317
Proceeds from sale of cable system................. 15,000 -- --
Assets retained by the Managing General Partner.... -- -- (3,656)
Other.............................................. 1,163 1,806 1,893
--------- -------- -----------
Net cash used in investing activities........... (284,247) (76,287) (188,328)
--------- -------- -----------
Cash flows from financing activities:
Borrowings from notes payable...................... 700,533 37,500 2,388,607
Repayment of debt.................................. (509,511) (40,722) (2,244,752)
Deferred loan costs................................ (3,823) (29) (25,684)
Capital contributions.............................. 5,000 93 --
Redemption of partners' interests.................. -- -- (1,170)
Minority interest capital contributions............ -- 192 83
--------- -------- -----------
Net cash provided by (used in) financing
activities.................................... 192,199 (2,966) 117,084
--------- -------- -----------
Increase (decrease) in cash and cash equivalents..... (1,417) 284 367
Cash and cash equivalents, at beginning of year...... 15,050 13,633 13,917
--------- -------- -----------
Cash and cash equivalents, at end of year............ $ 13,633 $ 13,917 $ 14,284
========= ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-405
<PAGE> 635
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Falcon Communications, L.P., a California limited partnership (the
"Partnership") and successor to Falcon Holding Group, L.P. ("FHGLP"), owns and
operates cable television systems serving small to medium-sized communities and
the suburbs of certain cities in 25 states. On September 30, 1998, pursuant to a
Contribution and Purchase Agreement dated as of December 30, 1997, as amended
(the "Contribution Agreement"), FHGLP acquired the assets and liabilities of
Falcon Video Communications, L.P. ("Falcon Video" or the "Falcon Video
Systems"), in exchange for ownership interests in FHGLP. Simultaneously with the
closing of that transaction, in accordance with the Contribution Agreement,
FHGLP contributed substantially all of the existing cable television system
operations owned by FHGLP and its subsidiaries (including the Falcon Video
Systems) to the Partnership and TCI Falcon Holdings, LLC ("TCI") contributed
certain cable television systems owned and operated by affiliates of TCI (the
"TCI Systems") to the Partnership (the "TCI Transaction"). As a result, TCI
holds approximately 46% of the equity interests of the Partnership and FHGLP
holds the remaining 54% and serves as the managing general partner of the
Partnership. The TCI Transaction is being accounted for as a recapitalization of
FHGLP into the Partnership and the concurrent acquisition by the Partnership of
the TCI Systems.
The consolidated financial statements include the accounts of the
Partnership and its subsidiary holding companies and cable television operating
partnerships and corporations, which include Falcon Cable Communications LLC
("Falcon LLC"), a Delaware limited liability company that serves as the general
manager of the cable television subsidiaries. The assets contributed by FHGLP to
the Partnership excluded certain immaterial investments, principally FHGLP's
ownership of 100% of the outstanding stock of Enstar Communications Corporation
("ECC"), which is the general partner and manager of fifteen limited
partnerships operating under the name "Enstar". ECC's ownership interest in the
Enstar partnerships ranges from 0.5% to 5%. Upon the consummation of the TCI
Transaction, the management of the Enstar partnerships was assigned to the
Partnership by FHGLP. The consolidated statements of operations and statements
of cash flows for the year ended December 31, 1998 include FHGLP's interest in
ECC for the nine months ended September 30, 1998. The effects of ECC's
operations on all previous periods presented are immaterial.
Prior to closing the TCI Transaction, FHGLP owned and operated cable
television systems in 23 states. FHGLP also controlled, held varying equity
interests in and managed certain other cable television partnerships (the
"Affiliated Partnerships") for a fee. FHGLP is a limited partnership, the sole
general partner of which is Falcon Holding Group, Inc., a California corporation
("FHGI"). FHGI also holds a 1% interest in certain of the subsidiaries of the
Partnership. At the beginning of 1998, the Affiliated Partnerships were
comprised of Falcon Classic Cable Income Properties, L.P. ("Falcon Classic")
whose cable television systems are referred to as the "Falcon Classic Systems,"
Falcon Video and the Enstar partnerships. As discussed in Note 3, the Falcon
Classic Systems were acquired by FHGLP during 1998. The Falcon Video Systems
were acquired on September 30, 1998 in connection with the TCI Transaction. As a
result of these transactions, the Affiliated Partnerships consist solely of the
Enstar partnerships from October 1, 1998 forward.
All significant intercompany accounts and transactions have been eliminated
in consolidation. The consolidated financial statements do not give effect to
any assets that the partners may have
F-406
<PAGE> 636
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outside their interests in the Partnership, nor to any obligations, including
income taxes, of the partners.
On July 12, 1996, the Partnership acquired the assets of Falcon Cable
Systems Company ("FCSC"), an Affiliated Partnership. The results of operations
of these cable systems have been included in the consolidated financial
statements from July 12, 1996. Management fees and reimbursed expenses received
by the Partnership from FCSC for the period of January 1, 1996 through July 11,
1996 are also included in the consolidated financial statements and have not
been eliminated in consolidation. See Note 3.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. Cash equivalents at December 31,
1996, 1997 and 1998 included $4.1 million, $4.5 million and $345,000 of
investments in commercial paper and short-term investment funds of major
financial institutions.
INVESTMENTS IN AFFILIATED PARTNERSHIPS
Prior to closing the TCI Transaction, the Partnership was the general
partner of certain entities, which in turn acted as general partner of the
Affiliated Partnerships. The Partnership's effective ownership interests in the
Affiliated Partnerships were less than one percent. The Affiliated Partnerships
were accounted for using the equity method of accounting. Equity in net losses
were recorded to the extent of the investments in and advances to the
partnerships plus obligations for which the Partnership, as general partner, was
responsible. The liabilities of the Affiliated Partnerships, other than amounts
due the Partnership, principally consisted of debt for borrowed money and
related accrued interest. The Partnership's ownership interests in the
Affiliated Partnerships were eliminated in 1998 with the acquisition of Falcon
Video and Falcon Classic and the retention by FHGLP of its interests in the
Enstar partnerships.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs associated
with installations in homes not previously served by cable are capitalized as
part of the distribution system, and reconnects are expensed as incurred. For
financial reporting, depreciation and amortization is computed using the
straight-line method over the following estimated useful lives.
<TABLE>
<S> <C>
CABLE TELEVISION SYSTEMS:
Headend buildings and equipment....................... 10-16 years
Trunk and distribution.............................. 5-15 years
Microwave equipment................................. 10-15 years
OTHER:
Furniture and equipment............................. 3-7 years
Vehicles............................................ 3-10 years
Leasehold improvements.............................. Life of lease
</TABLE>
F-407
<PAGE> 637
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FRANCHISE COST AND GOODWILL
The excess of cost over the fair values of tangible assets and customer
lists of cable television systems acquired represents the cost of franchises and
goodwill. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and in the renewal of existing franchises. These costs
are amortized using the straight-line method over the lives of the franchises,
ranging up to 28 years (composite 15 year average). Goodwill is amortized over
20 years. Costs relating to unsuccessful franchise applications are charged to
expense when it is determined that the efforts to obtain the franchise will not
be successful.
CUSTOMER LISTS AND OTHER INTANGIBLE COSTS
Customer lists and other intangible costs include customer lists, covenants
not to compete and organization costs which are amortized using the
straight-line method over two to five years.
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on Costs of Start-Up Activities". The new
standard, which becomes effective for the Partnership on January 1, 1999,
requires costs of start-up activities, including certain organization costs, to
be expensed as incurred. Previously capitalized start-up costs are to be written
off as a cumulative effect of a change in accounting principle. The Partnership
believes that adoption of this standard will not have a material impact on the
Partnership's financial position or results of operations.
DEFERRED LOAN COSTS
Costs related to borrowings are capitalized and amortized to interest
expense over the life of the related loan.
RECOVERABILITY OF ASSETS
The Partnership assesses on an ongoing basis the recoverability of
intangible assets (including goodwill) and capitalized plant assets based on
estimates of future undiscounted cash flows compared to net book value. If the
future undiscounted cash flow estimates were less than net book value, net book
value would then be reduced to estimated fair value, which generally
approximates discounted cash flows. The Partnership also evaluates the
amortization periods of assets, including goodwill and other intangible assets,
to determine whether events or circumstances warrant revised estimates of useful
lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising are
recognized in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain connected to the
cable television system. Management fees are recognized on the accrual basis
based on a percentage of gross revenues of the respective cable television
systems managed. Effective October 1, 1998, 20% of the management fees from the
Enstar partnerships is retained by FHGLP.
F-408
<PAGE> 638
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
As part of the Partnership's management of financial market risk and as
required by certain covenants in its New Credit Agreement, the Partnership
enters into various transactions that involve contracts and financial
instruments with off-balance-sheet risk, principally interest rate swap and
interest rate cap agreements. The Partnership enters into these agreements in
order to manage the interest-rate sensitivity associated with its variable-rate
indebtedness. The differential to be paid or received in connection with
interest rate swap and interest rate cap agreements is recognized as interest
rates change and is charged or credited to interest expense over the life of the
agreements. Gains or losses for early termination of those contracts are
recognized as an adjustment to interest expense over the remaining portion of
the original life of the terminated contract.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Partnership expects to adopt the new
statement effective January 1, 2000. SFAS 133 will require the Partnership to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives are either offset against the changes in fair value of assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Partnership believes that adoption of SFAS 133 will
not have a material impact on the Partnership's financial position or results of
operations.
INCOME TAXES
The Partnership and its subsidiaries, except for Falcon First, are limited
partnerships or limited liability companies and pay no income taxes as entities
except for nominal taxes assessed by certain state jurisdictions. All of the
income, gains, losses, deductions and credits of the Partnership are passed
through to its partners. The basis in the Partnership's assets and liabilities
differs for financial and tax reporting purposes. At December 31, 1998, the book
basis of the Partnership's net assets exceeded its tax basis by $621.8 million.
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which established standards for the reporting and display of
comprehensive income and its components in a full set of comparative
general-purpose financial statements. SFAS 130 became effective for the
Partnership on January 1, 1998. The Partnership does not currently have items of
comprehensive income.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
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
F-409
<PAGE> 639
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
NOTE 2 -- PARTNERSHIP MATTERS
The Amended and Restated Agreement of Limited Partnership of FCLP ("FCLP
Partnership Agreement") provides that profits and losses will be allocated, and
distributions will be made, in proportion to the partners' percentage interests.
FHGLP is the managing general partner and a limited partner and owns a 54%
interest in FCLP, and TCI is a general partner and owns a 46% interest. The
partners' percentage interests are based on the relative net fair market values
of the assets contributed to FCLP under the Contribution Agreement, as estimated
at the closing. The percentage interests were subsequently adjusted to reflect
the December 1998 redemption of a small part of FHGLP's partnership interest. To
the extent the relative net fair market values of the assets contributed to FCLP
under the Contribution Agreement, as finally determined, are different from the
estimates used to calculate the partners' percentage interests, one or the other
of the partners will be required to make an additional cash capital contribution
to FCLP so as to cause the partners' capital contributions to be in proportion
to their percentage interests. Any such additional cash contribution is required
to be made only to the extent of distributions by FCLP to the contributing
partner. Any such additional cash contribution must be accompanied by interest
at 9% per year from the date of closing or, in certain cases, from the date on
which FCLP incurred any liability that affected the net fair market value of the
parties' capital contributions.
At any time after September 30, 2005, either TCI or FHGLP can offer to sell
to the other partner the offering partner's entire partnership interest in FCLP
for a negotiated price. The partner receiving such an offer may accept or reject
the offer. If the partner receiving such an offer rejects it, the offering
partner may elect to cause FCLP to be liquidated and dissolved in accordance
with the FCLP Partnership Agreement.
The Partnership expires on July 1, 2013. The Partnership will be dissolved
prior to its expiration date under certain circumstances, including the
withdrawal of FHGLP as the managing general partner (unless the partners vote to
continue the Partnership), the sale of substantially all of the Partnership's
assets, and at the election by TCI in the event of changes in FCLP's key
management.
The FCLP Partnership Agreement provides for an Advisory Committee
consisting of six individual representatives, three of whom are appointed by
FHGLP, two of whom are appointed by TCI and one of whom is appointed by joint
designation of FHGLP and TCI. The FCLP Partnership Agreement prohibits FCLP from
taking certain actions without the affirmative vote of a majority of the members
of the Advisory Committee, including, but not limited to, the following: (1) the
acquisition or disposition of assets under certain circumstances; and (2)
conducting or entering into any line of business other than the ownership and
operation of cable television systems and related and ancillary businesses.
The FCLP Partnership Agreement further prohibits the Partnership from
taking certain actions without the affirmative approval of TCI, including, but
not limited to, the following: (1) any merger, consolidation, recapitalization
or other reorganization, with certain permitted exceptions;
F-410
<PAGE> 640
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) the acquisition or disposition of assets under certain circumstances; (3)
any sale or disposition of assets that would result in the allocation of taxable
income or gain to TCI; (4) incurring indebtedness if, after giving effect to
such indebtedness, FCLP's Operating Cash Flow Ratio, as defined, would exceed
8.0:1 through April 15, 2000 and 7.5:1 thereafter; (5) the issuance or
redemption of any partnership interest or convertible interest, with certain
permitted exceptions; (6) any transaction with FHGLP or any affiliate of FHGLP,
with certain permitted exceptions; (7) the adoption or amendment of any
management incentive plan; (8) the incurring of Net Overhead Expenses, as
defined, that exceed 4.5% of the gross revenues of FCLP and its subsidiaries in
any fiscal year; or (9) the liquidation or dissolution of FCLP, except in
accordance with the provisions of the FCLP Partnership Agreement.
TCI may elect to purchase all of FHGLP's interests in the Partnership in
certain circumstances if a court finds that FHGLP has engaged in conduct while
acting as Managing General Partner that has resulted in material harm to the
Partnership or TCI.
Prior to the closing of the TCI Transaction, the FHGLP Partnership
Agreement gave certain partners of FHGLP certain rights and priorities with
respect to other partners. Among these rights were stated obligations of the
Partnership to redeem certain partners' partnership interests at fair value or,
in some cases, at stated value. These rights and priorities were eliminated upon
the closing of the TCI Transaction. At the closing of the TCI Transaction, a
portion of the partnership interests held by certain FHGLP limited partners,
having an agreed value of $154.7 million, were redeemed for cash.
Under the amended FHGLP partnership agreement, the non-management limited
partners of FHGLP may elect at certain times either to require the incorporation
of FHGLP or to require that FHGLP elect to incorporate FCLP. Neither of these
elections may be made prior to March 30, 2006. If the non-management limited
partners of FHGLP make either of these elections, then, at any time more than
six months after the election and prior to the date on which the incorporation
is completed, the non-management limited partners of FHGLP may elect to require
that FCLP (or, if FHGLP has purchased all of TCI's interest in FCLP, FHGLP)
purchase all of the non-management partners' partnership interests in FHGLP.
Under certain circumstances, a non-management limited partner of FHGLP may elect
to exclude its partnership interest in FHGLP from the purchase and sale and,
upon such election, all put and call rights with respect to such partner's
partnership interest in FHGLP will terminate.
The put and call rights with respect to the partnership interests of the
non-management partners will terminate automatically if either FHGLP or FCLP is
incorporated, if the corporation that succeeds to the assets of FHGLP or FCLP
concurrently effects an initial public offering, and if the aggregate price to
the public (before underwriting discounts or commissions, registration fees, and
other expenses) of all stock sold in the public offering (including stock sold
by any selling shareholders, but excluding stock of a different class from that
acquired by the non-management partners in the incorporation) is at least $150
million.
At any time on or after April 1, 2006, FCLP (or, if FHGLP has purchased all
of TCI's interest in FCLP, FHGLP) may require that each of the non-management
limited partners of FHGLP sell its entire interest in FHGLP to FCLP or FHGLP, as
applicable. In the case of either a put or a call of the non-management limited
partners' interests in FHGLP, the purchase price will equal the amount that
would be distributed to each partner in dissolution and liquidation of FHGLP,
assuming the sale of FCLP's assets at fair market value, as determined by three
appraisers.
F-411
<PAGE> 641
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated redemption values at December 31, 1997 and December 31, 1998
were $171.4 million and $133 million, respectively, and are reflected in the
consolidated financial statements as redeemable partners' equity. Such amounts
were determined based on management's estimate of the redemption value of such
interests under current market conditions. Management of the Partnership will
continue to adjust the recorded redemption values based on its estimate of the
relative fair value of the interests subject to redemption. The actual
redemption value of any partnership interests will generally be determined
through the third-party appraisal mechanisms described in the partnership
agreements, and the appraisers will not be bound by management's estimates.
Accordingly, such appraised valuations may be greater than or less than
management's estimates and any such variations could be significant.
While the Partnership has assumed the obligations of FHGLP under the 1993
Incentive Performance Plan (the "Incentive Performance Plan"), FHGLP has agreed
to contribute cash to the Partnership in an amount equal to any payments made by
the Partnership under the Incentive Performance Plan.
NOTE 3 -- ACQUISITIONS AND SALES
The Partnership acquired the cable television systems of FCSC on July 12,
1996 through a newly-formed subsidiary operating partnership for a purchase
price of $253 million including transaction costs. The acquisition of FCSC was
accounted for by the purchase method of accounting, whereby the purchase price
of the FCSC assets was allocated based on an appraisal. The excess of purchase
price over the fair value of net assets acquired, or $18.2 million, has been
recorded as goodwill and is being amortized using the straight-line method over
20 years.
In March and July 1998, FHGLP acquired the Falcon Classic Systems for an
aggregate purchase price of $83.4 million. Falcon Classic had revenue of
approximately $20.3 million for the year ended December 31, 1997.
As discussed in Note 1, on September 30, 1998 the Partnership acquired the
TCI Systems and the Falcon Video Systems in accordance with the Contribution
Agreement.
The acquisitions of the TCI Systems, the Falcon Video Systems and the
Falcon Classic Systems were accounted for by the purchase method of accounting,
whereby the purchase prices were allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the dates of
acquisition, as follows:
<TABLE>
<CAPTION>
FALCON VIDEO FALCON CLASSIC
TCI SYSTEMS SYSTEMS SYSTEMS
----------- -------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Purchase Price:
General partnership interests
issued................................ $234,457 $ 43,073 $ --
Debt assumed.......................... 275,000 112,196 --
Debt incurred......................... -- -- 83,391
Other liabilities assumed............. 955 3,315 2,804
Transaction costs..................... 2,879 -- --
-------- -------- -------
513,291 158,584 86,195
-------- -------- -------
</TABLE>
F-412
<PAGE> 642
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FALCON VIDEO FALCON CLASSIC
TCI SYSTEMS SYSTEMS SYSTEMS
----------- -------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fair Market Value of Net Assets
Acquired:
Property, plant and equipment....... 77,992 41,889 33,539
Franchise costs..................... 170,799 36,374 7,847
Customer lists and other intangible
assets............................ 217,443 53,602 34,992
Other assets........................ 4,165 2,381 3,164
-------- -------- -------
470,399 134,246 79,542
-------- -------- -------
Excess of purchase price over fair
value of assets acquired and
liabilities assumed............ $ 42,892 $ 24,338 $ 6,653
======== ======== =======
</TABLE>
The excess of purchase price over the fair value of net assets acquired has
been recorded as goodwill and is being amortized using the straight-line method
over 20 years. The allocation of the purchase price may be subject to possible
adjustment pursuant to the Contribution Agreement.
The general partnership interests issued in the TCI Transaction were valued
in proportion to the estimated fair value of the TCI Systems and the Falcon
Video Systems as compared to the estimated fair value of the Partnership's
assets, which was agreed upon in the Contribution Agreement by all holders of
Partnership interests.
Sources and uses of funds for each of the transactions were as follows:
<TABLE>
<CAPTION>
FALCON VIDEO FALCON CLASSIC
TCI SYSTEMS SYSTEMS SYSTEMS
----------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sources of Funds:
Cash on hand............................... $ 11,429 $ 59,038 $ 6,591
Advance under bank credit facilities....... 429,739 56,467 76,800
-------- -------- -------
Total sources of funds........... $441,168 $115,505 $83,391
======== ======== =======
Uses of Funds:
Repay debt assumed from TCI and existing
debt of Falcon Video, including accrued
interest................................. $429,739 $115,505 $ --
Purchase price of assets................... -- -- 83,391
Payment of assumed obligations at
closing.................................. 6,495 -- --
Transaction fees and expenses.............. 2,879 -- --
Available funds............................ 2,055 -- --
-------- -------- -------
Total uses of funds.............. $441,168 $115,505 $83,391
======== ======== =======
</TABLE>
The following unaudited condensed consolidated statements of operations
present the consolidated results of operations of the Partnership as if the
acquisitions referred to above had occurred at the beginning of the periods
presented and are not necessarily indicative of what
F-413
<PAGE> 643
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
would have occurred had the acquisitions been made as of such dates or of
results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues..................................... $ 399,449 $ 424,994 $ 426,827
Expenses..................................... (429,891) (438,623) (444,886)
--------- --------- ---------
Operating loss............................. (30,442) (13,629) (18,059)
Interest and other expenses.................. (126,904) (115,507) (130,632)
--------- --------- ---------
Loss before extraordinary item............... $(157,346) $(129,136) $(148,691)
========= ========= =========
</TABLE>
NOTE 4 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short maturity of
those instruments.
NOTES PAYABLE
The fair value of the Partnership's 11% Senior Subordinated Notes, 8.375%
Senior Debentures and 9.285% Senior Discount Debentures is based on quoted
market prices for those issues of debt. The fair value of the Partnership's
other subordinated notes is based on quoted market prices for similar issues of
debt with similar maturities. The carrying amount of the Partnership's remaining
debt outstanding approximates fair value due to its variable rate nature.
INTEREST RATE HEDGING AGREEMENTS
The fair value of interest rate hedging agreements is estimated by
obtaining quotes from brokers as to the amount either party would be required to
pay or receive in order to terminate the agreements.
The following table depicts the fair value of each class of financial
instruments for which it is practicable to estimate that value as of December
31:
<TABLE>
<CAPTION>
1997 1998
---------------------- ------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 13,917 $ 13,917 $ 14,284 $ 14,284
Notes payable (Note 6):
11% Senior Subordinated Notes........... 282,193 299,125 -- --
8.375% Senior Debentures................ -- -- 375,000 382,500
9.285% Senior Discount Debentures....... -- -- 294,982 289,275
Bank credit facilities.................. 606,000 606,000 926,000 926,000
Other Subordinated Notes................ 15,000 16,202 15,000 16,426
Capitalized lease obligations........... 10 10 1 1
Other................................... 8,018 8,018 370 370
</TABLE>
F-414
<PAGE> 644
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NOTIONAL NOTIONAL
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Rate Hedging Agreements (Note 6):
Interest rate swaps....................... $585,000 $ (371) $1,534,713 $(22,013)
Interest rate caps........................ 25,000 (148) -- --
</TABLE>
The carrying value of interest rate swaps and caps was an asset of $402,000
at December 31, 1997 and a net obligation of $20.3 million at December 31, 1998.
See Note 6(g). The amount of debt on which current interest expense has been
affected is $520 million and $960 million for swaps at December 31, 1997 and
1998 and $25 million for caps at December 31, 1997. The balance of the contract
totals presented above reflects contracts entered into as of December 31 which
do not become effective until existing contracts expire.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cable television systems........................... $ 555,253 $ 765,641
Furniture and equipment............................ 19,067 25,576
Vehicles........................................... 12,067 18,381
Land, buildings and improvements................... 10,723 16,505
--------- ---------
597,110 826,103
Less accumulated depreciation and amortization..... (272,551) (320,209)
--------- ---------
$ 324,559 $ 505,894
========= =========
</TABLE>
NOTE 6 -- NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FCLP (formerly FHGLP) Only:
11% Senior Subordinated Notes(a)................... $282,193 $ --
8.375% Senior Debentures(b)...................... -- 375,000
9.285% Senior Discount Debentures, less
unamortized discount(b)....................... -- 294,982
Capitalized lease obligations.................... 10 1
Owned Subsidiaries:
Amended and Restated Credit Agreement(c)......... 606,000 --
New Credit Facility(d)........................... -- 926,000
Other subordinated notes(e)...................... 15,000 15,000
Other(f)......................................... 8,018 370
-------- ----------
$911,221 $1,611,353
======== ==========
</TABLE>
F-415
<PAGE> 645
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) 11% Senior Subordinated Notes
On March 29, 1993, FHGLP issued $175 million aggregate principal amount of
11% Senior Subordinated Notes due 2003 (the "Notes"). Interest payment dates
were semi-annual on each March 15 and September 15 commencing September 15,
1993. Through September 15, 2000 FHGLP, at its option, could pay all or any
portion of accrued interest on the Notes by delivering to the holders thereof,
in lieu of cash, additional Notes having an aggregate principal amount equal to
the amount of accrued interest not paid in cash. Through December 31, 1997, the
Partnership elected to issue $107.2 million additional notes as payment-in-kind
for interest. The Partnership elected to pay the interest payment due March 15,
1998 in cash and, under the terms of the Notes, was required to continue to make
cash payments.
On May 19, 1998, FHGLP repurchased approximately $247.8 million aggregate
principal amount of the Notes for an aggregate purchase price of $270.3 million
pursuant to a fixed spread tender offer for all outstanding Notes. The Notes
tendered represented approximately 88% of the Notes previously outstanding. The
approximate $34.4 million of Notes not repurchased in the tender offer were
redeemed on September 15, 1998 in accordance with their terms.
(b) 8.375% Senior Debentures and 9.285% Senior Discount Debentures
On April 3, 1998, FHGLP and its wholly-owned subsidiary, Falcon Funding
Corporation ("FFC" and, collectively with FHGLP, the "Issuers"), sold
$375,000,000 aggregate principal amount of 8.375% Senior Debentures due 2010
(the "Senior Debentures") and $435,250,000 aggregate principal amount at
maturity of 9.285% Senior Discount Debentures due 2010 (the "Senior Discount
Debentures" and, collectively with the Senior Debentures, the "Debentures") in a
private placement. The Debentures were exchanged for debentures with the same
form and terms, but registered under the Securities Act of 1933, as amended, in
August 1998.
In connection with consummation of the TCI Transaction, the Partnership was
substituted for FHGLP as an obligor under the Debentures and thereupon FHGLP was
released and discharged from any further obligation with respect to the
Debentures and the related Indenture. FFC remains as an obligor under the
Debentures and is now a wholly owned subsidiary of the Partnership. FFC was
incorporated solely for the purpose of serving as a co-issuer of the Debentures
and does not have any material operations or assets and will not have any
revenues.
The Senior Discount Debentures were issued at a price of 63.329% per $1,000
aggregate principal amount at maturity, for total gross proceeds of
approximately $275.6 million, and will accrete to stated value at an annual rate
of 9.285% until April 15, 2003. The unamortized discount amounted to $140.3
million at December 31, 1998. After giving effect to offering discounts,
commissions and estimated expenses of the offering, the sale of the Debentures
(representing aggregate indebtedness of approximately $650.6 million as of the
date of issuance) generated net proceeds of approximately $631 million. The
Partnership used substantially all the net proceeds from the sale of the
Debentures to repay outstanding bank indebtedness.
(c) Amended and Restated Credit Agreement
The Partnership had a $775 million senior secured Amended and Restated
Credit Agreement that was scheduled to mature on July 11, 2005. The Amended and
Restated Credit Agreement required the Partnership to make annual reductions of
$1 million on the term loan portion
F-416
<PAGE> 646
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commencing December 31, 1997. Maximum available borrowings under the Amended and
Restated Credit Agreement were $774 million at December 31, 1997. The Amended
and Restated Credit Agreement required interest on the amount outstanding under
the reducing revolver portion to be tied to the ratio of consolidated total debt
(as defined) to consolidated annualized cash flow (as defined). Interest rates
were based on LIBOR or prime rates at the option of the Partnership. The LIBOR
margin under the reducing revolver ranged from 0.75% to 1.625%, while interest
on the term loan was at the LIBOR rate plus 2.375%.
At December 31, 1997, the weighted average interest rate on borrowings
outstanding under the Amended and Restated Credit Agreement (including the
effects of the interest rate hedging agreements) was 7.69%. The Partnership was
also required to pay a commitment fee per annum on the unused portion.
(d) New Credit Facility
On June 30, 1998, the Partnership entered into a new $1.5 billion senior
credit facility (the "New Credit Facility") which replaced the Amended and
Restated Credit Agreement and provided funds for the closing of the TCI
Transaction. See Note 1. The borrowers under the New Credit Facility were the
operating subsidiaries prior to consummation of the TCI Transaction and,
following the TCI Transaction, the borrower is Falcon LLC. The restricted
companies, as defined under the New Credit Facility, are Falcon LLC and each of
its subsidiaries (excluding certain subsidiaries designated as excluded
companies from time to time) and each restricted company (other than Falcon LLC)
is also a guarantor of the New Credit Facility.
The New Credit Facility consists of three committed facilities (one
revolver and two term loans) and one uncommitted $350 million supplemental
credit facility (the terms of which will be negotiated at the time the
Partnership makes a request to draw on such facility). Facility A is a $650
million revolving credit facility maturing December 29, 2006; Facility B is a
$200 million term loan maturing June 29, 2007; and Facility C is a $300 million
term loan maturing December 31, 2007. All of Facility C and approximately $126
million of Facility B were funded on June 30, 1998, and the debt outstanding
under the Amended and Restated Credit Agreement of approximately $329 million
was repaid. As a result, from June 30, 1998 until September 29, 1998, FHGLP had
an excess cash balance of approximately $90 million. Immediately prior to
closing the TCI Transaction, approximately $39 million was borrowed under
Facility A to discharge certain indebtedness of Falcon Video. In connection with
consummation of the TCI Transaction, Falcon LLC assumed the approximately $433
million of indebtedness outstanding under the New Credit Facility. In addition
to utilizing cash on hand of approximately $63 million, Falcon LLC borrowed the
approximately $74 million remaining under Facility B and approximately $366
million under Facility A to discharge approximately $73 million of Falcon Video
indebtedness and to retire approximately $430 million of TCI indebtedness
assumed as part of the contribution of the TCI Systems. As a result of these
borrowings, the amount outstanding under the New Credit Facility at December 31,
1998 was $926 million. Subject to covenant limitations, the Partnership had
available to it additional borrowing capacity thereunder of $224 million at
December 31, 1998. However, limitations imposed by the Partnership's partnership
agreement as amended would limit available borrowings at December 31, 1998 to
$23.1 million.
(e) Other subordinated notes
Other subordinated notes consist of 11.56% Subordinated Notes due March
2001. The subordinated note agreement contains certain covenants which are
substantially the same as the
F-417
<PAGE> 647
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
covenants under the New Credit Facility, which is described in (d) above. At
December 31, 1998, management believes that the Partnership was in compliance
with such covenants.
(f) Other
Other notes payable as of December 31, 1997 consisted of $7.5 million owed
by Enstar Finance Company, LLC ("EFC"). FHGLP's interest in EFC was not
contributed to FCLP on September 30, 1998. Consequently, EFC's obligations are
excluded from those of the Partnership as of December 31, 1998.
(g) Interest Rate Hedging Agreements
The Partnership utilizes interest rate hedging agreements to establish
long-term fixed interest rates on a portion of its variable-rate debt. The New
Credit Facility requires that interest be tied to the ratio of consolidated
total debt to consolidated annualized cash flow (in each case, as defined
therein), and further requires that the Partnership maintain hedging
arrangements with respect to at least 50% of the outstanding borrowings
thereunder plus any additional borrowings of the Partnership, including the
Debentures, for a two year period. As of December 31, 1998, borrowings under the
New Credit Facility bore interest at an average rate of 7.55% (including the
effect of interest rate hedging agreements). The Partnership has entered into
fixed interest rate hedging agreements with an aggregate notional amount at
December 31, 1998 of $1.485 billion, including contracts of $160 million assumed
from Falcon Video in connection with the TCI Transaction. Agreements in effect
at December 31, 1998 totaled $910 million, with the remaining $575 million to
become effective as certain of the existing contracts mature during 1999 through
October of 2004. These agreements expire at various times through October, 2006.
In addition to these agreements, the Partnership has one interest rate swap
contract with a notional amount of $25 million under which it pays variable
LIBOR rates and receives fixed rate payments.
The hedging agreements resulted in additional interest expense of $1
million, $350,000 and $1.2 million for the years ended December 31, 1996, 1997
and 1998, respectively. The Partnership does not believe that it has any
significant risk of exposure to non-performance by any of its counterparties.
(h) Debt Maturities
The Partnership's notes payable outstanding at December 31, 1998 mature as
follows:
<TABLE>
<CAPTION>
OTHER
8.375% SENIOR 9.285% SENIOR NOTES TO SUBORDINATED
YEAR DEBENTURES DEBENTURES BANKS NOTES OTHER TOTAL
---- ------------- ------------- -------- ------------ ----- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999................. $ -- $ -- $ 5,000 $ -- $371 $ 5,371
2000............... -- -- 5,000 -- -- 5,000
2001............... -- -- 5,000 15,000 -- 20,000
2002............... -- -- 5,000 -- -- 5,000
2003............... -- -- 5,000 -- -- 5,000
Thereafter........... 375,000 435,250 901,000 -- -- 1,711,250
</TABLE>
F-418
<PAGE> 648
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Extraordinary Item
Fees and expenses incurred in connection with the repurchase of the Notes
on May 19, 1998 and the retirement of the remaining Notes on September 15, 1998
were $19.7 million in the aggregate. In addition, the unamortized portion of
deferred loan costs related to the Notes and the Amended and Restated Credit
Agreement, which amounted to $10.9 million in the aggregate, were written off as
an extraordinary charge upon the extinguishment of the related debt.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The Partnership leases land, office space and equipment under operating
leases expiring at various dates through the year 2039. See Note 9.
Future minimum rentals for operating leases at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
YEAR TOTAL
---- -----------
(DOLLARS IN
THOUSANDS)
<S> <C>
1999.................................................... $ 2,758
2000.................................................. 2,545
2001.................................................. 2,264
2002.................................................. 1,919
2003.................................................. 1,119
Thereafter.............................................. 4,449
-------
$15,054
=======
</TABLE>
In most cases, management expects that, in the normal course of business,
these leases will be renewed or replaced by other leases. Rent expense amounted
to $2.1 million in 1996, $2.4 million in 1997 and $3.1 million in 1998.
In addition, the Partnership rents line space on utility poles in some of
the franchise areas it serves. These rentals amounted to $2.8 million for 1996,
$3.1 million for 1997 and $3.9 million for 1998. Generally, such pole rental
agreements are short-term; however, the Partnership anticipates such rentals
will continue in the future.
Beginning in August 1997, the Partnership elected to self-insure its cable
distribution plant and subscriber connections against property damage as well as
possible business interruptions caused by such damage. The decision to
self-insure was made due to significant increases in the cost of insurance
coverage and decreases in the amount of insurance coverage available. In October
1998, the Partnership reinstated third party insurance coverage against damage
to its cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible and is intended to limit the Partnership's
exposure to catastrophic losses, if any, in future periods. Management believes
that the relatively small size of the Partnership's markets in any one
geographic area, coupled with their geographic separation, will mitigate the
risk that the Partnership could sustain losses due to seasonal weather
conditions or other events that, in the aggregate, could have a material adverse
effect on the Partnership's liquidity and cash flows. The Partnership continues
to purchase insurance coverage in amounts management views as appropriate for
all other property, liability, automobile, workers' compensation and other types
of insurable risks.
F-419
<PAGE> 649
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership is required under various franchise agreements at December
31, 1998 to rebuild certain existing cable systems at a cost of approximately
$83 million.
The Partnership is regulated by various federal, state and local government
entities. The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act"), provides for among other things, federal and local
regulation of rates charged for basic cable service, cable programming service
tiers ("CPSTs") and equipment and installation services. Regulations issued in
1993 and significantly amended in 1994 by the Federal Communications Commission
(the "FCC") have resulted in changes in the rates charged for the Partnership's
cable services. The Partnership believes that compliance with the 1992 Cable Act
has had a negative impact on its operations and cash flow. It also presently
believes that any potential future liabilities for refund claims or other
related actions would not be material. The Telecommunications Act of 1996 (the
"1996 Telecom Act") was signed into law on February 8, 1996. As it pertains to
cable television, the 1996 Telecom Act, among other things, (i) ends the
regulation of certain CPSTs in 1999; (ii) expands the definition of effective
competition, the existence of which displaces rate regulation; (iii) eliminates
the restriction against the ownership and operation of cable systems by
telephone companies within their local exchange service areas; and (iv)
liberalizes certain of the FCC's cross-ownership restrictions.
The Partnership has various contracts to obtain basic and premium
programming from program suppliers whose compensation is 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 or
offer marketing support to the Partnership. The Partnership's programming
contracts are generally for a fixed period of time and are subject to negotiated
renewal. The Partnership does not have long-term programming contracts for the
supply of a substantial amount of its programming. Accordingly, no assurances
can be given that the Partnership's programming costs will not continue to
increase substantially or that other materially adverse terms will not be added
to the Partnership's programming contracts. Management believes, however, that
the Partnership's relations with its programming suppliers generally are good.
Effective December 1, 1998, the Partnership elected to obtain certain of
its programming services through an affiliate of TCI. This election resulted in
a reduction in the Partnership's programming costs, the majority of which will
be passed on to its customers in the form of reduced rates in compliance with
FCC rules. The Partnership has elected to continue to acquire its remaining
programming services under its existing programming contracts, but may elect to
acquire additional programming services through the TCI affiliate in the future.
The Partnership, in the normal course of business, purchases cable programming
services from certain program suppliers owned in whole or in part by an
affiliate of TCI.
The Partnership is periodically a party to various legal proceedings. Such
legal proceedings are ordinary and routine litigation proceedings that are
incidental to the Partnership's business, and management presently believes that
the outcome of all pending legal proceedings will not, individually or in the
aggregate, have a material adverse effect on the financial condition or results
of operations of the Partnership.
The Partnership, certain of its affiliates, and certain third parties have
been named as defendants in an action entitled Frank O'Shea I.R.A. et al. v.
Falcon Cable Systems Company, et al., Case No. BC 147386, pending in the
Superior Court of the State of California, County of Los Angeles (the "Action").
Plaintiffs in the Action are certain former unitholders of FCSC purporting to
represent a class consisting of former unitholders of FCSC other than those
affiliated with
F-420
<PAGE> 650
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FCSC and/or its controlling persons. The complaint in the Action alleges, among
other things, that defendants breached their fiduciary and contractual duties to
unitholders, and acted negligently, with respect to the purchase from former
unitholders of their interests in FCSC in 1996. A settlement of the action has
been agreed to and will be presented to the court for approval on April 22,
1999. The terms of the settlement, if approved, are not expected to have a
material adverse effect on the financial condition of the Partnership. Net of
insurance proceeds, the settlement's cost to the Partnership would amount to
approximately $2.7 million, all of which had been reserved as of December 31,
1998. The Partnership recognized expenses related to the settlement of $52,000,
$145,000 and $2.5 million in 1996, 1997 and 1998, respectively.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
The subsidiaries of the Partnership have a cash or deferred profit sharing
plan (the "Profit Sharing Plan") covering substantially all of their employees.
FHGLP joined in the adoption of the FHGI cash or deferred profit sharing plan as
of March 31, 1993. The provisions of this plan were amended to be substantially
identical to the provisions of the Profit Sharing Plan.
The Profit Sharing Plan provides that each participant may elect to make a
contribution in an amount up to 20% of the participant's annual compensation
which otherwise would have been payable to the participant as salary. The
Partnership's contribution to the Profit Sharing Plan, as determined by
management, is discretionary but may not exceed 15% of the annual aggregate
compensation (as defined) paid to all participating employees. There were no
contributions for the Profit Sharing Plan in 1996, 1997 or 1998.
On September 30 1998, the Partnership assumed the obligations of FHGLP for
its 1993 Incentive Performance Plan (the "Incentive Plan"). The value of the
interests in the Incentive Plan is tied to the equity value of certain
partnership units in FHGLP held by FHGI. In connection with the assumption by
the Partnership, FHGLP agreed to fund any benefits payable under the Incentive
Plan through additional capital contributions to the Partnership, the waiver of
its rights to receive all or part of certain distributions from the Partnership
and/or a contribution of a portion of its partnership units to the Partnership.
The benefits which are payable under the Incentive Plan are equal to the amount
of distributions which FHGI would have otherwise received with respect to
1,932.67 of the units of FHGLP held by FHGI and a portion of FHGI's interest in
certain of the partnerships that are the general partners of the Partnership's
operating subsidiaries. Benefits are payable under the Incentive Plan only when
distributions would otherwise be paid to FHGI with respect to the
above-described units and interests. The Incentive Plan is scheduled to
terminate on January 5, 2003, at which time the Partnership is required to
distribute the units described above to the participants in the Incentive Plan.
At such time, FHGLP is required to cause the units to be contributed to the
Partnership to fund such distributions. The participants in the Incentive Plan
are present and former employees of the Partnership, FHGLP and its operating
affiliates, all of whom are 100% vested. Prior to the closing of the TCI
Transaction, FHGLP amended the Incentive Plan to provide for payments by FHGLP
at the closing of the TCI Transaction to participants in an aggregate amount of
approximately $6.5 million and to reduce by such amount FHGLP's obligations to
make future payments to participants under the Incentive Plan.
In 1999, the Partnership adopted a Restricted Unit Plan (the "New FCLP
Incentive Plan" or "Plan") for the benefit of certain employees. Grants of
restricted units are provided at the discretion of the Advisory Committee. The
value of the units in the New FCLP Incentive Plan is tied to the equity value of
FCLP above a base equity as determined initially in 1999 by the
F-421
<PAGE> 651
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
partners, and for grants in subsequent years by an appraisal. Benefits are
payable under the New FCLP Incentive Plan only when distributions would
otherwise be payable to equity holders of FCLP. An initial grant of 100,000
units representing 2.75% of the equity of FCLP in excess of the equity base was
approved and will be allocated to the participants in the Plan. There is a
five-year vesting requirement for all participants.
NOTE 9 -- RELATED PARTY TRANSACTIONS
The Partnership is a separate, stand-alone holding company which employs
all of the management personnel. The Partnership is financially dependent on the
receipt of permitted payments from its operating subsidiaries, management and
consulting fees from domestic cable ventures, and the reimbursement of specified
expenses by certain of the Affiliated Partnerships to fund its operations.
Expected increases in the funding requirements of the Partnership combined with
limitations on its sources of cash may create liquidity issues for the
Partnership in the future. Specifically, the Amended and Restated Credit
Agreement and, subsequently, the New Credit Facility, permitted the subsidiaries
of the Partnership to remit to the Partnership no more than 4.25% of their net
cable revenues, as defined, in any year, effective July 12, 1996. Beginning on
January 1, 1999, this limitation was increased to 4.5% of net cable revenues in
any year. As a result of the 1998 acquisition by the Partnership of the Falcon
Classic and Falcon Video Systems, the Partnership will no longer receive
management fees and reimbursed expenses from Falcon Classic or receive
management fees from Falcon Video. Commencing on October 1, 1998, FHGLP retains
20% of the management fees paid by the Enstar partnerships. The management fees
earned from the Enstar partnerships were $1.9 million, $2 million and $1.9
million for the years ended December 31, 1996, 1997 and 1998, respectively.
The management and consulting fees and expense reimbursements earned from
the Affiliated Partnerships amounted to approximately $6.3 million and $3.7
million, $5.2 million and $2.1 million and $3.7 million and $1.5 million for the
years ended December 31, 1996, 1997 and 1998, respectively. The fees and expense
reimbursements of $6.3 million and $3.7 million earned in 1996 included $1.5
million and $1 million earned from FCSC from January 1, 1996 through July 11,
1996. The fees and expense reimbursements of $3.7 million and $1.5 million
earned in 1998 included $191,000 and $128,000 earned from Falcon Classic from
January 1, 1998 through July 16, 1998, and $1.2 million in management fees from
Falcon Video from January 1, 1998 through September 30, 1998. Subsequent to
these acquisitions, the amounts payable to the Partnership in respect of its
management of the former FCSC, Falcon Classic and Falcon Video Systems became
subject to the limitations contained in the Amended and Restated Credit
Agreement and, subsequently, the New Credit Facility.
Receivables from the Affiliated Partnerships for services and
reimbursements described above amounted to approximately $11.3 million and $2.3
million (which, in 1997, included $7.5 million of notes receivable from the
Enstar partnerships) at December 31, 1997 and 1998.
Included in Commitments and Contingencies (Note 7) are two facility lease
agreements with the Partnership's Chief Executive Officer and his wife, or
entities owned by them, requiring annual future minimum rental payments
aggregating $2.1 million through 2001, one facility being assumed by a
subsidiary as part of the assets acquired on July 12, 1996 from FCSC. That
subsidiary acquired the property in February 1999 for $282,500, a price
determined by two independent appraisals. During the years ended December 31,
1996, 1997 and 1998 rent expense on the first facility amounted to $397,000,
$383,000 and $416,000, respectively. The rent paid for the second facility for
the period July 12, 1996 through December 31, 1996 amounted to
F-422
<PAGE> 652
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $18,000, and the amount paid in each of 1997 and 1998 was
approximately $41,000.
In addition, the Partnership provides certain accounting, bookkeeping and
clerical services to the Partnership's Chief Executive Officer. The costs of
services provided were determined based on allocations of time plus overhead
costs (rent, parking, supplies, telephone, etc.). Such services amounted to
$118,300, $163,000 and $212,000 for the years ended December 31, 1996, 1997 and
1998, respectively. These costs were net of amounts reimbursed to the
Partnership by the Chief Executive Officer amounting to $75,000, $55,000 and
$72,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 10 -- OTHER INCOME (EXPENSE)
Other income (expense) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gain on sale of Available-for-Sale Securities............... $ 2,264 $ -- $ --
Gain on insured casualty losses............................. -- 3,476 314
Write down of investment.................................... (1,000) -- --
Gain (loss) on sale of investment........................... -- (1,360) 174
Net lawsuit settlement costs................................ -- (1,030) (2,614)
Other, net.................................................. (450) (201) (791)
------- ------- -------
$ 814 $ 885 $(2,917)
======= ======= =======
</TABLE>
NOTE 11 -- SUBSEQUENT EVENTS
In March 1999, AT&T and Tele-Communications, Inc. completed a merger under
which Tele-Communications, Inc. became a unit of AT&T called AT&T Broadband &
Internet Services. The unit will continue to be headquartered in the Denver
area. Leo J. Hindery, Jr., who had been president of Tele-Communications, Inc.
since January 1997, was named President and Chief Executive Officer of AT&T
Broadband & Internet Services, which became the owner of TCI Falcon Holdings,
LLC as a result of the merger.
The Partnership entered into a letter of intent with AT&T to form a joint
venture. This joint venture would provide local or any-distance communications
services, other than mobile wireless services, video entertainment services and
high speed Internet access services, to residential and certain small business
customers under the AT&T brand name over the Partnership's infrastructure.
Formation of the joint venture is subject to certain conditions. The Partnership
is unable to predict if or when such conditions will be met.
F-423
<PAGE> 653
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
OPERATING ACTIVITIES
During the years ended December 31, 1996, 1997 and 1998, the Partnership
paid cash interest amounting to approximately $39.7 million, $48.1 million and
$84.9 million, respectively.
INVESTING ACTIVITIES
See Note 3 regarding the non-cash investing activities related to the
acquisitions of the cable systems of the TCI Systems, the Falcon Video Systems,
the Falcon Classic Systems and FCSC.
FINANCING ACTIVITIES
See Note 3 regarding the non-cash financing activities relating to the
acquisitions of the cable systems of the TCI Systems, the Falcon Video Systems,
the Falcon Classic Systems and FCSC. See Note 2 regarding the reclassification
to redeemable partners' equity.
F-424
<PAGE> 654
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FCLP (PARENT COMPANY ONLY)
The following parent-only condensed financial information presents Falcon
Communications, L.P.'s balance sheets and related statements of operations and
cash flows by accounting for the investments in its subsidiaries on the equity
method of accounting. The condensed balance sheet information for 1997 and
condensed statement of operations information through September 30, 1998 is for
FHGLP (parent only). The accompanying condensed financial information should be
read in conjunction with the consolidated financial statements and notes
thereto.
CONDENSED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents.................................. $ 8,177 $ 1,605
Receivables:
Intercompany notes and accrued interest receivable.... 226,437 655,128
Due from affiliates and other entities, of which
$23,374,000 was contractually restricted or
otherwise deferred at December 31, 1997 (see Note
9).................................................. 25,340 2,129
Prepaid expenses and other............................... 711 236
Investments in affiliated partnerships................... 12,827 --
Other investments........................................ 1,519 --
Property, plant and equipment, less accumulated
depreciation and amortization......................... 1,323 3,599
Deferred loan costs, less accumulated amortization....... 4,846 20,044
--------- ---------
$ 281,180 $ 682,741
========= =========
LIABILITIES:
Notes payable............................................ $ 10 $ --
Senior notes payable..................................... 282,193 669,982
Notes payable to affiliates.............................. -- 70,805
Accounts payable......................................... 179 135
Accrued expenses......................................... 14,025 14,000
Equity in net losses of subsidiaries in excess of
investment............................................ 230,155 198,492
--------- ---------
TOTAL LIABILITIES................................ 526,562 953,414
REDEEMABLE PARTNERS' EQUITY................................ 171,373 133,023
PARTNERS' DEFICIT.......................................... (416,755) (403,696)
--------- ---------
$ 281,180 $ 682,741
========= =========
</TABLE>
F-425
<PAGE> 655
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FCLP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Management fees:
Affiliated Partnerships................... $ 3,962 $ 2,873 $ 2,120
Subsidiaries.............................. 12,020 13,979 14,010
International and other................... 413 281 33
-------- -------- ---------
Total revenues....................... 16,395 17,133 16,163
-------- -------- ---------
EXPENSES:
General and administrative expenses.......... 9,096 11,328 21,134
Depreciation and amortization................ 375 274 559
-------- -------- ---------
Total expenses....................... 9,471 11,602 21,693
-------- -------- ---------
Operating income (loss).............. 6,924 5,531 (5,530)
OTHER INCOME (EXPENSE):
Interest income.............................. 19,884 22,997 50,562
Interest expense............................. (27,469) (30,485) (59,629)
Equity in net losses of subsidiaries......... (50,351) (56,422) (105,659)
Equity in net losses of investee
partnerships.............................. (73) (4) (31)
Other, net................................... 1,100 (2,455) --
-------- -------- ---------
Net loss before extraordinary item............. (49,985) (60,838) (120,287)
Extraordinary item, retirement of debt......... -- -- (24,196)
-------- -------- ---------
NET LOSS....................................... $(49,985) $(60,838) $(144,483)
======== ======== =========
</TABLE>
F-426
<PAGE> 656
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FCLP (PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in)
Operating activities............................... $(8,969) $1,478 $(418,226)
------- ------ ---------
Cash flows from investing activities:
Distributions from affiliated partnerships....... 773 -- 1,820
Capital expenditures............................. (242) (417) (2,836)
Investments in affiliated partnerships and other
investments................................... (9,000) (254) (2,998)
Proceeds from sale of investments and other
assets........................................ 3 702 1,694
Proceeds from sale of available-for-sale
securities.................................... 9,502 -- --
Assets retained by Falcon Holding Group, L.P..... -- -- (2,893)
------- ------ ---------
Net cash provided by (used in) investing
activities....................................... 1,036 31 (5,213)
------- ------ ---------
Cash flows from financing activities:
Repayment of debt................................ (120) (131) (282,203)
Borrowings from notes payable.................... -- -- 650,639
Borrowings from subsidiaries..................... -- -- 70,805
Capital contributions............................ 5,000 93 --
Redemption of partners' equity................... -- -- (1,170)
Deferred loan costs.............................. -- -- (21,204)
------- ------ ---------
Net cash provided by (used in) financing
activities....................................... 4,880 (38) 416,867
------- ------ ---------
Net increase (decrease) in cash and cash
equivalents...................................... (3,053) 1,471 (6,572)
Cash and cash equivalents, at beginning of year.... 9,759 6,706 8,177
------- ------ ---------
Cash and cash equivalents, at end of year.......... $ 6,706 $8,177 $ 1,605
======= ====== =========
</TABLE>
F-427
<PAGE> 657
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998* 1999
------------ -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 14,284 $ 4,196
Receivables:
Trade, less allowance of $670,000 and $600,000 for
possible losses........................................ 15,760 16,236
Affiliates............................................. 2,322 2,414
Other assets.............................................. 16,779 30,422
Property, plant and equipment, less accumulated
depreciation and amortization of $320,209,000 and
$366,232,000........................................... 505,894 549,476
Franchise cost, less accumulated amortization of
$226,526,000 and $263,777,000.......................... 397,727 372,322
Goodwill, less accumulated amortization of $25,646,000 and
$30,513,000............................................ 135,308 131,051
Customer lists and other intangible costs, less
accumulated amortization of $59,422,000 and
$117,721,000........................................... 333,017 280,238
Deferred loan costs, less accumulated amortization of
$2,014,000 and $2,886,000.............................. 24,331 22,874
---------- ----------
$1,445,422 $1,409,229
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable............................................. $1,611,353 $1,681,454
Accounts payable.......................................... 10,341 3,382
Accrued expenses.......................................... 83,077 139,626
Customer deposits and prepayments......................... 2,257 2,714
Deferred income taxes..................................... 8,664 1,681
Minority interest......................................... 403 546
---------- ----------
TOTAL LIABILITIES........................................... 1,716,095 1,829,403
---------- ----------
REDEEMABLE PARTNERS' EQUITY................................. 133,023 424,280
---------- ----------
PARTNERS' EQUITY (DEFICIT):
General partner........................................... (408,369) (847,641)
Limited partners.......................................... 4,673 3,187
---------- ----------
TOTAL PARTNERS' DEFICIT..................................... (403,696) (844,454)
---------- ----------
$1,445,422 $1,409,229
========== ==========
</TABLE>
- ---------------
*As presented in the audited financial statements.
See accompanying notes to condensed consolidated financial statements.
F-428
<PAGE> 658
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
--------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $ 201,789 $ 320,228
--------- ---------
OPERATING COSTS AND EXPENSES:
Programming costs......................................... 39,297 72,253
Service costs............................................. 21,840 37,318
General and administrative expenses....................... 44,742 58,253
Equity-based deferred compensation........................ -- 44,600
Depreciation and amortization............................. 98,284 168,546
--------- ---------
Total operating costs and expenses..................... 204,163 380,970
--------- ---------
Operating loss......................................... (2,374) (60,742)
OTHER INCOME (EXPENSE):
Interest expense, net..................................... (69,744) (98,931)
Equity in net loss of investee partnerships............... (199) (41)
Other income (expense), net............................... (1,162) 8,126
Income tax benefit (expense).............................. (2,848) 3,022
--------- ---------
Net loss before extraordinary items......................... (76,327) (148,566)
Extraordinary items......................................... (30,642) --
--------- ---------
NET LOSS.................................................... $(106,969) $(148,566)
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-429
<PAGE> 659
FALCON COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
----------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net cash provided by operating activities................... $ 44,361 $ 71,585
----------- ---------
Cash flows from investing activities:
Acquisition of cable television systems................... (83,391) (26,320)
Capital expenditures...................................... (63,357) (102,626)
Increase in intangible assets............................. (7,692) (3,333)
Cash retained by FHGLP.................................... (1,546) --
Proceeds from sale of system.............................. -- 3,178
Other..................................................... 37 (2,048)
----------- ---------
Net cash used in investing activities............. (155,949) (131,149)
----------- ---------
Cash flows from financing activities:
Borrowings from notes payable............................. 2,357,607 93,500
Repayment of debt......................................... (2,225,120) (44,121)
Deferred loan costs....................................... (25,630) (70)
Other..................................................... 83 167
----------- ---------
Net cash provided by financing activities......... 106,940 49,476
----------- ---------
Net decrease in cash and cash equivalents................... (4,648) (10,088)
Cash and cash equivalents at beginning of period............ 13,917 14,284
----------- ---------
Cash and cash equivalents at end of period.................. $ 9,269 $ 4,196
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-430
<PAGE> 660
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
Falcon Communications, L.P., a California limited partnership (the
"Partnership") and successor to Falcon Holding Group, L.P. ("FHGLP"), owns and
operates cable television systems serving small to medium-sized communities and
the suburbs of certain cities in 23 states. On September 30, 1998, pursuant to a
Contribution and Purchase Agreement dated as of December 30, 1997, as amended
(the "Contribution Agreement"), FHGLP acquired the assets and liabilities of
Falcon Video Communications, L.P. ("Falcon Video"), in exchange for ownership
interests in FHGLP. Simultaneously with the closing of that transaction, in
accordance with the Contribution Agreement, FHGLP contributed substantially all
of the existing cable television system operations owned by FHGLP and its
subsidiaries (including the Falcon Video systems) to the Partnership and TCI
Falcon Holdings, LLC ("TCI") contributed certain cable television systems owned
and operated by affiliates of TCI (the "TCI systems") to the Partnership (the
"TCI Transaction"). In March 1999, AT&T and Tele-Communications, Inc. completed
a merger under which Tele-Communications, Inc. became a unit of AT&T called AT&T
Broadband & Internet Services, which is now the owner of TCI Falcon Holdings,
LLC as a result of the merger. As a result, AT&T Broadband and Internet Services
holds approximately 46% of the equity interests of the Partnership and FHGLP
holds the remaining 54% and serves as the managing general partner of the
Partnership. The TCI Transaction has been accounted for as a recapitalization of
FHGLP into the Partnership and the concurrent acquisition by the Partnership of
the TCI systems.
On May 26, 1999, the Partnership and Charter Communications ("Charter")
announced a definitive agreement in which Charter will acquire the Partnership
in a cash and stock transaction valued at approximately $3.6 billion. Closing of
the pending sale is anticipated to take place in the fourth quarter of 1999.
NOTE 2 -- INTERIM FINANCIAL STATEMENTS
The interim financial statements for the three and nine months ended
September 30, 1999 and 1998 are unaudited. These condensed interim financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Partnership's latest Annual Report on Form
10-K. In the opinion of management, such statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of such periods. The results of operations for the
three and nine months ended September 30, 1999 are not indicative of results for
the entire year.
NOTE 3 -- REDEEMABLE PARTNERS' EQUITY
Redeemable partners' equity has been adjusted as of September 30, 1999
based on the estimated redemption value to be recognized from the pending sale
to Charter, which is subject to final determination of working capital and debt
balances.
NOTE 4 -- EQUITY-BASED DEFERRED COMPENSATION
In connection with the pending sale of the Partnership to Charter discussed
in Note 1, the Partnership recorded a non-cash charge of $42 million during the
three months ended June 30, 1999 related to both the 1993 Incentive Performance
Plan ($17.2 million) and the 1999 Employee Restricted Unit Plan ($24.8 million).
The estimated amounts were determined based on the value of the underlying
ownership units, as established by the pending sale of the Partnership to
Charter, and on estimated closing working capital and debt balances of the
Partnership. Additional compensation related to the 1993 Incentive Performance
Plan of $2.6 million was recorded in the three months ended March 31, 1999 based
on management's estimate of the increase in value of the underlying ownership
interests since December 31, 1998. Payments
F-431
<PAGE> 661
FALCON COMMUNICATIONS, L.P.
(SUCCESSOR TO FALCON HOLDING GROUP, L.P.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the plans are subject to closing of the sale to Charter, will be
determined based on the final working capital and debt balances of the
Partnership and will be paid from net sale proceeds. The total recorded deferred
compensation expense of $44.6 million under these plans is included in accrued
expenses.
In addition to the amounts expected to be paid pursuant to the plans,
management currently expects to pay from net sale proceeds additional bonuses to
certain employees in the aggregate amount of approximately $22 million
contingent upon the closing of the sale to Charter. Such amounts will be
reflected in the condensed consolidated financial statements when the closing of
the sale to Charter has occurred.
NOTE 5 -- ACQUISITIONS
In March 1998, the Partnership acquired substantially all of the assets of
Falcon Classic Cable Income Properties, L.P. As discussed in Note 1, on
September 30, 1998 the Partnership acquired the TCI systems and the Falcon Video
systems in accordance with the Contribution Agreement. The following unaudited
condensed consolidated pro forma statement of operations presents the
consolidated results of operations of the Partnership as if the acquisitions had
occurred at January 1, 1998 and is not necessarily indicative of what would have
occurred had the acquisitions been made as of that date or of results which may
occur in the future.
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
SEPTEMBER 30,
1998
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Revenues............................................... $ 321,058
Expenses............................................... (335,064)
---------
Operating loss....................................... (14,006)
Interest and other expenses............................ (98,127)
---------
Loss before extraordinary items........................ $(112,133)
=========
</TABLE>
In January 1999, the Partnership acquired the assets of certain cable
systems serving approximately 591 customers in Oregon for $800,700. On March 15,
1999, the Partnership acquired the assets of certain cable systems serving
approximately 7,928 customers in Utah for $6.8 million. On March 22, 1999, the
Partnership acquired the assets of the Franklin, Virginia system in exchange for
the assets of its Scottsburg, Indiana systems and $8 million in cash and
recognized a gain of $8.5 million. The Franklin system serves approximately
9,042 customers and the Scottsburg systems served approximately 4,507 customers.
The effects of this transaction on results of operations are not material. On
July 30, 1999, the Partnership acquired the assets of certain cable systems
serving approximately 6,500 customers in Oregon for $9.5 million.
NOTE 6 -- SALE OF SYSTEMS
On March 1, 1999, the Partnership contributed $2.4 million cash and certain
systems located in Oregon with a net book value of $5.6 million to a joint
venture with Bend Cable Communications, Inc., which manages the joint venture.
The Partnership owns 17% of the joint venture. These systems had been acquired
from Falcon Classic in March 1998, and served approximately 3,471 subscribers at
March 1, 1999. On March 26, 1999, the Partnership sold certain systems serving
approximately 2,550 subscribers in Kansas for $3.2 million and recognized a gain
of $2.5 million.
F-432
<PAGE> 662
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI Falcon
Systems (as defined in Note 1 to the combined financial statements) as of
September 30, 1998 and December 31, 1997, and the related combined statements of
operations and parent's investment, and cash flows for the nine-month period
ended September 30, 1998 and for each of the years in the two-year period ended
December 31, 1997. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI Falcon
Systems as of September 30, 1998 and December 31, 1997, and the results of their
operations and their cash flows for the nine-month period ended September 30,
1998 and for each of the years in the two-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
June 21, 1999
F-433
<PAGE> 663
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Trade and other receivables, net............................ $ 2,452 $ 4,665
Property and equipment, at cost:
Land...................................................... 1,289 1,232
Distribution systems...................................... 151,017 137,767
Support equipment and buildings........................... 20,687 18,354
-------- --------
172,993 157,353
Less accumulated depreciation............................. 80,404 69,857
-------- --------
92,589 87,496
-------- --------
Franchise costs............................................. 399,258 393,540
Less accumulated amortization............................. 70,045 62,849
-------- --------
329,213 330,691
-------- --------
Other assets, net of accumulated amortization............... 630 714
-------- --------
$424,884 $423,566
======== ========
LIABILITIES AND PARENT'S INVESTMENT
Accounts payable............................................ $ 729 $ 350
Accrued expenses............................................ 5,267 3,487
Deferred income taxes (note 4).............................. 124,586 121,183
-------- --------
Total liabilities................................. 130,582 125,020
Parent's investment (note 5)................................ 294,302 298,546
-------- --------
Commitments and contingencies (note 6)...................... $424,884 $423,566
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-434
<PAGE> 664
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
<TABLE>
<CAPTION>
JANUARY 1, 1998 YEARS ENDED
THROUGH DECEMBER 31,
SEPTEMBER 30, --------------------
1998 1997 1996
--------------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenue.............................................. $ 86,476 $113,897 $102,155
Operating costs and expenses:
Operating (note 5)................................. 31,154 39,392 33,521
Selling, general and administrative................ 17,234 19,687 21,695
Administrative fees (note 5)....................... 2,853 5,034 5,768
Depreciation....................................... 10,317 12,724 12,077
Amortization....................................... 7,440 9,785 8,184
-------- -------- --------
68,998 86,622 81,245
-------- -------- --------
Operating income................................ 17,478 27,275 20,910
Other income (expense):
Intercompany interest expense (note 5)............. (4,343) (5,832) (4,701)
Other, net......................................... 28 (84) (44)
-------- -------- --------
(4,315) (5,916) (4,745)
-------- -------- --------
Earnings before income taxes.................... 13,163 21,359 16,165
Income tax expense................................... (5,228) (8,808) (6,239)
-------- -------- --------
Net earnings.................................... 7,935 12,551 9,926
Parent's investment:
Beginning of period................................ 298,546 319,520 262,752
Change in due to Tele-Communications, Inc. ("TCI")
(note 5)........................................ (12,179) (33,525) 46,842
-------- -------- --------
End of period...................................... $294,302 $298,546 $319,520
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-435
<PAGE> 665
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, 1998 YEARS ENDED
THROUGH DECEMBER 31,
SEPTEMBER 30, --------------------
1998 1997 1996
--------------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings......................................... $ 7,935 $ 12,551 $ 9,926
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................... 17,757 22,509 20,261
Deferred income tax expense..................... 3,403 7,181 4,533
Changes in operating assets and liabilities, net
of effects of acquisitions:
Change in receivables......................... 2,213 (1,644) (55)
Change in other assets........................ 84 (125) (248)
Change in accounts payable and accrued
expenses................................... 2,159 418 (473)
-------- -------- --------
Net cash provided by operating
activities............................... 33,551 40,890 33,944
-------- -------- --------
Cash flows from investing activities:
Capital expended for property and equipment........ (13,540) (7,586) (13,278)
Cash paid for acquisitions......................... -- -- (68,240)
Other investing activities......................... (809) 221 732
-------- -------- --------
Net cash used in investing activities...... (14,349) (7,365) (80,786)
-------- -------- --------
Cash flows from financing activities:
Change in due to TCI............................... (19,202) (33,525) 46,842
-------- -------- --------
Net cash provided by (used in) financing
activities............................... (19,202) (33,525) 46,842
-------- -------- --------
Net change in cash......................... -- -- --
Cash:
Beginning of period...................... -- -- --
-------- -------- --------
End of period............................ $ -- $ -- $ --
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 4,343 $ 5,832 $ 4,701
======== ======== ========
Cash paid during the period for income taxes....... $ -- $ 140 $ 86
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-436
<PAGE> 666
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1998 TO SEPTEMBER 30, 1998,
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of thirteen of TCI's
cable television systems serving certain subscribers within Oregon, Washington,
Alabama, Missouri and California (collectively, the "TCI Falcon Systems"). This
combination was created in connection with the Partnership formation discussed
below. The TCI Falcon Systems were indirectly wholly-owned by TCI in all periods
presented herein up to the date of the Contribution, as defined below. All
significant inter-entity accounts and transactions have been eliminated in
combination. The combined net assets of the TCI Falcon Systems including amounts
due to TCI are referred to as "Parent's Investment".
TCI's ownership interests in the TCI Falcon Systems, as described above,
were acquired through transactions wherein TCI acquired various larger cable
entities (the "Original Systems"). The TCI Falcon System's combined financial
statements include an allocation of the purchase price and certain purchase
accounting adjustments, including the related deferred tax effects, from TCI's
acquisition of the Original Systems. Such allocation and the related franchise
cost amortization was based on the relative fair market value of the systems
acquired. In addition, certain costs of TCI are charged to the TCI Falcon
Systems based on their number of customers (see note 5). Although such
allocations are not necessarily indicative of the costs that would have been
incurred by the TCI Falcon Systems on a stand alone basis, management believes
that the resulting allocated amounts are reasonable.
Partnership Formation
On September 30, 1998, TCI and Falcon Holding Group, LP ("Falcon") closed a
transaction under a Contribution and Purchase Agreement (the "Contribution"),
whereby TCI contributed the TCI Falcon Systems to a newly formed partnership
(the "Partnership") between TCI and Falcon in exchange for an approximate 46%
ownership interest in the Partnership. The accompanying combined financial
statements reflect the position, results of operations and cash flows of the TCI
Falcon Systems immediately prior to the Contribution, and, therefore, do not
include the effects of such Contribution.
(2) ACQUISITION
On January 1, 1998, a subsidiary of TCI acquired certain cable television
assets in and around Ellensburg, WA from King Videocable Company. On the same
date, these assets were transferred to the TCI Falcon Systems. As a result of
these transactions, the TCI Falcon Systems recorded non-cash increases in
property and equipment of $2,100,000, in franchise costs of $4,923,000, and in
parent's investment of $7,023,000. Assuming the acquisition had occurred on
January 1, 1997, the TCI Falcon Systems' pro forma results of operations would
not have been materially different from the results of operations for the year
ended December 31, 1997.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at September 30, 1998 and December 31, 1997 was not significant.
F-437
<PAGE> 667
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, labor and applicable
overhead related to installations, and interest during construction are
capitalized. During the nine-month period ended September 30, 1998 and for the
years ended December 31, 1997 and 1996, interest capitalized was not
significant.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by the TCI Falcon Systems in negotiating and renewing franchise agreements are
amortized on a straight-line basis over the life of the franchise, generally 10
to 20 years.
Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary based on an analysis of undiscounted cash flows,
such loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Considerable management judgment is necessary to
estimate the fair value of assets, accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the
lower of their financial statement carrying amount or fair value less costs to
sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising, and
pay-per-view programming is recognized in the period that services are
delivered. Installation revenue is recognized in the period the installation
services are provided to the extent of direct selling costs. Any remaining
amount is deferred and recognized over the estimated average period that
customers are expected to remain connected to the cable television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account with TCI (except for
the acquisition and dividend discussed in notes 2 and 5, respectively) have been
considered constructive cash receipts and payments for purposes of the combined
statements of cash flows.
F-438
<PAGE> 668
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Estimates
The preparation of combined 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 at
the date of the combined financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
Certain prior year amounts have been reclassified for comparability with
the 1998 presentation.
(4) INCOME TAXES
The TCI Falcon Systems were included in the consolidated federal income tax
return of TCI. Income tax expense for the TCI Falcon Systems is based on those
items in the consolidated calculation applicable to the TCI Falcon Systems.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among subsidiaries of TCI in relation to
their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as an
increase or decrease in amounts due to TCI. Deferred income taxes are based on
the book and tax basis differences of the assets and liabilities within the TCI
Falcon Systems. The income tax amounts included in the accompanying combined
financial statements approximate the amounts that would have been reported if
the TCI Falcon Systems had filed a separate income tax return.
Income tax expense for the nine-month period ended September 30, 1998 and
for the years ended December 31, 1997 and 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Nine-month period ended September 30, 1998:
Intercompany allocation............................. $(1,825) $ -- $(1,825)
Federal........................................... -- (2,778) (2,778)
State and local................................... -- (625) (625)
------- ------- -------
$(1,825) $(3,403) $(5,228)
======= ======= =======
Year ended December 31, 1997:
Intercompany allocation........................... $(1,487) $ -- $(1,487)
Federal........................................... -- (5,862) (5,862)
State and local................................... (140) (1,319) (1,459)
------- ------- -------
$(1,627) $(7,181) $(8,808)
======= ======= =======
Year ended December 31, 1996:
Intercompany allocation........................... $(1,620) $ -- $(1,620)
Federal........................................... -- (4,032) (4,032)
State and local................................... (86) (501) (587)
------- ------- -------
$(1,706) $(4,533) $(6,239)
======= ======= =======
</TABLE>
F-439
<PAGE> 669
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
JANUARY 1, 1998 YEARS ENDED
THROUGH DECEMBER 31,
SEPTEMBER 30, ------------------
1998 1997 1996
--------------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense................ $(4,607) $(7,476) $(5,658)
Amortization not deductible for tax purposes... (198) (265) (178)
State and local income taxes, net of federal
income tax benefit........................... (406) (948) (382)
Other.......................................... (17) (119) (21)
------- ------- -------
$(5,228) $(8,808) $(6,239)
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at September 30,
1998 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Deferred tax asset -- principally due to non-
deductible accruals........................... $ 146 $ 128
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation................ 24,246 20,985
Franchise costs, principally due to
differences in amortization and initial
basis...................................... 100,486 100,326
-------- --------
Total gross deferred tax
liabilities......................... 124,732 121,311
-------- --------
Net deferred tax liability............ $124,586 $121,183
======== ========
</TABLE>
(5) PARENT'S INVESTMENT
Parent's investment in the TCI Falcon Systems at September 30, 1998 and
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Due to TCI...................................... $ 642,228 $224,668
Retained earnings (deficit)..................... (347,926) 73,878
--------- --------
$ 294,302 $298,546
========= ========
</TABLE>
The amount due to TCI represents advances for operations, acquisitions and
construction costs, as well as, the amounts owed as a result of the allocation
of certain costs from TCI. TCI charges intercompany interest expense at variable
rates to cable systems within the TCI Falcon Systems based upon amounts due to
TCI from the cable systems. Such amounts are due on demand.
F-440
<PAGE> 670
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On August 15, 1998, TCI caused the TCI Falcon Systems to effect
distributions from the TCI Falcon Systems to TCI aggregating $429,739,000 (the
"Dividend"). The Dividend resulted in a non-cash increase to the intercompany
amounts owed to TCI and a corresponding non-cash decrease to retained earnings.
As a result of TCI's ownership of 100% of the TCI Falcon Systems prior to
the Contribution, the amounts due to TCI have been classified as a component of
parent's investment in the accompanying combined financial statements.
The TCI Falcon Systems purchase, at TCI's cost, substantially all of their
pay television and other programming from affiliates of TCI. Charges for such
programming were $21,479,000, $25,500,000 and $20,248,000 for the nine months
ended September 30, 1998 and the years ended December 31, 1997 and 1996,
respectively, and are included in operating expenses in the accompanying
combined financial statements.
Certain subsidiaries of TCI provide administrative services to the TCI
Falcon Systems and have assumed managerial responsibility of the TCI Falcon
Systems' cable television system operations and construction. As compensation
for these services, the TCI Falcon Systems pay a monthly fee calculated on a
per-customer basis.
The intercompany advances and expense allocation activity in amounts due to
TCI consists of the following:
<TABLE>
<CAPTION>
JANUARY 1, 1998 YEARS ENDED
THROUGH DECEMBER 31,
SEPTEMBER 30, --------------------
1998 1997 1996
--------------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Beginning of period.......................... $224,668 $258,193 $211,351
Transfer of cable system acquisition purchase
price........................................ 7,023 -- 68,240
Programming charges........................ 21,479 25,500 20,248
Administrative fees........................ 2,853 5,034 5,768
Intercompany interest expense.............. 4,343 5,832 4,701
Tax allocations............................ 1,825 1,487 1,620
Distribution to TCI........................ 429,739 -- --
Cash transfer.............................. (49,702) (71,378) (53,735)
-------- -------- --------
End of period................................ $642,228 $224,668 $258,193
======== ======== ========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any
F-441
<PAGE> 671
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
cable programming service tier ("CPST"). The FCC's authority to regulate CPST
rates expired on March 31, 1999. The FCC has taken the position that it will
still adjudicate CPST complaints filed after this sunset date (but no later than
180 days after the last CPST rate increase imposed prior to March 31, 1999), and
will strictly limit its review (and possible refund orders) to the time period
predating the sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the recovery
of inflation and certain increased costs, as well as providing some incentive
for expanding channel carriage. Operators also have the opportunity to bypass
this "benchmark" regulatory structure in favor of the traditional "cost-of-
service" regulation in cases where the latter methodology appears favorable.
Premium cable services offered on a per-channel or per-program basis remain
unregulated, as do affirmatively marketed packages consisting entirely of new
programming product.
The management of the TCI Falcon Systems believes that it has complied in
all material respects with the provisions of the 1992 Cable Act and the 1996
Act, including its rate setting provisions. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of CPST
rates would be retroactive to the date of complaint. Any refunds of the excess
portion of BST or equipment rates would be retroactive to one year prior to the
implementation of the rate reductions.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of TCI Falcon Systems, alleging that
the systems' practice of assessing an administrative fee to customers whose
payments are delinquent constitutes an invalid liquidated damage provision, a
breach of contract, and violates local consumer protection statutes. Plaintiffs
seek recovery of all late fees paid to the subject systems as a class purporting
to consist of all customers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
The TCI Falcon Systems have contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of business.
Although it is possible the TCI Falcon Systems may incur losses upon conclusion
of the matters referred to above, an estimate of any loss or range of loss
cannot presently be made. Based upon the facts available, management believes
that, although no assurance can be given as to the outcome of these actions, the
ultimate disposition should not have a material adverse effect upon the combined
financial condition of the TCI Falcon Systems.
The TCI Falcon Systems lease business offices, have entered into pole
rental agreements and use certain equipment under lease arrangements. Rental
expense under such arrangements amounted to $1,268,000, $1,868,000 and
$1,370,000 for the nine-month period ended September 30, 1998, and the years
ended December 31, 1997 and 1996, respectively.
F-442
<PAGE> 672
TCI FALCON SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30,
- -------------
<S> <C>
1999........................................................ $ 762
2000........................................................ 667
2001........................................................ 533
2002........................................................ 469
2003........................................................ 414
Thereafter.................................................. 2,768
------
$5,613
======
</TABLE>
TCI formed a year 2000 Program Management Office (the "PMO") to organize
and manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on TCI's year 2000 remediation efforts,
including the year 2000 remediation efforts of the TCI Falcon Systems prior to
the Contribution. Subsequent to the date of the Contribution, the year 2000
remediation efforts of the TCI Falcon Systems are no longer the responsibility
of TCI or the PMO.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the TCI Falcon Systems or the systems of other companies on
which the TCI Falcon Systems relies will be converted in time or that any such
failure to convert by the TCI Falcon Systems or other companies will not have a
material adverse effect on its financial position, results of operations or cash
flows.
F-443
<PAGE> 673
REPORT OF INDEPENDENT AUDITORS
The Management Committee
TWFanch-one Co. and TWFanch-two Co.
We have audited the accompanying combined balance sheets of Fanch Cable
Systems (comprised of components of TWFanch-one Co. and TWFanch-two Co.), as of
December 31, 1998 and 1997, and the related combined statements of operations,
net assets and cash flows for the years then ended. These financial statements
are the responsibility of Fanch Cable System's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Fanch Cable Systems
at December 31, 1998 and 1997, and the combined results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
March 11, 1999
except for Notes 1 and 8, as to which the dates are
May 12, 1999 and June 22, 1999, respectively
F-444
<PAGE> 674
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, less allowance for doubtful accounts
of $406,230 and $412,119 in 1998 and 1997,
respectively........................................... 2,681,911 2,573,619
Prepaid expenses and other current assets................. 1,546,251 790,034
------------ ------------
Total current assets........................................ 4,228,162 3,363,653
Property, plant and equipment:
Transmission and distribution systems and related
equipment.............................................. 170,156,150 141,800,640
Furniture and equipment................................... 7,308,581 5,553,886
------------ ------------
177,464,731 147,354,526
Less accumulated depreciation............................. (34,878,712) (19,011,830)
------------ ------------
Net property, plant and equipment........................... 142,586,019 128,342,696
Goodwill, net of accumulated amortization of $63,029,579 and
$46,771,501, in 1998 and 1997, respectively............... 266,776,690 282,543,281
Subscriber lists, net of accumulated amortization of
$15,023,945 and $8,900,365, in 1998 and 1997,
respectively.............................................. 17,615,055 23,738,635
Other intangible assets, net of accumulated amortization of
$2,723,918 and $1,586,203, in 1998 and 1997,
respectively.............................................. 2,717,486 4,237,237
Other assets................................................ 1,050,815 50,315
------------ ------------
Total assets................................................ $434,974,227 $442,275,817
============ ============
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and other accrued liabilities............ $ 11,755,752 $ 9,685,993
Subscriber advances and deposits.......................... 1,797,068 1,987,336
Payable to general partner................................ 2,576,625 1,895,456
------------ ------------
Total current liabilities................................... 16,129,445 13,568,785
Net assets.................................................. 418,844,782 428,707,032
------------ ------------
Total liabilities and net assets............................ $434,974,227 $442,275,817
============ ============
</TABLE>
See accompanying notes.
F-445
<PAGE> 675
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Service..................................................... $107,881,831 $102,455,766
Installation and other.................................... 16,672,813 15,079,103
------------ ------------
124,554,644 117,534,869
Operating expenses, excluding depreciation and
amortization.............................................. 36,927,860 35,609,829
Selling, general and administrative expenses................ 18,296,290 19,496,885
------------ ------------
55,224,150 55,106,714
Income before other expenses................................ 69,330,494 62,428,155
Other expenses:
Depreciation and amortization............................. 40,918,647 58,089,015
Management fees........................................... 3,170,784 3,012,943
Loss on disposal of assets................................ 6,246,237 2,746,920
Other expense, net........................................ 181,185 128,554
------------ ------------
50,516,853 63,977,432
------------ ------------
Net income (loss)........................................... $ 18,813,641 $ (1,549,277)
============ ============
</TABLE>
See accompanying notes.
F-446
<PAGE> 676
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED STATEMENTS OF NET ASSETS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
Net assets at December 31, 1996............................. $471,180,470
Net loss.................................................... (1,549,277)
Net distributions to partners............................... (40,924,161)
------------
Net assets at December 31, 1997............................. 428,707,032
Net income.................................................. 18,813,641
Net distributions to partners............................... (28,675,891)
------------
Net assets at December 31, 1998............................. $418,844,782
============
</TABLE>
See accompanying notes.
F-447
<PAGE> 677
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 18,813,641 $ (1,549,277)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 40,918,647 58,089,015
Loss on disposal of assets................................ 6,246,237 2,746,920
Decrease (increase) in accounts receivable, prepaid
expenses and other current assets...................... (864,509) 1,754,581
(Decrease) increase in accounts payable and other accrued
liabilities and subscriber advances and deposits....... 2,560,660 (3,214,781)
------------ ------------
Net cash provided by operating activities................... 67,674,676 57,826,458
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (38,114,463) (16,863,419)
Additions to intangible assets.............................. (1,109,951) (466,470)
Proceeds from the disposal of assets........................ 225,629 427,592
------------ ------------
Net cash used in investing activities....................... (38,998,785) (16,902,297)
FINANCING ACTIVITIES
Net distributions to partners............................... (28,675,891) (40,924,161)
------------ ------------
Net cash used in financing activities....................... (28,675,891) (40,924,161)
------------ ------------
Net change in cash and cash equivalents..................... -- --
Cash and cash equivalents at beginning of year.............. -- --
------------ ------------
Cash and cash equivalents at end of year.................... $ -- $ --
============ ============
</TABLE>
See accompanying notes.
F-448
<PAGE> 678
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. BASIS OF PRESENTATION
ACQUISITION BY CHARTER COMMUNICATIONS, INC. AND BASIS OF PRESENTATION
TWFanch-one Co. and TWFanch-two Co. (collectively the "Partnerships"),
both of which are Delaware general partnerships, are affiliated through common
control and management. Pursuant to a purchase agreement, dated May 12, 1999
between certain partners of TWFanch-one Co. and TWFanch-two Co. and Charter
Communications, Inc. ("Charter"), the partners of the Partnerships entered into
a distribution agreement whereby the Partnerships will distribute and/or sell
certain of their cable systems ("Combined Systems") to certain of their
respective partners. These partners will then sell the Combined Systems through
a combination of asset sales and the sale of equity and partnership interests to
Charter. The Combined Systems may have some liabilities related to refunds of
programming launch credits that are due at the date of the acquisition by
Charter. The refund of these credits is contingent upon the acquisition by
Charter occurring and the amount will vary based upon the actual sale date.
Accordingly, these combined financial statements of the Combined Systems
reflect the "carved out" historical financial position, results of operations,
cash flows and changes in net assets of the operations of the Combined Systems
as if they had been operating as a separate company. For purposes of determining
the financial statement amounts of the Combined Systems, management excluded
certain systems (the "Excluded Systems). In order to exclude the results of
operations and financial position of the Excluded Systems from the combined
financial statements, management has estimated certain revenues, expenses,
assets and liabilities that are not specifically identified to systems based on
the ratio of each Excluded System's basic subscribers to the total basic
subscribers served by the respective partnerships. Management believes the basis
used for these allocations is reasonable. The Combined Systems' results of
operations are not necessarily indicative of future operating results or the
results that would have occurred if the Combined Systems were a separate legal
entity.
DESCRIPTION OF BUSINESS
The Combined Systems, operating in various states throughout the United
States, are principally engaged in operating cable television systems and
related activities under non-exclusive franchise agreements.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
Combined Systems, as if the Combined Systems were a single company. All material
intercompany balances and transactions have been eliminated.
CASH, INTERCOMPANY ACCOUNTS AND DEBT
Under the Partnerships' centralized cash management system, the cash
requirements of its individual operating units were generally provided directly
by the Partnerships and the cash generated or used by the Combined Systems was
transferred to/from the Partnerships, as appropriate, through the use of
intercompany accounts. The resulting intercompany account balances between the
Partnerships and the Combined Systems are not intended to be settled.
Accordingly, the balances are excluded or included in net assets and all the net
cash generated from/(used in) operations, investing activities and financing
activities has been included in the Combined Systems' net distributions to
partners in the combined statements of cash flows. The Partnerships maintain
external debt to fund and manage operations on a centralized basis. Debt,
unamortized loan costs and interest expense of the Partnerships have not been
allocated to the
F-449
<PAGE> 679
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Combined Systems. As such, the debt, unamortized loan costs, and related
interest are not representative of the debt that would be required or interest
expense incurred if the Combined Systems were a separate legal entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY, PLANT AND EQUIPMENT
The Combined Systems record additions to property, plant and equipment at
cost, which in the case of assets constructed includes amounts for material,
labor and overhead. Maintenance and repairs are charged to expense as incurred.
For financial reporting purposes, the Combined Systems use the
straight-line method of depreciation over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Transmission and distribution systems and related
equipment............................................... 3 to 20 years
Furniture and equipment................................... 4 to 8 1/2
years
</TABLE>
INCOME TAXES
The Partnerships as entities pay no income taxes, except for an immaterial
amount in Michigan. No provision or benefit for income taxes is reported by any
of the Combined Systems because the Combined Systems are currently owned by
various partnerships and, as such, the tax effects of the Combined Systems'
results of operations accrue to the partners.
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
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Combined Systems recognize revenue when services have been delivered.
Launch support fees collected from programmers are deferred and recognized over
the term of the contract. 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. As of December 31, 1998 and
1997, no installation revenue has been deferred, as direct selling costs have
exceeded installation revenue.
INTANGIBLES
Intangibles are recorded at cost and are amortized on a straight-line basis
over their estimated useful lives. The estimated useful lives are as follows:
<TABLE>
<CAPTION>
LIVES
-----
<S> <C>
Goodwill........................................... 20 years (10 in 1997)
Subscriber list.................................... 5 years
Other, including franchise costs................... 4 -- 10 years
</TABLE>
The estimated useful life of goodwill was changed from 10 years in 1997 to
20 years effective January 1, 1998 to better match the amortization period to
anticipated economic lives of the franchises and to better reflect industry
practice. This change in estimate resulted in an increase in net income of
approximately $20 million for the year ended December 31, 1998.
F-450
<PAGE> 680
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense was $23,519,373 and $43,094,595 for the years ended
December 31, 1998 and 1997, respectively.
3. DISPOSAL OF ASSETS
During 1998 and 1997, a loss on disposal of assets was recognized on plant
that was replaced to technically upgrade the system and for other operational
purposes. The loss on the disposal of assets is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cost.................................................... $ 8,004,258 $3,467,785
Accumulated depreciation................................ (1,532,392) (293,273)
Proceeds................................................ (225,629) (427,592)
----------- ----------
Loss on disposal........................................ $ 6,246,237 $2,746,920
=========== ==========
</TABLE>
4. PURCHASE AND SALE OF SYSTEMS
On March 30, 1997, the Combined Systems acquired cable television systems,
including plant, franchise license and business license, serving communities in
the states of Pennsylvania and Virginia. The purchase price was $1,400,000, of
which $765,000 was allocated to property, plant and equipment and $635,000 was
allocated to intangible assets.
Concurrent with the purchase of the systems in Pennsylvania on March 30,
1997, the Combined Systems sold certain of these assets, including plant,
franchise and business license, for $340,000. No gain or loss on this
transaction was recorded.
The above acquisition was accounted for using the purchase method of
accounting, and accordingly, results of operations of the acquired assets have
been included in the financial statements from the dates of acquisition.
5. RELATED PARTIES
The Partnerships have entered into a management agreement with an entity
(the "Manager") whose sole stockholder is affiliated with several of the
Partnerships' general partners. The Partnerships also entered into a management
agreement with another of the Partnerships' general partners (the "General
Partner"). The agreements provide that the Manager and General Partner will
manage their respective systems and receive annual compensation equal to 2.5% of
the gross revenues from operations for their respective systems. Management fees
for the years ended December 31, 1998 and 1997 were $3,170,784 and $3,012,943,
respectively.
A company affiliated with the Manager provides subscriber billing services
for a portion of the Combined Systems' subscribers. The Combined Systems
incurred fees for monthly billing and related services in the approximate
amounts of $308,943 and $307,368 for the years ended December 31, 1998 and 1997,
respectively.
The Combined Systems purchase the majority of its programming through the
Partnerships' General Partner. Fees incurred for programming were approximately
$24,600,000 and $22,200,000 for the years ended December 31, 1998 and 1997,
respectively.
F-451
<PAGE> 681
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Manager and General Partner pay amounts on behalf of and receive
amounts from the Combined Systems in the ordinary course of business. Accounts
receivable and payable of the Combined Systems include amounts due from and due
to the Manager and General Partner.
6. COMMITMENTS
The Combined Systems, as an integral part of its cable operations, has
entered into lease contracts for certain items including tower rental, microwave
service and office space. Rent expense, including office, tower and pole rent,
for the years ended December 31, 1998 and 1997 was approximately $2,326,328 and
$2,154,961, respectively. The majority of these agreements are on month-to-month
arrangements and, accordingly, the Combined Systems has no material future
minimum commitments related to these leases.
7. EMPLOYEE BENEFIT PLAN
TWFanch-one Co. and TWFanch-two Co. each have a defined contribution plan
(the Plan) which qualifies under section 401(k) of the Internal Revenue Code.
Therefore, each system of the Combined Systems participates in the respective
plan. Combined Systems contributions were approximately $342,067 and $288,493
for the years ended December 31, 1998 and 1997, respectively.
8. SUBSEQUENT EVENTS
On July 8, 1998, the Combined Systems entered into an Asset Purchase
Agreement to acquire cable television systems, including plant, franchise
license and business license, serving communities in the states of Maryland,
Ohio and West Virginia. The purchase price was $248,000,000, subject to purchase
price adjustments. The transaction was completed and the assets were transferred
to the Combined Systems on February 24, 1999.
On June 12, 1998, the Combined Systems entered into an agreement to acquire
cable television systems, including plant, franchise licenses, and business
licenses serving communities in the state of Michigan. The purchase price was
$42,000,000, subject to purchase price adjustments. In connection with the
agreement, the Combined Systems received an additional $8.76 million in capital
contributions. The agreement was completed and the assets were transferred to
the Combined Systems on February 1, 1999.
On January 15, 1999 the Combined Systems entered into an agreement to
acquire cable television systems, including plant, franchise licenses, and
business licenses serving communities in the state of Michigan from a related
party. The purchase price was $70 million, subject to purchase price
adjustments. The agreement was completed and the assets were transferred to the
Combined Systems on March 31, 1999. In connection with the agreement, the
Combined Systems received an additional $25 million in capital contributions
under a new TWFanch-two partnership agreement.
On May 12, 1999, the Combined Systems entered into an agreement to acquire
the stock of ARH, Ltd. ARH, Ltd. is engaged in the business of owning and
operating cable television systems in Texas and West Virginia. The purchase
price was $50,000,000 subject to purchase price adjustments. The transaction was
completed and the assets were transferred to the Combined Systems on June 22,
1999.
F-452
<PAGE> 682
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited pro forma operating results as though the acquisitions discussed
above had occurred on January 1, 1998, with adjustments to give effect to
amortization of franchises and certain other adjustments for the year ended
December 31, 1998 is as follows:
<TABLE>
<S> <C>
Revenues.................................................... $197,803,975
Income from operations...................................... $107,053,905
Net income.................................................. $ 32,130,293
</TABLE>
The unaudited pro forma information has been presented for comparative purposes
and does not purport to be indicative of the results of operations had these
transactions been complete as of the assumed date or which may be obtained in
the future.
9. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Combined
Systems' computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Based on recent assessments, the Combined Systems determined that it will
be required to modify or replace portions of its software and certain hardware
so that those systems will properly utilize dates beyond December 31, 1999. The
Combined Systems presently believe that with modifications or replacements of
existing software and certain hardware, the Year 2000 issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 issue could have a material impact on the
operations of the Combined Systems. The Combined Systems believe any cost for
the necessary modification or replacement will not be material to the Combined
Systems' operations.
The Combined Systems have queried its significant suppliers and
subcontractors that do not share information systems with the Combined Systems
(external agents). To date, the Combined Systems are aware of external agents
with Year 2000 issues that would materially impact the Combined Systems' results
of operations, liquidity or capital resources, if these issues are not
addressed. Such agents have represented that they are in the process of
addressing these issues and expect to have these issues materially resolved by
December 31, 1999. However, the Combined Systems have no means of ensuring that
external agents will be Year 2000 ready. The inability of external agents to
complete their Year 2000 resolution process in a timely fashion could materially
impact the Combined Systems. The effect of noncompliance by external agents is
not determinable.
Management of the Combined Systems believes it has an effective program in
place to resolve material Year 2000 issues in a timely manner. The Combined
Systems have contingency plans for certain critical applications and are working
on such plans for others.
F-453
<PAGE> 683
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:............................................. $ -- $ --
Accounts receivable, less allowance for doubtful accounts
of $759,462 and $406,230 in 1999 and 1998,
respectively........................................... 4,480,138 2,681,911
Prepaid expenses and other current assets................. 1,533,531 1,546,251
------------ ------------
Total current assets........................................ 6,013,669 4,228,162
Property, plant and equipment:
Transmission and distribution systems and related
equipment.............................................. 280,182,199 170,156,150
Furniture and equipment................................... 10,819,208 7,308,581
------------ ------------
291,001,407 177,464,731
Less accumulated depreciation............................. (53,401,895) (34,878,712)
------------ ------------
Net property, plant and equipment........................... 237,599,512 142,586,019
Intangible assets, net of accumulated amortization of
$111,172,720 and $80,777,442 in 1999 and 1998,
respectively.............................................. 593,697,446 287,109,231
Other assets................................................ 86,960 1,050,815
------------ ------------
Total assets................................................ $837,397,587 $434,974,227
============ ============
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable and other accrued liabilities............ $ 19,185,991 $ 11,755,752
Subscriber advances and deposits.......................... 2,465,771 1,797,068
Payable to general partner................................ -- 2,576,625
------------ ------------
Total current liabilities................................... 21,651,762 16,129,445
Net assets.................................................. 815,745,825 418,844,782
------------ ------------
Total liabilities and net assets............................ $837,397,587 $434,974,227
============ ============
</TABLE>
See accompanying notes.
F-454
<PAGE> 684
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------
1999 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Service..................................................... $126,923,472 $86,957,030
Installation and other.................................... 15,683,420 8,554,224
------------ -----------
142,606,892 95,511,254
Operating expenses, excluding depreciation and
amortization.............................................. 44,200,611 28,275,128
Selling, general and administrative expenses................ 19,358,399 13,852,784
------------ -----------
63,559,010 42,127,912
Income before other expenses................................ 79,047,882 53,383,342
Other expenses:
Depreciation and amortization............................. 45,451,126 35,698,670
Management fees........................................... 3,601,839 2,387,638
Loss on disposal of assets................................ 337,763 135,802
Other expense, net........................................ 100,402 119,518
------------ -----------
49,491,130 38,341,628
------------ -----------
Net income.................................................. $ 29,556,752 $15,041,714
============ ===========
</TABLE>
See accompanying notes.
F-455
<PAGE> 685
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED STATEMENTS OF NET ASSETS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
------------
<S> <C>
Net assets at December 31, 1997............................. $428,707,032
Net income for the nine months ended September 30, 1998..... 15,041,714
Net distributions to partners............................... (13,576,769)
------------
Net assets at September 30, 1998............................ $430,171,977
============
Net assets at December 31, 1998............................. $418,844,782
Net income for the nine months ended September 30, 1999..... 29,556,752
Contributions from partners, net of distributions........... 367,344,291
------------
Net assets at September 30, 1999............................ $815,745,825
============
</TABLE>
See accompanying notes.
F-456
<PAGE> 686
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------------------
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 29,556,752 $ 15,041,714
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 45,451,126 35,698,670
Loss on disposal of assets............................... 337,763 135,802
Decrease/(increase) in accounts receivable, prepaid
expenses and other current assets..................... (821,652) 274,414
Increase (decrease) in accounts payable and other accrued
liabilities, and subscriber advances and deposits and
deferred revenue...................................... 5,522,317 (1,981,447)
------------- -------------
Net cash provided by operating activities.................. 80,046,306 49,169,153
INVESTING ACTIVITIES
Acquisition of cable systems............................... (409,716,015) (9,705,152)
Purchases of property, plant and equipment................. (37,674,582) (25,887,232)
------------- -------------
Net cash used in investing activities...................... (447,390,597) (35,592,384)
FINANCING ACTIVITIES
Net contributions from (distribution to) partners.......... 367,344,291 (13,576,769)
------------- -------------
Net cash provided by (used in) financing activities........ 367,344,291 (13,576,769)
------------- -------------
Net change in cash and cash equivalents.................... -- --
Cash and cash equivalents at beginning of year............. -- --
------------- -------------
Cash and cash equivalents at end of year................... $ -- $ --
============= =============
</TABLE>
See accompanying notes.
F-457
<PAGE> 687
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
1. BASIS OF PRESENTATION
ACQUISITION BY CHARTER COMMUNICATIONS, INC. AND BASIS OF PRESENTATION
TWFanch-one Co. and TWFanch-two Co. (collectively the "Partnerships"), both
of which are Delaware general partnerships, are affiliated through common
control and management. Pursuant to a purchase agreement, dated May 21, 1999
between certain partners of TWFanch-one Co. and TWFanch-two Co. and Charter
Communications, Inc. ("Charter"), the partners of the Partnership entered into a
distribution agreement whereby the partnerships will distribute and/or sell
certain of their cable systems ("Combined Systems") to certain of their
respective partners. These partners will then sell the Combined Systems through
a combination of asset sales and sale of equity and partnership interests to
Charter.
Accordingly, these combined financial statements of the Combined Systems
reflect "carved out" historical financial position, results of operations, cash
flows and changes in net assets of the operations of the Combined Systems as if
they had been operating as a separate company. For purposes of determining the
financial statement amounts of the Combined Systems, management excluded certain
systems (the "Excluded Systems"). In order to exclude the results of operations
and financial position of the Excluded Systems from the combined financial
statements, management has estimated certain revenues, expenses, assets and
liabilities that are not specifically identified to systems based on the ratio
of each Excluded System's basic subscribers to the total basic subscribers
served by the respective partnerships. Management believes the basis used for
these allocations is reasonable. The Combined Systems' results of operations are
not necessarily indicative of future operating results or the results that would
have occurred if the Combined Systems were a separate legal entity.
The accompanying combined financial statements as of and for the periods
ended June 30, 1999 and 1998 are unaudited. However, in the opinion of
management, the financial statements reflect all adjustments, consisting of
normal recurring adjustments, necessary for fair presentation in accordance with
generally accepted accounting principles applicable to interim periods. Interim
results of operations are not indicative of results for the full year. The
accompanying financial statements should be read in conjunction with the audited
combined financial statements of Fanch Cable Systems (comprised of components of
TWFanch-one Co. and TWFanch-two Co.).
DESCRIPTION OF BUSINESS
The Combined Systems, operating in various states throughout the United
States, are principally engaged in operating cable television systems and
related activities under non-exclusive franchise agreements.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
Combined Systems, as if the Combined Systems were a single company. All material
intercompany balances and transactions have been eliminated.
CASH, INTERCOMPANY ACCOUNTS AND DEBT
Under the Partnerships' centralized cash management system, cash
requirements of its individual operating units were generally provided directly
by the Partnerships and the cash
F-458
<PAGE> 688
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
generated or used by the Combined Systems was transferred to/from the
Partnerships, as appropriate, through the intercompany accounts. The
intercompany account balances between the Partnerships and the Combined Systems
are not intended to be settled. Accordingly, the balances are excluded/included
in net assets and all the cash generated from operations, investing activities
and financing activities have been included in the Combined Systems' net
distributions from/to partners in the combined statements of cash flows. The
Partnerships maintain all external debt to fund and manage operations on a
centralized basis. Debt, unamortized loan costs and interest expense of the
Partnerships have not been allocated to the Combined Systems. As such debt,
unamortized loan costs, and related interest expense are not representative of
the debt that would be required or interest expense incurred if the Combined
Systems were a separate legal entity.
2. ACQUISITIONS
On May 12, 1999, the Combined Systems entered into an agreement to acquire
the stock of ARH, Ltd. ARH, Ltd. is engaged in the business of owning and
operating cable television systems in Texas and West Virginia. The purchase
price was $50 million subject to purchase price adjustments. The transaction was
completed and the assets were transferred to the Combined Systems on June 22,
1999.
On June 12, 1998, the Combined Systems entered into an agreement to acquire
cable television systems, including plant, franchise license, and business
license serving communities in the state of Michigan. The purchase price was $42
million subject to purchase price adjustments. In connection with the agreement,
the Combined Systems received an additional $8.76 million in capital
contributions. The agreement was completed and the assets were transferred to
the Combined Systems on February 1, 1999.
On July 8, 1998, the Combined Systems entered into an Asset Purchase
Agreement to acquire cable television systems, including plant, franchise
license and business license, serving communities in the states of Maryland,
Ohio and West Virginia. The purchase price was $248 million subject to purchase
price adjustments. The transaction was completed and the assets were transferred
to the Combined Systems on February 24, 1999.
On January 15, 1999 the Combined Systems entered into an agreement to
acquire cable television systems, including plant, franchise license, and
business license serving communities in the state of Michigan from a related
party. The purchase price was $70 million, subject to purchase price
adjustments. The agreement was completed and the assets were transferred to the
Combined Systems on March 31, 1999. In connection with the agreement, the
Combined Systems received an additional $25 million in capital contributions
under a new TWFanch-two partnership agreement.
Unaudited proforma operating results as though the acquisitions discussed
above had occurred on January 1, 1998, with adjustments to give effect to
amortization of franchises and certain other adjustments are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues............................................. $202,585,141 $150,691,684
Income from operations............................... $111,618,616 $ 81,193,123
Net income........................................... $ 42,902,637 $ 21,255,530
</TABLE>
F-459
<PAGE> 689
FANCH CABLE SYSTEMS
(COMPRISED OF COMPONENTS OF TWFANCH-ONE CO. AND TWFANCH-TWO CO.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma information has been presented for comparative
purposes and does not purport to be indicative of the results of operations had
these transactions been complete as of the assumed date or which may be obtained
in the future.
F-460
<PAGE> 690
BRESNAN COMMUNICATIONS GROUP LLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 6,636 $ 877
Restricted cash............................................. 47,199 338
Trade and other receivables, net............................ 8,874 9,653
Property and equipment, at cost:
Land and buildings........................................ 4,123 6,860
Distribution systems...................................... 443,114 505,946
Support equipment......................................... 50,178 56,243
-------- ---------
497,415 569,049
Less accumulated depreciation............................. 190,752 215,185
-------- ---------
306,663 353,864
Franchise costs, net........................................ 291,103 320,650
Other assets, net of accumulated amortization............... 3,961 20,198
-------- ---------
Total assets........................................... $664,436 $ 705,580
======== =========
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Accounts payable............................................ $ 3,193 $ 3,035
Accrued expenses............................................ 13,395 21,036
Accrued interest............................................ 21,835 7,622
Due to affiliated companies................................. -- 12,969
Debt........................................................ 232,617 869,211
Other liabilities........................................... 11,648 7,329
-------- ---------
Total liabilities...................................... 282,688 921,202
Member's equity (deficit)................................... 381,748 (215,622)
-------- ---------
Commitments and contingencies
Total liabilities and member's equity (deficit)........ $664,436 $ 705,580
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-461
<PAGE> 691
BRESNAN COMMUNICATIONS GROUP LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND MEMBER'S EQUITY (DEFICIT)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1998 1999
-------- ---------
<S> <C> <C>
Revenue..................................................... $192,855 $ 209,749
Operating costs and expenses:
Programming............................................... 47,129 53,178
Operating................................................. 19,898 23,058
Selling, general and administrative....................... 42,269 51,563
Depreciation and amortization............................. 40,193 42,653
-------- ---------
149,489 170,452
-------- ---------
Operating income....................................... 43,366 39,297
Other income (expense):
Interest expense:
Related party.......................................... (1,424) (152)
Other.................................................. (12,491) (49,034)
Gain on sale of cable television systems.................. 6,869 422
Other, net................................................ (190) (690)
-------- ---------
(7,236) (49,454)
-------- ---------
Net earnings (loss).................................... 36,130 (10,157)
Member's equity (deficit)
Beginning of period....................................... 359,098 381,748
Operating expense allocations and charges................. 50,789 --
Cash transfers, net....................................... (80,270) --
Capital contributions by members.......................... -- 136,500
Capital distributions to members.......................... -- (723,713)
-------- ---------
End of period............................................. $365,747 $(215,622)
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-462
<PAGE> 692
BRESNAN COMMUNICATIONS GROUP LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)......................................... $ 36,130 $ (10,157)
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 40,193 42,653
Gain on sale of cable systems.......................... (6,869) (422)
Amortization of debt discount and deferred financing
costs................................................. -- 14,011
Changes in operating assets and liabilities, net of
effects of acquisitions:
Change in receivables................................ 4,639 (752)
Change in other assets............................... 332 (1,070)
Change in accounts payable, accrued expenses and
other liabilities................................... 401 1,916
Other, net........................................... (381) 1,955
-------- ---------
Net cash provided by operating activities......... 74,445 48,134
-------- ---------
Cash flows from investing activities:
Capital expended for property and equipment............... (33,317) (59,367)
Capital expended for franchise costs...................... (3,915) --
Cash paid in acquisitions................................. (28,439) (66,387)
Proceeds on dispositions of cable televisions systems..... 12,000 4,795
Change in restricted cash................................. (250) 46,861
-------- ---------
Net cash provided by (used in) investing
activities...................................... 53,921 (74,098)
-------- ---------
Cash flows from financing activities:
Borrowings under note agreement........................... 42,900 901,851
Repayments under note agreement........................... (26,225) (276,137)
Deferred finance costs paid............................... -- (18,297)
Contributions from members................................ -- 136,500
Distributions to members.................................. (29,481) (723,712)
-------- ---------
Net cash provided by (used in) financing
activities...................................... (12,806) 20,205
-------- ---------
Net increase (decrease) in cash................... 7,718 (5,759)
Cash and cash equivalents:
Beginning of period....................................... 6,957 6,636
-------- ---------
End of period............................................. $ 14,675 $ 877
======== =========
Supplemental disclosure of cash flow information -- cash
paid during the period for interest....................... $ 12,694 $ 49,388
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-463
<PAGE> 693
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
(1) BASIS OF PRESENTATION
Bresnan Communications Group LLC and its subsidiaries ("BCG" or the
"Company") are wholly owned by Bresnan Communications Company Limited
Partnership, a Michigan limited partnership ("BCCLP"). BCG is a Delaware limited
liability corporation formed on August 5, 1998 for the purpose of acting as
co-issuer with its wholly-owned subsidiary, Bresnan Capital Corporation ("BCC"),
of $170,000 aggregate principal amount at maturity of 8% Senior Notes and
$275,000 aggregate principal amount at maturity of 9.25% Senior Discount Notes,
both due in 2009 (collectively the "Notes"). Prior to the issuance of the Notes
on February 2, 1999, BCCLP completed the terms of a contribution agreement dated
June 3, 1998, as amended, whereby certain affiliates of Tele-Communications,
Inc. ("TCI") contributed certain cable television systems along with assumed TCI
debt of approximately $708,854 to BCCLP. In addition, Blackstone BC Capital
Partners L.P. and affiliates contributed $136,500 to BCCLP. Upon completion of
the Notes offering on February 2, 1999 BCCLP contributed all of its assets and
liabilities to BCG, which formed a wholly owned subsidiary, Bresnan
Telecommunications Company LLC ("BTC"), into which it contributed all of its
assets and certain liabilities. The above noted contributed assets and
liabilities were accounted for at predecessor cost because of the common
ownership and control of TCI and have been reflected in the accompanying
financial statements in a manner similar to a pooling of interests.
The Company owns and operates cable television systems in small- and
medium-sized communities in the midwestern United States.
The accompanying interim consolidated financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of such
periods. The results of operations for the period ended September 30, 1999 are
not necessarily indicative of results for a full year. These consolidated
financial statements should be read in conjunction with the combined financial
statements and notes thereto of the predecessor to the Company contained in the
Bresnan Communications Group Systems financial statements for the year ended
December 31, 1998. The accompanying comparative consolidated financial
statements include the financial information of Bresnan Communications Group
Systems (the predecessor of the Company) prior to February 2, 1999.
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2) ACQUISITIONS AND DISPOSITIONS
In September 1998, the Company acquired certain cable television assets
located in Minnesota, which were accounted for under the purchase method. The
purchase price was allocated to the cable television assets acquired in relation
to their fair values as increases in property and equipment of $3,396 and
franchise costs of $8,354. In addition, the Company acquired two additional
systems in the first quarter of 1999 which were accounted for under the purchase
method. The purchase prices were allocated to the cable television assets
acquired in relation to their estimated fair values as increases in property and
equipment of $22,200 and franchise costs of $44,600.
F-464
<PAGE> 694
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
The results of operations of these cable television systems have been
included in the accompanying consolidated statements of operations from their
dates of acquisition. Pro forma information has not been presented because the
effect was not significant.
The Company also disposed of cable television systems during 1998 and 1999
for gross proceeds of $12,000 and $4,400 respectively, resulting in gains on
sale of cable television systems of $6,869 and $422 for 1998 and 1999,
respectively. The results of operations of these cable television systems
through the dates of the dispositions and the gain (loss) from the dispositions
have been included in the accompanying consolidated statements of operations. As
part these dispositions, the Company received cash that is restricted to
reinvestment in additional cable television systems.
On August 31, 1999 and September 29, 1999, a subsidiary of the company
entered into agreements to acquire cable television systems serving
approximately 11,400 basic subscribers in Minnesota for an aggregate of
approximately $26 million. On August 31, 1999, a company subsidiary also entered
into agreements to acquire cable television systems serving approximately 12,300
basic subscribers in Wisconsin for an aggregate of approximately $36.9 million.
The Company anticipates the transactions to be consummated late in the fourth
quarter of 1999 or in the first quarter of 2000 and will be financed through
operating cash flows and additional borrowings under our Senior Credit Facility.
(3) DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
Senior Credit Facility(a)................................. $512,000
Senior Notes Payable(b)................................... 170,000
Senior Discount Notes Payable(b).......................... 185,902
Other Debt................................................ 1,309
--------
$869,211
========
</TABLE>
- ---------------
(a) The Senior Credit Facility represents borrowings under a $650,000 senior
reducing revolving credit and term loan facility as documented in the loan
agreement as of February 2, 1999. The Senior Credit Facility has a current
available commitment of $650,000 of which $512,000 is outstanding at
September 30, 1999. The Senior Credit Facility provides for three tranches,
a revolving loan tranche for $150,000 (the "Revolving Loan"), a term loan
tranche of $328,000 (the "A Term Loan" and together with the Revolving Loan,
"Facility A") and a term loan tranche of $172,000 (the "Facility B").
The commitments under the Senior Credit Facility will reduce commencing
with the quarter ending March 31, 2002. Facility A permanently reduces in
quarterly amounts ranging from 2.5% to 7.5% of the Facility A amount
starting March 31, 2002 and matures approximately eight and one half years
after February 2, 1999. Facility B is also to be repaid in quarterly
installments of .25% of the Facility B amount beginning in March 2002 and
matures approximately nine years after February 2, 1999, on which date all
remaining amounts of Facility B will be due and payable. Additional
reductions of the Senior Credit Facility will also be required upon certain
asset sales, subject to the right of the Company and its
F-465
<PAGE> 695
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
subsidiaries to reinvest asset sale proceeds under certain circumstances.
The interest rate options include a LIBOR option and a Prime Rate option
plus applicable margin rates based on the Company's total leverage ratio,
as defined. The rate applicable to balances outstanding at September 30,
1999 ranged from 7.06% to 8.27%. Covenants of the Senior Credit Facility
require, among other conditions, the maintenance of specific levels of the
ratio of cash flows to future debt and interest expense and certain
limitations on additional investments, indebtedness, capital expenditures,
asset sales and affiliate transactions. In addition, the Company is
required to pay a commitment fee on the unused revolver portion of Facility
A which will accrue at a rate ranging from .25% to .375% per annum,
depending on the Company's total leverage ratio, as defined.
(b) On February 2, 1999, the Company issued $170,000 aggregate principal amount
senior notes payable (the "Senior Notes"). In addition, on the same date,
the Company issued $275,000 aggregate principal amount at maturity of senior
discount notes, (the "Senior Discount Notes") for approximately $175,021
gross proceeds (collectively the "Notes").
The Senior Notes are unsecured and will mature on February 1, 2009. The
Senior Notes bear interest at 8% per annum payable semi-annually on February
1 and August 1 of each year, commencing August 1, 1999.
The Senior Discount Notes are unsecured and will mature on February 1, 2009.
The Senior Discount Notes were issued at a discount to their aggregate
principal amount at maturity and will accrete at a rate of approximately
9.25% per annum, compounded semi-annually, to an aggregate principal amount
of $275,000 on February 1, 2004. Subsequent to February 1, 2004, the Senior
Discount Notes will bear interest at a rate of 9.25% per annum payable
semi-annually in arrears on February 1 and August 1 of each year, commencing
August 1, 2004.
The Company may elect, upon not less than 60 days prior notice, to commence
the accrual of interest on all outstanding Senior Discount Notes on or after
February 1, 2002, in which case the outstanding principal amount at maturity
of each Senior Discount Note will on such commencement date be reduced to
the accreted value of such Senior Discount Note as of such date and interest
shall be payable with respect to the Senior Discount Notes on each February
and August 1 thereafter.
The Company may not redeem the Notes prior to February 1, 2004 except that
prior to February 1, 2002, the Company may redeem up to 35% of the Senior
Notes and Senior Discount Notes at redemption prices equal to 108% and 109%
of the applicable principal amount and accreted value, respectively.
Subsequent to February 1, 2004, the Company may redeem the Notes at
redemption prices declining annually from approximately 104% of the
principal amount or accreted value.
Bresnan Communications Group LLC and its wholly owned subsidiary Bresnan
Capital Corporation are the sole obligors of the Senior Notes and Senior
Discount Notes. Bresnan Communications Group LLC has no other assets or
liabilities other than its investment in its wholly owned subsidiary
Bresnan Telecommunications Company LLC. Bresnan Capital Corporation has no
other assets or liabilities.
On August 6, 1999, the Company and Bresnan Capital Corporation commenced an
offer to exchange all of the privately placed and outstanding $170,000,000
aggregate principal
F-466
<PAGE> 696
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
amount of their 8% Senior Notes due 2009 and $275,000,000 aggregate
principal amount at maturity of their 9.25% Senior Discount Notes due 2009
for an aggregate principal amount of $170,000,000 of their registered 8%
Senior Notes due 2009, Series B and an aggregate principal amount at
maturity of $275,000,000 of their registered 9.25% Senior Discount Notes
due 2009, Series B. At the completion of the exchange offer on September 3,
1999, all of the outstanding notes had been tendered for exchange.
Upon change of control of the Company, the holders of the notes have the
right to require the Company to purchase the outstanding notes at a price
equal to 101% of the principal amount or accreted value plus accrued and
unpaid interest. (See note 6 "Proposed Sale of the Company").
The Company has entered into interest rate swap agreements to effectively
fix or set maximum interest rates on a portion of its floating rate
long-term debt. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the interest rate swap agreements.
At September 30, 1999, such Interest Rate Swap agreements effectively fixed
or set a maximum LIBOR base interest rates between 8.0% and 8.02% on an
aggregate notional principal amount of $50,000 which rates would become
effective upon the occurrence of certain events. The effect of the Interest
Rate Swap on interest expense for the nine months ended September 30, 1998
and 1999 was not significant. The expiration dates of the Interest Rate
Swaps ranges from April 1, 2000 to April 3, 2000. The difference between
the fair market value and book value of long-term debt and the Interest
Rate Swaps at September 30, 1998 and 1999 is not significant.
(4) TRANSACTIONS WITH RELATED PARTIES
BCG and its predecessor purchased, at TCI's cost, substantially all of its
pay television and other programming from affiliates of TCI. Charges for such
programming were $40,730 and $46,144 for the nine months ended September 30,
1998 and 1999, respectively, and are included in programming expenses in the
accompanying consolidated financial statements.
Prior to February 2, 1999, certain affiliates of the predecessor to BCG
provided administrative services to BCG and assumed managerial responsibility of
BCG's cable television system operations and construction. As compensation for
these services, BCG paid a monthly fee calculated pursuant to certain agreed
upon formulas. Subsequent to the TCI Transaction on February 2, 1999, certain
affiliates of BCG provide administrative services and have assumed managerial
responsibilities of BCG. As compensation for these services BCG pays a monthly
fee equal to approximately 3% of gross revenues. Such aggregate charges totaled
$10,059 and $7,690 and have been included in selling, general and administrative
expenses for the nine months ended September 30, 1998 and 1999, respectively.
(5) COMMITMENTS AND CONTINGENCIES
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") imposed certain rate regulations on the cable television
industry. Under the 1992 Cable Act, all cable systems are subject to rate
regulation, unless they face "effective competition," as defined by the 1992
Cable Act and expanded in the Telecommunications Act of 1996 (the "1996 Act"),
in their local franchise area.
F-467
<PAGE> 697
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
Although the Federal Communications Commission (the "FCC") has established
regulations required by the 1992 Cable Act, local government units (commonly
referred to as local franchising authorities) are primarily responsible for
administering the regulation of a cable system's basic service tier ("BST"). The
FCC itself directly administered rate regulation of any cable programming
service tier ("CPST"). The FCC's authority to regulate CPST rates expired on
March 31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but no later than 180 days after
the last CPST rate increase imposed prior to March 31, 1999), and will strictly
limit its review (and possible refund orders) to the time period predating the
sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price structure that allows for the recovery
of inflation and certain associated costs, as well as providing some incentive
for expanding channel carriage. Operators also have the opportunity to bypass
this "benchmark" regulatory structure in favor of the traditional "cost-of-
service" regulation in cases where the latter methodology appears favorable.
Premium cable service offered on a per-channel or per-program basis remain
unregulated, as do affirmatively marketed packages consisting entirely of new
programming product.
The management of BCG believes that it has complied in all material
respects with the provisions of the 1992 Cable Act and the 1996 Act, including
its rate setting provisions. If, as a result of the review process, a system
cannot substantiate its rates, it could be required to retroactively reduce its
rates to the appropriate benchmark and refund the excess portion of rates
received. Any refunds of the excess portion of CPST rates would be retroactive
to the date of complaint. Any refunds of the excess portion of BST or equipment
rates would be retroactive to one year prior to the implementation of the rate
reductions.
Certain plaintiffs have filed or threatened separate class action
complaints against certain of the systems of BCG, alleging that the systems'
practice of assessing an administrative fee to the subscribers whose payments
are delinquent constitutes an invalid liquidated damage provision and a breach
of contract, and violates local consumer protection statutes. Plaintiffs seek
recovery of all late fees paid to the subject systems as a class purporting to
consist of all subscribers who were assessed such fees during the applicable
limitation period, plus attorney fees and costs.
BCG has additional contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it is
possible that BCG may incur losses upon conclusion of these matters and the
matters referred to above, an estimate of any loss or range of loss cannot
presently be made. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of these actions, the
ultimate disposition should not have material adverse effect upon the combined
financial condition of BCG.
BCG leases business offices, has entered into pole attachment agreements
and uses certain equipment under lease arrangements. Rental expense under such
arrangements amounted to $2,218 and $2,605 during the nine months ended
September 30, 1998 and 1999, respectively.
Future minimum lease payments under noncancelable operating leases are
estimated to approximate $2,240 per year for each of the next five years. It is
expected that, in the normal
F-468
<PAGE> 698
BRESNAN COMMUNICATIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
course of business, expiring leases will be renewed or replaced by leases on the
same or other properties.
During 1999, BCG has continued enterprise-wide comprehensive efforts to
assess and remediate its respective computer systems and related software and
equipment to ensure such systems, software and equipment recognize, process and
store information in the year 2000 and thereafter. Such year 2000 remediation
efforts include an assessment of its most critical systems, such as customer
service and billing systems, headends and other cable plant, business support
operations, and other equipment and facilities. BCG also continued its efforts
to verify the year 2000 readiness of its significant suppliers and vendors and
continued to communicate with significant business partners and affiliates to
assess affiliates' year 2000 status.
BCG formed a year 2000 program management team to organize and manage its
year 2000 remediation efforts. The program management team is responsible for
overseeing, coordinating and reporting on its respective year 2000 remediation
efforts.
During 1999, the project management team continued its surveys of
significant third-party vendors and suppliers whose systems, services or
products are important to its operations (e.g., suppliers of addressable
controllers and set-top boxes, and the provider of billing services). BCG has
instituted a verification process to determine the vendors' year 2000 readiness.
Such verification includes, as deemed necessary, reviewing vendors' test and
other data and engaging in regular conferences with vendors' year 2000 teams.
BCG is also requiring testing to validate the year 2000 compliance of certain
critical products and services. The year 2000 readiness of such providers is
critical to continued provision of cable service.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the systems of BCG or the systems of other companies on which
they rely will be converted in time, or that any such failure to convert by BCG
or other companies will not have a material adverse effect on the financial
position, results of operations or cash flows of BCG.
(6) PROPOSED SALE OF THE COMPANY
In June 1999, the Partners of BCCLP entered into an agreement to sell all
of their partnership interests in BCCLP to Charter Communications Holding
Company, LLC for a purchase price of approximately $3.1 billion in cash and
equity which will be reduced by the assumption of BCCLP's debt at closing. BCCLP
anticipates that this transaction will close in the first half of 2000. (See
Note 3 "Debt" for discussion of the impact on outstanding indebtedness).
F-469
<PAGE> 699
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tele-Communications, Inc.:
We have audited the accompanying combined balance sheets of Bresnan
Communications Group Systems, (as defined in Note 1 to the combined financial
statements) as of December 31, 1997 and 1998, and the related combined
statements of operations and Parents' investment and cash flows for each of the
years in the three-year period ended December 31, 1998. These combined financial
statements are the responsibility of the Bresnan Communications Group Systems
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Bresnan
Communications Group Systems, as of December 31, 1997 and 1998, 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.
/s/ KPMG LLP
Denver, Colorado
April 2, 1999
F-470
<PAGE> 700
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 6,957 $ 6,636
Restricted cash (note 3).................................... -- 47,199
Trade and other receivables, net............................ 11,700 8,874
Property and equipment, at cost:
Land and buildings........................................ 5,229 4,123
Distribution systems...................................... 410,158 443,114
Support equipment......................................... 45,687 50,178
-------- --------
461,074 497,415
Less accumulated depreciation............................. 157,618 190,752
-------- --------
303,456 306,663
Franchise costs, net........................................ 291,746 291,103
Other assets, net of accumulated amortization............... 3,339 3,961
-------- --------
Total assets........................................... $617,198 $664,436
======== ========
LIABILITIES AND PARENTS' INVESTMENT
Accounts payable............................................ $ 2,071 $ 3,193
Accrued expenses............................................ 11,809 13,395
Accrued interest............................................ 20,331 21,835
Debt........................................................ 214,170 232,617
Other liabilities........................................... 9,719 11,648
-------- --------
Total liabilities...................................... 258,100 282,688
Parents' investment......................................... 359,098 381,748
-------- --------
Commitments and contingencies (note 7)
Total liabilities and Parents' investment.............. $617,198 $664,436
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-471
<PAGE> 701
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENTS' INVESTMENT
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Revenue................................................. $216,609 $247,108 $261,964
Operating costs and expenses:
Programming (note 6).................................. 46,087 53,857 63,686
Operating............................................. 31,405 31,906 28,496
Selling, general and administrative (note 6).......... 52,485 50,572 58,568
Depreciation and amortization......................... 50,908 53,249 54,308
-------- -------- --------
180,885 189,584 205,058
-------- -------- --------
Operating income................................... 35,724 57,524 56,906
Other income (expense):
Interest expense:
Related party (note 4)............................. (1,859) (1,892) (1,872)
Other.............................................. (13,173) (16,823) (16,424)
Gain on sale of cable television systems.............. -- -- 27,027
Other, net............................................ (844) (978) (273)
-------- -------- --------
(15,876) (19,693) 8,458
-------- -------- --------
Net earnings....................................... 19,848 37,831 65,364
Parents' investment:
Beginning of year..................................... 344,664 347,188 359,098
Operating expense allocations and charges (notes 4 and
6)................................................. 54,643 60,389 71,648
Net assets of acquired systems (note 3)............... -- 33,635 --
Cash transfers, net................................... (71,967) (119,945) (114,362)
-------- -------- --------
End of year........................................... $347,188 $359,098 $381,748
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-472
<PAGE> 702
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings................................................ $19,848 $37,831 $65,364
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 50,908 53,249 54,308
Gain on sale of cable television systems............... -- -- (27,027)
Other noncash charges.................................. 1,171 2,141 452
Changes in operating assets and liabilities, net of
effects of acquisitions:
Change in receivables................................ (291) (3,413) 2,826
Change in other assets............................... (144) 164 --
Change in accounts payable, accrued expenses and
other liabilities................................. 7,178 2,305 6,141
Other, net........................................... 473 271 297
------- ------- -------
Net cash provided by operating activities......... 79,143 92,548 102,361
------- ------- -------
Cash flows from investing activities:
Capital expended for property and equipment............... (78,248) (33,875) (58,601)
Capital expended for franchise costs...................... (87) (1,407) (157)
Cash received in acquisitions............................. -- 1,179 28,681
Change in restricted cash................................. -- -- (47,199)
------- ------- -------
Net cash used in investing activities............. (78,335) (34,103) (77,276)
------- ------- -------
Cash flows from financing activities:
Borrowings under note agreement........................... 40,300 31,300 49,400
Repayments under note agreement........................... (18,546) (24,364) (30,953)
Deferred finance costs paid............................... (595) (2,121) (1,139)
Change in Parents' investment............................. (24,259) (59,556) (42,714)
------- ------- -------
Net cash used in financing activities............. (3,100) (54,741) (25,406)
------- ------- -------
Net increase (decrease) in cash................... (2,292) 3,704 (321)
Cash and cash equivalents:
Beginning of year......................................... 5,545 3,253 6,957
------- ------- -------
End of year............................................... $ 3,253 $ 6,957 $ 6,636
======= ======= =======
Supplemental disclosure of cash flow information --
Cash paid during the year for interest.................... $12,996 $16,971 $16,792
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-473
<PAGE> 703
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(1) BASIS OF PRESENTATION AND PARTNERSHIP FORMATION
The financial statements of Bresnan Communications Group Systems are the
combination of the financial statements of Bresnan Communications Company
Limited Partnership ("BCCLP") and certain additional cable television systems
(the "TCI Bresnan Systems") owned by affiliates of Tele-Communications, Inc.
("TCI"). BCCLP and the TCI Bresnan Systems are under the common ownership and
control of TCI for all periods presented. Based on such common ownership and
control, the accompanying financial statements are presented herein at
historical cost on a combined basis and will serve as a predecessor to Bresnan
Communications Group LLC. The combined net assets of Bresnan Communications
Group Systems are herein referred to as "Parents' investment".
BCCLP is a partnership between a subsidiary of TCI and William J. Bresnan
and certain entities which he controls (collectively, the "Bresnan Entities").
BCCLP owns and operates cable television systems principally located in the
midwestern United States. TCI and the Bresnan Entities hold 78.4% and 21.6%
interests, respectively, in BCCLP.
Certain of the TCI Bresnan Systems have been acquired through transactions
whereby TCI acquired various larger cable entities (the "Original Systems"). The
accounts of certain of the TCI Bresnan Systems include allocations of purchase
accounting adjustments from TCI's acquisition of the Original Systems. Such
allocations and the related franchise cost amortization are based upon the
relative fair market values of the systems involved. In addition, certain costs
of TCI and the Bresnan Entities are charged to the Bresnan Communications Group
Systems based on the methodologies described in note 6. Although such
allocations are not necessarily indicative of the costs that would have been
incurred by the Bresnan Communications Group Systems on a stand alone basis,
management of TCI and the Bresnan Entities believe that the resulting allocated
amounts are reasonable.
On June 3, 1998, certain affiliates of TCI, the Bresnan Entities, BCCLP and
Blackstone Cable Acquisition Company, LLC ("Blackstone") (collectively, the
"Partners") entered into a Contribution Agreement. Effective February 2, 1999
under the terms of the contribution agreement, certain systems of affiliates of
TCI were transferred to BCCLP along with approximately $708,854 of assumed TCI
debt (the "TCI Transaction") which is not reflected in the accompanying combined
financial statements. At the same time, Blackstone contributed $136,500 to
BCCLP. As a result of these transactions, the Bresnan Entities remain the
managing partner of BCCLP, with a 10.2% combined general and limited partner
interest, while TCI and Blackstone are 50% and 39.8% limited partners of BCCLP,
respectively. The amount of the assumed TCI debt will be adjusted based on
certain working capital adjustments at a specified time after the consummation
of TCI Transaction. Upon completion of these transactions BCCLP formed a
wholly-owned subsidiary, Bresnan Communications Group LLC ("BCG"), into which it
contributed all its assets and liabilities. Simultaneous with this transaction
Bresnan Communications Group LLC formed a wholly-owned subsidiary, Bresnan
Telecommunications Company LLC ("BTC"), into which it contributed all its assets
and liabilities.
In anticipation of these transactions, on January 25, 1999, BCG sold
$170,000 aggregate principal amount of 8% senior notes (the "Senior Notes") due
2009 and $275,000 aggregate principal amount at maturity (approximately $175,000
gross proceeds) of 9.25% senior discount notes (the "Senior Discount Notes") due
2009. The net proceeds from the offering of the Senior Notes and the Senior
Discount Notes approximated $336,000 after giving effect to discounts and
F-474
<PAGE> 704
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
commissions. Also, BTC borrowed $508,000 of $650,000 available under a new
credit facility (the "Credit Facility").
The proceeds of the Senior Notes, the Senior Discount Notes and the Credit
Facility were used to retire the assumed TCI debt and the outstanding debt of
the Bresnan Communications group systems prior to the TCI Transaction (see Note
4), as well as the payment of certain fees and expenses. Deferred financing
costs of $2.6 million associated with the retired debt will be written off.
After giving effect to the issuance of debt noted above, the unaudited
proforma debt outstanding at December 31, 1998 would be $857 million and the
Parents' investment would decrease to a deficit position of $206 million at
December 31, 1998.
On March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger (the "AT&T
Merger"). In the AT&T Merger, TCI became a subsidiary of AT&T.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
Cash equivalents consist of investments which are readily convertible into
cash and have maturities of three months or less at the time of acquisition.
(b) Trade and Other Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1997 and 1998 was not significant.
(c) Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including interest
during construction and applicable overhead, are capitalized. During 1996, 1997
and 1998, interest capitalized was $1,005, $324 and $47, respectively.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for support
equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or other
dispositions of property, the original cost and cost of removal of such property
are charged to accumulated depreciation, and salvage, if any, is credited
thereto. Gains or losses are only recognized in connection with the sales of
properties in their entirety.
(d) Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts allocated to their tangible assets. Such amounts
are generally amortized on a straight-line basis over 40 years. Costs incurred
by Bresnan Communications Group Systems in negotiating and renewing franchise
agreements are amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
F-475
<PAGE> 705
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(e) Impairment of Long-Lived Assets
Management periodically reviews the carrying amounts of property and
equipment and identifiable intangible assets to determine whether current events
or circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary based on an analysis of undiscounted cash flow,
such loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Considerable management judgment is necessary to
estimate the fair value of assets. Accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the
lower of their financial statement carrying amount or fair value less costs to
sell.
(f) Financial Instruments
Bresnan Communications Group Systems has entered into fixed interest rate
exchange agreements ("Interest Rate Swaps") which are used to manage interest
rate risk arising from its financial liabilities. Such Interest Rate Swaps are
accounted for as hedges; accordingly, amounts receivable or payable under the
Interest Rate Swaps are recognized as adjustments to interest expense. Such
instruments are not used for trading purposes.
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS 133"), which is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments and hedging activities by requiring that
all derivative instruments be reported as assets or liabilities and measured at
their fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those instruments
qualify as hedges of the (1) fair values of existing assets, liabilities, or
firm commitments, (2) variability of cash flows of forecasted transactions, or
(3) foreign currency exposures of net investments in foreign operations.
Although management has not completed its assessment of the impact of SFAS 133
on its combined results of operations and financial position, management
estimates that the impact of SFAS 133 will not be material.
(g) Income Taxes
The majority of the net assets comprising the TCI Bresnan Systems and BCCLP
were historically held in partnerships. In addition, BCG has been formed as a
limited liability company, to be treated for tax purposes as a flow-through
entity. Accordingly, no provision has been made for income tax expense or
benefit in the accompanying combined financial statements as the earnings or
losses of Bresnan Communications Group Systems will be reported in the
respective tax returns of BCG's members (see note 5).
(h) Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising, and
pay-per-view programming is recognized in the period that services are
delivered. Installation revenue is recognized in the period the installation
services are provided to the extent of direct selling costs. Any remaining
amount is deferred and recognized over the estimated average period that
customers are expected to remain connected to the cable distribution system.
F-476
<PAGE> 706
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
(i) Combined Statements of Cash Flows
Except for acquisition transactions described in note 3, transactions
effected through Parents' investment have been considered constructive cash
receipts and payments for purposes of the combined statements of cash flows.
(j) 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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) ACQUISITIONS AND SYSTEM DISPOSITIONS
In January 1997, affiliates of TCI acquired certain cable television assets
located in or around the Saginaw, Michigan area which are included in the TCI
Bresnan Systems. TCI's cost basis in such acquired assets has been allocated
based on their respective fair values. Such allocation has been reflected in the
accompanying combined financial statements as follows:
<TABLE>
<S> <C>
Cash........................................................ $ 1,179
Property and equipment...................................... 10,786
Franchise costs............................................. 21,670
-------
Parents' investment....................................... $33,635
=======
</TABLE>
In addition in 1998, BCCLP acquired two cable systems which were accounted
for under the purchase method. The purchase prices were allocated to the assets
acquired in relation to their fair values as increases in property and equipment
of $7,099 and franchise costs of $21,651.
The results of operations of these cable television systems have been
included in the accompanying combined statements of operations from their dates
of acquisition. Pro forma information on the acquisitions has not been presented
because the effects were not significant.
During 1998, BCCLP also disposed of two cable systems for gross proceeds of
$58,949, which resulted in gain on sale of cable television systems of $27,027.
In connection with one of the dispositions, a third party intermediary received
$47,199 of cash that is designated to be reinvested in certain identified assets
for income tax purposes.
(4) DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Notes payable to banks(a)............................ $190,300 $209,000
Notes payable to partners(b)......................... 22,100 22,100
Other debt........................................... 1,770 1,517
-------- --------
$214,170 $232,617
======== ========
</TABLE>
F-477
<PAGE> 707
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
- ---------------
(a) The notes payable to banks represent borrowings under a $250,000 senior
unsecured reducing revolving credit and term loan facility (the "Bank
Facility") as documented in the loan agreement as amended and restated as of
August 5, 1998. The Bank Facility calls for a current available commitment
of $250,000 of which $209,000 is outstanding at December 31, 1998. The Bank
Facility provides for two tranches, a revolving loan tranche of $175,000
(the "Revolving Loan Tranche") and a term loan tranche of $75,000 (the "Term
Loan Tranche"). The Revolving Loan Tranche is available through March 30,
1999 and then requires quarterly payments/commitment reductions ranging from
2.5% to 7.5% of the principal through its maturity on March 31, 2005. The
Term Loan Tranche, fully drawn at closing and maturing March 31, 2006,
requires quarterly payments of .25% beginning March 31, 1999 through
December 31, 2004, quarterly payments of 2.5% for the year ended December
31, 2005 and 84% of the principal at maturity. The Bank Facility provides
for interest at varying rates based on two optional measures: 1) for the
Revolving Loan Tranche, the prime rate plus .625% and/or the London
Interbank Offered Rate ("LIBOR") plus 1.625% and 2) for the Term Loan
Tranche, the prime rate plus 1.75% and/or LIBOR plus 2.75%. The Bank
Facility has provisions for certain performance-based interest rate
reductions which are available under either interest rate option. In
addition, the Bank Facility allows for interest rate swap agreements.
The rates applicable to balances outstanding at December 31, 1998 ranged
from 6.815% to 8.000% Covenants of the Bank Facility require, among other
conditions, the maintenance of certain earnings, cash flow and financial
ratios and include certain limitations on additional investments,
indebtedness, capital expenditures, asset sales, management fees and
affiliate transactions. Commitment fees of .375% per annum are payable on
the unused principal amounts of the available commitment under the Bank
Facility, as well as an annual agency fee to a bank of $60. A guarantee in
the amount of $3,000, has been provided by one of the BCCLP partners.
Balances outstanding at December 31, 1998 are due as follows:
<TABLE>
<S> <C>
1999............................................. $ 14,150
2000.......................................... 17,500
2001.......................................... 20,850
2002.......................................... 24,200
2003 and thereafter........................... 132,300
--------
$209,000
========
</TABLE>
(b) The note payable to a partner is comprised of a $25,000 subordinated note of
which $22,100 was outstanding at December 31, 1997 and 1998. The note, dated
May 12, 1988, is junior and subordinate to the senior debt represented by
the notes payable to banks. Interest is to be provided for at the prime rate
(as defined) and is payable quarterly, to the extent allowed under the bank
subordination agreement, or at the maturity date of the note, which is the
earlier of April 30, 2001 or the first business day following the full
repayment of the entire amount due under the notes payable to banks.
Applicable interest rates at December 31, 1997 and 1998 were 8.25% and
7.75%, respectively. The note also provides for repayment at any time
without penalty, subject to subordination restrictions.
F-478
<PAGE> 708
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
Bresnan Communications Group Systems has entered into Interest Rate Swaps
to effectively fix or set a maximum interest rate on a portion of its floating
rate long-term debt. Bresnan Communications Group Systems is exposed to credit
loss in the event of nonperformance by the counterparties to the Interest Rate
Swaps.
At December 31, 1998, such Interest Rate Swaps effectively fixed or set
maximum interest rates between 9.625% and 9.705% on an aggregate notional
principal amount of $110,000, which rate would become effective upon the
occurrence of certain events. The effect of the Interest Rate Swaps was to
increase interest expense by $851, $460, and $19 for the years ended December
31, 1996, 1997 and 1998, respectively. The expiration dates of the Interest Rate
Swaps ranges from August 25, 1999 to April 3, 2000. The difference between the
fair market value and book value of long-term debt and the Interest Rate Swaps
at December 31, 1997 and 1998 is not significant.
(5) INCOME TAXES
Taxable earnings differ from those reported in the accompanying combined
statements of operations due primarily to differences in depreciation and
amortization methods and estimated useful lives under regulations prescribed by
the Internal Revenue Service. At December 31, 1998, the reported amounts of
Bresnan Communications Group Systems' assets exceeded their respective tax bases
by approximately $394 million.
(6) TRANSACTIONS WITH RELATED PARTIES
Bresnan Communications Group Systems purchases, at TCI's cost,
substantially all of its pay television and other programming from affiliates of
TCI. Charges for such programming were $42,897, $48,588 and $58,562 for 1996,
1997 and 1998, respectively, and are included in programming expenses in the
accompanying combined financial statements.
Certain affiliates of the Partners provide administrative services to
Bresnan Communications Group Systems and have assumed managerial responsibility
of Bresnan Communications Group Systems cable television system operations and
construction. As compensation for these services, Bresnan Communications Group
Systems pays a monthly fee calculated pursuant to certain agreed upon formulas.
Such charges totaled $11,746, $11,801 and $13,086 and have been included in
selling, general and administrative expenses for years ended December 31, 1996,
1997 and 1998, respectively.
(7) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994,
the Federal Communications Commission ("FCC") adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, Bresnan Communications Group Systems'
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated against
competitive benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. Any rates for Regulated Services
that exceeded the benchmarks were reduced as required by the 1993 and 1994 rate
regulations. The rate regulations do not apply to the relatively few systems
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<PAGE> 709
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
which are subject to "effective competition" or to services offered on an
individual service basis, such as premium movie and pay-per-view services.
Bresnan Communications Group Systems believes that it has complied in all
material respects with the provisions of the 1992 Cable Act, including its rate
setting provisions. However, Bresnan Communications Group Systems' rates for
Regulated Services are subject to review by the FCC, if a complaint has been
filed by a customer, or the appropriate franchise authority, if such authority
has been certified by the FCC to regulate rates. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be retroactive to one
year prior to the implementation of the rate reductions.
Certain of Bresnan Communications Group Systems' individual systems have
been named in purported class actions in various jurisdictions concerning late
fee charges and practices. Certain of Bresnan Communications Group Systems'
cable systems charge late fees to customers who do not pay their cable bills on
time. Plaintiffs generally allege that the late fees charged by such cable
systems are not reasonably related to the costs incurred by the cable systems as
a result of the late payment. Plaintiffs seek to require cable systems to
provide compensation for alleged excessive late fee charges for past periods.
These cases are at various stages of the litigation process. Based upon the
facts available, management believes that, although no assurances can be given
as to the outcome of these actions, the ultimate disposition of these matters
should not have a material adverse effect upon the financial condition or
results of operations of Bresnan Communications Group Systems.
BCCLP entered into three letters of intent with three different cable
operators pursuant to which the BCCLP intends to sell a small cable television
system in Michigan and acquire cable television systems in both Michigan and
Minnesota. These transactions would result in a net cost to the BCCLP of
approximately $63,000, $2,000 was deposited for the acquisition in Michigan.
BCCLP expects to fund these transactions through the use of restricted cash,
cash flow from operations and additional borrowings.
Bresnan Communications Group Systems has other contingent liabilities
related to legal proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible Bresnan Communications Group
Systems may incur losses upon conclusion of such matters, an estimate of any
loss or range of loss cannot be made. In the opinion of the management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying combined
financial statements.
Bresnan Communications Group Systems leases business offices, has entered
into pole attachment agreements and uses certain equipment under lease
arrangements. Rental expense under such arrangements amounted to $3,208, $3,221
and $2,833 in 1996, 1997 and 1998, respectively.
Future minimum lease payments under noncancelable operating leases are
estimated to approximate $2,240 per year for each of the next five years.
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on the same or similar properties.
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<PAGE> 710
BRESNAN COMMUNICATIONS GROUP SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
During 1998, TCI and BCCLP have continued enterprise-wide, comprehensive
efforts to assess and remediate their respective computer systems and related
software and equipment to ensure such systems, software and equipment will
recognize, process and store information in the year 2000 and thereafter. Such
year 2000 remediation efforts, which encompass the TCI Bresnan Systems and the
Bresnan Entities, respectively, include an assessment of their most critical
systems, such as customer service and billing systems, headends and other cable
plant, business support operations, and other equipment and facilities. TCI and
BCCLP also continued their efforts to verify the year 2000 readiness of their
significant suppliers and vendors and continued to communicate with significant
business partners' and affiliates to assess such partners and affiliates' year
2000 status.
TCI and BCCLP have formed year 2000 program management teams to organize
and manage their year 2000 remediation efforts. The program management teams are
responsible for overseeing, coordinating and reporting on their respective year
2000 remediation efforts. Upon consummation of the TCI Transaction, assessment
and remediation of year 2000 issues for the TCI Bresnan Systems became the
responsibility of BCCLP.
During 1998, the project management teams continued their surveys of
significant third-party vendors and suppliers whose systems, services or
products are important to their operations (e.g., suppliers of addressable
controllers and set-top boxes, and the provider of billing services). The year
2000 readiness of such providers is critical to continued provision of cable
service.
TCI and BCCLP have instituted a verification process to determine the
vendors' year 2000 readiness. Such verification includes, as deemed necessary,
reviewing vendors' test and other data and engaging in regular conferences with
vendors' year 2000 teams. TCI and BCCLP are also requiring testing to validate
the year 2000 compliance of certain critical products and services.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that the systems of Bresnan Communications Group Systems or the
systems of other companies on which they rely will be converted in time, or that
any such failure to convert by the Bresnan Communications Group Systems or other
companies will not have a material adverse effect on the financial position,
results of operations or cash flows of Bresnan Communications Group Systems.
F-481
<PAGE> 711
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION UNDER THE LIMITED LIABILITY COMPANY AGREEMENT OF CHARTER
HOLDINGS.
The limited liability company agreement of Charter Holdings, entered into
as of February 9, 1999, by Charter Investment, as the initial member, provides
that the members, the manager, the directors, their affiliates or any person who
at any time serves or has served as a director, officer, employee or other agent
of any member or any such affiliate, and who, in such capacity, engages or has
engaged in activities on behalf of Charter Holdings, shall be indemnified and
held harmless by Charter Holdings to the fullest extent permitted by law from
and against any losses, damages, expenses, including attorneys' fees, judgments
and amounts paid in settlement actually and reasonably incurred by or in
connection with any claim, action, suit or proceeding arising out of or
incidental to such indemnifiable person's conduct or activities on behalf of
Charter Holdings. Notwithstanding the foregoing, no indemnification is available
under the limited liability company agreement in respect of any such claim
adjudged to be primarily the result of bad faith, willful misconduct or fraud of
an indemnifiable person. Payment of these indemnification obligations shall be
made from the assets of Charter Holdings and the members shall not be personally
liable to an indemnifiable person for payment of indemnification.
INDEMNIFICATION UNDER THE DELAWARE LIMITED LIABILITY COMPANY ACT.
Section 18-108 of the Delaware Limited Liability Company Act authorizes a
limited liability company to indemnify and hold harmless any member or manager
or other person from and against any and all claims and demands whatsoever,
subject to such standards and restrictions, if any, as are set forth in its
limited liability company agreement.
INDEMNIFICATION UNDER THE BY-LAWS OF CHARTER CAPITAL.
The by-laws of Charter Capital provide that Charter Capital, to the
broadest and maximum extent permitted by applicable law, will indemnify each
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, by reason of the fact that such
person is or was a director or officer of Charter Capital, or is or was serving
at the request of Charter Capital as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding. To the extent that a director, officer,
employee or agent of Charter Capital has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in the
preceding paragraph, or in defense of any claim, issue or matter, such person
will be indemnified against expenses, including attorneys' fees, actually and
reasonably incurred by such person. Expenses, including attorneys' fees,
incurred by a director or officer in defending any civil or criminal action,
suit or proceeding may be paid by Charter Capital in advance of the final
disposition of such action, suit or proceeding, as authorized by the board of
directors of Charter Capital, upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that such director or officer was not entitled to be indemnified by
Charter Capital as authorized in the by-laws of Charter Capital. The
indemnification and advancement of expenses provided by, or granted pursuant to,
the by-laws of Charter Capital will not be deemed exclusive and are declared
expressly to be non-exclusive of any other rights to which those seeking
indemnification or advancements of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors
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<PAGE> 712
or otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding an office, and, unless otherwise
provided when authorized or ratified, will continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
INDEMNIFICATION UNDER THE DELAWARE GENERAL CORPORATION LAW.
Section 145 of the Delaware General Corporation Law, authorizes a
corporation to 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, by reason
of the fact that the person 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,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding, if the person
acted in good faith and in a manner the person reasonably believed to be in, or
not opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. In addition, the Delaware General Corporation Law does not
permit indemnification in any threatened, pending or completed action or suit by
or in the right of the corporation in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses, which such court
shall deem proper. To the extent that a present or former director or officer of
a corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter, such person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by such person. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Delaware General Corporation Law also allows a corporation to provide for
the elimination or limit of the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director
(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) for unlawful payments of dividends or unlawful stock purchases or
redemptions, or
(iv) for any transaction from which the director derived an improper
personal benefit. These provisions will not limit the liability of
directors or officers under the federal securities laws of the United
States.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBITS
<TABLE>
<S> <C>
1.1 Purchase Agreement, dated as of January 12, 2000 by and
among Charter Communications Holdings, LLC, Charter
Communications Capital Corporation and Goldman, Sachs & Co.,
Chase Securities Inc., FleetBoston Robertson Stephens Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc., First Union
Securities, Inc., PNC Capital Markets, Inc. and SunTrust
Equitable Securities Corporation
</TABLE>
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<PAGE> 713
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2.1 Merger Agreement, dated March 31, 1999, by and between
Charter Communications Holdings, LLC and Marcus Cable
Holdings, LLC(1)
2.2(a) Membership Purchase Agreement, dated as of January 1, 1999,
by and between ACEC Holding Company, LLC and Charter
Communications, Inc. (now called Charter Investment,
Inc.)(2)
2.2(b) Assignment of Membership Purchase Agreement, dated as of
February 23, 1999, by and between Charter Communications,
Inc. (now called Charter Investment, Inc.) and Charter
Communications Entertainment II, LLC(2)
2.3(a) Asset Purchase Agreement, dated as of February 17, 1999,
among Greater Media, Inc., Greater Media Cablevision, Inc.
and Charter Communications, Inc. (now called Charter
Investment, Inc.)(2)
2.3(b) Assignment of Asset Purchase Agreement, dated as of February
23, 1999, by and between Charter Communications, Inc. (now
called Charter Investment, Inc.) and Charter Communications
Entertainment I, LLC(2)
2.4 Purchase Agreement, dated as of February 23, 1999, by and
among Charter Communications, Inc. (now called Charter
Investment, Inc.), Charter Communications, LLC, Renaissance
Media Holdings LLC and Renaissance Media Group LLC(2)
2.5 Purchase Agreement, dated as of March 22, 1999, among
Charter Communications, Inc. (now called Charter Investment,
Inc.), Charter Communications, LLC, Charter Helicon, LLC,
Helicon Partners I, L.P., Baum Investments, Inc. and the
limited partners of Helicon Partners I, L.P.(2)
2.6(a) Asset and Stock Purchase Agreement, dated April 20, 1999,
between Intermedia Partners of West Tennessee, L.P. and
Charter Communications, LLC(1)
2.6(b) Stock Purchase Agreement, dated April 20, 1999, between TCID
1P-V, Inc. and Charter Communications, LLC(1)
2.6(c) RMG Purchase Agreement, dated as of April 20, 1999, between
Robin Media Group, Inc., InterMedia Partners of West
Tennessee, L.P. and Charter RMG, LLC(1)
2.6(d) Asset Exchange Agreement, dated April 20, 1999, among
InterMedia Partners Southeast, Charter Communications, LLC,
Charter Communications Properties, LLC, and Marcus Cable
Associates, L.L.C.(1)
2.6(d)(i) Amendment to Asset Exchange Agreement, made as of October 1,
1999, by and among InterMedia Partners Southeast and Charter
Communications, LLC, Charter Communications Properties, LLC
and Marcus Cable Associates, L.L.C.(6)
2.6(e) Asset Exchange Agreement, dated April 20, 1999, among
InterMedia Partners, a California Limited Partnership,
Brenmor Cable Partners, L.P. and Robin Media Group, Inc.(1)
2.6(f) Common Agreement, dated April 20, 1999, between InterMedia
Partners, InterMedia Partners Southeast, InterMedia Partners
of West Tennessee, L.P., InterMedia Capital Partners IV,
L.P., InterMedia Partners IV, L.P., Brenmor Cable Partners,
L.P., TCID IP-V, Inc., Charter Communications, LLC, Charter
Communications Properties, LLC, Marcus Cable Associates,
L.L.C. and Charter RMG, LLC(4)+
2.7(a) Purchase and Sale Agreement, dated as of April 26, 1999, by
and among InterLink Communications Partners, LLLP, the
sellers listed therein and Charter Communications, Inc. (now
called Charter Investment, Inc.)(1)
2.7(b) Purchase and Sale Agreement, dated as of April 26, 1999, by
and among Rifkin Acquisition Partners, L.L.L.P., the sellers
listed therein and Charter Communications, Inc. (now called
Charter Investment, Inc.)(2)
2.7(c) RAP Indemnity Agreement, dated April 26, 1999, by and among
the sellers listed therein and Charter Communications, Inc.
(now called Charter Investment, Inc.)(2)
</TABLE>
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<PAGE> 714
<TABLE>
<S> <C>
2.7(d) Assignment of Purchase Agreement with InterLink
Communications Partners, LLLP, dated as of June 30, 1999, by
and between Charter Communications, Inc. (now called Charter
Investment, Inc.) and Charter Communications Operating,
LLC(2)
2.7(e) Assignment of Purchase Agreement with Rifkin Acquisition
Partners L.L.L.P., dated as of June 30, 1999, by and between
Charter Communications, Inc. (now called Charter Investment,
Inc.) and Charter Communications Operating, LLC(2)
2.7(f) Assignment of RAP Indemnity Agreement, dated as of June 30,
1999, by and between Charter Communications, Inc. (now
called Charter Investment, Inc.) and Charter Communications
Operating, LLC(2)
2.7(g) Amendment to the Purchase Agreement with InterLink
Communications Partners, LLLP, dated June 29, 1999(5)
2.7(h) Contribution Agreement, dated as of September 14, 1999, by
and among Charter Communications Operating, LLC, Charter
Communications Holding Company, LLC, Charter Communications,
Inc., Paul G. Allen and the certain other individuals and
entities listed on the signature pages thereto(6)
2.7(i) Form of First Amendment to the Contribution Agreement dated
as of September 14, 1999, by and among Charter
Communications Operating, LLC, Charter Communications
Holding Company, LLC, Charter Communications, Inc. and Paul
G. Allen, entered into as of November , 1999.(7)
2.8 Contribution and Sale Agreement dated as of December 30,
1999, by and among Charter Communications Holding Company,
LLC, CC VII Holdings, LLC and Charter Communications VII,
LLC(8)
2.9 Contribution and Sale Agreement dated as of December 30,
1999, by and among Charter Communications Holding Company,
LLC and Charter Communications Holdings, LLC(8)
2.10(a) Securities Purchase Agreement, dated May 13, 1999, by and
between Avalon Cable Holdings LLC, Avalon Investors, L.L.C.,
Avalon Cable of Michigan Holdings, Inc. and Avalon Cable LLC
and Charter Communications Holdings LLC and Charter
Communications, Inc. (now called Charter Investment,
Inc.)(9)
2.10(b) Assignment and Contribution Agreement, entered into as of
October 11, 1999 by and between Charter Communications
Holding Company, LLC and Charter Communications, Inc.(6)
2.10(c) Assignment Agreement effective as of June 16, 1999, by and
among Charter Communications, Inc., Charter Communications
Holdings LLC, Charter Communications Holding Company, LLC,
Avalon Cable Holdings LLC, Avalon Investors, L.L.C., Avalon
Cable of Michigan Holdings, Inc. and Avalon Cable LLC(6)
2.11(a) Purchase and Contribution Agreement, dated as of May 26,
1999, by and among Falcon Communications, L.P., Falcon
Holding Group, L.P., TCI Falcon Holdings, LLC, Falcon Cable
Trust, Falcon Holding Group, Inc. and DHN Inc. and Charter
Communications, Inc. (now called Charter Investment,
Inc.)(10)
2.11(b) First Amendment to Purchase and Contribution Agreement,
dated as of June 22, 1999, by and among Charter
Communications, Inc., Charter Communications Holding
Company, LLC, Falcon Communications, L.P., Falcon Holding
Group, L.P., TCI Falcon Holdings, LLC, Falcon Cable Trust,
Falcon Holding Group, Inc. and DHN Inc.(11)
2.11(c) Form of Second Amendment to Purchase And Contribution
Agreement, dated as of , 1999, by and among
Charter Investment, Inc., Charter Communications Holding
Company, LLC, Falcon Communications, L.P., Falcon Holding
Group, L.P., TCI Falcon Holdings, LLC, Falcon Holding Group,
Inc. and DHN Inc.(7)
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<S> <C>
2.11(d) Third Amendment to Purchase and Contribution Agreement dated as of November 12, 1999, by and among
Charter Communications, Inc., Falcon Communications L.P., Falcon Holdings Group, L.P., TCI Falcon
Holdings, LLC, Falcon Cable Trust, Falcon Holding Group, Inc. and DHN Inc. (12)
2.12(a) Purchase Agreement, dated as of May 21, 1999, among Blackstone TWF Capital Partners, L.P., Blackstone
TWF Capital Partners A L.P., Blackstone TWF Capital Partners B L.P., Blackstone TWF Family Investment
Partnership, L.P., RCF Carry, LLC, Fanch Management Partners, Inc., PBW Carried Interest, Inc., RCF
Indiana Management Corp, The Robert C. Fanch Revocable Trust, A. Dean Windry, Thomas Binning, Jack
Pottle, SDG/Michigan Communications Joint Venture, Fanch-JV2 Master Limited Partnership, Cooney Cable
Associates of Ohio, Limited Partnership, North Texas Cablevision, LTD., Post Cablevision of Texas,
Limited Partnership, Spring Green Communications, L.P., Fanch-Narragansett CSI Limited Partnership,
and Fanch Cablevision of Kansas General Partnership and Charter Communications, Inc. (now called
Charter Investment, Inc.)(10)
2.12(b) Assignment of Purchase Agreement by and between Charter Investment, Inc. and Charter Communications
Holding Company, LLC, effective as of September 21, 1999(6)
2.13 Purchase and Contribution Agreement, entered into as of June 1999, by and among BCI (USA), LLC,
William Bresnan, Blackstone BC Capital Partners L.P., Blackstone BC Offshore Capital Partners L.P.,
Blackstone Family Investment Partnership III L.P., TCID of Michigan, Inc. and TCI Bresnan LLC and
Charter Communications Holding Company, LLC (now called Charter Investment, Inc.)(10)
3.1 Certificate of Formation of Charter Communications Holdings, LLC(1)
3.2 Limited Liability Company Agreement of Charter Communications Holdings, LLC(1)
3.3 Certificate of Incorporation of Charter Communications Holdings Capital Corporation(1)
3.4 By-Laws of Charter Communications Holdings Capital Corporation(1)
4.1(a) Indenture relating to the 10.00% Senior notes due 2009, dated as of January 12, 2000 between Charter
Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust
and Savings Bank
4.1(b) Form of 10.00% Senior Note due 2010 (included in Exhibit No. 4.1(a))
4.1(c) Exchange and Registration Rights Agreement, dated January 12, 2000, by and among Charter
Communications Holdings, LLC, Charter Communications Holdings Capital Corporation, Goldman, Sachs &
Co., Chase Securities Inc., FleetBoston Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated, Morgan Stanley & Co. Incorporated, TD
Securities (USA) Inc., First Union Securities, Inc., PNC Capital Markets, Inc. and SunTrust Equitable
Securities Corporation, relating to the 10.00% Senior Notes due 2009
4.2(a) Indenture relating to the 10.25% Senior Notes due 2010, dated as of January 12, 2000, among Charter
Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust
and Savings Bank
4.2(b) Form of 10.25% Senior Note due 2010 (included in Exhibit No. 4.2(a))
4.2(c) Exchange and Registration Rights Agreement, dated January 12, 2000, by and among Charter
Communications Holdings, LLC, Charter Communications Holdings Capital Corporation, Goldman, Sachs &
Co., Chase Securities Inc., FleetBoston Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated, Morgan Stanley & Co. Incorporated, TD
Securities (USA) Inc., First Union Securities, Inc., PNC Capital Markets, Inc. and SunTrust Equitable
Securities Corporation, relating to the 10.25% Senior Notes due 2010
</TABLE>
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4.3(a) Indenture relating to the 11.75% Senior Discount Notes due
2010, dated as of January 12, 2000, among Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and Savings
Bank
4.3(b) Form of 11.75% Senior Discount Note due 2010 (included in
Exhibit No. 4.3(a))
4.3(c) Exchange and Registration Rights Agreement, dated January
12, 2000, by and among Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation,
Goldman, Sachs & Co., Chase Securities Inc., FleetBoston
Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated, TD
Securities (USA) Inc., First Union Securities, Inc., PNC
Capital Markets, Inc. and SunTrust Equitable Securities
Corporation, relating to the 11.75% Senior Discount Notes
due 2010
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
legality
8.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
tax matters
10.1 Credit Agreement, dated as of March 18, 1999, between
Charter Communications Operating, LLC, and certain lenders
and agents named therein(1)
10.1(a) First Amendment to Credit Agreement dated as of June 28,
1999 between Charter Communications Operating, LLC, Charter
Communications Holdings LLC and certain lenders and agents
named therein
10.1(b) Second Amendment to Credit Agreement dated as of December
14, 1999 between Charter Communications Operating, LLC,
Charter Communications Holdings LLC and certain lenders and
agents named therein
10.2 Amended and Restated Management Agreement, dated March 17,
1999, between Charter Communications Operating, LLC and
Charter Communications, Inc. (now called Charter Investment,
Inc.)(2)
10.2(a) Form of Second Amended Management Agreement, dated as of
, 1999, by and among Charter Investment,
Inc., Charter Communications, Inc. and Charter
Communications Operating, LLC(6)
10.2(b) Form of Mutual Services Agreement, dated as of
, 1999, by and between Charter
Communications, Inc. and Charter Investment, Inc.(10)
10.2(c) Form of Management Agreement, dated as of ,
1999, by and between Charter Communications Holding Company,
LLC and Charter Communications, Inc.(6)
10.3 Consulting Agreement, dated as of March 10, 1999, by and
between Vulcan Northwest Inc., Charter Communications, Inc.
(now called Charter Investment, Inc.) and Charter
Communications Holdings, LLC(2)
10.4 Charter Communications Holdings, LLC 1999 Option Plan(2)
10.4(a) Form of Amendment No. 1 to the Charter Communications
Holdings, LLC 1999 Option Plan(3)
10.5 Membership Interests Purchase Agreement, dated July 22,
1999, by and between Charter Communications Holding Company,
LLC and Paul G. Allen(5)
10.6 Employment Agreement, dated as of August 28, 1998, between
Jerald L. Kent and Paul G. Allen(13)
10.9(a) Option Agreement, dated as of February 9, 1999, between
Jerald L. Kent and Charter Communications Holdings, LLC(5)
10.9(b) Amendment to the Option Agreement, dated as of August 23,
1999, between Jerald L. Kent and Charter Communications
Holding Company, LLC(5)
10.9(c) Form of Amendment to the Option Agreement, dated as of
, 1999, by and among Jerald L. Kent, Charter
Communications Holding Company, LLC and Charter
Communications, Inc.(3)
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10.10 Letter Agreement, dated as of July 22, 1999 between Charter
Communications Holding Company, LLC and Charter
Communications Holdings, LLC(12)
10.11 Assignment of Employment Agreements, dated as of December
23, 1998, between Paul G. Allen and Charter Communications,
Inc. (now called Charter Investment, Inc.)(5)
10.12 Amendment to Membership Interests Purchase Agreement, dated
as of August 10, 1999, by and among Charter Communications
Holding Company, LLC, Vulcan Cable III Inc. and Paul G.
Allen(5)
10.13 Assumption Agreement, dated as of May 25, 1999, by and
between Charter Communications Holdings, LLC and Charter
Communications Holding Company, LLC(5)
10.14 Form of Assignment and Assumption Agreement, dated as of
, 1999, by and between Charter Investment,
Inc. and Charter Communications, Inc.(10)
10.15 Form of Registration Rights Agreement, dated as of
, 1999, by and among Charter Communications,
Inc., Charter Investment, Inc., Vulcan Cable III Inc., Mr.
Paul G. Allen, Mr. Jerald L. Kent, Mr. Howard L. Wood and
Mr. Barry L. Babcock(6)
10.16 Form of Consulting Agreement, dated as of ,
1999, by and between Barry L. Babcock and Charter
Communications, Inc.(3)
10.17 Form of Termination of Employment Agreement, dated as of
October , 1999, by and between Barry L. Babcock and
Charter Investment, Inc., Charter Communications, Inc. and
Charter Communications Holding Company, LLC(19)
10.18 Form of Consulting Agreement, dated as of ,
1999, by and between Howard L. Wood and Charter
Communications, Inc.(3)
10.19 Form of Termination of Employment Agreement, dated as of
October , 1999, by and between Howard L. Wood and Charter
Investment, Inc., Communications, Inc. and Charter
Communications Holding Company, LLC.(3)
10.20(a) Note Purchase and Exchange Agreement, dated as of October
21, 1991, by and among Falcon Telecable, The Mutual Life
Insurance Company and MONY Life Insurance Company(3)
10.20(b) First Amendment to Note Purchase and Exchange Agreement,
dated as of March 29, 1993, by and among Falcon Telecable,
The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America(3)
10.20(c) Second Amendment to Note Purchase Agreement and Exchange
Agreement, dated as of June 30, 1995, by and among Falcon
Telecable, MONY Life Insurance Company of America and AUSA
Life Insurance Company, Inc.(3)
10.20(d) Third Amendment to Note Purchase and Exchange Agreement,
dated as of December 28, 1995, by and among Falcon
Telecable, AUSA Life Insurance Company, Inc. and MONY Life
Insurance Company of America(3)
10.20(e) Fourth Amendment to Note Purchase and Exchange Agreement,
dated as of July 12, 1996, by and among Falcon Telecable,
AUSA Life Insurance Company, Inc. and MONY Life Insurance
Company of America(3)
10.20(f) Note Purchase and Exchange Agreement Consent and Amendment
Agreement, dated as of June 30, 1998, by and among Falcon
Telecable, AUSA Life Insurance Company, Inc., by AUER & Co.,
its nominee, and MONY Life Insurance Company of America, by
J. ROMEO & Co., its nominee(3)
10.20(g) Note Purchase and Exchange Agreement Amendment Agreement,
dated as of September 30, 1998, by and among Falcon
Telecable, AUER & Co. and J. ROMEO & Co.(3)
10.21 Letter Agreement, dated September 21, 1999, by and among
Charter Communications, Inc., Charter Investment, Inc.,
Charter Communications Holding Company, Inc. and Vulcan
Ventures Inc.(6)
</TABLE>
II-7
<PAGE> 718
<TABLE>
<S> <C>
10.21(a) Indenture relating to the 8.250% Senior Notes due 2007,
dated as of March 17, 1999, between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank(1)
10.21(b) Indenture relating to the 8.625% Senior Notes due 2009,
dated as of March 17, 1999, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank(1)
10.21(c) Indenture relating to the 9.920% Senior Discount Notes due
2011, dated as of March 17, 1999, among Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and Savings
Bank(1)
10.21(d) Indenture, dated as of April 9, 1998, by and among
Renaissance Media (Louisiana) LLC, Renaissance Media
(Tennessee) LLC, Renaissance Media Capital Corporation,
Renaissance Media Group LLC and United States Trust Company
of New York, as trustee(14)
10.21(e) Indenture, dated January 15, 1996, by and among Rifkin
Acquisition Partners, L.L.L.P., Rifkin Acquisition Capital
Corp., as issuers, Cable Equities of Colorado Management
Corp., FNI Management Corp., Cable Equities of Colorado,
Ltd., Cable Equities, Inc. and Rifkin/ Tennessee, Ltd., as
Subsidiary Guarantors, and Marine Midland Bank, as
trustee(15)
10.22 Indenture, dated February 2, 1999, among Bresnan
Communications Group LLC, Bresnan Capital Corporation and
State Street Bank and Trust Company, as trustee, relating to
the Issuers' $170,000,000 principal amount of 8% Senior
Notes due 2009 and $275,000,000 aggregate principal amount
at maturity of 9 1/4% Senior Discount Notes due 2009(16)
10.23 Loan Agreement dated as of February 2, 1999 among Bresnan
Telecommunications Company LLC, various lending
institutions, Toronto Dominion (Texas), Inc., as the
Administrative Agent for the Lenders, with TD Securities
(USA) Inc., Chase Securities Inc., the Bank of Nova Scotia,
BNY Capital Markets, Inc. and NationsBanc Montgomery
Securities LLC, collectively, the Arranging Agents, Chase
Securities Inc., as Syndication Agent, the Bank of Nova
Scotia, the Bank of New York Company, Inc., and NationsBanc
Montgomery Securities LLC, as Documentation Agents, and TD
Securities (USA) Inc., and Chase Securities Inc., as Joint
Book Managers and Joint Lead Arrangers(16)
10.24 Indenture, dated as of December 10, 1998 by and among Avalon
Cable of Michigan, Inc., Avalon Cable of New England LLC and
Avalon Cable Finance, Inc., as issuers and The Bank of New
York, as trustee for the Notes(9)
10.25 Supplemental Indenture, dated as of March 26, 1999 by and
among Avalon Cable of New England LLC, Avalon Cable Finance,
Inc. and Avalon Cable of Michigan LLC as issuers, Avalon
Cable of Michigan, Inc., as guarantor, and The Bank of New
York, as trustee for the Notes(9)
10.26 Credit Agreement, dated as of November 15, 1999, among
Avalon Cable LLC, CC Michigan, LLC, CC New England, LLC,
several banks and other financial institutions or entities
named therein, First Union National Bank and PNC Bank,
National Association, as syndication agents, Bank of
Montreal, Chicago Branch and Mercantile Bank National
Association, as co-documentation agents, and Bank of
Montreal, as administrative agent.(18)
10.26(a) First Amendment to Credit Agreement, dated December 21,
1999, by and among CC Michigan, LLC and CC New England, LLC
as borrowers, CC V Holdings, LLC as guarantor and several
banks and other financial institutions or entities named
therein
10.27 Indenture, dated as of December 10, 1998 by and among Avalon
Cable of Michigan Holdings, Inc., Avalon Cable LLC and
Avalon Cable Holdings Finance, Inc., as issuers and The Bank
of New York, as trustee for the Notes(20)
</TABLE>
II-8
<PAGE> 719
<TABLE>
<S> <C>
10.28 Supplemental Indenture, dated as of March 26, 1999 by and among Avalon Cable of Michigan Holdings,
Inc., Avalon Cable LLC and Avalon Cable Holdings Finance, Inc., as issuers, Avalon Cable of Michigan,
Inc., as guarantor, and The Bank of New York, as trustee for the Notes(19)
10.29 Indenture, dated as of March 29, 1993, by and among Falcon Holding Group, L.P. and United States
Trust Company of New York (governing 11% Senior Subordinated Notes due 2003)(20)
10.30 Indenture, dated as of April 3, 1998, among Falcon Holding Group, L.P., Falcon Funding Corporation
and United States Trust Company of New York, as trustee(21)
10.31 Supplemental Indenture, dated as of September 30, 1998, by and among Falcon Holding Group, L.P.,
Falcon Funding Corporation, Falcon Communications, L.P. and United States Trust Company of New York,
as trustee(22)
10.32(a) Credit Agreement, dated as of June 30, 1998, among Falcon Cable Communications, LLC, certain
guarantors and lenders named therein, BankBoston, N.A., as Documentation Agent, Toronto Dominion,
Inc., as Administrative Agent, Bank of America, N.A. (formerly known as NationsBank, N.A.), as
Syndication Agent, and The Chase Manhattan Bank, as Co-Syndication Agent(23)
10.32(b) Amendment to Credit Agreement dated as of September 25, 1998 among the affiliates of Falcon Holding
Group, L.P. named therein and Bank Boston, N.A., as Document Agent(22)
10.32(c) Form of Credit Agreement, dated as of June 30, 1998, as Amended and Restated as of , 1999, among
Falcon Cable Communications, LLC, certain guarantors and lenders named therein, BankBoston, N.A., as
Documentation Agent, Toronto Dominion, Inc., as Administrative Agent, Bank of America, N.A., as
Syndication Agent, and The Chase Manhattan Bank, as Co-Syndication Agent(6)
10.33 Credit Agreement, dated as of November 12, 1999, among CC VI Holdings, LLC, CC VI Operating Company,
LLC, several banks and other financial institutions or entities named therein, Citibank, N.A. and ABN
Ambro Bank N.V., as documentation agents, Chase Securities Inc. and Banc of America Securities LLC,
as syndication agents and Toronto Dominion (Texas), Inc., as administrative agents(17)
10.34 Second Supplemental Indenture, dated as of November 12, 1999, by and among CC VII Holdings, LLC,
Falcon Funding Corp., Falcon Communications, L.P. and United States Trust Company of New York(24)
10.35 Form of Amended and Restated Limited Liability Company Agreement for Charter Communications Holding
Company, LLC(6)
10.36 Letter Agreement, dated May 25, 1999, between Charter Communications, Inc. and Marc Nathanson
12.1 Predecessor of Charter Communications Holdings, LLC Ratio of Earnings to Fixed Charges Calculation(2)
12.2 Charter Communications Holdings, LLC, Ratio of Earnings to Fixed Charges(2)
21.1 Subsidiaries of Charter Communications Holdings, LLC and Charter Communications Capital Corporation
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (contained in Exhibit No. 5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of KPMG LLP
</TABLE>
II-9
<PAGE> 720
<TABLE>
<S> <C>
23.7 Consent of PricewaterhouseCoopers LLP
23.8 Consent of PricewaterhouseCoopers LLP
23.9 Consent of Ernst & Young LLP
23.10 Consent of PricewaterhouseCoopers LLP
23.11 Consent of PricewaterhouseCoopers LLP
23.12 Consent of Greenfield, Altman, Brown, Berger & Katz, P.C.
23.13 Consent of PricewaterhouseCoopers LLP
23.14 Consent of Ernst & Young LLP
23.15 Consent of KPMG LLP
23.16 Consent of KPMG LLP
23.17 Consent of Ernst & Young LLP
23.18 Consent of Ernst & Young LLP
24.1 Power of Attorney (included in Part II to the Registration
Statement on the signature page)
25.1 Statement of Eligibility of and Qualification (Form T-1) of
Harris Trust and Savings Bank
27.1 Financial Data Schedule(25)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(1) Incorporated by reference to Amendment No. 2 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on June 22, 1999 (File
No. 333-77499).
(2) Incorporated by reference to Amendment No. 4 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on July 22, 1999 (File
No. 333-77499).
(3) Incorporated by reference to Amendment No. 4 to the registration statement
on Form S-1 of Charter Communications, Inc. filed on 11/1/99 (File No.
333-83887).
(4) Incorporated by reference to Amendment No. 3 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on July 2, 1999 (File No.
333-77499).
(5) Incorporated by reference to Amendment No. 6 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on August 27, 1999 (File
No. 333-77499).
(6) Incorporated by reference to Amendment No. 3 to the registration statement
on Form S-1 of Charter Communications, Inc. filed on 10/18/99 (File No.
333-83887).
(7) Incorporated by reference to Amendment No. 5 to the registration Statement
on Form S-1 of Charter Communications, Inc. filed on 11/4/99 (File No.
333-83887).
(8) Incorporated by reference to the report on Form 8-K of Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on January 18, 2000 (File No. 333-77499).
(9) Incorporated by reference to Amendment No. 1 to the registration statement
on Form S-4 of Avalon Cable of Michigan LLC, Avalon Cable of Michigan Inc.,
Avalon Cable of New England LLC and Avalon Cable Finance Inc. filed on May
28, 1999 (File No. 333-75453).
(10) Incorporated by reference to Amendment No. 2 to the registration statement
on Form S-1 of Charter Communications, Inc. filed on 9/28/99 (File No.
333-83887).
II-10
<PAGE> 721
(11) Incorporated by reference to the quarterly report on Form 10-Q filed by
Falcon Communications, L.P. and Falcon Funding Corporation on August 13,
1999 (File Nos. 333-60776 and 333-55755).
(12) Incorporated by reference to the report on Form 8-K of CC VII Holdings, LLC
and Falcon Funding Corporation filed on November 26, 1999 (File No.
033-60776).
(13) Incorporated by reference to Amendment No. 5 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on August 10, 1999 (File
No. 333-77499).
(14) Incorporated by reference to the registration statement on Forms S-4 and
S-1 of Renaissance Media Group LLC, Renaissance Media (Tennessee) LLC,
Renaissance Media (Louisiana) LLC and Renaissance Media Capital Corporation
filed on June 12, 1998 (File No. 333-56679).
(15) Incorporated by reference to the registration statement on Form S-1 of
Rifkin Acquisition Capital Corp. and Rifkin Acquisition Partners, L.L.L.P.
filed on April 2, 1996 (File No. 333-3084).
(16) Incorporated by reference to the registration statement on Form S-4 of
Bresnan Communications Group LLC and Bresnan Capital Corporation filed on
May 3, 1999 (File No. 333-77637).
(17) Incorporated by reference to the report on Form 8-K of Charter
Communications, Inc. filed on November 29, 1999 (File No. 333-83887).
(18) Incorporated by reference to the report on Form 8-K of Charter
Communications, Inc. filed on November 29, 1999 (File No. 333-83887).
(19) Incorporated by reference to Amendment No. 1 to the registration statement
on Form S-4 of Avalon Cable LLC, Avalon Cable Holdings Finance, Inc.,
Avalon Cable of Michigan Holdings, Inc. and Avalon Cable of Michigan, Inc.
filed on May 28, 1999 (File No. 333-75415).
(20) Incorporated by reference to the registration statement on Form S-4 of
Falcon Holding Group, L.P. filed on April 18, 1993 (File No. 33-60776).
(21) Incorporated by reference to the registration statement on Form S-4 of
Falcon Holding Group, L.P. and Falcon Funding Corporation filed on June 1,
1998 (File No. 333-55755).
(22) Incorporated by reference to the report on Form 8-K of Falcon
Communications, L.P. and Falcon Funding Corporation filed on October 9,
1998 (File No. 33-60776).
(23) Incorporated by reference to Amendment No. 1 to the registration statement
on Form S-4 of Falcon Holding Group, L.P. and Falcon Funding Corporation
filed on July 17, 1998 (File No. 333-55755).
(24) Incorporated by reference to the current report on Form 8-K of Falcon
Communications, L.P. and Falcon Funding Corporation filed on November 23,
1999 (File No. 333-60776).
(25) Incorporated by reference to the quarterly report on Form 10-Q filed by
Charter Communications Holdings, LLC on November 15, 1999 (File No.
333-77499).
FINANCIAL STATEMENT SCHEDULES
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake that:
(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed
II-11
<PAGE> 722
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 the
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) Every prospectus: (i) that is filed pursuant to the immediately
preceding paragraph or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the 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 that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrants hereby undertake 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 the request.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-12
<PAGE> 723
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Charter
Communications Holdings, LLC has duly caused this Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of St. Louis, State of Missouri on the 24th day of January, 2000.
CHARTER COMMUNICATIONS HOLDINGS, LLC:
a registrant
By: CHARTER COMMUNICATIONS HOLDING
COMPANY, LLC, its member
By: CHARTER COMMUNICATIONS, INC., its member
and manager, and the manager of Charter
Communications Holdings, LLC
By: /s/ CURTIS S. SHAW
------------------------------------------
Name: Curtis S. Shaw
Title: Senior Vice President, General
Counsel
and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Curtis S. Shaw his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this registration statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in, and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute and substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
CAPACITY WITH CHARTER COMMUNICATIONS, INC.
THE MANAGER OF
CHARTER COMMUNICATIONS HOLDINGS, LLC
AND THE MANAGER OF
CHARTER COMMUNICATIONS
HOLDING COMPANY, LLC,
THE SOLE MEMBER OF
SIGNATURE CHARTER COMMUNICATIONS HOLDINGS, LLC DATE
--------- ------------------------------------------ ----
<S> <C> <C>
/s/ WILLIAM D. SAVOY Director January 24, 2000
- ------------------------------------------
William D. Savoy
/s/ JERALD L. KENT President, Chief Executive Officer and Director January 24, 2000
- ------------------------------------------ (Principal Executive Officer)
Jerald L. Kent
</TABLE>
II-13
<PAGE> 724
<TABLE>
<CAPTION>
CAPACITY WITH CHARTER COMMUNICATIONS, INC.
THE MANAGER OF
CHARTER COMMUNICATIONS HOLDINGS, LLC
AND THE MANAGER OF
CHARTER COMMUNICATIONS
HOLDING COMPANY, LLC,
THE SOLE MEMBER OF
SIGNATURE CHARTER COMMUNICATIONS HOLDINGS, LLC DATE
--------- ------------------------------------------ ----
<S> <C> <C>
/s/ NANCY B. PERETSMAN Director January 24, 2000
- ------------------------------------------
Nancy B. Peretsman
/s/ MARC B. NATHANSON Director January 24, 2000
- ------------------------------------------
Marc B. Nathanson
/s/ RONALD L. NELSON Director January 24, 2000
- ------------------------------------------
Ronald L. Nelson
/s/ HOWARD L. WOOD Director January 24, 2000
- ------------------------------------------
Howard L. Wood
/s/ KENT D. KALKWARF Senior Vice President and Chief Financial Officer January 24, 2000
- ------------------------------------------ (Principal Financial Officer and Principal
Kent D. Kalkwarf Accounting Officer)
</TABLE>
II-14
<PAGE> 725
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Charter
Communications Holdings Capital Corporation has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Louis, State of Missouri on the 24th day of
January, 2000.
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION, a registrant
By: /s/ CURTIS S. SHAW
---------------------------------------
Name: Curtis S. Shaw
Title: Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ JERALD L. KENT President, Chief Executive Officer and Director January 24, 2000
- ------------------------------------ (Principal Executive Officer)
Jerald L. Kent
/s/ KENT D. KALKWARF Senior Vice President and Chief Financial January 24, 2000
- ------------------------------------ Officer (Principal Financial Officer and
Kent D. Kalkwarf Principal Accounting Officer)
</TABLE>
II-15
<PAGE> 726
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
1.1 Purchase Agreement, dated as of January 12, 2000 by and
among Charter Communications Holdings, LLC, Charter
Communications Capital Corporation and Goldman, Sachs & Co.,
Chase Securities Inc., FleetBoston Robertson Stephens Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, Morgan Stanley & Co.
Incorporated, TD Securities (USA) Inc., First Union
Securities, Inc., PNC Capital Markets, Inc. and SunTrust
Equitable Securities Corporation
2.1 Merger Agreement, dated March 31, 1999, by and between
Charter Communications Holdings, LLC and Marcus Cable
Holdings, LLC(1)
2.2(a) Membership Purchase Agreement, dated as of January 1, 1999,
by and between ACEC Holding Company, LLC and Charter
Communications, Inc. (now called Charter Investment,
Inc.)(2)
2.2(b) Assignment of Membership Purchase Agreement, dated as of
February 23, 1999, by and between Charter Communications,
Inc. (now called Charter Investment, Inc.) and Charter
Communications Entertainment II, LLC(2)
2.3(a) Asset Purchase Agreement, dated as of February 17, 1999,
among Greater Media, Inc., Greater Media Cablevision, Inc.
and Charter Communications, Inc. (now called Charter
Investment, Inc.)(2)
2.3(b) Assignment of Asset Purchase Agreement, dated as of February
23, 1999, by and between Charter Communications, Inc. (now
called Charter Investment, Inc.) and Charter Communications
Entertainment I, LLC(2)
2.4 Purchase Agreement, dated as of February 23, 1999, by and
among Charter Communications, Inc. (now called Charter
Investment, Inc.), Charter Communications, LLC, Renaissance
Media Holdings LLC and Renaissance Media Group LLC(2)
2.5 Purchase Agreement, dated as of March 22, 1999, among
Charter Communications, Inc. (now called Charter Investment,
Inc.), Charter Communications, LLC, Charter Helicon, LLC,
Helicon Partners I, L.P., Baum Investments, Inc. and the
limited partners of Helicon Partners I, L.P.(2)
2.6(a) Asset and Stock Purchase Agreement, dated April 20, 1999,
between Intermedia Partners of West Tennessee, L.P. and
Charter Communications, LLC(1)
2.6(b) Stock Purchase Agreement, dated April 20, 1999, between TCID
1P-V, Inc. and Charter Communications, LLC(1)
2.6(c) RMG Purchase Agreement, dated as of April 20, 1999, between
Robin Media Group, Inc., InterMedia Partners of West
Tennessee, L.P. and Charter RMG, LLC(1)
2.6(d) Asset Exchange Agreement, dated April 20, 1999, among
InterMedia Partners Southeast, Charter Communications, LLC,
Charter Communications Properties, LLC, and Marcus Cable
Associates, L.L.C.(1)
2.6(d)(i) Amendment to Asset Exchange Agreement, made as of October 1,
1999, by and among InterMedia Partners Southeast and Charter
Communications, LLC, Charter Communications Properties, LLC
and Marcus Cable Associates, L.L.C.(6)
2.6(e) Asset Exchange Agreement, dated April 20, 1999, among
InterMedia Partners, a California Limited Partnership,
Brenmor Cable Partners, L.P. and Robin Media Group, Inc.(1)
2.6(f) Common Agreement, dated April 20, 1999, between InterMedia
Partners, InterMedia Partners Southeast, InterMedia Partners
of West Tennessee, L.P., InterMedia Capital Partners IV,
L.P., InterMedia Partners IV, L.P., Brenmor Cable Partners,
L.P., TCID IP-V, Inc., Charter Communications, LLC, Charter
Communications Properties, LLC, Marcus Cable Associates,
L.L.C. and Charter RMG, LLC(4)+
</TABLE>
<PAGE> 727
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
2.7(a) Purchase and Sale Agreement, dated as of April 26, 1999, by
and among InterLink Communications Partners, LLLP, the
sellers listed therein and Charter Communications, Inc. (now
called Charter Investment, Inc.)(1)
2.7(b) Purchase and Sale Agreement, dated as of April 26, 1999, by
and among Rifkin Acquisition Partners, L.L.L.P., the sellers
listed therein and Charter Communications, Inc. (now called
Charter Investment, Inc.)(2)
2.7(c) RAP Indemnity Agreement, dated April 26, 1999, by and among
the sellers listed therein and Charter Communications, Inc.
(now called Charter Investment, Inc.)(2)
2.7(d) Assignment of Purchase Agreement with InterLink
Communications Partners, LLLP, dated as of June 30, 1999, by
and between Charter Communications, Inc. (now called Charter
Investment, Inc.) and Charter Communications Operating,
LLC(2)
2.7(e) Assignment of Purchase Agreement with Rifkin Acquisition
Partners L.L.L.P., dated as of June 30, 1999, by and between
Charter Communications, Inc. (now called Charter Investment,
Inc.) and Charter Communications Operating, LLC(2)
2.7(f) Assignment of RAP Indemnity Agreement, dated as of June 30,
1999, by and between Charter Communications, Inc. (now
called Charter Investment, Inc.) and Charter Communications
Operating, LLC(2)
2.7(g) Amendment to the Purchase Agreement with InterLink
Communications Partners, LLLP, dated June 29, 1999(5)
2.7(h) Contribution Agreement, dated as of September 14, 1999, by
and among Charter Communications Operating, LLC, Charter
Communications Holding Company, LLC, Charter Communications,
Inc., Paul G. Allen and the certain other individuals and
entities listed on the signature pages thereto(6)
2.7(i) Form of First Amendment to the Contribution Agreement dated
as of September 14, 1999, by and among Charter
Communications Operating, LLC, Charter Communications
Holding Company, LLC, Charter Communications, Inc. and Paul
G. Allen, entered into as of November , 1999.(7)
2.8 Contribution and Sale Agreement dated as of December 30,
1999, by and among Charter Communications Holding Company,
LLC, CC VII Holdings, LLC and Charter Communications VII,
LLC(8)
2.9 Contribution and Sale Agreement dated as of December 30,
1999, by and among Charter Communications Holding Company,
LLC and Charter Communications Holdings, LLC(8)
2.10(a) Securities Purchase Agreement, dated May 13, 1999, by and
between Avalon Cable Holdings LLC, Avalon Investors, L.L.C.,
Avalon Cable of Michigan Holdings, Inc. and Avalon Cable LLC
and Charter Communications Holdings LLC and Charter
Communications, Inc. (now called Charter Investment,
Inc.)(9)
2.10(b) Assignment and Contribution Agreement, entered into as of
October 11, 1999 by and between Charter Communications
Holding Company, LLC and Charter Communications, Inc.(6)
2.10(c) Assignment Agreement effective as of June 16, 1999, by and
among Charter Communications, Inc., Charter Communications
Holdings LLC, Charter Communications Holding Company, LLC,
Avalon Cable Holdings LLC, Avalon Investors, L.L.C., Avalon
Cable of Michigan Holdings, Inc. and Avalon Cable LLC(6)
2.11(a) Purchase and Contribution Agreement, dated as of May 26,
1999, by and among Falcon Communications, L.P., Falcon
Holding Group, L.P., TCI Falcon Holdings, LLC, Falcon Cable
Trust, Falcon Holding Group, Inc. and DHN Inc. and Charter
Communications, Inc. (now called Charter Investment,
Inc.)(10)
</TABLE>
<PAGE> 728
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
2.11(b) First Amendment to Purchase and Contribution Agreement,
dated as of June 22, 1999, by and among Charter
Communications, Inc., Charter Communications Holding
Company, LLC, Falcon Communications, L.P., Falcon Holding
Group, L.P., TCI Falcon Holdings, LLC, Falcon Cable Trust,
Falcon Holding Group, Inc. and DHN Inc.(11)
2.11(c) Form of Second Amendment to Purchase And Contribution
Agreement, dated as of , 1999, by and among
Charter Investment, Inc., Charter Communications Holding
Company, LLC, Falcon Communications, L.P., Falcon Holding
Group, L.P., TCI Falcon Holdings, LLC, Falcon Holding Group,
Inc. and DHN Inc.(7)
2.11(d) Third Amendment to Purchase and Contribution Agreement dated
as of November 12, 1999, by and among Charter
Communications, Inc., Falcon Communications L.P., Falcon
Holdings Group, L.P., TCI Falcon Holdings, LLC, Falcon Cable
Trust, Falcon Holding Group, Inc. and DHN Inc. (12)
2.12(a) Purchase Agreement, dated as of May 21, 1999, among
Blackstone TWF Capital Partners, L.P., Blackstone TWF
Capital Partners A L.P., Blackstone TWF Capital Partners B
L.P., Blackstone TWF Family Investment Partnership, L.P.,
RCF Carry, LLC, Fanch Management Partners, Inc., PBW Carried
Interest, Inc., RCF Indiana Management Corp, The Robert C.
Fanch Revocable Trust, A. Dean Windry, Thomas Binning, Jack
Pottle, SDG/Michigan Communications Joint Venture, Fanch-JV2
Master Limited Partnership, Cooney Cable Associates of Ohio,
Limited Partnership, North Texas Cablevision, LTD., Post
Cablevision of Texas, Limited Partnership, Spring Green
Communications, L.P., Fanch-Narragansett CSI Limited
Partnership, and Fanch Cablevision of Kansas General
Partnership and Charter Communications, Inc. (now called
Charter Investment, Inc.)(10)
2.12(b) Assignment of Purchase Agreement by and between Charter
Investment, Inc. and Charter Communications Holding Company,
LLC, effective as of September 21, 1999(6)
2.13 Purchase and Contribution Agreement, entered into as of June
1999, by and among BCI (USA), LLC, William Bresnan,
Blackstone BC Capital Partners L.P., Blackstone BC Offshore
Capital Partners L.P., Blackstone Family Investment
Partnership III L.P., TCID of Michigan, Inc. and TCI Bresnan
LLC and Charter Communications Holding Company, LLC (now
called Charter Investment, Inc.)(10)
3.1 Certificate of Formation of Charter Communications Holdings,
LLC(1)
3.2 Limited Liability Company Agreement of Charter
Communications Holdings, LLC(1)
3.3 Certificate of Incorporation of Charter Communications
Holdings Capital Corporation(1)
3.4 By-Laws of Charter Communications Holdings Capital
Corporation(1)
4.1(a) Indenture relating to the 10.00% Senior notes due 2009,
dated as of January 12, 2000 between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank
4.1(b) Form of 10.00% Senior Note due 2010 (included in Exhibit No.
4.1(a))
4.1(c) Exchange and Registration Rights Agreement, dated January
12, 2000, by and among Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation,
Goldman, Sachs & Co., Chase Securities Inc., FleetBoston
Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated,
Morgan Stanley & Co. Incorporated, TD Securities (USA) Inc.,
First Union Securities, Inc., PNC Capital Markets, Inc. and
SunTrust Equitable Securities Corporation, relating to the
10.00% Senior Notes due 2009
4.2(a) Indenture relating to the 10.25% Senior Notes due 2010,
dated as of January 12, 2000, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank
4.2(b) Form of 10.25% Senior Note due 2010 (included in Exhibit No.
4.2(a))
</TABLE>
<PAGE> 729
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
4.2(c) Exchange and Registration Rights Agreement, dated January
12, 2000, by and among Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation,
Goldman, Sachs & Co., Chase Securities Inc., FleetBoston
Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated,
Morgan Stanley & Co. Incorporated, TD Securities (USA) Inc.,
First Union Securities, Inc., PNC Capital Markets, Inc. and
SunTrust Equitable Securities Corporation, relating to the
10.25% Senior Notes due 2010
4.3(a) Indenture relating to the 11.75% Senior Discount Notes due
2010, dated as of January 12, 2000, among Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and Savings
Bank
4.3(b) Form of 11.75% Senior Discount Note due 2010 (included in
Exhibit No. 4.3(a))
4.3(c) Exchange and Registration Rights Agreement, dated January
12, 2000, by and among Charter Communications Holdings, LLC,
Charter Communications Holdings Capital Corporation,
Goldman, Sachs & Co., Chase Securities Inc., FleetBoston
Robertson Stephens Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated, TD
Securities (USA) Inc., First Union Securities, Inc., PNC
Capital Markets, Inc. and SunTrust Equitable Securities
Corporation, relating to the 11.75% Senior Discount Notes
due 2010
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
legality
8.1 Opinion of Paul, Hastings, Janofsky & Walker LLP regarding
tax matters
10.1 Credit Agreement, dated as of March 18, 1999, between
Charter Communications Operating, LLC, and certain lenders
and agents named therein(1)
10.1(a) First Amendment to Credit Agreement dated as of June 28,
1999 between Charter Communications Operating, LLC, Charter
Communications Holdings LLC and certain lenders and agents
named therein
10.1(b) Second Amendment to Credit Agreement dated as of December
14, 1999 between Charter Communications Operating, LLC,
Charter Communications Holdings LLC and certain lenders and
agents named therein
10.2 Amended and Restated Management Agreement, dated March 17,
1999, between Charter Communications Operating, LLC and
Charter Communications, Inc. (now called Charter Investment,
Inc.)(2)
10.2(a) Form of Second Amended Management Agreement, dated as of
, 1999, by and among Charter Investment,
Inc., Charter Communications, Inc. and Charter
Communications Operating, LLC(6)
10.2(b) Form of Mutual Services Agreement, dated as of
, 1999, by and between Charter
Communications, Inc. and Charter Investment, Inc.(10)
10.2(c) Form of Management Agreement, dated as of ,
1999, by and between Charter Communications Holding Company,
LLC and Charter Communications, Inc.(6)
10.3 Consulting Agreement, dated as of March 10, 1999, by and
between Vulcan Northwest Inc., Charter Communications, Inc.
(now called Charter Investment, Inc.) and Charter
Communications Holdings, LLC(2)
10.4 Charter Communications Holdings, LLC 1999 Option Plan(2)
10.4(a) Form of Amendment No. 1 to the Charter Communications
Holdings, LLC 1999 Option Plan(3)
10.5 Membership Interests Purchase Agreement, dated July 22,
1999, by and between Charter Communications Holding Company,
LLC and Paul G. Allen(5)
</TABLE>
<PAGE> 730
<TABLE>
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EXHIBIT DESCRIPTION
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<S> <C>
10.6 Employment Agreement, dated as of August 28, 1998, between
Jerald L. Kent and Paul G. Allen(13)
10.9(a) Option Agreement, dated as of February 9, 1999, between
Jerald L. Kent and Charter Communications Holdings, LLC(5)
10.9(b) Amendment to the Option Agreement, dated as of August 23,
1999, between Jerald L. Kent and Charter Communications
Holding Company, LLC(5)
10.9(c) Form of Amendment to the Option Agreement, dated as of
, 1999, by and among Jerald L. Kent, Charter
Communications Holding Company, LLC and Charter
Communications, Inc.(3)
10.10 Letter Agreement, dated as of July 22, 1999 between Charter
Communications Holding Company, LLC and Charter
Communications Holdings, LLC(12)
10.11 Assignment of Employment Agreements, dated as of December
23, 1998, between Paul G. Allen and Charter Communications,
Inc. (now called Charter Investment, Inc.)(5)
10.12 Amendment to Membership Interests Purchase Agreement, dated
as of August 10, 1999, by and among Charter Communications
Holding Company, LLC, Vulcan Cable III Inc. and Paul G.
Allen(5)
10.13 Assumption Agreement, dated as of May 25, 1999, by and
between Charter Communications Holdings, LLC and Charter
Communications Holding Company, LLC(5)
10.14 Form of Assignment and Assumption Agreement, dated as of
, 1999, by and between Charter Investment,
Inc. and Charter Communications, Inc.(10)
10.15 Form of Registration Rights Agreement, dated as of
, 1999, by and among Charter Communications,
Inc., Charter Investment, Inc., Vulcan Cable III Inc., Mr.
Paul G. Allen, Mr. Jerald L. Kent, Mr. Howard L. Wood and
Mr. Barry L. Babcock(6)
10.16 Form of Consulting Agreement, dated as of ,
1999, by and between Barry L. Babcock and Charter
Communications, Inc.(3)
10.17 Form of Termination of Employment Agreement, dated as of
October , 1999, by and between Barry L. Babcock and
Charter Investment, Inc., Charter Communications, Inc. and
Charter Communications Holding Company, LLC(19)
10.18 Form of Consulting Agreement, dated as of ,
1999, by and between Howard L. Wood and Charter
Communications, Inc.(3)
10.19 Form of Termination of Employment Agreement, dated as of
October , 1999, by and between Howard L. Wood and Charter
Investment, Inc., Charter Communications, Inc. and Charter
Communications Holding Company, LLC.(3)
10.20(a) Note Purchase and Exchange Agreement, dated as of October
21, 1991, by and among Falcon Telecable, The Mutual Life
Insurance Company and MONY Life Insurance Company(3)
10.20(b) First Amendment to Note Purchase and Exchange Agreement,
dated as of March 29, 1993, by and among Falcon Telecable,
The Mutual Life Insurance Company of New York and MONY Life
Insurance Company of America(3)
10.20(c) Second Amendment to Note Purchase Agreement and Exchange
Agreement, dated as of June 30, 1995, by and among Falcon
Telecable, MONY Life Insurance Company of America and AUSA
Life Insurance Company, Inc.(3)
10.20(d) Third Amendment to Note Purchase and Exchange Agreement,
dated as of December 28, 1995, by and among Falcon
Telecable, AUSA Life Insurance Company, Inc. and MONY Life
Insurance Company of America(3)
10.20(e) Fourth Amendment to Note Purchase and Exchange Agreement,
dated as of July 12, 1996, by and among Falcon Telecable,
AUSA Life Insurance Company, Inc. and MONY Life Insurance
Company of America(3)
</TABLE>
<PAGE> 731
<TABLE>
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<S> <C>
10.20(f) Note Purchase and Exchange Agreement Consent and Amendment
Agreement, dated as of June 30, 1998, by and among Falcon
Telecable, AUSA Life Insurance Company, Inc., by AUER & Co.,
its nominee, and MONY Life Insurance Company of America, by
J. ROMEO & Co., its nominee(3)
10.20(g) Note Purchase and Exchange Agreement Amendment Agreement,
dated as of September 30, 1998, by and among Falcon
Telecable, AUER & Co. and J. ROMEO & Co.(3)
10.21 Letter Agreement, dated September 21, 1999, by and among
Charter Communications, Inc., Charter Investment, Inc.,
Charter Communications Holding Company, Inc. and Vulcan
Ventures Inc.(6)
10.21(a) Indenture relating to the 8.250% Senior Notes due 2007,
dated as of March 17, 1999, between Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank(1)
10.21(b) Indenture relating to the 8.625% Senior Notes due 2009,
dated as of March 17, 1999, among Charter Communications
Holdings, LLC, Charter Communications Holdings Capital
Corporation and Harris Trust and Savings Bank(1)
10.21(c) Indenture relating to the 9.920% Senior Discount Notes due
2011, dated as of March 17, 1999, among Charter
Communications Holdings, LLC, Charter Communications
Holdings Capital Corporation and Harris Trust and Savings
Bank(1)
10.21(d) Indenture, dated as of April 9, 1998, by and among
Renaissance Media (Louisiana) LLC, Renaissance Media
(Tennessee) LLC, Renaissance Media Capital Corporation,
Renaissance Media Group LLC and United States Trust Company
of New York, as trustee(14)
10.21(e) Indenture, dated January 15, 1996, by and among Rifkin
Acquisition Partners, L.L.L.P., Rifkin Acquisition Capital
Corp., as issuers, Cable Equities of Colorado Management
Corp., FNI Management Corp., Cable Equities of Colorado,
Ltd., Cable Equities, Inc. and Rifkin/ Tennessee, Ltd., as
Subsidiary Guarantors, and Marine Midland Bank, as
trustee(15)
10.22 Indenture, dated February 2, 1999, among Bresnan
Communications Group LLC, Bresnan Capital Corporation and
State Street Bank and Trust Company, as trustee, relating to
the Issuers' $170,000,000 principal amount of 8% Senior
Notes due 2009 and $275,000,000 aggregate principal amount
at maturity of 9 1/4% Senior Discount Notes due 2009(16)
10.23 Loan Agreement dated as of February 2, 1999 among Bresnan
Telecommunications Company LLC, various lending
institutions, Toronto Dominion (Texas), Inc., as the
Administrative Agent for the Lenders, with TD Securities
(USA) Inc., Chase Securities Inc., the Bank of Nova Scotia,
BNY Capital Markets, Inc. and NationsBanc Montgomery
Securities LLC, collectively, the Arranging Agents, Chase
Securities Inc., as Syndication Agent, the Bank of Nova
Scotia, the Bank of New York Company, Inc., and NationsBanc
Montgomery Securities LLC, as Documentation Agents, and TD
Securities (USA) Inc., and Chase Securities Inc., as Joint
Book Managers and Joint Lead Arrangers(16)
10.24 Indenture, dated as of December 10, 1998 by and among Avalon
Cable of Michigan, Inc., Avalon Cable of New England LLC and
Avalon Cable Finance, Inc., as issuers and The Bank of New
York, as trustee for the Notes(9)
10.25 Supplemental Indenture, dated as of March 26, 1999 by and
among Avalon Cable of New England LLC, Avalon Cable Finance,
Inc. and Avalon Cable of Michigan LLC as issuers, Avalon
Cable of Michigan, Inc., as guarantor, and The Bank of New
York, as trustee for the Notes(9)
10.26 Credit Agreement, dated as of November 15, 1999, among
Avalon Cable LLC, CC Michigan, LLC, CC New England, LLC,
several banks and other financial institutions or entities
named therein, First Union National Bank and PNC Bank,
National Association, as syndication agents, Bank of
Montreal, Chicago Branch and Mercantile Bank National
Association, as co-documentation agents, and Bank of
Montreal, as administrative agent.(18)
</TABLE>
<PAGE> 732
<TABLE>
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EXHIBIT DESCRIPTION
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<S> <C>
10.26(a) First Amendment to Credit Agreement, dated December 21,
1999, by and among CC Michigan, LLC and CC New England, LLC
as borrowers, CCV Holdings, LLC as guarantor and several
banks and other financial institutions or entities named
therein
10.27 Indenture, dated as of December 10, 1998 by and among Avalon
Cable of Michigan Holdings, Inc., Avalon Cable LLC and
Avalon Cable Holdings Finance, Inc., as issuers and The Bank
of New York, as trustee for the Notes(20)
10.28 Supplemental Indenture, dated as of March 26, 1999 by and
among Avalon Cable of Michigan Holdings, Inc., Avalon Cable
LLC and Avalon Cable Holdings Finance, Inc., as issuers,
Avalon Cable of Michigan, Inc., as guarantor, and The Bank
of New York, as trustee for the Notes(19)
10.29 Indenture, dated as of March 29, 1993, by and among Falcon
Holding Group, L.P. and United States Trust Company of New
York (governing 11% Senior Subordinated Notes due 2003)(20)
10.30 Indenture, dated as of April 3, 1998, among Falcon Holding
Group, L.P., Falcon Funding Corporation and United States
Trust Company of New York, as trustee(21)
10.31 Supplemental Indenture, dated as of September 30, 1998, by
and among Falcon Holding Group, L.P., Falcon Funding
Corporation, Falcon Communications, L.P. and United States
Trust Company of New York, as trustee(22)
10.32(a) Credit Agreement, dated as of June 30, 1998, among Falcon
Cable Communications, LLC, certain guarantors and lenders
named therein, BankBoston, N.A., as Documentation Agent,
Toronto Dominion, Inc., as Administrative Agent, Bank of
America, N.A. (formerly known as NationsBank, N.A.), as
Syndication Agent, and The Chase Manhattan Bank, as Co-
Syndication Agent(23)
10.32(b) Amendment to Credit Agreement dated as of September 25, 1998
among the affiliates of Falcon Holding Group, L.P. named
therein and Bank Boston, N.A., as Document Agent(22)
10.32(c) Form of Credit Agreement, dated as of June 30, 1998, as
Amended and Restated as of , 1999, among Falcon Cable
Communications, LLC, certain guarantors and lenders named
therein, BankBoston, N.A., as Documentation Agent, Toronto
Dominion, Inc., as Administrative Agent, Bank of America,
N.A., as Syndication Agent, and The Chase Manhattan Bank, as
Co-Syndication Agent(6)
10.33 Credit Agreement, dated as of November 12, 1999, among CC VI
Holdings, LLC, CC VI Operating Company, LLC, several banks
and other financial institutions or entities named therein,
Citibank, N.A. and ABN Ambro Bank N.V., as documentation
agents, Chase Securities Inc. and Banc of America Securities
LLC, as syndication agents and Toronto Dominion (Texas),
Inc., as administrative agents.(17)
10.34 Second Supplemental Indenture, dated as of November 12,
1999, by and among CC VII Holdings, LLC, Falcon Funding
Corp., Falcon Communications, L.P. and United States Trust
Company of New York(24)
10.35 Form of Amended and Restated Limited Liability Company
Agreement for Charter Communications Holding Company, LLC(6)
10.36 Letter Agreement, dated May 25, 1999, between Charter
Communications, Inc. and Marc Nathanson
12.1 Predecessor of Charter Communications Holdings, LLC Ratio of
Earnings to Fixed Charges Calculation(2)
12.2 Charter Communications Holdings, LLC, Ratio of Earnings to
Fixed Charges(2)
21.1 Subsidiaries of Charter Communications Holdings, LLC and
Charter Communications Capital Corporation
</TABLE>
<PAGE> 733
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (contained
in Exhibit No. 5.1)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of KPMG LLP
23.7 Consent of PricewaterhouseCoopers LLP
23.8 Consent of PricewaterhouseCoopers LLP
23.9 Consent of Ernst & Young LLP
23.10 Consent of PricewaterhouseCoopers LLP
23.11 Consent of PricewaterhouseCoopers LLP
23.12 Consent of Greenfield, Altman, Brown, Berger & Katz, P.C.
23.13 Consent of PricewaterhouseCoopers LLP
23.14 Consent of Ernst & Young LLP
23.15 Consent of KPMG LLP
23.16 Consent of KPMG LLP
23.17 Consent of Ernst & Young LLP
23.18 Consent of Ernst & Young LLP
24.1 Power of Attorney (included in Part II to the Registration
Statement on the signature page)
25.1 Statement of Eligibility of and Qualification (Form T-1) of
Harris Trust and Savings Bank
27.1 Financial Data Schedule(25)
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
(1) Incorporated by reference to Amendment No. 2 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on June 22, 1999 (File
No. 333-77499).
(2) Incorporated by reference to Amendment No. 4 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on July 22, 1999 (File
No. 333-77499).
(3) Incorporated by reference to Amendment No. 4 to the registration statement
on Form S-1 of Charter Communications, Inc. filed on 11/1/99 (File No.
333-83887).
(4) Incorporated by reference to Amendment No. 3 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on July 2, 1999 (File No.
333-77499).
(5) Incorporated by reference to Amendment No. 6 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on August 27, 1999 (File
No. 333-77499).
(6) Incorporated by reference to Amendment No. 3 to the registration statement
on Form S-1 of Charter Communications, Inc. filed on 10/18/99 (File No.
333-83887).
(7) Incorporated by reference to Amendment No. 5 to the registration Statement
on Form S-1 of Charter Communications, Inc. filed on 11/4/99 (File No.
333-83887).
<PAGE> 734
(8) Incorporated by reference to the report on Form 8-K of Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation filed on January 18, 2000 (File No. 333-77499).
(9) Incorporated by reference to Amendment No. 1 to the registration statement
on Form S-4 of Avalon Cable of Michigan LLC, Avalon Cable of Michigan Inc.,
Avalon Cable of New England LLC and Avalon Cable Finance Inc. filed on May
28, 1999 (File No. 333-75453).
(10) Incorporated by reference to Amendment No. 2 to the registration statement
on Form S-1 of Charter Communications, Inc. filed on 9/28/99 (File No.
333-83887).
(11) Incorporated by reference to the quarterly report on Form 10-Q filed by
Falcon Communications, L.P. and Falcon Funding Corporation on August 13,
1999 (File Nos. 333-60776 and 333-55755).
(12) Incorporated by reference to the report on Form 8-K of CC VII Holdings, LLC
and Falcon Funding Corporation filed on November 26, 1999 (File No.
033-60776).
(13) Incorporated by reference to Amendment No. 5 to the registration statement
on Form S-4 of Charter Communications Holdings, LLC and Charter
Communications Holdings Capital Corporation filed on August 10, 1999 (File
No. 333-77499).
(14) Incorporated by reference to the registration statement on Forms S-4 and
S-1 of Renaissance Media Group LLC, Renaissance Media (Tennessee) LLC,
Renaissance Media (Louisiana) LLC and Renaissance Media Capital Corporation
filed on June 12, 1998 (File No. 333-56679).
(15) Incorporated by reference to the registration statement on Form S-1 of
Rifkin Acquisition Capital Corp. and Rifkin Acquisition Partners, L.L.L.P.
filed on April 2, 1996 (File No. 333-3084).
(16) Incorporated by reference to the registration statement on Form S-4 of
Bresnan Communications Group LLC and Bresnan Capital Corporation filed on
May 3, 1999 (File No. 333-77637).
(17) Incorporated by reference to the report on Form 8-K of Charter
Communications, Inc. filed on November 29, 1999 (File No. 333-83887).
(18) Incorporated by reference to the report on Form 8-K of Charter
Communications, Inc. filed on November 29, 1999 (File No. 333-83887).
(19) Incorporated by reference to Amendment No. 1 to the registration statement
on Form S-4 of Avalon Cable LLC, Avalon Cable Holdings Finance, Inc.,
Avalon Cable of Michigan Holdings, Inc. and Avalon Cable of Michigan, Inc.
filed on May 28, 1999 (File No. 333-75415).
(20) Incorporated by reference to the registration statement on Form S-4 of
Falcon Holding Group, L.P. filed on April 18, 1993 (File No. 33-60776).
(21) Incorporated by reference to the registration statement on Form S-4 of
Falcon Holding Group, L.P. and Falcon Funding Corporation filed on June 1,
1998 (File No. 333-55755).
(22) Incorporated by reference to the report on Form 8-K of Falcon
Communications, L.P. and Falcon Funding Corporation filed on October 9,
1998 (File No. 33-60776).
(23) Incorporated by reference to Amendment No. 1 to the registration statement
on Form S-4 of Falcon Holding Group, L.P. and Falcon Funding Corporation
filed on July 17, 1998 (File No. 333-55755).
(24) Incorporated by reference to the current report on Form 8-K of Falcon
Communications, L.P. and Falcon Funding corporation file on November 23,
1999 (File No. 333-60776).
(25) Incorporated by reference to the quarterly report on Form 10-Q filed by
Charter Communications Holdings, LLC on November 15, 1999 (File No.
333-77499)
<PAGE> 1
Exhibit 1.1
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
$675,000,000 10.00% SENIOR NOTES DUE 2009
$325,000,000 10.25% SENIOR NOTES DUE 2010
$532,000,000 11.75% SENIOR DISCOUNT NOTES DUE 2010
PURCHASE AGREEMENT
January 6, 2000
Goldman, Sachs & Co.
Chase Securities Inc.
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
First Union Securities, Inc.
PNC Capital Markets, Inc.
SunTrust Equitable Securities Corporation
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Charter Communications Holdings, LLC, a Delaware limited
liability company (the "Company"), and Charter Communications Holdings Capital
Corporation, a Delaware corporation ("Charter Capital" and, together with the
Company, the "Issuers"), propose, subject to the terms and conditions stated
herein, to issue and sell to the Purchasers named in Schedule I hereto (the
"Purchasers") (i) an aggregate of $675,000,000 principal amount of 10.00%
Senior Notes due 2009 (the "Nine-Year Senior Notes"), (ii) an aggregate of
$325,000,000 principal amount of 10.25% Senior Notes due 2010 (the "Ten-Year
Senior Notes" and, together with the Nine-Year Senior Notes, the "Senior
Notes") and (iii) an aggregate of $532,000,000 principal amount at maturity
($300,303,360 gross proceeds) of 11.75% Senior Discount Notes due 2010
<PAGE> 2
(the "Senior Discount Notes" and, together with the Senior Notes, the
"Securities").
<PAGE> 3
1. The Issuers represent and warrant to, and agree with,
each of the Purchasers that:
(a) A preliminary offering circular, dated December 27, 1999
(the "Preliminary Offering Circular") and an offering circular, dated
January 6, 2000 (the "Offering Circular"), in each case including the
international supplement thereto, have been prepared in connection with
the offering of the Securities. The Preliminary Offering Circular or
the Offering Circular and any amendments or supplements thereto did not
and will not, as of their respective dates, contain an untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Issuers by a Purchaser through Goldman,
Sachs & Co. expressly for use therein;
(b) None of the Issuers or any of their subsidiaries has
sustained since the date of the latest audited financial statements
included in the Offering Circular any material loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Offering Circular; and, since the respective dates as of which
information is given in the Offering Circular, there has not been any
change in the capital stock or limited liability company interests or
long-term debt of the Issuers or any of their subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, members' or stockholders' equity, or
results of operations of the Issuers and their subsidiaries, otherwise
than as set forth or contemplated in the Offering Circular;
(c) Each of the Issuers and their subsidiaries has good and
marketable title in fee simple to all real property and good and valid
title to all personal property owned by it reflected as owned in the
financial statements or elsewhere in the Offering Circular, in each
case free and clear of all liens, encumbrances and defects except such
as are described in the Offering Circular or such as do not materially
affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Issuers and their
subsidiaries; and any real property and buildings held under lease by
the Issuers and their subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Issuers and their subsidiaries;
(d) The Company has been duly formed and is validly existing
as a limited liability company in good standing under the laws of the
State of Delaware, and Charter
<PAGE> 4
Capital has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware;
each of the Issuers has power and authority to own its properties and
conduct its business as described in the Offering Circular and to
execute, deliver and perform its obligations under this Agreement, and
has been duly qualified as a foreign corporation or limited liability
company, as the case may be, for the transaction of business and is in
good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require
such qualification, and is not subject to liability or disability by
reason of the failure to be so qualified in any such jurisdiction,
except such as would not, individually or in the aggregate, have a
material adverse effect on the current or future financial position,
members' or stockholders' equity or results of operations of the
Issuers and their subsidiaries taken as a whole (a "Material Adverse
Effect"); each "significant subsidiary" (as such term is defined in
Rule 1-02 of Regulation S-X) of the Company (each a "Significant
Subsidiary") has been duly incorporated or formed, as the case may be,
and is validly existing as a corporation or limited liability company,
as the case may be, in good standing under the laws of its jurisdiction
of incorporation or formation; and Charter Capital has no subsidiaries;
(e) All of the outstanding ownership interests of the Issuers
have been duly and validly authorized and issued and are fully paid and
non-assessable; and all of the outstanding capital stock or limited
liability company interests, as the case may be, of Charter Capital and
each Significant Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and (except as
otherwise set forth in the Offering Circular) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(f) The Nine-Year Senior Notes have been duly authorized and,
when executed by the Issuers and authenticated by the Trustee (as
defined) in accordance with the provisions of the Nine-Year Senior Note
Indenture (as defined) and when delivered to, and paid for, by the
Purchasers in accordance with the terms of this Agreement, will have
been duly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of the Issuers
entitled to the benefits provided by the indenture to be dated as of
January 12, 2000 (the "Nine-Year Senior Note Indenture") between the
Issuers and Harris Trust and Savings Bank, as trustee (the "Trustee"),
under which they are to be issued and enforceable against the Issuers
in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles;
(g) The Ten-Year Senior Notes have been duly authorized and,
when executed by the Issuers and authenticated by the Trustee in
accordance with the provisions of the Ten-Year Senior Note Indenture
(as defined) and when delivered to, and paid for, by the
<PAGE> 5
Purchasers in accordance with the terms of this Agreement, will have
been duly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of the Issuers
entitled to the benefits provided by the indenture to be dated as of
January 12, 2000 (the "Ten-Year Senior Note Indenture" and, together
with the Nine-Year Senior Note Indenture, the "Senior Note Indentures")
between the Issuers and the Trustee, under which they are to be issued
and enforceable against the Issuers in accordance with their terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(h) The Senior Discount Notes have been duly authorized and,
when executed by the Issuers and authenticated by the Trustee in
accordance with the provisions of the Senior Discount Note Indenture
(as defined) and when delivered to, and paid for, by the Purchasers in
accordance with the terms of this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute valid
and legally binding obligations of the Issuers entitled to the benefits
provided by the indenture to be dated as of January 12, 2000 (the
"Senior Discount Note Indenture" and, together with the Senior Note
Indentures, the "Indentures") between the Issuers and the Trustee,
under which they are to be issued and enforceable against the Issuers
in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; and the Securities will conform to the descriptions
thereof in the Offering Circular and will be in substantially the form
previously delivered to you;
(i) The Indentures have been duly authorized and, when
executed and delivered by the Issuers (and assuming the due execution
and delivery thereof by the Trustee), the Indentures will constitute
valid and legally binding instruments, enforceable against the Issuers
in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; the Indentures meet the requirements for
qualification under the United States Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"); and the Indentures will conform in
all material respects to the descriptions thereof in the Offering
Circular;
(j) The exchange and registration rights agreements to be
entered into between the Issuers and the Purchasers relating to the
Securities, substantially in the form of Exhibits A, B and C hereto
(the "Registration Rights Agreements"), have been duly authorized by
the Issuers, and when executed and delivered by the Issuers (assuming
the due execution and delivery thereof by the Purchasers), will
constitute valid and legally binding instruments, enforceable against
the Issuers in accordance with their terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
<PAGE> 6
reorganization and other laws of general applicability relating to
creditors' rights and (ii) general principles of equity, and (B) any
rights to indemnity or contribution thereunder may be limited by
federal and state securities laws and public policy considerations; and
the Registration Rights Agreements will conform in all material
respects to the descriptions thereof in the Offering Circular;
(k) The Exchange Notes (as defined in each of the
Registration Rights Agreements) have been duly authorized by the
Issuers and, when executed, authenticated, issued and delivered in
accordance with the Indentures and the Registration Rights Agreements
(assuming the due authorization, execution and delivery of the
Indentures by the Trustee), will constitute valid and legally binding
instruments, entitled to the benefits provided by the Indentures under
which they are to be issued, and enforceable against the Issuers in
accordance with their terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Exchange Notes will conform in all material
respects to the descriptions thereof in the Offering Circular;
(l) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale
of the Securities) will violate or result in a violation of Section 7
of the Securities Exchange Act of 1934 (the "Exchange Act"), or any
regulation promulgated thereunder, including, without limitation,
Regulations T, U, and X of the Board of Governors of the Federal
Reserve System;
(m) Prior to the date hereof, none of the Issuers or any of
their affiliates has taken any action which is designed to or which has
constituted or which might have been expected to cause or result in
stabilization or manipulation of the price of any security of the
Issuers in connection with the offering of the Securities;
(n) The issue and sale of the Securities and the compliance
by the Issuers with all of the provisions of the Securities, the
Indentures, the Registration Rights Agreements and this Agreement and
the consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, lease, license, franchise
agreement, permit or other agreement or instrument to which the Issuers
or any of their subsidiaries is a party or by which the Issuers or any
of their subsidiaries is bound or to which any of the property or
assets of the Issuers or any of their subsidiaries is subject, nor will
such action result in any violation of any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Issuers, any of the Issuers' subsidiaries or any
of their properties, including, without limitation, the Communications
Act of 1934, as amended, the Cable Communications Policy Act of 1984,
as amended, the Cable Television Consumer Protection and Competition
Act of 1992, as amended, and the Telecommunications Act
<PAGE> 7
of 1996 (collectively, the "Cable Acts") or any order, rule or
regulation of the Federal Communications Commission (the "FCC"), except
where such conflicts, breaches, violations or defaults would not,
individually and in the aggregate, have a Material Adverse Effect and
would not have the effect of preventing the Issuers from performing any
of their respective obligations under this Agreement; nor will such
action result in any violation of the certificate of formation or
limited liability company agreement of the Company or the certificate
of incorporation or bylaws of Charter Capital; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required,
including, without limitation, under the Cable Acts or any order, rule
or regulation of the FCC, for the issue and sale of the Securities or
the consummation by the Issuers of the transactions contemplated by
this Agreement, the Indentures or the Registration Rights Agreements,
except such consents, approvals, authorizations, registrations or
qualifications as have been made or except as may be required under
state or foreign securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Purchasers and
except such as will be made in the case of the Registration Rights
Agreements or such as may be required by the National Association of
Securities Dealers, Inc. ("NASD");
(o) None of the Issuers or any of their subsidiaries is (i)
in violation of its certificate of incorporation, bylaws, certificate
of formation, limited liability company agreement or other
organizational document, as the case may be, (ii) in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease, license, permit or other agreement or instrument to
which it is a party or by which it or any of its properties may be
bound or (iii) in violation of the terms of any franchise agreement, or
any law, statute, rule or regulation or any judgment, decree or order,
in any such case, of any court or governmental or regulatory agency or
other body having jurisdiction over the Issuers, any of the Issuers'
subsidiaries or any of their properties or assets, including, without
limitation, the Cable Acts or any order, rule or regulation of the FCC,
except, in the case of clauses (ii) and (iii), such as would not,
individually and in the aggregate, have a Material Adverse Effect;
(p) The statements set forth in the Offering Circular under
the captions "Description of Notes," insofar as they purport to
constitute a summary of the terms of the Securities, under the captions
"Risk Factors," "Business," "Regulation and Legislation," "Management,"
"Certain Relationships and Related Transactions" and "Certain United
States Federal Tax Considerations," insofar as they purport to describe
the provisions of the laws, documents and arrangements referred to
therein, are accurate in all material respects;
(q) Other than as set forth in the Offering Circular, there
are no legal or governmental proceedings (including, without
limitation, by the FCC or any franchising
<PAGE> 8
authority) pending to which the Issuers or any of their subsidiaries is
a party or of which any property of the Issuers or any of their
subsidiaries is the subject which, if determined adversely to the
Issuers or any of their subsidiaries, would, individually or in the
aggregate, have a Material Adverse Effect; and, to the best knowledge
of the Issuers and except as disclosed in the Offering Circular, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(r) Each of the Issuers and their subsidiaries carries
insurance (including self-insurance) in such amounts and covering such
risks as in the reasonable determination of the Issuers is adequate for
the conduct of its business and the value of its properties;
(s) Except as set forth in the Offering Circular, there is no
strike, labor dispute, slowdown or work stoppage with the employees of
any of the Issuers or their subsidiaries which is pending or, to the
best knowledge of the Issuers, threatened which would, individually or
in the aggregate, have a Material Adverse Effect;
(t) When the Securities are issued and delivered pursuant to
this Agreement, the Securities will not be of the same class (within
the meaning of Rule 144A under the United States Securities Act of
1933, as amended, (the "Act") as securities which are listed on a
national securities exchange registered under section 6 of the Exchange
Act or quoted in a U.S. automated inter-dealer quotation system.
(u) The Issuers are subject to Section 15(d) of the Exchange
Act;
(v) Neither Issuer is, or after giving effect to the offering
and sale of the Securities will be, an "investment company" or any
entity "controlled" by an "investment company" as such terms are
defined in the U.S. Investment Company Act of 1940, as amended (the
"Investment Company Act");
(w) None of the Issuers or any of their subsidiaries, or any
person acting on their behalf (other than the Purchasers, as to whom
the Issuers and their subsidiaries make no representation) has offered
or sold the Securities by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Act or, with
respect to Securities sold outside the United States to non-U.S.
persons (as defined in Rule 902 under the Act), by means of any
directed selling efforts within the meaning of Rule 902 under the Act
and the Issuers, any affiliate of the Issuers and any person acting on
their behalf (other than the Purchasers, as to whom the Issuers and
their affiliates make no representation) has complied with and will
implement the "offering restriction" within the meaning of such Rule
902;
(x) Within the preceding six months, none of the Issuers or
any other person acting on behalf of the Issuers has offered or sold to
any person any Securities, or any
<PAGE> 9
securities of the same or a similar class as the Securities, other than
Securities offered or sold to the Purchasers hereunder. The Issuers
will take reasonable precautions designed to insure that any offer or
sale, direct or indirect, in the United States or to any U.S. person
(as defined in Rule 902 under the Act) of any Securities or any
substantially similar security issued by the Issuers, within six months
subsequent to the date on which the distribution of the Securities has
been completed (as notified to the Issuers by Goldman, Sachs & Co.), is
made under restrictions and other circumstances reasonably designed not
to affect the status of the offer and sale of the Securities in the
United States and to U.S. persons contemplated by this Agreement as
transactions exempt from the registration provisions of the Act;
(y) The audited consolidated financial statements (including
the notes thereto) included in the Offering Circular present fairly in
all material respects the respective consolidated financial positions,
results of operations and cash flows of the entities to which they
relate at the dates and for the periods to which they relate and have
been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") applied on a consistent basis. The summary and
selected financial data in the Offering Circular present fairly in all
material respects the information shown therein and have been prepared
and compiled on a basis consistent with the audited financial
statements included therein;
(z) The pro forma financial statements (including the notes
thereto) and the other pro forma financial information included in the
Offering Circular (i) comply as to form in all material respects with
the applicable requirements of Regulation S-X for Form S-1 promulgated
under the Exchange Act, and (ii) have been properly computed on the
bases described therein; the assumptions used in the preparation of the
pro forma financial data and other pro forma financial information
included in the Offering Circular are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein;
(aa) Each of the following firms are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder, based upon representations by such firms to us:
(i) Arthur Andersen LLP, who have certified certain financial
statements of the Company, CCA Group, CharterComm Holdings, L.P., Long
Beach Acquisition Corp., Sonic Communications Cable Television Systems
and Greater Media Cablevision Systems; (ii) KPMG LLP, who have
certified certain financial statements of Marcus Cable Company, L.L.C.,
Helicon Partners I L.P. and affiliates, TCI Falcon Systems and Bresnan
Communications Group Systems; (iii) Ernst & Young LLP, who have
certified certain financial statements of Renaissance Media Group LLC,
the combined statements of the Picayune MS, Lafourche LA, St. Tammany
LA, St. Landry LA, Point Coupee LA and Jackson TN cable television
systems, R/N South Florida
<PAGE> 10
Management Limited Partnership, Indiana Cable Associates, Ltd., Falcon
Communications, L.P. and Fanch Cable Systems (comprised of components
of TWFanch-one Co. And TWFanch-two Co.); and (iv)
PriceWaterhouseCoopers, who have certified certain financial statements
of InterMedia Cable Systems, Rifkin Acquisition Partners L.L.L.P.,
Rifkin Cable Income Partners LP, Avalon Cable LLC, Avalon Cable of
Michigan Holdings, Cable Michigan, Inc., Amrac Clear View, a Limited
Partnership, Pegasus Cable Television of Connecticut, Inc. and the
Massachusetts operations of Pegasus Cable Television, Inc;
(ab) The Issuers have reviewed their operations and those of
their subsidiaries to evaluate the extent to which the business or
operations of the Issuers or any of their subsidiaries will be affected
by the Year 2000 Problem. As a result of such review, except as
disclosed in the Offering Circular the Issuers have no reason to
believe that the Year 2000 Problem will have a Material Adverse Effect
or result in any material loss or interference with the business or
operations of the Issuers or their subsidiaries. The "Year 2000
Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization
of data or in the operation of mechanical or electrical systems of any
kind will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000;
(ac) The Issuers and their subsidiaries own or possess, or can
acquire on reasonable terms, adequate licenses, trademarks, service
marks, trade names and copyrights (collectively, "Intellectual
Property") necessary to conduct the business now or proposed to be
operated by each of them as described in the Offering Circular, except
where the failure to own, possess or have the ability to acquire any
Intellectual Property would not, individually and in the aggregate,
have a Material Adverse Effect; and none of the Issuers or any of their
subsidiaries has received any notice of infringement of or conflict
with (and none actually knows of any such infringement of or conflict
with) asserted rights of others with respect to any Intellectual
Property which, if any such assertion of infringement or conflict were
sustained would, individually or in the aggregate, have a Material
Adverse Effect;
(ad) Except as described in the Offering Circular, the Issuers
and their subsidiaries have obtained all consents, approvals, orders,
certificates, licenses, permits, franchises and other authorizations of
and from, and have made all declarations and filings with, all
governmental and regulatory authorities (including, without limitation,
the FCC), all self-regulatory organizations and all courts and other
tribunals legally necessary to own, lease, license and use their
respective properties and assets and to conduct their respective
businesses in the manner described in the Offering Circular, except to
the extent that the failure to so obtain or file would not,
individually or in the aggregate, have a Material
<PAGE> 11
Adverse Effect;
(ae) The Issuers and their subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns required to
be filed as of the date hereof, except where the failure to so file
such returns would not, individually and in the aggregate, have a
Material Adverse Effect, and have paid all taxes shown as due thereon;
and there is no tax deficiency that has been asserted against the
Issuers or any of their subsidiaries that could reasonably be expected
to result, individually or in the aggregate, in a Material Adverse
Effect;
(af) The Issuers and their subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences;
(ag) Each of the franchises held by the Issuers and their
subsidiaries that are material to the Issuers and their subsidiaries,
taken as a whole, is in full force and effect, with no material
restrictions or qualifications; and to the best knowledge of the
Issuers, no event has occurred which permits, or with notice or lapse
of time or both would permit, the revocation or non-renewal of any such
franchises, assuming the filing of timely renewal applications and the
timely payment of all applicable filing and regulatory fees to the
applicable franchising authority, or which might result, individually
or in the aggregate, in any other material impairment of the rights of
the Issuers and their subsidiaries in the franchises. Except as
described in the Offering Circular, the Issuers have no reason to
believe that any franchise that is required for the operation of the
Issuers and their subsidiaries will not be renewed in the ordinary
course;
(ah) The Issuers and their subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, individually and in the aggregate,
have a Material Adverse Effect;
<PAGE> 12
(ai) The Avalon Transfer, the Falcon Transfer and the Fanch
Transfer (each as defined in the Offering Circular) have occurred; and
(aj) To the best knowledge of the Issuers, the representations
and warranties with respect to the matters covered in paragraphs (b),
(o) (other than clause (i) thereof), (q), (r), (s), (ab), (ac), (ad),
(ag) and (ah) of this Section 1 are true and correct with respect to
each of the cable systems or the companies owning the cable systems, as
the case may be, being acquired in the pending acquisitions described in
"Business--Acquisitions" in the Offering Circular (each such cable
system or company being deemed to be a subsidiary of the Company for
purposes of such representations and warranties).
2. (a) Subject to the terms and conditions herein set forth,
the Issuers agree to issue and sell to each of the Purchasers, and each of the
Purchasers agrees, severally and not jointly, to purchase from the Issuers, at
a purchase price of 98% of the principal amount thereof, plus accrued interest,
if any, from January 12, 2000 to the Time of Delivery hereunder, the principal
amount of Nine-Year Senior Notes set forth opposite the name of such Purchaser
in Schedule I hereto.
(b) Subject to the terms and conditions herein set forth, the
Issuers agree to issue and sell to each of the Purchasers, and each of the
Purchasers agrees, severally and not jointly, to purchase from the Issuers, at
a purchase price of 98% of the principal amount thereof, plus accrued interest,
if any, from January 12, 2000 to the Time of Delivery hereunder, the principal
amount of Ten-Year Senior Notes set forth opposite the name of such Purchaser
in Schedule I hereto.
(c) Subject to the terms and conditions herein set forth, the
Issuers agree to issue and sell to each of the Purchasers, and each of the
Purchasers agrees, severally and not jointly, to purchase from the Issuers, at
a purchase price of 55.178% of the principal amount at maturity thereof, plus
accretion, if any, from January 12, 2000 to the Time of Delivery hereunder, the
principal amount at maturity of Senior Discount Notes set forth opposite the
name of such Purchaser in Schedule I hereto.
3. Upon the authorization by you of the release of the
Securities, the several Purchasers propose to offer the Securities for sale
upon the terms and conditions set forth in this Agreement and the Offering
Circular and each Purchaser hereby represents and warrants to, and agrees with
the Issuers that:
(a) It will offer and sell the Securities only: (i) to
persons who it reasonably believes are "qualified institutional buyers"
("QIBs") within the meaning of Rule 144A under the Act in transactions
meeting the requirements of Rule 144A or (ii) upon the
<PAGE> 13
terms and conditions set forth in Annex I to this Agreement;
(b) It is a QIB; and
(c) It has not offered and will not offer or sell the
Securities by any form of general solicitation or general
advertising, including but not limited to the methods described
in Rule 502(c) under the Act.
4. (a) The Securities to be purchased by each Purchaser
hereunder will be represented by definitive global Securities in book-entry
form which will be deposited by or on behalf of the Issuers with The Depository
Trust Company ("DTC") or its designated custodian. The Issuers will deliver the
Securities to Goldman, Sachs & Co., for the account of each Purchaser, against
payment by or on behalf of such Purchaser of the purchase price therefor by
wire transfer of same day funds wired in accordance with the written
instructions of the Company, by causing DTC to credit the Securities to the
account of Goldman, Sachs & Co. at DTC. The Issuers will cause the certificates
representing the Securities to be made available to Goldman, Sachs & Co. for
checking at least twenty-four hours prior to the Time of Delivery (as defined
below) at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be 9:30 a.m.,
New York City time, on January 12, 2000 or such other time and date as Goldman,
Sachs & Co. and the Issuers may agree upon in writing. Such time and date are
herein called the "Time of Delivery."
(b) The documents to be delivered at the Time of Delivery by
or on behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Securities and any additional documents requested by the
Purchasers pursuant to Section 7(j) hereof, will be delivered at such time and
date at the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New
York 10022 or such other location as the parties mutually agree (the "Closing
Location"), and the Securities will be delivered at the Designated Office, all
at the Time of Delivery. A meeting will be held at the Closing Location at 3
p.m., New York City time, on the New York Business Day next preceding the Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by
law or executive order to close.
5. Each of the Issuers agrees with each of the Purchasers:
(a) To prepare the Offering Circular in a form approved by
you; to make no amendment or any supplement to the Offering Circular
which shall be disapproved by you promptly after reasonable notice
thereof; and to furnish you with copies thereof;
(b) Promptly from time to time to take such action as you may
reasonably
<PAGE> 14
request to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Securities, provided that in
connection therewith the Issuers shall not be required to qualify as a
foreign corporation or limited liability company, as the case may be,
or to file a general consent to service of process in any jurisdiction;
(c) To furnish the Purchasers with copies of the Offering
Circular and each amendment or supplement thereto signed by an
authorized officer of each of the Issuers with the independent
accountants' report(s) in the Offering Circular, and any amendment or
supplement containing amendments to the financial statements covered by
such report(s), signed by the accountants, and additional copies
thereof in such quantities as you may from time to time reasonably
request, and if, at any time prior to the expiration of nine months
after the date of the Offering Circular, any event shall have occurred
as a result of which the Offering Circular as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Offering Circular is delivered, not misleading, or,
if for any other reason it shall be necessary or desirable during such
same period to amend or supplement the Offering Circular, to notify you
and upon your request to prepare and furnish without charge to each
Purchaser and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Offering Circular or
a supplement to the Offering Circular which will correct such statement
or omission or effect such compliance;
(d) During the period beginning from the date hereof and
continuing until the date six months after the Time of Delivery, not to
offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Issuers that are
substantially similar to the Securities;
(e) Not to be or become, at any time prior to the expiration
of two years after the Time of Delivery, an open-end investment
company, unit investment trust, closed-end investment company or
face-amount certificate company that is or is required to be registered
under Section 8 of the Investment Company Act;
(f) At any time when any Issuer is not subject to Section 13
or 15(d) of the Exchange Act, for the benefit of holders from time to
time of Securities, to furnish at its expense, upon request, to holders
of Securities and prospective purchasers of securities information (the
"Additional Issuer Information") satisfying the requirements of
subsection (d)(4)(i) of Rule 144A under the Act;
<PAGE> 15
(g) To use its best efforts to cause the Securities to be
eligible for the PORTAL trading system of the NASD;
(h) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, members' or
stockholders' equity and cash flows of the Issuers and their
consolidated subsidiaries certified by independent public accountants)
and, as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending
after the date of the Offering Circular), to make available to holders
of the Securities consolidated summary financial information of the
Issuers and their subsidiaries for such quarter in reasonable detail;
(i) During a period of three years from the date of the
Offering Circular, to furnish to you copies of all reports or other
communications (financial or other) furnished to holders of ownership
interests of the Issuers or Charter Communications, Inc., and to
deliver to you as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
securities exchange on which the Securities or any class of securities
of the Issuers or Charter Communications, Inc. is listed;
(j) During the period of two years after the Time of
Delivery, the Issuers will not, and will not permit any of their
"affiliates" (as defined in Rule 144 under the Act) to, resell any of
the Securities which constitute "restricted securities" under Rule 144
that have been reacquired by any of them;
(k) To use the net proceeds received from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Offering Circular under the caption "Use of Proceeds"; and
(l) To use their best efforts to consummate the Bresnan
Acquisition and the Bresnan Transfer (each as defined in the Offering
Circular).
6. Each of the Issuers covenants and agrees with the several
Purchasers that the Issuers will pay or cause to be paid the following: (i) the
fees, disbursements and expenses of the Issuers' counsel and accountants in
connection with the issue of the Securities and all other expenses in
connection with the preparation, printing and filing of the Preliminary
Offering Circular and the Offering Circular and any amendments and supplements
thereto and the mailing and delivering of copies thereof to the Purchasers and
dealers; (ii) the cost of printing or producing any Agreement among Purchasers,
this Agreement, the Indentures, the Registration Rights Agreements, the Blue
Sky and Legal Investment Memoranda, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
<PAGE> 16
purchase, sale and delivery of the Securities; (iii) all expenses in connection
with the qualification of the Securities for offering and sale under state
securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Purchasers in connection with such
qualification and in connection with the Blue Sky and legal investment surveys;
(iv) any fees charged by securities rating services for rating the Securities;
(v) the cost of preparing the Securities; (vi) the fees and expenses of the
Trustee and any agent of the Trustee and the fees and disbursements of counsel
for the Trustee in connection with the Indentures and the Securities; (vii) any
cost incurred in connection with the designation of the Securities for trading
in PORTAL; and (viii) all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise specifically provided for
in this Section. It is understood, however, that, except as provided in this
Section, and Sections 8 and 11 hereof, the Purchasers will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes on
resale of any of the Securities by them, and any advertising expenses connected
with any offers they may make.
7. The obligations of the Purchasers hereunder shall be
subject, in their discretion, to the condition that all representations and
warranties and other statements of the Issuers herein are, at and as of the
Time of Delivery, true and correct, the condition that the Issuers shall have
performed all of their obligations hereunder theretofore to be performed, and
the following additional conditions:
(a) Debevoise & Plimpton, counsel for the Purchasers, shall
have furnished to you such opinion or opinions, dated the Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii),
(iv), (v), (vi), (vii), (viii), (xii) (as to the Securities) and (xiii)
and the last paragraph of subsection (b) below as well as such other
related matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(b) Paul, Hastings, Janofsky & Walker LLP, counsel for the
Issuers, shall have furnished to you their written opinion, dated the
Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) The Company has been duly formed and is validly
existing as a limited liability company in good standing under
the laws of the State of Delaware, and Charter Capital has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware; each of
the Issuers has power and authority (corporate or other) to own
or lease its properties and conduct its business as described in
the Offering Circular and to execute, deliver and perform its
obligations under this Agreement;
(ii) All of the issued and outstanding limited
liability company interests of the Company have been duly and
validly authorized and issued and
<PAGE> 17
are fully paid and non-assessable; and all of the issued shares
of capital stock of Charter Capital have been duly and validly
authorized and issued and are fully paid and non-assessable;
(iii) To the best of such counsel's knowledge and other
than as set forth in the Offering Circular, there are no legal
or governmental proceedings pending to which the Issuers or any
of their subsidiaries is a party or of which any property of the
Issuers or any of their subsidiaries is the subject which are
likely to have, individually or in the aggregate, a Material
Adverse Effect; and, to the best of such counsel's knowledge and
other than as set forth in the Offering Circular, no such
proceedings are overtly threatened by governmental authorities
or by others;
(iv) This Agreement has been duly authorized, executed
and delivered by each of the Issuers;
(v) The Securities have been duly authorized by the
Issuers, and, when executed and authenticated in accordance with
the provisions of the Indentures and delivered to and paid for
by the Purchasers in accordance with the terms of this
Agreement, will be valid and legally binding obligations of the
Issuers, entitled to the benefits provided by the Indentures and
enforceable against the Issuers in accordance with their terms,
subject, as to enforcement, to applicable bankruptcy,
reorganization, insolvency or other similar laws affecting
creditors' rights generally and to general equity principles;
(vi) The Indentures have been duly authorized, executed
and delivered by the Issuers and (assuming the due execution and
delivery thereof by the Trustee) constitute valid and legally
binding instruments, enforceable against the Issuers in
accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(vii) The Registration Rights Agreements have been duly
authorized, executed and delivered by the Issuers and (assuming
the due execution and delivery thereof by the Purchasers)
constitute valid and legally binding instruments, enforceable
against the Issuers in accordance with their terms, except that
(A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization and other laws of general
applicability relating to creditors' rights and (ii) general
principles of equity, and (B) any rights to indemnity or
contribution thereunder may be limited by federal and state
securities laws and public policy considerations;
(viii) The Exchange Notes have been duly authorized by
the Issuers and, when executed, authenticated, issued and
delivered in accordance with the
<PAGE> 18
Indentures and the Registration Rights Agreements (assuming the
due authorization, execution and delivery of the Indentures by
the Trustee), will constitute valid and legally binding
instruments, entitled to the benefits provided by the Indentures
under which they are to be issued, and enforceable against the
Issuers in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(ix) The Securities, the Exchange Notes, the Indentures
and the Registration Rights Agreements conform in all material
respects to the descriptions thereof in the Offering Circular;
(x) The issue and sale of the Securities and the
compliance by the Issuers with all of the provisions of the
Securities, the Indentures, the Registration Rights Agreements
and this Agreement and the consummation of the transactions
herein and therein contemplated will not, to the best of such
counsel's knowledge, result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease,
license, permit or other agreement or instruments specifically
identified to such counsel by the Issuers as material to the
Issuers on a schedule, nor will any such action result in any
violation of the provisions of the certificate of incorporation
or by-laws, or certificate of formation or limited liability
company agreement, as the case may be, of the Issuers or any
Federal or New York State statute or any order, rule or
regulation of any Federal or New York State court or
governmental agency or body having jurisdiction over the
Issuers, the subsidiaries of the Issuers or any of their
properties;
(xi) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body referred to in paragraph (x) is
required for the issue and sale of the Securities or the
consummation by the Issuers of the transactions contemplated by
this Agreement, the Indentures or the Registration Rights
Agreements, except such consents, approvals, authorizations,
registrations or qualifications as have been obtained or as may
be required under state or foreign securities or Blue Sky laws
in connection with the purchase and distribution of the
Securities by the Purchasers;
(xii) The statements set forth in the Offering Circular
under the caption "Description of Notes," insofar as they
purport to constitute a summary of the terms of the Securities,
and under the captions "Description of Certain Indebtedness" and
"Certain United States Federal Tax Considerations," insofar as
they purport to describe the provisions of the laws and
documents referred to
<PAGE> 19
therein, fairly summarize the provisions of any such laws and
documents in all material respects;
(xiii) Assuming the accuracy of the representations and
warranties of the Issuers contained in Sections 1(w) and (x) of
this Agreement and the representations and warranties of the
Purchasers contained in Section 3 of this Agreement, no
registration of the Securities under the Act, and no
qualification of an indenture under the Trust Indenture Act with
respect thereto, is required for the offer, sale and initial
resale of the Securities by the Purchasers in the manner
contemplated by this Agreement; and
(xiv) Neither of the Issuers is an "investment company"
or an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act.
Such counsel shall also state as follows: We have not
independently verified the accuracy, completeness or fairness of the
statements made or included in the Offering Circular, except as
described in specified paragraphs of the opinion. However, in
connection with the preparation by the Company of the Offering
Circular, we participated in various discussions and meetings with the
Purchasers' representatives, officers and other representatives of the
Company, and representatives of the Company's independent public
accountants at which the contents of the Offering Circular were
discussed. No information has come to our attention which causes us to
conclude that the Offering Circular contained as of its date or
contains as of the Time of Delivery an untrue statement of a material
fact or omitted or omits, as the case may be, to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except, that
we express no view as to financial statements and notes thereto and
other financial information included therein).
(c) Cole, Raywid & Braverman, L.L.P., special regulatory
counsel to the Issuers, shall have furnished to you their written
opinion, dated the Time of Delivery, in form and substance reasonably
satisfactory to you, to the effect that:
(i) The issue and sale of the Securities and the
compliance by the Issuers with all of the provisions of the
Securities, the Indentures, the Registration Rights Agreements
and this Agreement and the consummation of the transactions
herein and therein contemplated do not and will not contravene
the Cable Acts or any order, rule or regulation of the FCC to
which the Issuers or any of their subsidiaries or any of their
property is subject;
(ii) To the best of such counsel's knowledge, no
consent, approval, authorization or order of, or registration,
qualification or filing with the FCC is
<PAGE> 20
required under the Cable Acts or any order, rule or regulation
of the FCC in connection with the issue and sale of the
Securities and the compliance by the Issuers with all of the
provisions of the Securities, the Indentures, the Registration
Rights Agreements and this Agreement and the consummation of the
transactions herein and therein contemplated;
(iii) The statements set forth in the Offering Circular
under the captions "Risk Factors" under the subheading
"Regulatory and Legislative Matters" and in "Regulation and
Legislation," insofar as they constitute summaries of laws
referred to therein, concerning the Cable Acts and the published
rules, regulations and policies promulgated by the FCC
thereunder, fairly summarize the matters described therein;
(iv) To the knowledge of such counsel based solely upon
its review of publicly available records of the FCC and
operational information provided by the Company's and its
subsidiaries' management, the Company and its subsidiaries hold
all FCC licenses for cable antenna relay services necessary to
conduct the business of the Company and its subsidiaries as
currently conducted, except to the extent the failure to hold
such FCC licenses would not, individually and in the aggregate,
be reasonably expected to have a Material Adverse Effect; and
(v) Except as disclosed in the Offering Circular and
except with respect to rate regulation matters, and general
rulemakings and similar matters relating generally to the cable
television industry, to such counsel's knowledge, based solely
upon its review of the publicly available records of the FCC and
upon inquiry of the Company's and its subsidiaries' management,
during the time the cable systems of the Company and its
subsidiaries have been owned by the Company and its subsidiaries
(A) there has been no adverse FCC judgment, order or decree
issued by the FCC relating to the ongoing operations of any of
the Company or one of its subsidiaries that has had or could
reasonably be expected to have a Material Adverse Effect; and
(B) there are no actions, suits, proceedings, inquiries or
investigations by or before the FCC pending or threatened in
writing against or specifically affecting the Company or any of
its subsidiaries or any cable system of the Company or any of
its subsidiaries which could, individually or in the aggregate,
be reasonably expected to result in a Material Adverse Effect;
(d) Curtis Shaw, Esq., General Counsel of the Company, shall
have furnished to you his written opinion, dated the Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) Each subsidiary of the Company listed on a
schedule attached to such counsel's opinion (the "Charter
Subsidiaries") has been duly incorporated or
<PAGE> 21
formed, as the case may be, and is validly existing as a
corporation or limited liability company, as the case may be, in
good standing under the laws of its jurisdiction of
incorporation or formation; and all of the issued shares of
capital stock or limited liability company interests, as the
case may be, of each Charter Subsidiary have been duly and
validly authorized and issued and, assuming receipt of requisite
consideration therefor, are fully paid and non-assessable;
(ii) Each of the Issuers and the Charter Subsidiaries
has been duly qualified as a foreign corporation or limited
liability company, as the case may be, for the transaction of
business and is in good standing under the laws of each
jurisdiction set forth in a schedule to such counsel's opinion;
(iii) To the best of such counsel's knowledge and other
than as set forth in the Offering Circular, there are no legal
or governmental proceedings pending to which the Issuers or any
of their subsidiaries is party or of which any property of the
Issuers or any of their subsidiaries is the subject which are
likely to have, individually or in the aggregate, a Material
Adverse Effect; and, to the best of such counsel's knowledge and
other than as set forth in the Offering Circular, no such
proceedings are overtly threatened by governmental authorities
or by others; and
(e) On the date of the Offering Circular prior to the
execution of this Agreement and also at the Time of Delivery, each of
Arthur Andersen LLP, KPMG LLP, Ernst & Young LLP and
PriceWaterhouseCoopers LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you;
(f) (i) None of the Issuers or any of their subsidiaries
shall have sustained since the date of the latest audited financial
statements included in the Offering Circular any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Offering Circular, and (ii) since the respective dates as of which
information is given in the Offering Circular there shall not have been
any change in the capital stock, limited liability company interests or
long-term debt of the Issuers or any of their subsidiaries or any
change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' or members' equity, or results of operations of the
Issuers and their subsidiaries, otherwise than as set forth or
contemplated in the Offering Circular, the effect of which, in any such
case described in clause (i) or (ii), is in the judgment of the
Purchasers so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities on the terms and in the manner
<PAGE> 22
contemplated in this Agreement and in the Offering Circular;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the debt securities of either of the
Issuers by any "nationally recognized statistical rating organization,"
as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Act, and (ii) no such organization shall have
publicly announced that it has under surveillance or review, with
possible negative implications, its rating of any of the debt
securities of either of the Issuers;
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange or on
the Nasdaq National Market; (ii) a suspension or material limitation in
trading in Charter Communications, Inc.'s Class A common stock on the
Nasdaq National Market, (iii) a general moratorium on commercial
banking activities declared by either Federal or New York State
authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of
a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Purchasers makes it
impracticable or inadvisable to proceed with the offering or the
delivery of the Securities on the terms and in the manner contemplated
in the Offering Circular;
(i) The Securities have been designated for trading on
PORTAL;
(j) The Issuers shall have furnished or caused to be
furnished to you at the Time of Delivery certificates of officers of
each Issuer satisfactory to you as to the accuracy of the
representations and warranties of the Issuers herein at and as of such
Time of Delivery, as to the performance by the Issuers of all of their
obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (f) and (g) of
this Section and as to such other matters as you may reasonably
request.
8. (a) The Issuers, jointly and severally, will indemnify
and hold harmless each Purchaser against any losses, claims, damages or
liabilities, joint or several, to which such Purchaser may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Offering Circular or the Offering Circular, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein not misleading, and will reimburse each Purchaser for any legal or
other expenses reasonably incurred by such Purchaser in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Issuers shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises
<PAGE> 23
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Offering Circular or the
Offering Circular or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Issuers by any Purchaser
through Goldman, Sachs & Co. expressly for use therein.
(b) The Purchasers, severally and not jointly, will indemnify
and hold harmless the Issuers against any losses, claims, damages or
liabilities to which the Issuers may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Offering Circular or the Offering Circular, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Offering Circular or the Offering Circular or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Issuers by such Purchaser through Goldman, Sachs &
Co. expressly for use therein; and will reimburse the Issuers for any legal or
other expenses reasonably incurred by the Issuers in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. Any
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties. The Issuers shall not be required to
indemnify the Purchasers for any amounts paid or payable by the Purchasers in
the settlement of any action, proceeding or investigation without the written
consent of the Company, which consent shall not be unreasonably withheld. No
indemnifying party shall, without the written consent of the indemnified party,
effect the settlement or compromise of, or consent to the entry
<PAGE> 24
of any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out
of such action or claim and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act, by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Issuers on the one hand and the
Purchasers on the other from the offering of the Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Issuers on the one hand and the Purchasers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Issuers on the one hand and the Purchasers on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Issuers bear to the total underwriting
discounts and commissions received by the Purchasers, in each case as set forth
in the Offering Circular. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuers on the one hand or the
Purchasers on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Issuers and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation (even if the Purchasers were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Purchaser shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities
underwritten by it and distributed to investors were offered to investors
exceeds the amount of any damages which such Purchaser has otherwise been
required to pay by reason of such untrue
<PAGE> 25
or alleged untrue statement or omission or alleged omission. The Purchasers'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Issuers under this Section 8 shall
be in addition to any liability which the Issuers may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Purchaser within the meaning of the Act; and the obligations of
the Purchasers under this Section 8 shall be in addition to any liability which
the respective Purchasers may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Issuers and to each
person, if any, who controls the Issuers within the meaning of the Act.
9. (a) If any Purchaser shall default in its obligation to
purchase the Securities which it has agreed to purchase hereunder, you may in
your discretion arrange for you or another party or other parties to purchase
such Securities on the terms contained herein. If within thirty-six hours after
such default by any Purchaser you do not arrange for the purchase of such
Securities, then the Issuers shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Securities on such terms. In the event
that, within the respective prescribed periods, you notify the Issuers that you
have so arranged for the purchase of such Securities, or the Issuers notify you
that they have so arranged for the purchase of such Securities, you or the
Issuers shall have the right to postpone the Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Offering Circular, or in any other documents or
arrangements, and the Issuers agree to prepare promptly any amendments to the
Offering Circular which in your opinion may thereby be made necessary. The term
"Purchaser" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Securities.
(b) If, after giving effect to any arrangements for the
purchase of the Securities of a defaulting Purchaser or Purchasers by you and
the Issuers as provided in subsection (a) above, the aggregate principal amount
of such Securities which remains unpurchased does not exceed one-tenth of the
aggregate principal amount of all the Securities, then the Issuers shall have
the right to require each non-defaulting Purchaser to purchase the principal
amount of Securities which such Purchaser agreed to purchase hereunder and, in
addition, to require each non-defaulting Purchaser to purchase its pro rata
share (based on the principal amount of Securities which such Purchaser agreed
to purchase hereunder) of the Securities of such defaulting Purchaser or
Purchasers for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Purchaser from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Securities of a defaulting Purchaser or Purchasers by you and
the Issuers as provided in subsection (a) above, the aggregate principal amount
of Securities which remains unpurchased
<PAGE> 26
exceeds one-tenth of the aggregate principal amount of all the Securities, or
if the Issuers shall not exercise the right described in subsection (b) above
to require non-defaulting Purchasers to purchase Securities of a defaulting
Purchaser or Purchasers, then this Agreement shall thereupon terminate, without
liability on the part of any non-defaulting Purchaser or the Issuers, except
for the expenses to be borne by the Issuers and the Purchasers as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Purchaser from liability
for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Issuers and the several Purchasers, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or on
behalf of any Purchaser or any controlling person of any Purchaser, or the
Issuers, or any officer or director or controlling person of the Issuers, and
shall survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section
9 hereof, the Issuers shall not then be under any liability to any Purchaser
except as provided in Sections 6 and 8 hereof; but, if for any other reason
other than a termination pursuant to Section 7(h), the Securities are not
delivered by or on behalf of the Issuers as provided herein, the Issuers will
reimburse the Purchasers through you for all out-of-pocket expenses approved in
writing by you, including fees and disbursements of counsel, reasonably
incurred by the Purchasers in making preparations for the purchase, sale and
delivery of the Securities, but the Issuers shall then be under no further
liability to any Purchaser except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of
each of the Purchasers, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Purchaser made or given by you jointly or by Goldman, Sachs & Co. on behalf of
you as Purchasers.
All statements, requests, notices and agreements hereunder shall
be in writing, and if to the Purchasers shall be delivered or sent by mail,
telex or facsimile transmission to you as Purchasers in care of Goldman, Sachs
& Co., 32 Old Slip, 9th Floor, New York, New York 10005, Attention:
Registration Department; and if to the Issuers shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Issuers set forth
in the Offering Circular, Attention: Secretary; provided, however, that any
notice to a Purchaser pursuant to Section 8(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Purchaser at its address
set forth in its Purchasers' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Issuers by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to
the benefit of,
<PAGE> 27
the Purchasers, the Issuers, and, to the extent provided in Sections 8 and 10
hereof, the officers and directors of the Issuers and the Purchasers and each
person who controls the Issuers or any Purchaser, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Securities from any Purchaser shall be deemed a successor or assign
by reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES THEREOF.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such respective counterparts shall together constitute
one and the same instrument.
<PAGE> 28
If the foregoing is in accordance with your understanding,
please sign and return to us counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Purchasers, this letter and such
acceptance hereof shall constitute a binding agreement between each of the
Purchasers and the Issuers. It is understood that your acceptance of this
letter on behalf of each of the Purchasers is pursuant to the authority set
forth in a form of Agreement among Purchasers, the form of which shall be
submitted to the Issuers for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
Charter Communications Holdings, LLC
By:/s/Curtis S. Shaw
---------------------------------
Name: Curtis S. Shaw
Title: Senior Vice President, General Counsel and
Secretary
Charter Communications Holdings Capital Corporation
By:/s/Curtis S. Shaw
---------------------------------
Name: Curtis S. Shaw
Title: Senior Vice President, General Counsel and
Secretary
Accepted as of the date hereof:
Goldman, Sachs & Co.
Chase Securities Inc.
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
First Union Securities, Inc.
PNC Capital Markets, Inc.
SunTrust Equitable Securities Corporation
By: /s/ Goldman, Sachs & Co.
--------------------------------------
(Goldman, Sachs & Co.)
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NINE-YEAR SENIOR NOTES
PURCHASER TO BE PURCHASED
- --------- ----------------------
<S> <C>
Goldman, Sachs & Co. $347,625,000
Chase Securities Inc. 118,125,000
Credit Suisse First Boston Corporation 33,750,000
FleetBoston Robertson Stephens Inc. 33,750,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 33,750,000
Morgan Stanley & Co. Incorporated 33,750,000
TD Securities (USA) Inc. 33,750,000
First Union Securities, Inc. 13,500,000
PNC Capital Markets, Inc. 13,500,000
SunTrust Equitable Securities Corporation 13,500,000
------------
Total $675,000,000
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
TEN-YEAR SENIOR NOTES
PURCHASER TO BE PURCHASED
- --------- --------------------
<S> <C>
Goldman, Sachs & Co. $167,375,000
Chase Securities Inc. 56,875,000
Credit Suisse First Boston Corporation 16,250,000
FleetBoston Robertson Stephens Inc. 16,250,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 16,250,000
Morgan Stanley & Co. Incorporated 16,250,000
TD Securities (USA) Inc. 16,250,000
First Union Securities, Inc. 6,500,000
PNC Capital Markets, Inc. 6,500,000
SunTrust Equitable Securities Corporation 6,500,000
------------
Total $325,000,000
============
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT
MATURITY AT MATURITY OF
SENIOR DISCOUNT NOTES
PURCHASER TO BE PURCHASED
- --------- -----------------------
<S> <C>
Goldman, Sachs & Co. $273,980,000
Chase Securities Inc. 93,100,000
Credit Suisse First Boston Corporation 26,600,000
FleetBoston Robertson Stephens Inc. 26,600,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated 26,600,000
Morgan Stanley & Co. Incorporated. 26,600,000
TD Securities (USA) Inc. 26,600,000
First Union Securities, Inc. 10,640,000
PNC Capital Markets, Inc. 10,640,000
SunTrust Equitable Securities Corporation 10,640,000
-------------
Total $532,000,000
============
</TABLE>
<PAGE> 31
ANNEX I
(1) The Securities have not been and will not be registered under the Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with Regulation S
under the Act or pursuant to an exemption from the registration requirements of
the Act. Each Purchaser represents that it has offered and sold the Securities,
and will offer and sell the Securities (i) as part of their distribution at any
time and (ii) otherwise until 40 days after the later of the commencement of
the offering and the Time of Delivery, only in accordance with Rule 903 of
Regulation S or Rule 144A or pursuant to Paragraph 2 of this Annex I under the
Act. Accordingly, each Purchaser agrees that neither it, its affiliates nor any
persons acting on its or their behalf has engaged or will engage in any
directed selling efforts with respect to the Securities, and it and they have
complied and will comply with the offering restrictions requirement of
Regulation S. Each Purchaser agrees that, at or prior to confirmation of sale
of Securities (other than a sale pursuant to Rule 144A, it will have sent to
each distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Securities from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered and
sold within the United States or to, or for the account or benefit of,
U.S. persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days after the later of the commencement of the
offering and the closing date, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Securities Act. Terms
used above have the meaning given to them by Regulation S."
Terms used in this paragraph have the meanings given to them by Regulation S.
Each Purchaser further agrees that it has not entered and will not
enter into any contractual arrangement with respect to the distribution or
delivery of the Securities, except with its affiliates or with the prior
written consent of the Issuers.
(2) Notwithstanding the foregoing, Securities in registered form may be
offered, sold and delivered by the Purchasers in the United States and to U.S.
persons pursuant to Section 3 of this Agreement without delivery of the written
statement required by paragraph (1) above.
(3) Each Purchaser further represents and agrees that (i) it has not
offered or sold and prior to the date six months after the date of issue of the
Securities will not offer or sell any Securities to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (b) it
has complied, and will comply, with all applicable provisions of the
<PAGE> 32
Financial Services Act of 1986 of Great Britain with respect to anything done
by it in relation to the Securities in, from or otherwise involving the United
Kingdom, and (c) it has only issued or passed on and will only issue or pass on
in the United Kingdom any document received by it in connection with the
issuance of the Securities to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 of Great Britain or is a person to whom the document
may otherwise lawfully be issued or passed on.
(4) Each Purchaser agrees that it will not offer, sell or deliver any of
the Securities in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Securities in such jurisdictions. Each Purchaser
understands that no action has been taken to permit a public offering in any
jurisdiction outside the United States where action would be required for such
purpose. Each Purchaser agrees not to cause any advertisement of the Securities
to be published in any newspaper or periodical or posted in any public place
and not to issue any circular relating to the Securities, except in any such
case with Goldman, Sachs & Co.'s express written consent and then only at its
own risk and expense.
<PAGE> 33
EXHIBIT A
FORM OF NINE-YEAR SENIOR NOTE
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
<PAGE> 34
EXHIBIT B
FORM OF TEN-YEAR SENIOR NOTE
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
<PAGE> 35
EXHIBIT C
FORM OF SENIOR DISCOUNT NOTE
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
Exhibit 4.1(a)
================================================================================
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION,
as Issuers
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee
----------
INDENTURE
Dated as of January 12, 2000
----------
10.00% Senior Notes due 2009
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
<S> <C>
310(a)(1)................................................. 7.10
(a)(2).................................................... 7.10
(a)(3).................................................... N.A.
(a)(4).................................................... N.A.
(a)(5).................................................... 7.10
(b)....................................................... 7.10
(c)....................................................... N.A.
311(a).................................................... 7.11
(b)....................................................... 7.11
(c)....................................................... N.A.
312(a).................................................... 2.05
(b)....................................................... 10.03
(c)....................................................... 10.03
313(a).................................................... 7.06
(b)(1).................................................... 10.03
(b)(2).................................................... 7.07; 10.03
(c)....................................................... 7.06; 10.02
(d)....................................................... 7.06
314(a).................................................... 4.03; 10.02
(b)....................................................... 10.02
(c)(1).................................................... 10.04
(c)(2).................................................... 10.04
(c)(3).................................................... N.A.
(d)....................................................... N.A.
(e)....................................................... 10.05
(f)....................................................... N.A.
315(a).................................................... 7.01
(b)....................................................... 7.05; 10.02
(c)....................................................... 7.01
(d)....................................................... 7.01
(e)....................................................... 6.11
316(a) (last sentence).................................... 2.09
(a)(1)(A)................................................. 6.05
(a)(1)(B)................................................. 6.04
(a)(2).................................................... N.A.
(b)....................................................... 6.07
(c)....................................................... 2.12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
317(a)(1)................................................. 6.08
(a)(2).................................................... 6.09
(b)....................................................... 2.04
318(a).................................................... 10.01
(b)....................................................... N.A.
(c)....................................................... 10.01
</TABLE>
N.A. means Not Applicable.
* This Cross-Reference Table is not part of the Indenture.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.....................................................1
Section 1.01. Definitions..........................................................................1
Section 1.02. Other Definitions...................................................................26
Section 1.03. Incorporation by Reference of Trust Indenture Act...................................27
Section 1.04. Rules of Construction...............................................................28
ARTICLE 2 THE NOTES.....................................................................................29
Section 2.01. Form and Dating.....................................................................29
Section 2.02. Execution and Authentication........................................................30
Section 2.03. Registrar and Paying Agent..........................................................31
Section 2.04. Paying Agent to Hold Money in Trust.................................................31
Section 2.05. Holder Lists........................................................................31
Section 2.06. Transfer and Exchange...............................................................32
Section 2.07. Replacement Notes...................................................................46
Section 2.08. Outstanding Notes...................................................................47
Section 2.09. Treasury Notes......................................................................47
Section 2.10. Temporary Notes.....................................................................47
Section 2.11. Cancellation........................................................................48
Section 2.12. Defaulted Interest..................................................................48
ARTICLE 3 REDEMPTION AND PREPAYMENT.....................................................................48
Section 3.01. Optional Redemption.................................................................48
Section 3.02. Mandatory Redemption................................................................49
Section 3.03. Offer to Purchase by Application of Excess Proceeds.................................49
ARTICLE 4 COVENANTS.....................................................................................51
Section 4.01. Payment of Notes....................................................................51
Section 4.02. Maintenance of Office or Agency.....................................................51
Section 4.03. Reports.............................................................................52
Section 4.04. Compliance Certificate..............................................................53
Section 4.05. Taxes...............................................................................54
Section 4.06. Stay, Extension and Usury Laws......................................................54
Section 4.07. Restricted Payments.................................................................54
Section 4.08. Investments.........................................................................57
Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries......................58
Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock..........................60
Section 4.11. Limitation on Asset Sales...........................................................63
Section 4.12. Sale and Leaseback Transactions.....................................................65
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 4.13. Transactions with Affiliates........................................................65
Section 4.14. Liens...............................................................................67
Section 4.15. Corporate Existence.................................................................67
Section 4.16. Repurchase at the Option of Holders upon a Change of Control........................67
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness..............................69
Section 4.18. Payments for Consent................................................................70
Section 4.19. Application of Fall-Away Covenants..................................................70
ARTICLE 5 SUCCESSORS...................................................................................70
Section 5.01. Merger, Consolidation, or Sale of Assets............................................70
Section 5.02. Successor Corporation Substituted...................................................71
ARTICLE 6 DEFAULTS AND REMEDIES.........................................................................72
Section 6.01. Events of Default...................................................................72
Section 6.02. Acceleration........................................................................73
Section 6.03. Other Remedies......................................................................74
Section 6.04. Waiver of Existing Defaults.........................................................74
Section 6.05. Control by Majority.................................................................75
Section 6.06. Limitation on Suits.................................................................75
Section 6.07. Rights of Holders of Notes to Receive Payment.......................................75
Section 6.08. Collection Suit by Trustee..........................................................76
Section 6.09. Trustee May File Proofs of Claim....................................................76
Section 6.10. Priorities..........................................................................77
Section 6.11. Undertaking for Costs...............................................................77
ARTICLE 7 TRUSTEE.......................................................................................77
Section 7.01. Duties of Trustee...................................................................77
Section 7.02. Rights of Trustee...................................................................79
Section 7.03. Individual Rights of Trustee........................................................80
Section 7.04. Trustee's Disclaimer................................................................80
Section 7.05. Notice of Defaults..................................................................80
Section 7.06. Reports by Trustee to Holders of the Notes..........................................80
Section 7.07. Compensation and Indemnity..........................................................81
Section 7.08. Replacement of Trustee..............................................................82
Section 7.09. Successor Trustee by Merger, etc....................................................83
Section 7.10. Eligibility; Disqualification.......................................................83
Section 7.11. Preferential Collection of Claims Against the Issuers...............................83
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE......................................................84
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance............................84
Section 8.02. Legal Defeasance and Discharge......................................................84
Section 8.03. Covenant Defeasance.................................................................85
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 8.04. Conditions to Legal or Covenant Defeasance..........................................85
Section 8.05. Deposited Money and Government Securities to Be Held in Trust;
Other Miscellaneous Provisions.................................................................87
Section 8.06. Repayment to Issuers................................................................88
Section 8.07. Reinstatement.......................................................................88
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER..............................................................89
Section 9.01. Without Consent of Holders of Notes.................................................89
Section 9.02. With Consent of Holders of Notes....................................................89
Section 9.03. Compliance with Trust Indenture Act.................................................91
Section 9.04. Revocation and Effect of Consents...................................................91
Section 9.05. Notation on or Exchange of Notes....................................................92
Section 9.06. Trustee to Sign Amendments, etc.....................................................92
ARTICLE 10 MISCELLANEOUS................................................................................92
Section 10.01. Trust Indenture Act Controls.......................................................92
Section 10.02. Notices............................................................................92
Section 10.03. Communication by Holders of Notes with Other Holders of Notes......................94
Section 10.04. Certificate and Opinion as to Conditions Precedent.................................94
Section 10.05. Statements Required in Certificate or Opinion......................................94
Section 10.06. Rules by Trustee and Agents........................................................95
Section 10.07. No Personal Liability of Directors, Officers, Employees, Members and
Stockholders...................................................................................95
Section 10.08. Governing Law......................................................................95
Section 10.09. No Adverse Interpretation of Other Agreements......................................95
Section 10.10. Successors.........................................................................96
Section 10.11. Severability.......................................................................96
Section 10.12. Counterpart Originals..............................................................96
Section 10.13. Table of Contents, Headings, etc...................................................96
ARTICLE 11 SATISFACTION AND DISCHARGE...................................................................96
Section 11.01. Satisfaction and Discharge of Indenture............................................96
Section 11.02. Application of Trust Money.........................................................97
EXHIBIT A..............................................................................................A-1
EXHIBIT B..............................................................................................B-1
EXHIBIT C..............................................................................................C-1
EXHIBIT D..............................................................................................D-1
</TABLE>
vi
<PAGE> 7
INDENTURE dated as of January 12, 2000 among Charter Communications
Holdings, LLC, a Delaware limited liability company (as further defined below,
the "Company"), Charter Communications Holdings Capital Corporation, a Delaware
corporation (as further defined below, "Charter Capital" and together with the
Company, the "Issuers"), and Harris Trust and Savings Bank, as trustee (the
"Trustee").
The Issuers and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the Notes:
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form of
Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend
and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in an initial denomination equal
to the outstanding principal amount of the Initial Notes or any Initial
Additional Notes, in each case initially sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or becomes a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Additional Notes" means the Issuers' 10.00% Senior Notes Due 2009
issued under this Indenture in addition to the Original Notes (other than any
Notes issued in respect of Original Notes pursuant to Section 2.06, 2.07, 2.10,
3.03, 4.16 or 9.05).
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling, "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar or Paying Agent.
"Applicable Procedures" means, with respect to any transfer or
exchange of or
<PAGE> 8
for beneficial interests in any Global Note, the rules and procedures of the
Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Asset Acquisition" means (a) an Investment by the Company or any of
the Company's Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any of its
Restricted Subsidiaries or shall be merged with or into the Company or any of
the Company's Restricted Subsidiaries, or (b) the acquisition by the Company or
any of the Company's Restricted Subsidiaries of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries, taken as a whole, shall be governed by Section 4.16
and/or Section 5.01 and not by the provisions of Section 4.11; and
(2) the issuance of Equity Interests by any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of the Company's
Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be
deemed to be Asset Sales:
(1) any single transaction or series of related transactions that:
(a) involves assets having a fair market value of less than $100 million; or (b)
results in net proceeds to the Company and its Restricted Subsidiaries of less
than $100 million;
(2) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of the Company to the Company or to another Wholly Owned Restricted
Subsidiary of the Company;
(4) a Restricted Payment that is permitted by Section 4.07 and a
Restricted Investment that is permitted by Section 4.08; and
(5) the incurrence of Permitted Liens and the disposition of assets
related to such Permitted Liens by the secured party pursuant to a foreclosure.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental
2
<PAGE> 9
payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessee, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
state law of any jurisdiction relating to bankruptcy, insolvency, winding up,
liquidation, reorganization or relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as such term is used in Section
13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition.
"Board of Directors" means the Board of Directors of the Company or
Charter Capital, as the case may be, or any authorized committee of the Board of
Directors of the Company or Charter Capital, as the case may be.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or Charter Capital, as the
case may be, to have been duly adopted by the Board of Directors of the Company
or Charter Capital, as the case may be, and to be in full force and effect on
the date of such certification and delivered to the Trustee.
"Business Day" means any day other than a Legal Holiday.
"Cable Related Business" means the business of owning cable
television systems and businesses ancillary, complementary and related thereto.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest (other than any debt obligation) or
participation that confers on a Person the right to receive a share of the
profits and losses of, or
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distributions of assets of, the issuing Person.
"Capital Stock Sale Proceeds" means the aggregate net cash proceeds
(including the fair market value of the non-cash proceeds, as determined by an
independent appraisal firm) received by the Company since the Existing Notes
Issue Date (x) as a contribution to the common equity capital or from the issue
or sale of Equity Interests of the Company (other than Disqualified Stock) or
(y) from the issue or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the
Company).
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than twelve months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of twelve 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 having combined
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
at the time of acquisition of "B" or better;
(4) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications specified
in clause (3) above;
(5) commercial paper having a rating of at least "P-1" from Moody's
or at least "A-1" from S&P and in each case maturing within twelve months after
the date of acquisition;
(6) corporate debt obligations maturing within twelve months after
the date of acquisition thereof, rated at the time of acquisition at least "Aaa"
or "P-1" by Moody's or "AAA" or "A-1" by S&P;
(7) auction-rate preferred stocks of any corporation maturing not
later than 45 days after the date of acquisition thereof, rated at the time of
acquisition at least "Aaa" by
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Moody's or "AAA" by S&P;
(8) securities issued by any state, commonwealth or territory of the
United States, or by any political subdivision or taxing authority thereof,
maturing not later than six months after the date of acquisition thereof, rated
at the time of acquisition at least "A" by Moody's or S&P; and
(9) money market or, mutual funds, at least 90% of the assets of
which constitute Cash Equivalents of the kinds described in clauses (1) through
(8) of this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, or of a Parent and its Subsidiaries, taken as a whole, to any
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) other
than the Principal or a Related Party of the Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company or a Parent;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principal and Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 35% of the
Voting Stock of the Company or a Parent, measured by voting power rather than
number of shares, unless the Principal or a Related Party Beneficially Owns,
directly or indirectly, a greater percentage of Voting Stock of the Company,
measured by voting power rather than the number of shares, than such person;
(4) after the Issue Date, the first day on which a majority of the
members of the Board of Directors of the Company or the board of directors of a
Parent are not Continuing Directors; or
(5) the Company or a Parent consolidates with, or merges with or
into, any Person, or any Person consolidates with, or merges with or into, the
Company or a Parent, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company or such Parent is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company or such Parent outstanding
immediately prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person immediately after giving effect to such issuance.
"Charter Capital" means Charter Communications Holdings Capital
Corporation, a Delaware corporation, and any successor in interest thereto.
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"Commission" or "SEC" means the Securities and Exchange Commission.
"Company" means Charter Communications Holdings, LLC, a Delaware
limited liability company, and any successor in interest thereto.
"Consolidated EBITDA" means with respect to any Person, for any
period, the net income of such Person and its Restricted Subsidiaries for such
period plus, to the extent such amount was deducted in calculating such net
income:
(1) Consolidated Interest Expense;
(2) income taxes;
(3) depreciation expense;
(4) amortization expense;
(5) all other non-cash items, extraordinary items, nonrecurring and
unusual items and the cumulative effects of changes in accounting principles
reducing such net income, less all non-cash items, extraordinary items,
nonrecurring and unusual items and cumulative effects of changes in accounting
principles increasing such net income, all as determined on a consolidated basis
for such Person and its Restricted Subsidiaries in conformity with GAAP;
(6) amounts actually paid during such period pursuant to a deferred
compensation plan; and
(7) for purposes of Section 4.10 only, Management Fees;
provided that Consolidated EBITDA shall not include:
(x) the net income (or net loss) of any Person that is not a
Restricted Subsidiary ("Other Person"), except (I) with respect to net income,
to the extent of the amount of dividends or other distributions actually paid to
such Person or any of its Restricted Subsidiaries by such Other Person during
such period and (II) with respect to net losses, to the extent of the amount of
investments made by such Person or any Restricted Subsidiary of such Person in
such Other Person during such period;
(y) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (3) of Section 4.07 (and in such
case, except to the extent includable pursuant to clause (x) above), the net
income (or net loss) of any Other Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with such Person or any
Restricted Subsidiaries or all or substantially all of the property and assets
of such Other Person are acquired by such Person or any of its Restricted
Subsidiaries; and
(z) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any
6
<PAGE> 13
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary (other than any agreement or
instrument (i) evidencing Indebtedness or preferred stock outstanding on the
Issue Date or (ii) incurred or issued thereafter in compliance with Section
4.10, provided that (a) the terms of any such agreement restricting the
declaration and payment of dividends or similar distributions apply only in the
event of a default with respect to a financial covenant or a covenant relating
to payment (beyond any applicable period of grace) contained in such agreement
or instrument, (b) such terms are determined by such Person to be customary in
comparable financings and (c) such restrictions are determined by such Person
not to materially affect the Issuers' ability to make principal or interest
payments on the Notes when due).
"Consolidated Indebtedness" means, with respect to any Person as of
any date of determination, the sum, without duplication, of:
(1) the total amount of outstanding Indebtedness of such Person and
its Restricted Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person that has
been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus
(3) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Restricted Subsidiaries of such Person, in
each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication, the sum of
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization or original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations); and
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; and
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such
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<PAGE> 14
Person or one of its Restricted Subsidiaries (whether or not such Guarantee or
Lien is called upon);
excluding, however, any amount of such interest of any Restricted Subsidiary if
the net income of such Restricted Subsidiary is excluded in the calculation of
Consolidated EBITDA pursuant to clause (z) of the definition thereof (but only
in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Consolidated EBITDA pursuant to clause (z) of
the definition thereof), in each case, on a consolidated basis and in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company or the board of directors of a
Parent who:
(1) was a member of such board of directors on the Issue Date; or
(2) was nominated for election or elected to such board of directors
with the approval of a majority of the Continuing Directors who were members of
such board of directors at the time of such nomination or election or whose
election or appointment was previously so approved.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 10.02 or such other address as to which the
Trustee may give notice to the Issuers.
"Credit Facilities" means, with respect to the Company and/or its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06, substantially in
the form of Exhibit A hereto, except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Global Notes, the Person
specified in Section 2.03 as the Depositary with respect to the Notes, and any
and all successors thereto appointed as depositary hereunder and having become
such pursuant to the applicable provision of this Indenture.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the surviving Person) or the sale, assignment, or transfer,
lease conveyance or other
8
<PAGE> 15
disposition of all or substantially all of such Person's assets or Capital
Stock.
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any private or underwritten public offering
of Qualified Capital Stock of the Company or a Parent of which the gross
proceeds (x) to the Company or (y) received by the Company as a capital
contribution from such Parent, as the case may be, are at least $25 million.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Issuers' 10.00% Senior Notes due 2009,
containing terms substantially identical to the Initial Notes or any Initial
Additional Notes (except that (i) such Exchange Notes shall not contain terms
with respect to transfer restrictions and shall be registered under the
Securities Act and (ii) certain provisions relating to an increase in the stated
rate of interest thereon shall be eliminated), that are issued and exchanged for
(a) the Initial Notes, as provided for in the Registration Rights Agreement
relating to such Initial Notes and this Indenture or (b) such Initial Additional
Notes, as may be provided in any Registration Rights Agreement relating to such
Initial Additional Notes and this Indenture (including any amendment or
supplement thereto).
"Exchange Offer" means an offer to exchange Initial Notes or Initial
Additional Notes, if any, for Exchange Notes pursuant to a Registration Rights
Agreement.
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<PAGE> 16
"Exchange Offer Registration Statement" means a registration
statement relating to an Exchange Offer as may be provided in any Registration
Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date, until such amounts are
repaid.
"Existing Notes Issue Date" means March 17, 1999.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Issue Date.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" or "guarantee" means a guarantee other than by
endorsement of negotiable instruments for collection in the ordinary course of
business, direct or indirect, in any manner including, without limitation, by
way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness, measured
as the lesser of the aggregate outstanding amount of the Indebtedness so
guaranteed and the face amount of the Guarantee.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2) interest rate option agreements, foreign currency exchange
agreements, foreign currency swap agreements; and
(3) other agreements or arrangements designed to protect such Person
against fluctuations in interest and currency exchange rates.
"Helicon Preferred Stock" means the preferred limited liability
company interest of Charter-Helicon LLC with an aggregate liquidation value of
$25 million outstanding on the Issue Date.
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"Holder" means a holder of the Notes.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing the notional amount of any Hedging Obligations, if
and to the extent any of the preceding items (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Additional Notes" means Additional Notes issued in an
offering not
11
<PAGE> 18
registered under the Securities Act.
"Initial Notes" means the Issuers' 10.00% Senior Notes due 2009,
issued on the Issue Date (and any Notes issued in respect thereof pursuant to
Section 2.06, 2.07, 2.10, 3.03, 4.16 or 9.05).
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is not also a QIB.
"Investment Grade Rating" means a rating equal to or higher than Baa3
(or the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business), and
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means January 12, 2000.
"Issuers" has the meaning assigned to it in the preamble to this
Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Issuers and sent to all Holders of the Initial Notes or any
Initial Additional Notes for use by such Holders in connection with any Exchange
Offer.
"Leverage Ratio" means, as of any date, the ratio of:
(1) the Consolidated Indebtedness of the Company on such date to
(2) the aggregate amount of Consolidated EBITDA for the Company for
the most recently ended fiscal quarter for which internal financial statements
are available multiplied by four (the "Reference Period").
In addition to the foregoing, for purposes of this definition, "Consolidated
EBITDA" shall be calculated on a pro forma basis after giving effect to
(1) the issuance of the Notes;
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<PAGE> 19
(2) the incurrence of the Indebtedness or the issuance of the
Disqualified Stock or other preferred stock of a Restricted Subsidiary (and the
application of the proceeds therefrom) giving rise to the need to make such
calculation and any incurrence or issuance (and the application of the proceeds
therefrom) or repayment of other Indebtedness or Disqualified Stock or other
preferred stock of a Restricted Subsidiary, other than the incurrence or
repayment of Indebtedness for ordinary working capital purposes, at any time
subsequent to the beginning of the Reference Period and on or prior to the date
of determination, as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the first day of the
Reference Period; and
(3) any Dispositions or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any person that becomes a Restricted Subsidiary as a result of such
Asset Acquisition) incurring, assuming or otherwise becoming liable for or
issuing Indebtedness, Disqualified Stock or preferred stock) made on or
subsequent to the first day of the Reference Period and on or prior to the date
of determination, as if such Disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness, Disqualified
Stock or preferred stock and also including any Consolidated EBITDA associated
with such Asset Acquisition, including any cost savings adjustments in
compliance with Regulation S-X promulgated by the Commission) had occurred on
the first day of the Reference Period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Management Fees" means the fees payable to Charter Communications,
Inc. pursuant to the management agreements between Charter Communications, Inc.
and Charter Communication Operating LLC, and between Charter Communications,
Inc. and Restricted Subsidiaries of the Company (including any Person that
becomes a Restricted Subsidiary of the Company in connection with the
acquisition of Bresnan Communications Company Limited Partnership), as such
agreements exist on the Issue Date (or on the date of such acquisition in the
case of the aforementioned Bresnan acquisition), including any amendment or
replacement thereof, provided that any such amendment or replacement is not more
disadvantageous to the Holders of the Notes in any material respect from such
management agreements existing on the Issue Date.
"Moody's" means Moody's Investors Service, Inc. or any successor to
the rating agency business thereof.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without
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<PAGE> 20
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof or taxes paid or payable as a result thereof (including amounts
distributable in respect of owners', partners' or members' tax liabilities
resulting from such sale), in each case after taking into account any available
tax credits or deductions and any tax sharing arrangements and amounts required
to be applied to the repayment of Indebtedness.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of any
other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" means the Initial Notes, any Additional Notes and the
Exchange Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company or Charter Capital,
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<PAGE> 21
as the case may be, by two Officers of the Company or Charter Capital, as the
case may be, one of whom must be the principal executive officer, the chief
financial officer or the treasurer of the Company or Charter Capital, as the
case may be, that meets the requirements of Section 10.05.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05. The counsel may be an employee of or counsel to the Issuers, any
Subsidiary of the Issuers or the Trustee.
"Original Notes" means the Initial Notes and any Exchange Notes
issued in exchange therefor.
"Other Notes" means the 10.25% Senior Notes due 2010 of the Issuers
in an aggregate principal amount not to exceed the principal amount issued on
the Issue Date, and the 11.75% Senior Discount Notes due 2010 of the Issuers in
an aggregate principal amount not to exceed the principal amount issued on the
Issue Date.
"Parent" means Charter Communications, Inc. and/or Charter
Communications Holding Company, LLC, as applicable, and any successor Person or
any Person succeeding to the direct or indirect ownership of the Company.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Investments" means:
(1) any Investment by the Company in a Restricted Subsidiary of the
Company, or any Investment by a Restricted Subsidiary of the Company in the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company;
or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.11;
(5) any Investment made out of the net cash proceeds of the issue and
sale since the Existing Notes Issue Date (other than to a Subsidiary of the
Company) of Equity Interests (other than Disqualified Stock) of the Company to
the extent that such net cash proceeds have not been applied to make a
Restricted Payment or to effect other transactions pursuant to Section 4.07 or
to the extent such net cash proceeds have not
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been used to incur Indebtedness pursuant to clause (10) of Section 4.10;
(6) Investments in Productive Assets having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (6) since the Existing Notes Issue
Date, not to exceed $150 million; provided that the Company or any of its
Restricted Subsidiaries, after giving effect to such Investments, will own at
least 20% of the Voting Stock of such Person;
(7) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (7) since the Existing Notes Issue
Date, not to exceed $50 million; and
(8) Investments in customers and suppliers in the ordinary course of
business which either (A) generate accounts receivable or (B) are accepted in
settlement of bona fide disputes.
"Permitted Liens" means:
(1) Liens on the assets of the Company securing Indebtedness and
other Obligations under clause (1) of Section 4.10;
(2) Liens in favor of the Company;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company; provided that such Liens
were in existence prior to the contemplation of such merger or consolidation and
do not extend to any assets other than those of the Person merged into or
consolidated with the Company;
(4) Liens on property existing at the time of acquisition thereof by
the Company; provided that such Liens were in existence prior to the
contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) purchase money mortgages or other purchase money liens (including
without limitation any Capital Lease Obligations) incurred by the Company upon
any fixed or capital assets acquired after the Issue Date or purchase money
mortgages (including
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<PAGE> 23
without limitation Capital Lease Obligations) on any such assets, whether or not
assumed, existing at the time of acquisition of such assets, whether or not
assumed, so long as (i) such mortgage or lien does not extend to or cover any of
the assets of the Company, except the asset so developed, constructed, or
acquired, and directly related assets such as enhancements and modifications
thereto, substitutions, replacements, proceeds (including insurance proceeds),
products, rents and profits thereof, and (ii) such mortgage or lien secures the
obligation to pay the purchase price of such asset, interest thereon and other
charges, costs and expenses (including, without limitation, the cost of design,
development, construction, acquisition, transportation, installation,
improvement, and migration) and incurred in connection therewith (or the
obligation under such Capital Lease Obligation) only;
(7) Liens existing on the Issue Date (other than in connection with
the Credit Facilities);
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;
(9) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(10) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;
(11) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligation, bankers' acceptance,
surety and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary course
of business (exclusive of obligations for the payment of borrowed money);
(12) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the Company or any
of its Restricted Subsidiaries;
(13) Liens of franchisors or other regulatory bodies arising in the
ordinary course of business;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases or other Uniform Commercial Code financing
statements for precautionary purposes relating to arrangements not constituting
Indebtedness;
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<PAGE> 24
(15) Liens arising from the rendering of a final judgment or order
against the Company or any of its Restricted Subsidiaries that does not give
rise to an Event of Default;
(16) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof;
(17) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general parameters customary in
the industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Hedging Obligations and forward contracts, options,
future contracts, future options or similar agreements or arrangements designed
solely to protect the Company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of commodities;
(18) Liens consisting of any interest or title of licensor in the
property subject to a license;
(19) Liens on the Capital Stock of Unrestricted Subsidiaries;
(20) Liens arising from sales or other transfers of accounts
receivable which are past due or otherwise doubtful of collection in the
ordinary course of business;
(21) Liens incurred in the ordinary course of business of the Company
with respect to obligations which in the aggregate do not exceed $50 million at
any one time outstanding;
(22) Liens in favor of the Trustee arising under the provisions in
this Indenture and in the indentures relating to the Other Notes, in each case
under Section 7.07; and
(23) Liens in favor of the Trustee for its benefit and the benefit of
Holders and the holders of the Other Notes, as their respective interests
appear.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that unless permitted otherwise
by this Indenture, no Indebtedness of the Company or any of its Restricted
Subsidiaries, may be issued in exchange for, nor the net proceeds of such
Indebtedness be used to extend, refinance, renew, replace, defease or refund
Indebtedness of the Company or any of its Restricted Subsidiaries; provided,
further, that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest and premium, if any, on,
the Indebtedness so extended,
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<PAGE> 25
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by any of
its Restricted Subsidiaries who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Principal" means Paul G. Allen.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i)(A) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Productive Assets" means assets (including assets of a referent
Person owned directly or indirectly through ownership of Capital Stock) of a
kind used or useful in the Cable Related Business.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Stock.
"Rating Agencies" means Moody's and S&P.
"Registration Rights Agreement" means (a) the Exchange and
Registration
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<PAGE> 26
Rights Agreement dated as of the Issue Date among the Issuers and the initial
purchasers named therein with respect to the Initial Notes and (b) any
registration rights agreement among the Issuers and the initial purchasers named
therein with respect to any Initial Additional Notes.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Note" means a global note substantially in the
form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of, and registered in the name
of, the Depositary or its nominee that will be issued in an initial denomination
equal to the outstanding principal amount of the Initial Notes or any Initial
Additional Notes, in each case, initially sold in reliance on Rule 903 of
Regulation S.
"Related Party" means:
(1) the spouse or an immediate family member, estate or heir of the
Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of the Principal and/or such
other Persons referred to in the immediately preceding clause (1).
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
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<PAGE> 27
"S&P" means Standard & Poor's Ratings Service, a division of the
McGraw-Hill Companies, Inc. or any successor to the rating agency business
thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means a "shelf" registration statement
providing for the registration of, and the sale on a continuous or delayed basis
of, the Initial Notes or any Initial Additional Notes as may be provided in any
Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the
Company which is a "Significant Subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Exchange Act.
"Special Interest" means special or additional interest in respect of
the Notes that is payable by the Issuers as liquidated damages upon specified
registration defaults pursuant to any Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness on the Issue Date, or, if none, the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which at
least 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person (or a combination thereof) and, in the case of any such entity of
which 50% of the total voting power of shares of Capital Stock is so owned or
controlled by such Person or one or more of the other Subsidiaries of such
Person, such Person and its Subsidiaries also has the right to control the
management of such entity pursuant to contract or otherwise; and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
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"Tax" shall mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA; provided, however, that in the event the Trust Indenture Act of
1939 is amended after such date, then "TIA" means, to the extent required by
such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means Harris Trust and Savings Bank until a successor
replaces Harris Trust and Savings Bank in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes
that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global note
substantially in the form of Exhibit A attached hereto that bears the Global
Note Legend and that has the "Schedule of Exchanges of Interests in the Global
Note" attached thereto, and that is deposited with or on behalf of and
registered in the name of the Depositary, representing a series of Notes that do
not bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company unless such terms constitute Investments permitted by the covenant
described above under Section 4.08;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries, or has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
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<PAGE> 29
Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the board
of directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at 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
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
- ---- ----------
<S> <C>
"Affiliate Transaction" .............. 4.13
"Asset Sale Offer" ................... 3.03
"Authentication Order" ............... 2.02
"Change of Control Offer" ............ 4.16
"Change of Control Payment" .......... 4.16
"Change of Control Payment Date" ..... 4.16
"Covenant Defeasance" ................ 8.03
"DTC" ................................ 2.03
"Event of Default" ................... 6.01
"Excess Proceeds" .................... 4.11
"incur" .............................. 4.10
"Legal Defeasance" ................... 8.02
"Offer Period" ....................... 3.03
"Paying Agent" ....................... 2.03
"Payment Default" .................... 6.01
"Permitted Debt" ..................... 4.10
"Preferred Stock Financing" .......... 4.10
"Purchase Date" ...................... 3.03
"Registrar" .......................... 2.03
"Restricted Payments" ................ 4.07
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C>
"Subordinated Debt Financing" .... 4.10
"Subordinated Notes" ............. 4.10
"Subsidiary Guarantee" ........... 4.17
"Suspended Covenants" ............ 4.19
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Issuers and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions;
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<PAGE> 31
(f) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time;
(g) references to any statute, law, rule or regulation shall be
deemed to refer to the same as from time to time amended and in effect and to
any successor statute, law, rule or regulation; and
(h) references to any contract, agreement or instrument shall mean
the same as amended, modified, supplemented or amended and restated from time to
time, in each case, in accordance with any applicable restrictions contained in
this Indenture.
ARTICLE 2 THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Issuers and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibit A attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and
25
<PAGE> 32
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the aggregate principal amount of outstanding Notes
represented thereby shall be made by the Trustee or the custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06.
(c) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Global Notes that are held by
Participants through Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for each Issuer by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
At any time and from time to time after the execution and delivery of
this Indenture, the Issuers may deliver Notes executed by the Issuers to the
Trustee for authentication; and the Trustee shall authenticate and deliver (i)
Initial Notes for original issue in the aggregate principal amount of
$675,000,000, (ii) Additional Notes from time to time for original issue in
aggregate principal amount specified by the Issuers not to exceed $325,000,000
and (iii) Exchange Notes from time to time for issue in exchange for a like
principal amount of Initial Notes or Initial Additional Notes, in each case
specified in clauses (i) through (iii) above, upon a written order of the
Issuers signed by an Officer of each of the Issuers (an "Authentication Order").
Such Authentication Order shall specify the amount of Notes to be authenticated
and the date on which the Notes are to be authenticated, whether such Notes are
Initial Notes, Additional Notes or Exchange Notes and whether the Notes are to
be issued as one or more Global Notes and such other information as the Issuers
may include or the Trustee may reasonably request. The aggregate principal
amount of Notes outstanding at any time may not exceed $1,000,000,000 except as
provided in Section 2.07. On the Issue Date, the Issuers will issue $675,000,000
aggregate principal amount of Initial Notes.
The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Issuers.
Section 2.03. Registrar and Paying Agent.
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<PAGE> 33
The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuers may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Issuers may change any
Paying Agent or Registrar without notice to any Holder. The Issuers shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Issuers fail to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Issuers or any of
their Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Issuers in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Issuers at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Issuers or a Subsidiary) shall have no further
liability for the money. If the Issuers or a Subsidiary acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Issuers, the Trustee shall serve as Paying Agent for
the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Issuers shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or
27
<PAGE> 34
by the Depositary or any such nominee to a successor Depositary or a nominee of
such successor Depositary. All Global Notes shall be exchanged by the Company
for Definitive Notes if:
(i) the Issuers deliver to the Trustee notice from the
Depositary that it is unwilling or unable to continue to act as Depositary
or that it is no longer a clearing agency registered under the Exchange
Act and, in either case, a successor Depositary is not appointed by the
Issuers within 120 days after the date of such notice from the Depositary;
or
(ii) the Issuers in their sole discretion determine that the
Global Notes (in whole but not in part) should be exchanged for Definitive
Notes and deliver a written notice to such effect to the Trustee; or
(iii) there shall have occurred and be continuing a Default or
Event of Default with respect to the Notes.
Upon the occurrence of any of the preceding events in (i), (ii) or
(iii) above, Definitive Notes shall be issued in such names as the Depositary
shall instruct the Trustee. Global Notes also may be exchanged or replaced, in
whole or in part, as provided in Sections 2.07 and 2.10. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a); however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f).
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend. Beneficial
interests in any Unrestricted Global Note may be transferred to
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<PAGE> 35
Persons who take delivery thereof in the form of a beneficial interest in
an Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above, the
transferor of such beneficial interest must deliver to the Registrar
either:
(A)(1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to credit or cause to be credited
a beneficial interest in another Global Note in an amount equal to
the beneficial interest to be transferred or exchanged; and
(A)(2) instructions given in accordance with the
Applicable Procedures containing information regarding the
Participant account to be credited with such increase; or
(B)(1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged; and
(B)(2) instructions given by the Depositary to the
Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above.
Upon consummation of an Exchange Offer by the Issuers in accordance with
Section 2.06(f), the requirements of this Section 2.06(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered by the
holder of such beneficial interests in the Restricted Global Notes. Upon
satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture and the
Notes or otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount of the relevant Global Note(s) pursuant to
Section 2.06(h).
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial
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interest in the Regulation S Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in an Unrestricted Global
Note. A beneficial interest in any Restricted Global Note may be exchanged
by any holder thereof for a beneficial interest in an Unrestricted Global
Note or transferred to a Person who takes delivery thereof in the form of
a beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement and
the holder of the beneficial interest to be transferred, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1)
a broker-dealer, (2) a Person participating in the distribution of
the relevant Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) such transfer is effected by a broker-dealer pursuant
to an Exchange Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been
issued, the Issuers shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.02,
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the Trustee shall authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the aggregate principal amount of
beneficial interests transferred pursuant to subparagraph (B) or (D)
above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note or to transfer such beneficial interest to a
Person who takes delivery thereof in the form of a Restricted Definitive
Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
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(F) if such beneficial interest is being transferred to
the Issuers or any of their Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h), and the
Issuers shall execute and the Trustee shall authenticate and deliver to
the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for a
beneficial interest in a Restricted Global Note pursuant to this Section
2.06(c) shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest
shall instruct the Registrar through instructions from the Depositary and
the Participant or Indirect Participant. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)(i)
shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to a
Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement and
the holder of such beneficial interest, in the case of an exchange,
or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a broker-dealer,
(2) a Person participating in the distribution of the relevant
Exchange Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Issuers;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) such transfer is effected by a broker-dealer pursuant
to an Exchange Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that
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does not bear the Private Placement Legend, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to the
effect that such exchange or transfer is in compliance with the Securities
Act and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial interest
for a Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii), the
Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h), and the
Issuers shall execute and the Trustee shall authenticate and deliver to
the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered. Any Definitive
Note issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests in Global Notes.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted
Global Note or to transfer such Restricted Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (2)(b)
thereof;
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(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144 under
the Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities Act
other than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (C) above, the
Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
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<PAGE> 41
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement and
the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the relevant Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) such transfer is effected by a broker-dealer pursuant
to an Exchange Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes
to exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted Definitive
Note and increase or cause to be increased the aggregate principal amount
of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time
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when an Unrestricted Global Note has not yet been issued, the Issuers
shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal
amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes.
Any Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Any Restricted Definitive Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Note or transferred to a Person or
Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to an
Exchange Offer in accordance with a Registration Rights Agreement and
the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the relevant Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Issuers;
(B) any such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
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<PAGE> 43
(C) any such transfer is effected by a broker-dealer
pursuant to an Exchange Registration Statement in accordance with a
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Issuers to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer,
the Registrar shall register the Unrestricted Definitive Notes pursuant to
the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of an Exchange Offer in
accordance with a Registration Rights Agreement, the Issuers shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the relevant
Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the
Issuers, and accepted for exchange in the relevant Exchange Offer and (ii)
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Restricted Definitive Notes accepted for exchange in the relevant
Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable
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Restricted Global Notes to be reduced accordingly, and the Issuers shall execute
and the Trustee shall authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the appropriate
principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING
WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section
2.06 (and all Notes issued in exchange therefor or substitution
thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
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CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON
AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND
(III) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH
THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11. At any
time prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note or for Definitive Notes,
the principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such reduction;
and if the beneficial interest is being exchanged for or transferred to a Person
who will take delivery thereof in the form of a beneficial interest in another
Global Note, such other Global Note shall be increased accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Issuers shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Issuers' order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Issuers may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.11, 4.16 and 9.05).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the
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unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Issuers, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Issuers shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 and ending at the close of business on the
day of selection, (B) to register the transfer of or to exchange any Note
so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (C) to register the transfer
of or to exchange a Note between a record date and the next succeeding
Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Issuers may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Issuers shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Issuers
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Issuers shall issue and the Trustee, upon receipt of
an Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Issuers, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Issuers may charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuers and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee
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except for those canceled by it, those delivered to it for cancellation, those
reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions, and those described in this Section as not
outstanding. Except as set forth in Section 2.09, a Note does not cease to be
outstanding because either of the Issuers or an Affiliate of the Issuers holds
the Note; however, Notes held by an Issuer or a Subsidiary of an Issuer shall
not be deemed to be outstanding for purposes of Section 3.07(b).
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than an Issuer, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by an
Issuer, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with an Issuer, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that a Responsible Officer of the Trustee knows are so owned shall be
so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, the
Issuers may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Issuers
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Issuers shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture.
Section 2.11. Cancellation.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement
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or cancellation and shall destroy canceled Notes. Certification of the
destruction of all canceled Notes shall be delivered to the Issuers. The Issuers
may not issue new Notes to replace Notes that they have paid or that have been
delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Issuers default in a payment of interest on the Notes, they
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01. The Issuers shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Issuers shall fix or cause to be fixed
each such special record date and payment date; provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Issuers (or, upon the written request of the Issuers, the Trustee in the name
and at the expense of the Issuers) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
ARTICLE 3 REDEMPTION AND PREPAYMENT
Section 3.01. Optional Redemption.
The Notes will not be redeemable at the Issuers' option prior to
maturity.
Section 3.02. Mandatory Redemption.
Except as otherwise provided in Section 4.11 or Section 4.16 below,
the Issuers shall not be required to make mandatory redemption payments with
respect to the Notes.
Section 3.03. Offer to Purchase by Application of Excess Proceeds.
In the event that the Issuers shall be required to commence an offer
to all Holders to purchase Notes pursuant to Section 4.11 (an "Asset Sale
Offer"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the
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termination of the Offer Period (the "Purchase Date"), the Issuers shall
purchase the principal amount of Notes required to be purchased pursuant to
Section 4.11 (the "Offer Amount") or, if less than the Offer Amount has been
tendered, all Notes tendered in response to the Asset Sale Offer. Payment for
any Notes so purchased shall be made in the same manner as interest payments are
made. Unless the Issuers default in making such payment, any Note accepted for
payment pursuant to the Asset Sale Offer shall cease to accrue interest after
the Purchase Date.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no Special Interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer the Issuers shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.03 and Section 4.11 and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d) that, unless the Issuers default in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer or may elect to have Notes purchased in integral multiples of
$1,000 only;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Issuers, a depositary, if appointed by
the Issuers, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Issuers, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
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(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Issuers so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Issuers in accordance
with the terms of this Section 3.03. The Issuers, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Issuers for purchase, and the Issuers shall promptly issue a new Note, and
the Trustee, upon written request from the Issuers, shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
ARTICLE 4 COVENANTS
Section 4.01. Payment of Notes.
The Issuers shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Issuers or a Subsidiary thereof,
holds as of 10:00 a.m. New York City time on the due date money deposited by the
Issuers in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Issuers shall pay all
Special Interest, if any, in the same manner on the dates and in the amounts set
forth in any Registration Rights Agreement.
The Issuers shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in
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excess of the then applicable interest rate on the Notes to the extent lawful;
they shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue installments of interest (without regard to
any applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuers in respect of the Notes and this Indenture may be
served. The Issuers shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Issuers shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Issuers hereby designate the Harris Trust Company of New York, an
affiliate of the Trustee, as one such office or agency of the Issuers in
accordance with Section 2.03.
Section 4.03. Reports.
Whether or not required by the Commission, so long as any Notes are
outstanding, the Issuers shall furnish to the Holders of Notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Issuers were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Issuers were required to file such reports.
If the Issuers have designated any of their Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the
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preceding paragraph shall include a reasonably detailed presentation, either on
the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, whether or not required by the Commission, the Issuers
shall file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the Commission for public availability within the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year have been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (each of whom
shall be a firm of established national reputation) that in making the
examination necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that the Company has
violated any provisions of Article 4 or Article 5 or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation. In the
event that, after the Company has used its reasonable best efforts to obtain the
written statement of the Company's independent public accountants required by
the provisions of this paragraph, such statement cannot be obtained, the Company
shall deliver, in satisfaction of its obligations under this Section 4.04, an
Officers' Certificate (A) certifying that it has used its reasonable best
efforts to obtain such required statement but was unable to do so and (B)
attaching the written statement of the Company's accountants that the Company
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received in lieu thereof.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
Each of the Issuers covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and each of the
Issuers (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary
of the Company);
(b) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any
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Equity Interests of the Company or any direct or indirect parent of the Company
or any Restricted Subsidiary of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company); or
(c) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness that is
subordinated to the Notes, except a payment of interest or principal at the
Stated Maturity thereof (all such payments and other actions set forth in
clauses (a) through (c) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Leverage Ratio test set forth in the first paragraph of Section 4.10;
and
(3) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by the Company and each of its
Restricted Subsidiaries after the Existing Notes Issue Date (excluding
Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7) and
(8) of the next succeeding paragraph), shall not exceed, at the date of
determination, the sum of:
(a) an amount equal to 100% of the Consolidated EBITDA of
the Company since the Existing Notes Issue Date to the end of the
Company's most recently ended full fiscal quarter for which internal
financial statements are available, taken as a single accounting
period, less the product of 1.2 times the Consolidated Interest
Expense of the Company since the Existing Notes Issue Date to the end
of the Company's most recently ended full fiscal quarter for which
internal financial statements are available, taken as a single
accounting period, plus
(b) an amount equal to 100% of Capital Stock Sale Proceeds
less any such Capital Stock Sale Proceeds used in connection with (i)
an Investment made pursuant to clause (5) of the definition of
"Permitted Investments" or (ii) the incurrence of Indebtedness
pursuant to clause (10) of Section 4.10, plus
(c) $100 million.
So long as no Default has occurred and is continuing or would be
caused thereby, the preceding provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of this Indenture;
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(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company in exchange
for, or out of the net proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of, Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded
from clause (3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition
of subordinated Indebtedness of the Company or any of its Restricted
Subsidiaries with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) regardless of whether a Default then exists, the payment of
any dividend or distribution to the extent necessary to permit direct or
indirect beneficial owners of shares of Capital Stock of the Company to
pay federal, state or local income tax liabilities that would arise solely
from income of the Company or any of its Restricted Subsidiaries, as the
case may be, for the relevant taxable period and attributable to them
solely as a result of the Company (and any intermediate entity through
which the Holder owns such shares) or any of its Restricted Subsidiaries
being a limited liability company, partnership or similar entity for
federal income tax purposes;
(5) regardless of whether a Default then exists, the payment of
any dividend by a Restricted Subsidiary of the Company to the holders of
its common Equity Interests on a pro rata basis;
(6) the payment of any dividend on the Helicon Preferred Stock
or the redemption, repurchase, retirement or other acquisition of the
Helicon Preferred Stock in an amount not in excess of its aggregate
liquidation value;
(7) the repurchase, redemption or other acquisition or
retirement for value, or the payment of any dividend or distribution to
the extent necessary to permit the repurchase, redemption or other
acquisition or retirement for value, of any Equity Interests of the
Company or a Parent held by any member of the Company's or such Parent's
management pursuant to any management equity subscription agreement or
stock option agreement in effect as of the date of this Indenture;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $10 million in any
fiscal year of the Company; and
(8) payment of fees in connection with any acquisition, merger
or similar transaction in an amount that does not exceed an amount equal
to 1.25% of the transaction value of such acquisition, merger or similar
transaction.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or any of its
Restricted Subsidiaries pursuant to the Restricted Payment. The fair market
value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors of the
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Company, whose resolution with respect thereto shall be delivered to the
Trustee. Such Board of Director's determination must be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if the fair market value exceeds $100 million. Not later than
the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.07 were computed, together with a copy of any fairness opinion or
appraisal required by this Indenture.
Section 4.08. Investments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) make any Restricted Investment; or
(2) allow any Restricted Subsidiary of the Company to become an
Unrestricted Subsidiary,
unless, in each case:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of, and after giving effect to,
such Restricted Investment or such designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of Section 4.10.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by this Section 4.08. If, at any time,
any Unrestricted Subsidiary would fail to meet the requirements as an
Unrestricted Subsidiary described in the definition of "Unrestricted
Subsidiary," it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of this Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
Section 4.10, the Company shall be in default. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the
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Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (1) such Indebtedness is permitted under
the covenant described under Section 4.10 calculated on a pro forma basis as if
such designation had occurred at the beginning of the Reference Period; and (2)
no Default or Event of Default would be in existence following such designation.
Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, directly or indirectly, create or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital
Stock to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date (including,
without limitation, the Credit Facilities) and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in such Existing
Indebtedness, as in effect on the Issue Date;
(2) this Indenture, the Notes and the Other Notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
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(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary of the Company that restricts distributions by such Restricted
Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under Section 4.14
that limit the right of the Company or any of its Restricted Subsidiaries to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) restrictions contained in the terms of Indebtedness permitted to
be incurred under Section 4.10; provided that such restrictions are no more
restrictive than the terms contained in the Credit Facilities as in effect on
the Issue Date; and
(13) restrictions that are not materially more restrictive than
customary provisions in comparable financings and the management of the Company
determines that such restrictions will not materially impair the Company's
ability to make payments as required under the Notes.
Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company shall not issue any Disqualified Stock and shall not
permit any of their Restricted Subsidiaries to issue any shares of preferred
stock unless the Leverage Ratio would have been not greater than 8.75 to 1.0
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of the
most recently ended fiscal quarter.
So long as no Default shall have occurred and be continuing or would
be caused
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thereby, the first paragraph of this covenant shall not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness under the Credit Facilities; provided that the aggregate principal
amount of all Indebtedness of the Company and its Restricted Subsidiaries
outstanding under all Credit Facilities after giving effect to such incurrence
does not exceed an amount equal to $3.5 billion less the aggregate amount of all
Net Proceeds of Asset Sales applied by the Company or any of its Subsidiaries in
the case of an Asset Sale since the Existing Notes Issue Date to repay
Indebtedness under a Credit Facility pursuant to Section 4.11;
(2) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness (other than the Credit Facilities);
(3) the incurrence on the Issue Date by the Company and its
Restricted Subsidiaries of Indebtedness represented by the Notes (other than any
Additional Notes) and the Other Notes;
(4) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement (including, without limitation, the cost of design, development,
construction, acquisition, transportation, installation, improvement, and
migration) of Productive Assets of the Company or any of its Restricted
Subsidiaries, in an aggregate principal amount not to exceed $75 million at any
time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace, in whole or in part,
Indebtedness (other than intercompany Indebtedness) that was permitted by this
Indenture to be incurred under the first paragraph of this covenant or clauses
(2) or (3) of this paragraph;
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided that:
(a) if the Company is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the Notes; and
(b)(i) any subsequent issuance or transfer of Equity Interests
that results in
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any such Indebtedness being held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary thereof, shall be deemed,
in each case, to constitute an incurrence of such Indebtedness by the
Company or any of its Restricted Subsidiaries, as the case may be, that
was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indentures to be outstanding;
(8) the guarantee by the Company of Indebtedness of a Restricted
Subsidiary of the Company that was permitted to be incurred by another provision
of this Section 4.10;
(9) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at any
time outstanding not to exceed $300 million;
(10) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at any
time outstanding not to exceed 200% of the net cash proceeds received by the
Company from the sale of its Equity Interests (other than Disqualified Stock)
after the Existing Notes Issue Date to the extent such net cash proceeds have
not been applied to make Restricted Payments or to effect other transactions
pursuant to Section 4.07 or to make Permitted Investments pursuant to clause (5)
of the definition thereof; and
(11) the accretion or amortization of original issue discount and the
write up of Indebtedness in accordance with purchase accounting.
For purposes of determining compliance with this Section 4.10, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described in clauses (1) through (11) above,
or is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall be permitted to classify and from time to time to reclassify
such item of Indebtedness on the date of its incurrence in any manner that
complies with this covenant. For avoidance of doubt, Indebtedness incurred
pursuant to a single agreement, instrument, program, facility or line of credit
may be classified as Indebtedness arising in part under one of the clauses
listed above, and in part under any one or more of the clauses listed above, to
the extent that such Indebtedness satisfies the criteria for such clauses.
Notwithstanding the foregoing, in no event shall any Restricted
Subsidiary of the Company consummate a Subordinated Debt Financing or a
Preferred Stock Financing. A "Subordinated Debt Financing" or a "Preferred Stock
Financing", as the case may be, with respect to any Restricted Subsidiary of the
Company shall mean a public offering or private placement (whether pursuant to
Rule 144A under the Securities Act or otherwise) of Subordinated Notes or
preferred stock (whether or not such preferred stock constitutes Disqualified
Stock), as the case may be, of such Restricted Subsidiary to
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one or more purchasers (other than to one or more Affiliates of the Company).
"Subordinated Notes" with respect to any Restricted Subsidiary of the Company
shall mean Indebtedness of such Restricted Subsidiary that is contractually
subordinated in right of payment to any other Indebtedness of such Restricted
Subsidiary (including, without limitation, Indebtedness under the Credit
Facilities). The foregoing limitation shall not apply to (i) any Indebtedness or
preferred stock of any Person existing at the time such Person is merged with or
into or became a Subsidiary of the Company; provided that such Indebtedness or
preferred stock was not incurred or issued in connection with, or in
contemplation of, such Person merging with or into, or becoming a Subsidiary of,
the Company and (ii) any Indebtedness or preferred stock of a Restricted
Subsidiary issued in connection with, and as part of the consideration for, an
acquisition, whether by stock purchase, asset sale, merger or otherwise, in each
case involving such Restricted Subsidiary, which Indebtedness or preferred stock
is issued to the seller or sellers of such stock or assets; provided that such
Restricted Subsidiary is not obligated to register such Indebtedness or
preferred stock under the Securities Act or obligated to provide information
pursuant to Rule 144A under the Securities Act.
Section 4.11. Limitation on Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or a Restricted Subsidiary of the Company, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of such Board of Directors set forth in
an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash, Cash Equivalents
or readily marketable securities.
For purposes of this Section 4.11, each of the following shall be
deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary of the Company (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets pursuant to a customary
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novation agreement that releases the Company or such Restricted Subsidiary from
further liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash, Cash
Equivalents or readily marketable securities within 60 days after receipt
thereof (to the extent of the cash, Cash Equivalents or readily marketable
securities received in that conversion); and
(c) Productive Assets.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or a Restricted Subsidiary of the Company, as the case may be,
may apply such Net Proceeds at its option:
(1) to repay debt under the Credit Facilities or any other
Indebtedness of the Restricted Subsidiaries of the Company (other than
Indebtedness represented by a guarantee of a Restricted Subsidiary of the
Company); or
(2) to invest in Productive Assets; provided that any Net Proceeds
which the Company or a Restricted Subsidiary of the Company, as the case may be,
has committed to invest in Productive Assets within 365 days of the applicable
Asset Sale may be invested in Productive Assets within two years of such Asset
Sale.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph shall constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $25 million, the Issuers shall make
an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions requiring
offers to purchase or redeem with the proceeds of sales of assets to purchase
the maximum principal amount of Notes and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds (which amount includes the
entire amount of the Net Proceeds). The offer price in any Asset Sale Offer
shall be payable in cash and equal to 100% of principal amount plus accrued and
unpaid interest, if any, to the date of purchase. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, the Company may use such Excess
Proceeds for any purpose not otherwise prohibited by this Indenture. If the
aggregate principal amount of Notes and such other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
In the event that the Issuers shall be required to commence an offer
to Holders to purchase Notes pursuant to this Section 4.11, they shall follow
the procedures specified in Section 3.03.
Section 4.12. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter
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into a sale and leaseback transaction if:
(1) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
under the Leverage Ratio test in the first paragraph of Section 4.10 and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.14; and
(2) the transfer of assets in that sale and leaseback transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under Section 4.11.
The foregoing restrictions do not apply to a sale and leaseback
transaction if the lease is for a period, including renewal rights, of not in
excess of three years.
Section 4.13. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $15 million, a resolution of the Board of Directors of the Company set
forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the members of such Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $50 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
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The following items shall not be deemed to be Affiliate Transactions
and, therefore, shall not be subject to the provisions of the prior paragraph:
(1) any existing employment agreement entered into by the Company or
any of its Subsidiaries and any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company and customary indemnification and insurance
arrangements in favor of directors, regardless of affiliation with the Company
or any of its Restricted Subsidiaries;
(4) payment of management fees pursuant to management agreements
either (A) existing on the Issue Date or (B) entered into after the Issue Date,
to the extent that such management agreements provide for percentage fees no
higher than the percentage fees existing under the management agreements
existing on the Issue Date;
(5) Restricted Payments that are permitted by Section 4.07 and
Restricted Investments that are permitted by Section 4.08; and
(6) Permitted Investments.
Section 4.14. Liens.
The Company shall not, directly or indirectly, create, incur, assume
or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt
or trade payables on any asset now owned or hereafter acquired, except Permitted
Liens.
Section 4.15. Corporate Existence.
Subject to Article 5, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Subsidiaries, in accordance with the respective organizational documents (as the
same may be amended from time to time) of the Company or any such Subsidiary and
(ii) the rights (charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate, partnership
or other existence of any of its Subsidiaries (other than Charter Capital), if
the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders of the Notes.
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Section 4.16. Repurchase at the Option of Holders upon a Change of Control.
If a Change of Control occurs, each Holder of Notes shall have the
right to require the Issuers to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of that Holder's Notes pursuant to a Change of
Control Offer. In the Change of Control Offer, the Issuers shall offer (a
"Change of Control Offer") a payment (the "Change of Control Payment") in cash
equal to 101% of the aggregate principal amount of Notes repurchased plus
accrued and unpaid interest thereon, if any, to the date of purchase.
Within ten days following any Change of Control, the Issuers shall
mail a notice to each Holder (with a copy to the Trustee) describing the
transaction or transactions that constitute the Change of Control and stating:
(a) the purchase price and the purchase date, which shall not exceed
30 Business Days from the date such notice is mailed (the "Change of Control
Payment Date");
(b) that any Note not tendered shall continue to accrue interest;
(c) that, unless the Issuers default in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date;
(d) that Holders electing to have any Notes purchased pursuant to a
Change of Control Offer shall be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date;
(e) that Holders shall be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
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 Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have the Notes purchased; and
(f) that Holders whose Notes are being purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Issuers shall comply with the requirements of Rule 14e-1 under
the Exchange Act (or any successor rules) and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers shall, to the
extent lawful:
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(a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(b) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered; and
(c) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Issuers.
The Paying Agent shall promptly pay to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a
Change of Control Offer following a Change of Control shall be applicable
regardless of whether or not any other provisions in this Indenture are
applicable. Except as described above with respect to a Change of Control, this
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Issuers repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
Notwithstanding any other provision of this Section 4.16, the Issuers
shall not be required to make a Change of Control Offer upon a Change of Control
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Issuers and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness.
The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company except in respect of the Credit
Facilities (the "Guaranteed Indebtedness") unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
Guarantee (a "Subsidiary Guarantee") of the payment of the Notes by such
Restricted Subsidiary and (ii) until one year after all the Notes have been paid
in full in cash, such Restricted Subsidiary waives and will not in
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any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary of the Company as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee or any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary. If the Guaranteed Indebtedness is subordinated to the
Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated
to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Notes.
Section 4.18. Payments for Consent.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder of Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes unless such consideration is offered to be paid and is paid to all Holders
of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
Section 4.19. Application of Fall-Away Covenants.
During any period of time that (a) the Notes have Investment Grade
Ratings from both Rating Agencies and (b) no Default or Event of Default has
occurred and is continuing, the Company and its Restricted Subsidiaries shall
not be subject to the provisions of Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12,
4.13 and clause (4) of the first paragraph of Section 5.01 (collectively, the
"Suspended Covenants"). In the event that the Company and its Restricted
Subsidiaries are not subject to the Suspended Covenants for any period of time
as a result of the preceding sentence and, subsequently, one or both of the
Rating Agencies withdraws its ratings or downgrades the ratings assigned to the
Notes below the required Investment Grade Ratings or a Default or Event of
Default occurs and is continuing, then the Company and its Restricted
Subsidiaries shall thereafter again be subject to the Suspended Covenants and
compliance with the Suspended Covenants with respect to the Restricted Payments
made after the time of such withdrawal, downgrade, Default or Event of Default
will be calculated in accordance with the terms of Section 4.07 as though such
covenant had been in effect during the entire period of time from the Issue
Date.
ARTICLE 5 SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
Neither of the Issuers may, directly or indirectly: (1) consolidate
or merge with or into another Person (whether or not such Issuer is the
surviving corporation); or (2) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of its properties or assets, in one or more
related transactions, to another Person; unless:
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(1) either: (a) such Issuer is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other than
such Issuer) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a Person organized or existing under the
laws of the United States, any state thereof or the District of Columbia
(provided that if the Person formed by or surviving any such consolidation or
merger with either Issuer is a limited liability company or other Person other
than a corporation, a corporate co-issuer shall also be an obligor with respect
to the Notes);
(2) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and this Indenture pursuant to
agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) will, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, either (A) be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of Section 4.10 or (B) have a Leverage Ratio immediately after
giving effect to such consolidation or merger no greater than the Leverage Ratio
immediately prior to such consolidation or merger.
In addition, the Company may not, directly or indirectly, lease all
or substantially all of its properties or assets, in one or more related
transactions, to any other Person. This Section 5.01 shall not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or among
the Company and any of its Wholly-Owned Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of either Issuer in accordance with Section 5.01, the successor Person formed by
such consolidation or into which either Issuer is merged or to which such
transfer is made shall succeed to and (except in the case of a lease) be
substituted for, and may exercise every right and power of, such Issuer under
this Indenture with the same effect as if such successor Person had been named
therein as such Issuer, and (except in the case of a lease) such Issuer shall be
released from the obligations under the Notes and this Indenture, except with
respect to any obligations that arise from, or are related to, such transaction.
ARTICLE 6 DEFAULTS AND REMEDIES
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Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Issuers default in the payment when due of interest on the
Notes and such default continues for a period of 30 days;
(b) the Issuers default in payment when due of the principal of or
premium, if any, on the Notes;
(c) the Company or any of its Restricted Subsidiaries fails to comply
with any of the provisions of Sections 4.16 or 5.01;
(d) the Company or any of its Restricted Subsidiaries fails to comply
with any of their other covenants or agreements in this Indenture for 30 days
after written notice thereof has been given to the Company by the Trustee or to
the Company and the Trustee by Holders of at least 25% of the aggregate
principal amount of the Notes outstanding;
(e) the Company or any of its Restricted Subsidiaries defaults under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed (or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists or is created
after the Issue Date, if that default:
(1) is caused by a failure to pay at final stated maturity the
principal amount on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(2) results in the acceleration of such Indebtedness prior to
its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$100 million or more;
(f) the Company or any of its Restricted Subsidiaries fails to pay
final judgments which are non-appealable aggregating in excess of $100 million
(net of applicable insurance which has not been denied in writing by the
insurer), which judgments are not paid, discharged or stayed for a period of 60
days;
(g) the Company or any of its Significant Subsidiaries pursuant to or
within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
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(iii) consents to the appointment of a custodian of it or for
all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its
creditors; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries in an involuntary case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of the property
of the Company or any of its Significant Subsidiaries; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02. Acceleration.
In the case of an Event of Default arising from clause (g) or (h) of
Section 6.01 with respect to the Company, all outstanding Notes shall become due
and payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the Trustee by notice to the Issuers or the
Holders of at least 25% in principal amount of the then outstanding Notes by
notice to the Issuers and the Trustee may declare all the Notes to be due and
payable immediately. The Holders of a majority in aggregate principal amount of
the Notes then outstanding by written notice to the Trustee may on behalf of all
of the Holders rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, interest or premium that has become due
solely because of the acceleration) have been cured or waived.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Existing Defaults.
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Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability. The Trustee may take any other action which it
deems proper that is not inconsistent with any such directive.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
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(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuers for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Issuers
(or any other obligor upon the Notes), their creditors or their property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any
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Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Notes for principal, premium, if any and interest, respectively; and
Third: to the Issuers or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7 TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall
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exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own
gross negligent action, its own gross negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was grossly negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or documents.
Section 7.02. Rights of Trustee.
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(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from either of the Issuers shall be
sufficient if signed by an Officer of such Issuer.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless either (i) a Responsible Officer of the Trustee shall
have actual knowledge of such Default or Event of Default or (ii) written notice
of such Default or Event of Default shall have been given to the Trustee by the
Issuers or any Holder.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuers or any
Affiliate of the Issuers with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the
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Issuers' use of the proceeds from the Notes or any money paid to the Issuers or
upon the Issuers' direction under any provision of this Indenture, it shall not
be responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of
the Default or Event of Default within 90 days after the Trustee acquires
knowledge thereof. Except in the case of a Default or Event of Default in
payment of principal of, premium, if any, or interest on any Note, the Trustee
may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Issuers shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuers shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
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The Issuers shall, jointly and severally, indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Issuers (including this Section 7.07) and defending itself against
any claim (whether asserted by the Issuers or any Holder or any other person) or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent any such loss, liability or expense may
be attributable to its gross negligence or willful misconduct. The Trustee shall
notify the Issuers promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Issuers shall not relieve the Issuers of
their obligations hereunder. The Issuers shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Issuers shall pay the reasonable fees and expenses of such counsel. The Issuers
need not pay for any settlement made without their consent, which consent shall
not be unreasonably withheld.
The obligations of the Issuers this Section 7.07 shall survive
resignation or removal of the Trustee and the satisfaction and discharge of this
Indenture.
To secure the Issuers' payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or removal
of the Trustee and the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(g) or (h) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuers. The Holders of a majority
in principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Issuers in writing. The Issuers may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
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(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee; provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Issuers' obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
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Section 7.11. Preferential Collection of Claims Against the Issuers.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at the option of their respective Boards of
Directors evidenced by a resolution set forth in an Officers' Certificate of
each of the Issuers, at any time, elect to have either Section 8.02 or 8.03 be
applied to all outstanding Notes upon compliance with the conditions set forth
below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option
applicable to this Section 8.02, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04, be deemed to have been discharged
from their obligations with respect to all outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, Legal Defeasance means that the Issuers shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all their other obligations under such
Notes and this Indenture (and the Trustee, on demand of and at the expense of
the Issuers, shall execute proper instruments acknowledging the same), except
for the following provisions which shall survive until otherwise terminated or
discharged hereunder:
(a) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due from the trust referred to below;
(b) the Issuers' obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust;
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(c) the rights, powers, trusts, duties and immunities of the Trustee
and the Issuers' obligations in connection therewith; and
(d) the Legal Defeasance provisions of this Indenture;
Subject to compliance with this Article 8, the Issuers may exercise
their option under this Section 8.02 notwithstanding the prior exercise of their
option under Section 8.03.
Section 8.03. Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option
applicable to this Section 8.03, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04, be released from their obligations
under the covenants contained in Article 5 and Sections 4.03, 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.19 with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Issuers may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01
of the option applicable to this Section 8.03, subject to the satisfaction of
the conditions set forth in Section 8.04, Sections 6.01(c) through 6.01(f) shall
not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
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(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than this Indenture) to which the Company or any of the
Restricted Subsidiaries is a party or by which the Company or any of the
Restricted Subsidiaries is bound;
(6) the Company must have delivered to the applicable Trustee an
opinion of counsel to the effect that after the 91st day assuming no intervening
bankruptcy, that no Holder is an insider of either of the Issuers following the
deposit and that such deposit would not be deemed by a court of competent
jurisdiction a transfer for the benefit of either Issuer in its capacity as
such, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the Company
or others; and
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(8) the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
Notwithstanding the foregoing, the opinion of counsel required by
clause (2) above with respect to a Legal Defeasance need not be delivered if all
Notes not theretofore delivered to the Trustee for cancellation (i) have become
due and payable or (ii) will become due and payable on the maturity date within
one year, by their terms or under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Issuers.
Section 8.05. Deposited Money and Government Securities to Be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 in respect of the outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the provisions of
such Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Issuers acting as Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon the request
of the Issuers any money or non-callable Government Securities held by it as
provided in Section 8.04 which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a)), are in excess of the amount thereof that would then be required to be
deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuers.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Issuers, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Issuers on their request or (if then held by the Issuers) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Issuers for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
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Issuers as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Issuers cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Issuers.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' obligations under this Indenture and the Notes,
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.02 or 8.03, as the case may
be; provided, however, that, if the Issuers make any payment of principal of,
premium, if any, or interest on any Note following the reinstatement of their
obligations, the Issuers shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Issuers and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for or confirm the issuance of Additional Notes;
(d) to provide for the assumption of either Issuer's obligations to
Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the assets of such Issuer pursuant to Article 5;
(e) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under this Indenture of any such Holder; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA or otherwise as
necessary to comply with
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applicable law.
Upon the request of the Issuers accompanied by a resolution of their
respective Boards of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02, the Trustee shall join with the Issuers in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, this Indenture
(including Sections 4.11 and 4.16) or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or a tender offer or exchange offer
for, Notes) and, subject to Sections 6.04 and 6.07, any existing Default or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or a tender offer or exchange offer for, Notes).
Section 2.08 shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Issuers accompanied by a resolution of their
respective Boards of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02, the
Trustee shall join with the Issuers in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice
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briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental Indenture
or waiver. Subject to Sections 6.04 and 6.07, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by the Issuers with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment,
supplement or waiver under this Section 9.02 may not (with respect to any Notes
held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the payment provisions with respect to the redemption of the Notes
(other than provisions relating to Sections 4.11 and 4.16);
(c) reduce the rate of or extend the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal
of, or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of, or premium, if any, or interest on the Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described in Sections 4.11 and 4.16);
or
(h) make any change in this Section 9.02.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver
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becomes effective in accordance with its terms and thereafter binds every
Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Issuers may not sign an amendment or supplemental Indenture until their
respective Boards of Directors approve it. In executing any amended or
supplemental indenture, the Trustee shall be entitled to receive and (subject to
Section 7.01) shall be fully protected in relying upon, in addition to the
documents required by Section 10.04, an Officer's Certificate and an Opinion of
Counsel, in each case from each of the Issuers, stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture.
ARTICLE 10 MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by the Issuers or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Issuers:
c/o Charter Communications, Inc.
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12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Telecopier No.: (314) 965-8793
Attention: Secretary
With copies to:
Paul, Hastings, Janofsky & Walker LLP Irell & Manella LLP
399 Park Avenue 1800 Avenue of the Stars
31st Floor Suite 900
New York, New York 10022 Los Angeles, California 90067
Telecopier No.: (212) 319-4090 Telecopier No.: (310) 556-5393
Attention: Leigh P. Ryan, Esq. Attention: Meredith Jackson, Esq.
If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Telecopier No.: (312) 461-3525
Attention: Corporate Trust Department
The Issuers or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuers mail a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Issuers, the
Trustee, the
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Registrar and anyone else shall have the protection of TIA ss. 312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee to take
any action under this Indenture, the Issuers shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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Section 10.07. No Personal Liability of Directors, Officers, Employees, Members
and Stockholders.
No director, officer, employee, incorporator, member or stockholder
of the Issuers, as such, shall have any liability for any obligations of the
Issuers under the Notes, this 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.
Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH OF THE PARTIES HERETO
AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES
OR ANY GUARANTEE.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Issuers or their Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 10.10. Successors.
All agreements of the Issuers in this Indenture and the Notes, as the
case may be, shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 10.11. Severability.
In case any provision in this Indenture or the Notes, as the case may
be, shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and
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Sections of this Indenture have been inserted for convenience of reference only,
are not to be considered a part of this Indenture and shall in no way modify or
restrict any of the terms or provisions.
ARTICLE 11 SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Issuers, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust by the Issuers and thereafter repaid to the Issuers or
discharged from such trust,) have been delivered to the Trustee for
cancellation; or
(B) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense,
of the Issuers,
and the Issuers, in the case of (i), (ii) or (iii) above, have deposited
or caused to be deposited with the Trustee as trust funds in trust for the
purpose an amount sufficient to pay and discharge the entire indebtedness
on such Notes not theretofore delivered to the Trustee for cancellation,
for principal (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable) or to the
maturity or redemption thereof, as the case may be;
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(2) the Issuers have paid or caused to be paid all other sums payable
hereunder by the Issuers; and
(3) each of the Issuers have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article 11, the obligations of the Issuers to the Trustee under Section
7.07, and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (1) of this Section, the obligations of the Trustee
under Section 11.02 shall survive.
Section 11.02. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 11.01 shall
be held in trust and applied by it, in accordance with the provisions of the
Notes and this Indenture, to the payment, either directly or through any Paying
Agent as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
[Signatures on following page]
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SIGNATURES
Dated as of January 12, 2000
CHARTER COMMUNICATIONS HOLDINGS, LLC, as
an Issuer
By /s/ Curtis S. Shaw
-------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel and Secretary
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION, as an Issuer
By /s/ Curtis S. Shaw
-------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel and Secretary
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By /s/ Judy Bartolini
-------------------------------------
Name: Judy Bartolini
Title: Vice President
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EXHIBIT A
[Face of Note]
CUSIP NO. [_______________]
10.00% Senior Notes due 2009
No.
$[________________]
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
promise to pay to_______________________________________________________________
or registered assigns,
the principal amount of ______________________________________________
Dollars
($______________________________) on April 1, 2009.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
Subject to Restrictions set forth in this Note.
Dated: January 12, 2000
CHARTER COMMUNICATIONS HOLDINGS, LLC
By
-------------------------------------
Name:
Title:
A-1
<PAGE> 94
By
-------------------------------------
Name:
Title:
A-2
<PAGE> 95
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
----------------------------------
Authorized Signatory
A-3
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[Back of Note]
10.00% Senior Notes due 2009
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."(1)
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES."(2)
(1) This paragraph should be included only if the Note is issued in global form.
(2) This paragraph should be removed upon the exchange of Notes for Exchange
Notes in
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an Exchange Offer or upon the registration of the Notes pursuant to the
terms of a Registration Rights Agreement.
A-5
<PAGE> 98
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. INTEREST. Charter Communications Holdings, LLC, a Delaware limited
liability company (the "Company"), and Charter Communications Holdings Capital
Corporation, a Delaware corporation ("Charter Capital" and, together with the
Company, the "Issuers"), promise to pay interest on the principal amount of this
Note at the rate of 10.00% per annum from January 12, 2000 until maturity. The
interest rate on the Notes is subject to increase pursuant to the provisions of
the Registration Rights Agreement. The Issuers will pay interest semi-annually
in arrears on April 1 and October 1 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face and the next succeeding Interest Payment Date, interest shall accrue
from such next succeeding Interest Payment Date; provided, further, that the
first Interest Payment Date shall be April 1, 2000. The Issuers shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; they
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Issuers shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the March 15 or September 15 next preceding the
Interest Payment Date, even if such Notes are canceled after such record date
and on or before such Interest Payment Date, except as provided in Section 2.12
of the Indenture with respect to defaulted interest. The Notes will be payable
as to principal, premium, if any, and interest at the office or agency of the
Issuers maintained for such purpose within or without the City and State of New
York, or, at the option of the Issuers, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest and premium on all Global
Notes and all other Notes the Holders of which shall have provided wire transfer
instructions to the Issuers or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
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3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust and Savings
Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Issuers may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture dated as
of January 12, 2000 ("Indenture") between the Issuers and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code ss.ss. 77aaa- 77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling. The
Notes are obligations of the Issuers limited to $1,000,000,000 in principal
amount, of which $675,000,000 in aggregate principal amount was issued on the
Issue Date.
5. OPTIONAL REDEMPTION.
The Notes will not be redeemable at the Issuers' option prior to
maturity.
6. MANDATORY REDEMPTION.
Except as otherwise provided in Paragraph 7 below, the Issuers shall
not be required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuers shall make an offer (a
"Change of Control Offer") to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of each Holder's Notes at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase (the "Change of Control Payment").
Within 10 days following any Change of Control, the Issuers shall mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes on the Change of Control
Payment Date specified in such notice, pursuant to the procedures required by
the Indenture and described in such notice.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sale, when the aggregate amount of Excess Proceeds exceeds $25.0 million, the
Issuers shall commence an offer (an "Asset Sale Offer") pursuant to Section 4.11
of the Indenture to all Holders of Notes and all holders of other Indebtedness
that is pari passu with the Notes containing provisions requiring offers to
purchase or redeem with the proceeds of sales of assets to purchase the maximum
principal amount of Notes and such other pari passu Indebtedness that may be
purchased out of the Excess Proceeds (which amount includes the entire amount of
the Net Proceeds). The offer price in any Asset Sale Offer will be payable in
cash and equal to 100% of principal amount plus accrued and unpaid interest, if
any, to the date of purchase. If any Excess Proceeds remain after consummation
of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose
not otherwise prohibited by the Indenture. If the aggregate principal amount
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of Notes and such other pari passu Indebtedness tendered into such Asset Sale
Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes
and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
10. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes). Without the consent of any Holder of a Note, the Issuers and
the Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
an Issuers' obligations to Holders of Notes in the case of a merger or
consolidation or sale of all or substantially all of the assets of either Issuer
to make any change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture
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under the TIA or otherwise as necessary to comply with applicable law.
11. DEFAULTS AND REMEDIES. Each of the following is an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes, (ii) default in payment when due of the principal of or premium, if any,
on the Notes, (iii) failure by the Company or any of its Restricted Subsidiaries
to comply with Sections 4.16 and 5.01 of the Indenture, (iv) failure by the
Company or any of its Restricted Subsidiaries for 30 days after written notice
thereof has been given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% of the principal amount of the Notes
outstanding to comply with any of their other covenants or agreements in the
Indenture, (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or
is created after the date of the Indenture, if that default: (a) is caused by a
failure to pay at final stated maturity the principal amount of such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default"); or (b) results
in the acceleration of such Indebtedness prior to its express maturity, and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$100 million or more, (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments which are non-appealable aggregating in
excess of $100 million (net of applicable insurance which has not been denied in
writing by the insurer), which judgments are not paid, discharged or stayed for
a period of 60 days or (vii) certain events of bankruptcy or insolvency with
respect to the Company or any its Significant Subsidiaries. In the case of an
Event of Default arising from certain events of bankruptcy or insolvency with
respect to the Company, all outstanding Notes will become due and payable
without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee by notice to the Issuers or the Holders of at least 25%
in principal amount of the then outstanding Notes by notice to the Issuers and
the Trustee may declare all the Notes to be due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in aggregate principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
12. TRUSTEE DEALINGS WITH ISSUERS. The Trustee, in its individual or
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any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or their Affiliates, and may otherwise deal with the
Issuers or their Affiliates, as if it were not the Trustee.
13. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator, member or stockholder of either of the Issuers, as such, shall not
have any liability for any obligations of the Issuers under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
14. GOVERNING LAW. This Note and the Indenture shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto and the holders agree
to submit to the jurisdiction of the courts of the State of New York in any
action or proceeding arising out of or relating to this Note.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in any Registration Rights
Agreement.
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive
Suite 100
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St. Louis, Missouri 63131
Attention: Secretary
Telecopier No.: (314) 965-0555
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:___________________________________
(Insert assignee's legal name)
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
Date:______________________________
Your Signature:____________________________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:______________________________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.11 or 4.16 of the Indenture, check the appropriate box below:
[ ] Section 4.11 [ ] Section 4.16
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.11 or Section 4.16 of the Indenture, state the amount you
elect to have purchased:
$________________________
Date:____________________
Your Signature:____________________________________________________________
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:____________________________________________________
Signature Guarantee*:______________________________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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<PAGE> 106
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Principal
Amount of Amount of Amount of
decrease in increase in this Global
Principal Principal Note
Amount of Amount of following Signature of authorized
Date of this Global this Global such decrease officer of Trustee or
Exchange Note Note (or increase) Note Custodian
-------- ----------- ----------- ------------- -----------------------
<S> <C> <C> <C> <C>
</TABLE>
A-14
<PAGE> 107
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 10.00% Senior Notes due 2009
Reference is hereby made to the Indenture, dated as of January 12, 2000
(the "Indenture"), among Charter Communications Holdings, LLC (the "Company")
and Charter Communications Holdings Capital Corporation ("Charter Capital" and,
together with the Company, the "Issuers"), and Harris Trust and Savings Bank, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
___________________ (the "Transferor") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $_____________________________ in such Note[s] or interests
(the "Transfer"), to ___________________________ (the "Transferee"), as further
specified in Annex A hereto. In connection with the Transfer, the Transferor
hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] Check if Transferee will take delivery of a beneficial interest
in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction
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meeting the requirements of Rule 144A and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
2. [ ] Check if Transferee will take delivery of a beneficial interest
in the Regulation S Global Note or a Definitive Note pursuant to Regulation S.
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the Transferor hereby
further certifies that (i) the Transfer is not being made to a person in the
United States and (x) at the time the buy order was originated, the Transferee
was outside the United States or such Transferor and any Person acting on its
behalf reasonably believed and believes that the Transferee was outside the
United States or (y) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act and (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.
3. [ ] Check and complete if Transferee will take delivery of a
beneficial interest in a Definitive Note pursuant to any provision of the
Securities Act other than Rule 144A or Regulation S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act; or
(b) [ ] such Transfer is being effected to the Company or a subsidiary
thereof; or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery
B-2
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requirements of the Securities Act; or
(d) [ ] such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that it has not engaged in any general solicitation
within the meaning of Regulation D under the Securities Act and the Transfer
complies with the transfer restrictions applicable to beneficial interests in a
Restricted Global Note or Restricted Definitive Notes and the requirements of
the exemption claimed, which certification is supported by (1) a certificate
executed by the Transferee in the form of Exhibit D to the Indenture and (2) an
Opinion of Counsel provided by the Transferor or the Transferee (a copy of which
the Transferor has attached to this certification), to the effect that such
Transfer is in compliance with the Securities Act. Upon consummation of the
proposed transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Note and/or the Definitive Notes and in the Indenture and the Securities
Act.
4. [ ] Check if Transferee will take delivery of a beneficial interest
in an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) [ ] Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(b) [ ] Check if Transfer is Pursuant to Regulation S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) [ ] Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on
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transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will not be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Global Notes or Restricted Definitive Notes and
in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
- ------------------------------------------------
[Insert Name of Transferor]
By
----------------------------------------------
Name:
Title:
Dated:
------------------------------------------
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ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP __________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP __________), or
(ii) [ ] Regulation S Global Note (CUSIP _________), or
(iii) [ ] Unrestricted Global Note (CUSIP _________); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
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<PAGE> 112
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 10.00% Senior Notes due 2009
(CUSIP ______________________)
Reference is hereby made to the Indenture, dated as of January 12, 2000
(the "Indenture"), among Charter Communications Holdings, LLC (the "Company")
and Charter Communications Holdings Capital Corporation ("Charter Capital" and,
together with the Company, the "Issuers"), and Harris Trust and Savings Bank, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
__________________________ (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount of $____________________________ in such Note[s] or interests (the
"Exchange"). In connection with the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) [ ] Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to
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<PAGE> 113
the Global Notes and pursuant to and in accordance with the United States
Securities Act of 1933, as amended (the "Securities Act"), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b) [ ] Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) [ ] Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global Notes
(a) [ ] Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the
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<PAGE> 114
proposed Exchange in accordance with the terms of the Indenture, the Restricted
Definitive Note issued will continue to be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Definitive Note and in the Indenture and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note to beneficial
interest in a Restricted Global Note. In connection with the Exchange of the
Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
[ ] 144A Global Note or [ ] Regulation S Global Note with an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, and in compliance with any applicable blue sky securities laws of any state
of the United States. Upon consummation of the proposed Exchange in accordance
with the terms of the Indenture, the beneficial interest issued will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the relevant Restricted Global Note and in the Indenture and the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
- --------------------------------------------
[Insert Name of Transferor]
By
------------------------------------------
Name:
Title:
Dated:
------------------------------------------
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<PAGE> 115
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 10.00% Senior Notes due 2009
Reference is hereby made to the Indenture, dated as of January 12, 2000
(the "Indenture"), among Charter Communications Holdings, LLC (the "Company")
and Charter Communications Holdings Capital Corporation ("Charter Capital" and,
together with the Company, the "Issuers"), and Harris Trust and Savings Bank, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
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<PAGE> 116
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the Securities Act, and we further agree
to provide to any person purchasing the Definitive Note or beneficial interest
in a Global Note from us in a transaction meeting the requirements of clauses
(A) through (E) of this paragraph a notice advising such purchaser that resales
thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuers such certifications, legal opinions and other information as you and the
Issuers may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased
by us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy to any interested party
in any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby.
- --------------------------------------------
[Insert Name of Transferor]
By
- --------------------------------------------
Name:
Title:
Dated:
--------------------------------------
D-2
<PAGE> 1
Exhibit 4.1(c)
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
$675,000,000 10.00% SENIOR NOTES DUE 2009
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
January 12, 2000
Goldman, Sachs & Co.
Chase Securities Inc.
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
First Union Securities, Inc.
PNC Capital Markets, Inc.
SunTrust Equitable Securities Corporation
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Charter Communications Holdings, LLC, a Delaware limited liability
company (the "Company"), and Charter Communications Holdings Capital
Corporation, a Delaware corporation ("Charter Capital" and, together with the
Company, the "Issuers"), propose, subject to the terms and conditions stated
herein, to issue and sell to the Purchasers (as defined herein) upon the terms
set forth in the Purchase Agreement (as defined herein) their $675,000,000
aggregate principal amount of 10.00% Senior Notes due 2009 (the "Notes"). As an
inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchasers thereunder, the
Issuers agree with the Purchasers for the benefit of holders (as defined herein)
from time to time of the Registrable Securities (as defined herein) as follows:
<PAGE> 2
1. Certain Definitions. For purposes of this Exchange and
Registration Rights Agreement, the following terms shall have the following
respective meanings:
"Base Interest" shall mean the interest that would otherwise accrue
on the Notes under the terms thereof and the Indenture, without giving
effect to the provisions of this Exchange and Registration Rights
Agreement.
The term "broker-dealer" shall mean any broker or dealer registered
with the Commission under the Exchange Act.
"Closing Date" shall mean the date on which the Notes are initially
issued.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
Exchange Act or the Securities Act, whichever is the relevant statute for
the particular purpose.
"Effective Time," in the case of (i) an Exchange Offer Registration,
shall mean the time and date as of which the Commission declares the
Exchange Offer Registration Statement effective or as of which the
Exchange Offer Registration Statement otherwise becomes effective and (ii)
a Shelf Registration, shall mean the time and date as of which the
Commission declares the Shelf Registration Statement effective or as of
which the Shelf Registration Statement otherwise becomes effective.
"Electing Holder" shall mean any holder of Registrable Securities
that has returned a completed and signed Notice and Questionnaire to the
Issuers in accordance with Section 3(d)(ii) or 3(d)(iii) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or
any successor thereto, as the same shall be amended from time to time.
"Exchange Notes" shall have the meaning assigned thereto in Section
2(a) hereof.
"Exchange Offer" shall have the meaning assigned thereto in Section
2(a) hereof.
"Exchange Offer Registration" shall have the meaning assigned
thereto in Section 3(c) hereof.
"Exchange Offer Registration Statement" shall have the meaning
assigned thereto in Section 2(a) hereof.
The term "holder" shall mean each of the Purchasers and other
persons who acquire Registrable Securities from time to time (including
any successors or assigns), in each
<PAGE> 3
case for so long as such person is a registered holder of any Registrable
Securities.
"Indenture" shall mean the Indenture governing the Notes, dated as
of January 12, 2000 between the Issuers and Harris Trust and Savings Bank,
as Trustee, as the same shall be amended from time to time.
"Notes" shall mean, collectively, the 10.00% Senior Notes due 2009
of the Issuers to be issued and sold to the Purchasers, and Notes issued
in exchange therefor or in lieu thereof, pursuant to the Indenture.
"Notice and Questionnaire" means a Notice of Registration Statement
and Selling Securityholder Questionnaire substantially in the form of
Exhibit A hereto.
The term "person" shall mean a corporation, association,
partnership, organization, business, individual, government or political
subdivision thereof or governmental agency.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
January 6, 2000, between the Purchasers and the Issuers relating to the
Notes.
"Purchasers" shall mean the Purchasers named in Schedule I to the
Purchase Agreement.
"Registrable Securities" shall mean the Notes; provided, however,
that a Note shall cease to be a Registrable Security when (i) in the
circumstances contemplated by Section 2(a) hereof, such Note has been
exchanged for an Exchange Note in an Exchange Offer as contemplated in
Section 2(a) hereof (provided that any Exchange Note that, pursuant to the
last two sentences of Section 2(a), is included in a prospectus for use in
connection with resales by broker-dealers shall be deemed to be a
Registrable Security with respect to Sections 5, 6 and 9 hereof until
resale of such Registrable Security has been effected within the 180-day
period referred to in Section 2(a)(y)); (ii) in the circumstances
contemplated by Section 2(b) hereof, a Shelf Registration Statement
registering such Note under the Securities Act has been declared or
becomes effective and such Note has been sold or otherwise transferred by
the holder thereof pursuant to and in a manner contemplated by such
effective Shelf Registration Statement; (iii) such Note is sold pursuant
to Rule 144 under circumstances in which any legend borne by such Note
relating to restrictions on transferability thereof, under the Securities
Act or otherwise, is removed by the Issuers or pursuant to the Indenture;
(iv) such Security is eligible to be sold pursuant to paragraph (k) of
Rule 144; or (v) such Security shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto in
Section 2(c) hereof.
<PAGE> 4
"Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in Section
2(a) hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate of
the Issuers within the meaning of Rule 405, (ii) a holder who acquires
Exchange Notes outside the ordinary course of such holder's business,
(iii) a holder who has arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing Exchange
Notes and (iv) a holder that is a broker-dealer, but only with respect to
Exchange Notes received by such broker-dealer pursuant to an Exchange
Offer in exchange for Registrable Securities acquired by the broker-dealer
directly from the Issuers.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such
rule promulgated under the Securities Act (or any successor provision), as
the same shall be amended from time to time.
"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned thereto in
Section 2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned
thereto in Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in
Section 2(c) hereof.
"subsidiaries" shall mean subsidiaries which would be "significant
subsidiaries" as defined in Rule 1-02(w) of Regulation S-X under the
Exchange Act.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or
any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Exchange and Registration Rights Agreement, and the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Issuers agree to
file under the
<PAGE> 5
Securities Act, as soon as practicable, but no later than 120 days after
the Closing Date, a registration statement relating to an offer to
exchange (such registration statement, the "Exchange Offer Registration
Statement", and such offer, the "Exchange Offer") any and all of the
Notes for a like aggregate principal amount of notes issued by the
Issuers, which notes are substantially identical in all material respects
to the Notes (and are entitled to the benefits of a trust indenture which
has terms identical in all material respects to the Indenture or is the
Indenture and which has been qualified under the Trust Indenture Act),
except that they have been registered pursuant to an effective
registration statement under the Securities Act and do not contain
provisions for the additional interest contemplated in Section 2(c) below
(such notes hereinafter called "Exchange Notes"). The Issuers agree to
use their reasonable best efforts to cause the Exchange Offer
Registration Statement to become or be declared effective under the
Securities Act as soon as practicable, but no later than 180 days after
the Closing Date. The Exchange Offer will be registered under the
Securities Act on the appropriate form and will comply with all
applicable tender offer rules and regulations under the Exchange Act. The
Issuers further agree to use their reasonable best efforts to complete
the Exchange Offer promptly, but no later than 30 business days or
longer, if required by the federal securities laws, after such
registration statement has become effective, hold the Exchange Offer open
for at least 30 days and exchange Exchange Notes for all Registrable
Securities that have been properly tendered and not withdrawn on or prior
to the expiration of the Exchange Offer. The Exchange Offer will be
deemed to have been "completed" only if the Exchange Notes received by
holders, other than Restricted Holders, in the Exchange Offer in exchange
for Registrable Securities are, upon receipt, transferable by each such
holder without restriction under the Securities Act and the Exchange Act
and without material restrictions under the blue sky or securities laws
of a substantial majority of the States of the United States of America.
The Exchange Offer shall be deemed to have been completed upon the
earlier to occur of (i) the Issuers having exchanged the Exchange Notes
for all outstanding Registrable Securities pursuant to the Exchange Offer
and (ii) the Issuers having exchanged, pursuant to the Exchange Offer,
Exchange Notes for all Registrable Securities that have been properly
tendered and not withdrawn before the expiration of the Exchange Offer,
which shall be on a date that is at least 30 business days following the
commencement of the Exchange Offer. The Issuers agree (x) to include in
the Exchange Offer Registration Statement a prospectus for use in any
resales by any holder of Exchange Notes that is a broker-dealer and (y)
to keep such Exchange Offer Registration Statement effective for a period
(the "Resale Period") beginning when Exchange Notes are first issued in
the Exchange Offer and ending upon the earlier of the expiration of the
180th day after the Exchange Offer has been completed or such time as
such broker-dealers no longer own any Registrable Securities. With
respect to such Exchange Offer Registration Statement, such holders shall
have the benefit of the rights of indemnification and contribution set
forth in Sections 6(a), (c), (d) and (e) hereof.
(b) If (i) on or prior to the time the Exchange Offer is completed
existing law or
<PAGE> 6
Commission policy or interpretations are changed such that the Exchange
Notes received by holders, other than Restricted Holders, in the Exchange
Offer in exchange for Registrable Securities are not or would not be, upon
receipt, transferable by each such holder without restriction under the
Securities Act, (ii) the Exchange Offer has not been completed within 210
days following the Closing Date or (iii) the Exchange Offer is not
available to any holder of the Notes, the Issuers shall, in lieu of (or,
in the case of clause (iii), in addition to) conducting the Exchange Offer
contemplated by Section 2(a), file under the Securities Act on or prior to
30 business days after the time such obligation to file arises, a "shelf"
registration statement providing for the registration of, and the sale on
a continuous or delayed basis by the holders of, all of the Registrable
Securities, pursuant to Rule 415 or any similar rule that may be adopted
by the Commission (such filing, the "Shelf Registration" and such
registration statement, the "Shelf Registration Statement"). The Issuers
agree to use their reasonable best efforts (x) to cause the Shelf
Registration Statement to become or be declared effective by the
Commission no later than 90 days after such obligation to file arises and
to keep such Shelf Registration Statement continuously effective for a
period ending on the earlier of (i) the second anniversary of the
Effective Time or (ii) such time as there are no longer any Registrable
Securities outstanding; provided, however, that no holder shall be
entitled to be named as a selling securityholder in the Shelf Registration
Statement or to use the prospectus forming a part thereof for resales of
Registrable Securities unless such holder is an Electing Holder, and (y)
after the Effective Time of the Shelf Registration Statement, promptly
upon the request of any holder of Registrable Securities that is not then
an Electing Holder, to take any action reasonably necessary to enable such
holder to use the prospectus forming a part thereof for resales of
Registrable Securities, including, without limitation, any action
necessary to identify such holder as a selling securityholder in the Shelf
Registration Statement, provided, however, that nothing in this clause (y)
shall relieve any such holder of the obligation to return a completed and
signed Notice and Questionnaire to the Issuers in accordance with Section
3(d)(iii) hereof. The Issuers further agree to supplement or make
amendments to the Shelf Registration Statement, as and when required by
the rules, regulations or instructions applicable to the registration form
used by the Issuers for such Shelf Registration Statement or by the
Securities Act or rules and regulations thereunder for shelf registration,
and the Issuers agree to furnish to each Electing Holder copies of any
such supplement or amendment prior to its being used or promptly following
its filing with the Commission.
(c) In the event that (i) the Issuers have not filed the Exchange
Offer Registration Statement or Shelf Registration Statement on or before
the date on which such registration statement is required to be filed
pursuant to Section 2(a) or 2(b), respectively, or (ii) such Exchange
Offer Registration Statement or Shelf Registration Statement has not
become effective or been declared effective by the Commission on or before
the date on which such registration statement is required to become or be
declared effective
<PAGE> 7
pursuant to Section 2(a) or 2(b), respectively, or (iii) the Exchange
Offer has not been completed within 30 business days after the initial
effective date of the Exchange Offer Registration Statement relating to
the Exchange Offer (if the Exchange Offer is then required to be made) or
(iv) any Exchange Offer Registration Statement or Shelf Registration
Statement required by Section 2(a) or 2(b) hereof is filed and becomes or
is declared effective but shall thereafter either be withdrawn by the
Issuers or shall become subject to an effective stop order issued pursuant
to Section 8(d) of the Securities Act suspending the effectiveness of such
registration statement (except as specifically permitted herein) without
being succeeded immediately by an additional registration statement filed
and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default" and each period during which a Registration
Default has occurred and is continuing, a "Registration Default Period"),
then, as liquidated damages for such Registration Default, subject to the
provisions of Section 9(b), special interest ("Special Interest"), in
addition to the Base Interest, shall accrue on the aggregate principal
amount of the outstanding Notes at a per annum rate of 0.25% for the first
90 days of the Registration Default Period, at a per annum rate of 0.50%
for the second 90 days of the Registration Default Period, at a per annum
rate of 0.75% for the third 90 days of the Registration Default Period and
at a per annum rate of 1.0% thereafter for the remaining portion of the
Registration Default Period. All accrued Special Interest shall be paid in
cash by the Issuers on each Interest Payment Date (as defined in the
Indenture). Notwithstanding the foregoing and anything in this Agreement
to the contrary, in the case of an event referred to in clause (ii) above,
a "Registration Default" shall be deemed not to have occurred so long as
the Issuers are, in their sole reasonable judgment, using and continuing
to use their reasonable best efforts to cause such Exchange Offer
Registration Statement or Shelf Registration Statement, as the case may
be, to become or be declared effective.
(d) The Issuers shall use their reasonable best efforts to take all
actions necessary or advisable to be taken by them to ensure that the
transactions contemplated herein are effected as so contemplated in
Section 2(a) or 2(b) hereof.
(e) Any reference herein to a registration statement as of any time
shall be deemed to include any document incorporated, or deemed to be
incorporated, therein by reference as of such time and any reference
herein to any post-effective amendment to a registration statement as of
any time shall be deemed to include any document incorporated, or deemed
to be incorporated, therein by reference as of such time.
3. Registration Procedures.
If the Issuers file a registration statement pursuant to Section
2(a) or Section 2(b), the following provisions shall apply:
<PAGE> 8
(a) At or before the Effective Time of the Exchange Offer or the
Shelf Registration, as the case may be, the Issuers shall cause the
Indenture to be qualified under the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Issuers shall
appoint a new trustee thereunder pursuant to the applicable provisions of
the Indenture.
(c) In connection with the Issuers' obligations with respect to the
registration of Exchange Notes as contemplated by Section 2(a) (the
"Exchange Offer Registration"), if applicable, the Issuers shall, as soon
as practicable (or as otherwise specified):
(i) prepare and file with the Commission, as soon as
practicable but no later than 120 days after the Closing Date, an
Exchange Offer Registration Statement on any form which may be
utilized by the Issuers and which shall permit the Exchange Offer
and resales of Exchange Notes by broker-dealers during the Resale
Period to be effected as contemplated by Section 2(a), and use their
reasonable best efforts to cause such Exchange Offer Registration
Statement to become or be declared effective as soon as practicable
thereafter, but no later than 180 days after the Closing Date;
(ii) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Exchange Offer
Registration Statement and the prospectus included therein as may be
necessary to effect and maintain the effectiveness of such Exchange
Offer Registration Statement for the periods and purposes
contemplated in Section 2(a) hereof and as may be required by the
applicable rules and regulations of the Commission and the
instructions applicable to the form of such Exchange Offer
Registration Statement, and promptly provide each broker-dealer
holding Exchange Notes with such number of copies of the prospectus
included therein (as then amended or supplemented), in conformity in
all material respects with the requirements of the Securities Act
and the Trust Indenture Act and the rules and regulations of the
Commission thereunder, as such broker-dealer reasonably may request
prior to the expiration of the Resale Period, for use in connection
with resales of Exchange Notes;
(iii) promptly notify each broker-dealer that has requested
or received copies of the prospectus included in such registration
statement, and confirm such advice in writing, (A) when such
Exchange Offer Registration Statement or the prospectus included
therein or any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to such Exchange Offer
Registration Statement or any post-effective amendment, when the
same has become effective, (B) of any comments by the Commission and
by the blue sky or securities commissioner
<PAGE> 9
or regulator of any state with respect thereto, or any request by
the Commission for amendments or supplements to such Exchange Offer
Registration Statement or prospectus or for additional information,
(C) of the issuance by the Commission of any stop order suspending
the effectiveness of such Exchange Offer Registration Statement or
the initiation or, to the knowledge of the Issuers, threatening of
any proceedings for that purpose, (D) if at any time the
representations and warranties of the Issuers contemplated by
Section 5 hereof cease to be true and correct in all material
respects, (E) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Exchange Notes
for sale in any jurisdiction or the initiation or, to the knowledge
of the Issuers, threatening of any proceeding for such purpose, or
(F) at any time during the Resale Period when a prospectus is
required to be delivered under the Securities Act, that such
Exchange Offer Registration Statement, prospectus, prospectus
amendment or supplement or post-effective amendment does not conform
in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder, or contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(iv) in the event that the Issuers would be required,
pursuant to Section 3(e)(iii)(F) above, to notify any broker-dealers
holding Exchange Notes, the Issuers shall prepare and furnish to
each such holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to
purchasers of such Exchange Notes during the Resale Period, such
prospectus conforms in all material respects to the applicable
requirements of the Securities Act and the Trust Indenture Act and
the rules and regulations of the Commission thereunder and shall not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(v) use their reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of such
Exchange Offer Registration Statement or any post-effective
amendment thereto as soon as practicable;
(vi) use their reasonable best efforts to (A) register or
qualify the Exchange Notes under the securities laws or blue sky
laws of such jurisdictions as are contemplated by Section 2(a) no
later than the commencement of the Exchange Offer, (B) keep such
registrations or qualifications in effect and comply with such laws
so as to permit the continuance of offers, sales and dealings
therein in such jurisdictions until the expiration of the Resale
Period and (C) take any and all other actions as may be reasonably
necessary or advisable to enable each broker-dealer holding Exchange
<PAGE> 10
Notes to consummate the disposition thereof in such jurisdictions;
provided, however, that neither of the Issuers shall be required for
any such purpose to (1) qualify as a foreign corporation or limited
liability company, as the case may be, in any jurisdiction wherein
it would not otherwise be required to qualify but for the
requirements of this Section 3(c)(vi), (2) consent to general
service of process in any such jurisdiction or (3) make any changes
to its certificate of incorporation or by-laws (or other
organizational document) or any agreement between it and holders of
its ownership interests;
(vii) use their reasonable best efforts to obtain the
consent or approval of each governmental agency or authority,
whether federal, state or local, which may be required to effect the
Exchange Offer Registration, the Exchange Offer and the offering and
sale of Exchange Notes by broker-dealers during the Resale Period;
(viii) provide a CUSIP number for all Exchange Notes, not
later than the applicable Effective Time;
(ix) comply with all applicable rules and regulations of
the Commission, and make generally available to its securityholders
as soon as practicable but no later than eighteen months after the
effective date of such Exchange Offer Registration Statement, an
earning statement of the Company and its subsidiaries complying with
Section 11(a) of the Securities Act (including, at the option of the
Company, Rule 158 thereunder).
(d) In connection with the Issuers' obligations with respect to the
Shelf Registration, if applicable, the Issuers shall, as soon as
practicable (or as otherwise specified):
(i) prepare and file with the Commission within the time
periods specified in Section 2(b), a Shelf Registration Statement on
any form which may be utilized by the Issuers and which shall
register all of the Registrable Securities for resale by the holders
thereof in accordance with such method or methods of disposition as
may be specified by such of the holders as, from time to time, may
be Electing Holders and use their reasonable best efforts to cause
such Shelf Registration Statement to become or be declared effective
within the time periods specified in Section 2(b);
(ii) not less than 30 calendar days prior to the Effective
Time of the Shelf Registration Statement, mail the Notice and
Questionnaire to the holders of Registrable Securities; no holder
shall be entitled to be named as a selling securityholder in the
Shelf Registration Statement as of the Effective Time, and no holder
shall be entitled to use the prospectus forming a part thereof for
resales of Registrable Securities at any time, unless such holder
has returned a completed and signed Notice and Questionnaire to the
Issuers by the deadline for response set forth therein; provided,
however, holders of Registrable Securities shall have at least 28
<PAGE> 11
calendar days from the date on which the Notice and Questionnaire is
first mailed to such holders to return a completed and signed Notice
and Questionnaire to the Issuers;
(iii) after the Effective Time of the Shelf Registration
Statement, upon the request of any holder of Registrable Securities
that is not then an Electing Holder, promptly send a Notice and
Questionnaire to such holder; provided that the Issuers shall not be
required to take any action to name such holder as a selling
securityholder in the Shelf Registration Statement or to enable such
holder to use the prospectus forming a part thereof for resales of
Registrable Securities until such holder has returned a completed
and signed Notice and Questionnaire to the Issuers;
(iv) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Shelf
Registration Statement and the prospectus included therein as may be
necessary to effect and maintain the effectiveness of such Shelf
Registration Statement for the period specified in Section 2(b)
thereof and as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the
form of such Shelf Registration Statement, and furnish to the
Electing Holders copies of any such supplement or amendment
simultaneously with or prior to its being used or filed with the
Commission;
(v) comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities
covered by such Shelf Registration Statement in accordance with the
intended methods of disposition by the Electing Holders provided for
in such Shelf Registration Statement;
(vi) provide (A) the Electing Holders, (B) the underwriters
(which term, for purposes of this Exchange and Registration Rights
Agreement, shall include a person deemed to be an underwriter within
the meaning of Section 2(a)(11) of the Securities Act), if any,
thereof, (C) any sales or placement agent therefor, (D) counsel for
any such underwriter or agent and (E) not more than one counsel for
all the Electing Holders the opportunity to participate in the
preparation of such Shelf Registration Statement, each prospectus
included therein or filed with the Commission and each amendment or
supplement thereto;
(vii) for a reasonable period prior to the filing of such
Shelf Registration Statement, and throughout the period specified in
Section 2(b), make available at reasonable times at the Issuers'
principal place of business or such other reasonable place for
inspection by the persons referred to in Section 3(d)(vi) who shall
certify to the Issuers that they have a current intention to sell
the Registrable Securities pursuant to the Shelf Registration such
financial and other relevant information and books and
<PAGE> 12
records of the Issuers, and cause the officers, employees, counsel
and independent certified public accountants of the Issuers to
respond to such inquiries, as shall be reasonably necessary, in the
judgment of the respective counsel referred to in such Section, to
conduct a reasonable investigation within the meaning of Section 11
of the Securities Act; provided, however, that each such party shall
be required to maintain in confidence and not to disclose to any
other person any information or records reasonably designated by the
Issuers as being confidential, until such time as (A) such
information becomes a matter of public record (whether by virtue of
its inclusion in such registration statement or otherwise, except as
a result of a breach of this or any other obligation of
confidentiality to the Issuers), or (B) such person shall be
required so to disclose such information pursuant to a subpoena or
order of any court or other governmental agency or body having
jurisdiction over the matter (subject to the requirements of such
order, and only after such person shall have given the Issuers
prompt prior written notice of such requirement), or (C) such
information is required to be set forth in such Shelf Registration
Statement or the prospectus included therein or in an amendment to
such Shelf Registration Statement or an amendment or supplement to
such prospectus in order that such Shelf Registration Statement,
prospectus, amendment or supplement, as the case may be, complies
with applicable requirements of the federal securities laws and the
rules and regulations of the Commission and does not contain an
untrue statement of a material fact or omit to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(viii) promptly notify each of the Electing Holders, any
sales or placement agent therefor and any underwriter thereof (which
notification may be made through any managing underwriter that is a
representative of such underwriter for such purpose) and confirm
such advice in writing, (A) when such Shelf Registration Statement
or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with
respect to such Shelf Registration Statement or any post-effective
amendment, when the same has become effective, (B) of any comments
by the Commission and by the blue sky or securities commissioner or
regulator of any state with respect thereto, or any request by the
Commission for amendments or supplements to such Shelf Registration
Statement or prospectus or for additional information, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of such Shelf Registration Statement or the initiation
or, to the knowledge of the Issuers, threatening of any proceedings
for that purpose, (D) if at any time the representations and
warranties of the Issuers contemplated by Section 3(d)(xvii) or
Section 5 hereof cease to be true and correct in all material
respects, (E) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or, to the
knowledge of the Issuers, threatening of any proceeding for such
purpose, or (F) if at any time when a
<PAGE> 13
prospectus is required to be delivered under the Securities Act,
that such Shelf Registration Statement, prospectus, prospectus
amendment or supplement or post-effective amendment does not conform
in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder, or contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(ix) use their reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement or any post-effective amendment thereto as
soon as practicable;
(x) if requested by any managing underwriter or
underwriters, any placement or sales agent or any Electing Holder,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as is required by the applicable rules
and regulations of the Commission, and as such managing underwriter
or underwriters, such agent or such Electing Holder specifies should
be included therein relating to the terms of the sale of such
Registrable Securities, including information (i) with respect to
the principal amount of Registrable Securities being sold by such
Electing Holder or agent or to any underwriters, the name and
description of such Electing Holder, agent or underwriter, the
offering price of such Registrable Securities, and any discount,
commission or other compensation payable in respect thereof and the
purchase price being paid therefor by such underwriters and (ii)
with respect to any other material terms of the offering of the
Registrable Securities to be sold by such Electing Holder or agent
or to such underwriters; and make all required filings of such
prospectus supplement or post-effective amendment upon notification
of the matters to be incorporated in such prospectus supplement or
post-effective amendment;
(xi) furnish to each Electing Holder, each placement or
sales agent, if any, therefor, each underwriter, if any, thereof and
the respective counsel referred to in Section 3(d)(vi) hereof an
executed copy (or, in the case of an Electing Holder, a conformed
copy) of such Shelf Registration Statement, each such amendment and
supplement thereto (in each case including all exhibits thereto (in
the case of an Electing Holder of Registrable Securities, upon
request) and documents incorporated by reference therein) and such
number of copies of such Shelf Registration Statement (excluding
exhibits thereto and documents incorporated by reference therein
unless specifically so requested by such Electing Holder, agent or
underwriter, as the case may be) and of the prospectus included in
such Shelf Registration Statement (including each preliminary
prospectus and any summary prospectus), in conformity
<PAGE> 14
in all material respects with the applicable requirements of the
Securities Act and the Trust Indenture Act, and the rules and
regulations of the Commission thereunder, and such other documents,
as such Electing Holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the offering and
disposition of the Registrable Securities owned by such Electing
Holder, offered or sold by such agent or underwritten by such
underwriter and to permit such Electing Holder, agent and
underwriter to satisfy the prospectus delivery requirements of the
Securities Act; and the Issuers hereby consent to the use of such
prospectus (including such preliminary and summary prospectus) and
any amendment or supplement thereto by each such Electing Holder and
by any such agent and underwriter, in each case in the form most
recently provided to such person by the Issuers, in connection with
the offering and sale of the Registrable Securities covered by the
prospectus (including such preliminary and summary prospectus) or
any supplement or amendment thereto;
(xii) use their reasonable best efforts to (A) register or
qualify the Registrable Securities to be included in such Shelf
Registration Statement under such securities laws or blue sky laws
of such jurisdictions as any Electing Holder and each placement or
sales agent, if any, therefor and underwriter, if any, thereof shall
reasonably request, (B) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of
offers, sales and dealings therein in such jurisdictions during the
period the Shelf Registration is required to remain effective under
Section 2(b) above and for so long as may be necessary to enable any
such Electing Holder, agent or underwriter to complete its
distribution of Notes pursuant to such Shelf Registration Statement
and (C) take any and all other actions as may be reasonably
necessary or advisable to enable each such Electing Holder, agent,
if any, and underwriter, if any, to consummate the disposition in
such jurisdictions of such Registrable Securities; provided,
however, that none of the Issuers shall be required for any such
purpose to (1) qualify as a foreign corporation or limited liability
company, as the case may be, in any jurisdiction wherein it would
not otherwise be required to qualify but for the requirements of
this Section 3(d)(xii), (2) consent to general service of process in
any such jurisdiction or (3) make any changes to its certificate of
incorporation or by-laws (or other organizational document) or any
agreement between it and holders of its ownership interests;
(xiii) use their reasonable best efforts to obtain the
consent or approval of each governmental agency or authority,
whether federal, state or local, which may be required to effect the
Shelf Registration or the offering or sale in connection therewith
or to enable the selling holder or holders to offer, or to
consummate the disposition of, their Registrable Securities;
(xiv) unless any Registrable Securities shall be in
book-entry only form, cooperate with the Electing Holders and the
managing underwriters, if any, to
<PAGE> 15
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates,
if so required by any securities exchange upon which any Registrable
Securities are listed, shall be penned, lithographed or engraved, or
produced by any combination of such methods, on steel engraved
borders, and which certificates shall not bear any restrictive
legends; and, in the case of an underwritten offering, enable such
Registrable Securities to be in such denominations and registered in
such names as the managing underwriters may request at least two
business days prior to any sale of the Registrable Securities;
(xv) provide a CUSIP number for all Registrable Securities,
not later than the applicable Effective Time;
(xvi) enter into one or more underwriting agreements,
engagement letters, agency agreements, "best efforts" underwriting
agreements or similar agreements, as appropriate, including
customary provisions relating to indemnification and contribution,
and take such other actions in connection therewith as any Electing
Holders of at least 20% in aggregate principal amount of the
Registrable Securities at the time outstanding shall request in
order to expedite or facilitate the disposition of such Registrable
Securities;
(xvii) whether or not an agreement of the type referred to
in Section 3(d)(xvi) hereof is entered into, and whether or not any
portion of the offering contemplated by the Shelf Registration is an
underwritten offering or is made through a placement or sales agent
or any other entity, (A) make such representations and warranties to
the Electing Holders and the placement or sales agent, if any,
therefor and the underwriters, if any, thereof in form, substance
and scope as are customarily made in connection with an offering of
debt securities pursuant to any appropriate agreement or to a
registration statement filed on the form applicable to the Shelf
Registration; (B) obtain an opinion of counsel to the Issuers in
customary form, subject to customary limitations, assumptions and
exclusions, and covering such matters, of the type customarily
covered by such an opinion, as the managing underwriters, if any, or
as any Electing Holders of at least 20% in aggregate principal
amount of the Registrable Securities at the time outstanding may
reasonably request, addressed to such Electing Holder or Electing
Holders and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof and dated the date of the Effective
Time of such Shelf Registration Statement (and if such Shelf
Registration Statement contemplates an underwritten offering of a
part or all of the Registrable Securities, dated the date of the
closing under the underwriting agreement relating thereto) (it being
agreed that the matters to be covered by such opinion shall include
the matters set forth in paragraphs (b) and (d) of Section 7 of the
Purchase Agreement to the extent applicable to an offering of this
type); (C) obtain a "cold comfort" letter or letters from the
independent certified public accountants of the Issuers addressed to
<PAGE> 16
the selling Electing Holders, the placement or sales agent, if any,
therefor or the underwriters, if any, thereof, dated (i) the
effective date of such Shelf Registration Statement and (ii) the
effective date of any prospectus supplement to the prospectus
included in such Shelf Registration Statement or post-effective
amendment to such Shelf Registration Statement which includes
unaudited or audited financial statements as of a date or for a
period subsequent to that of the latest such statements included in
such prospectus (and, if such Shelf Registration Statement
contemplates an underwritten offering pursuant to any prospectus
supplement to the prospectus included in such Shelf Registration
Statement or post-effective amendment to such Shelf Registration
Statement which includes unaudited or audited financial statements
as of a date or for a period subsequent to that of the latest such
statements included in such prospectus, dated the date of the
closing under the underwriting agreement relating thereto), such
letter or letters to be in customary form and covering such matters
of the type customarily covered by letters of such type; (D) deliver
such documents and certificates, including officers' certificates,
as may be reasonably requested by any Electing Holders of at least
20% in aggregate principal amount of the Registrable Securities at
the time outstanding or the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof to evidence
the accuracy of the representations and warranties made pursuant to
clause (A) above or those contained in Section 5(a) hereof and the
compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement or other similar agreement
entered into by the Issuers pursuant to Section 3(d)(xvi); and (E)
undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Section 6
hereof;
(xviii) notify in writing each holder of Registrable
Securities of any proposal by the Issuers to amend or waive any
provision of this Exchange and Registration Rights Agreement
pursuant to Section 9(h) hereof and of any amendment or waiver
effected pursuant thereto, each of which notices shall contain the
substance of the amendment or waiver proposed or effected, as the
case may be;
(xix) in the event that any broker-dealer registered under
the Exchange Act shall underwrite any Registrable Securities or
participate as a member of an underwriting syndicate or selling
group or "assist in the distribution" (within the meaning of the
Conduct Rules (the "Conduct Rules") of the National Association of
Securities Dealers, Inc. ("NASD") or any successor thereto, as
amended from time to time) thereof, whether as a holder of such
Registrable Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise, assist
such broker-dealer in complying with the requirements of such
Conduct Rules, including by (A) if such Conduct Rules shall so
require, engaging a "qualified independent underwriter" (as defined
in such Conduct Rules) to participate in the
<PAGE> 17
preparation of the Shelf Registration Statement relating to such
Registrable Securities, to exercise usual standards of due diligence
in respect thereto and, if any portion of the offering contemplated
by such Shelf Registration Statement is an underwritten offering or
is made through a placement or sales agent, to recommend the yield
of such Registrable Securities, (B) indemnifying any such qualified
independent underwriter to the extent of the indemnification of
underwriters provided in Section 6 hereof (or to such other
customary extent as may be requested by such underwriter), and (C)
providing such information to such broker-dealer as may be required
in order for such broker-dealer to comply with the requirements of
the Conduct Rules; and
(xx) comply with all applicable rules and regulations of
the Commission, and make generally available to its securityholders
as soon as practicable but in any event not later than eighteen
months after the effective date of such Shelf Registration
Statement, an earning statement of the Company and its subsidiaries
complying with Section 11(a) of the Securities Act (including, at
the option of the Company, Rule 158 thereunder).
(e) In the event that the Issuers would be required, pursuant to
Section 3(d)(viii)(F) above, to notify the Electing Holders, the placement
or sales agent, if any, therefor and the managing underwriters, if any,
thereof, the Issuers shall prepare and furnish to each of the Electing
Holders, to each placement or sales agent, if any, and to each such
underwriter, if any, a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Registrable Securities, such prospectus conforms in all material respects
to the applicable requirements of the Securities Act and the Trust
Indenture Act, and the rules and regulations of the Commission thereunder,
and shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing. Each Electing Holder agrees that upon receipt of any notice from
the Issuers pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder
shall forthwith discontinue the disposition of Registrable Securities
pursuant to the Shelf Registration Statement applicable to such
Registrable Securities until such Electing Holder shall have received
copies of such amended or supplemented prospectus, and if so directed by
the Issuers, such Electing Holder shall deliver to the Issuers (at the
Issuers' expense) all copies, other than permanent file copies, then in
such Electing Holder's possession of the prospectus covering such
Registrable Securities at the time of receipt of such notice.
(f) In the event of a Shelf Registration, in addition to the
information required to be provided by each Electing Holder in its Notice
and Questionnaire, the Issuers may require such Electing Holder to furnish
to the Issuers such additional information regarding such Electing Holder
and such Electing Holder's intended method of distribution of Registrable
Securities as may be required in order to comply with the Securities Act.
<PAGE> 18
Each such Electing Holder agrees to notify the Issuers as promptly as
practicable of any inaccuracy or change in information previously
furnished by such Electing Holder to the Issuers or of the occurrence of
any event in either case as a result of which any prospectus relating to
such Shelf Registration contains or would contain an untrue statement of a
material fact regarding such Electing Holder or such Electing Holder's
intended method of disposition of such Registrable Securities or omits to
state any material fact regarding such Electing Holder or such Electing
Holder's intended method of disposition of such Registrable Securities
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly
to furnish to the Issuers any additional information required to correct
and update any previously furnished information or required so that such
prospectus shall not contain, with respect to such Electing Holder or the
disposition of such Registrable Securities, an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
4 Registration Expenses.
The Issuers agree, subject to the last sentence of this Section, to
bear and to pay or cause to be paid promptly all expenses incident to the
Issuers' performance of or compliance with this Exchange and Registration Rights
Agreement, including (a) all Commission and any NASD registration, filing and
review fees and expenses including fees and disbursements of counsel for the
placement or sales agent or underwriters in connection with such registration,
filing and review, (b) all fees and expenses in connection with the
qualification of the Notes for offering and sale under the securities laws and
blue sky laws referred to in Section 3(d)(xii) hereof and determination of their
eligibility for investment under the laws of such jurisdictions as any managing
underwriters or the Electing Holders may designate, including any fees and
disbursements of counsel for the Electing Holders or underwriters in connection
with such qualification and determination, (c) all expenses relating to the
preparation, printing, production, distribution and reproduction of each
registration statement required to be filed hereunder, each prospectus included
therein or prepared for distribution pursuant hereto, each amendment or
supplement to the foregoing, the expenses of preparing the Notes for delivery
and the expenses of printing or producing any underwriting agreements,
agreements among underwriters, selling agreements and blue sky or legal
investment memoranda and all other documents in connection with the offering,
sale or delivery of Notes to be disposed of (including certificates representing
the Notes), (d) messenger, telephone and delivery expenses relating to the
offering, sale or delivery of Notes and the preparation of documents referred in
clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any
agent of the Trustee and any reasonable fees and expenses for counsel for the
Trustee and of any collateral agent or custodian, (f) internal expenses
(including all salaries and expenses of the Issuers' officers and employees
performing legal or
<PAGE> 19
accounting duties), (g) fees, disbursements and expenses of counsel and
independent certified public accountants of the Issuers (including the expenses
of any opinions or "cold comfort" letters required by or incident to such
performance and compliance), (h) fees, disbursements and expenses of any
"qualified independent underwriter" engaged pursuant to Section 3(d)(xix)
hereof, (i) reasonable fees, disbursements and expenses of one counsel for the
Electing Holders retained in connection with a Shelf Registration, as selected
by the Electing Holders of at least a majority in aggregate principal amount of
the Registrable Securities held by Electing Holders (which counsel shall be
reasonably satisfactory to the Issuers), (j) any fees charged by securities
rating services for rating the Notes, and (k) reasonable fees, expenses and
disbursements of any other persons, including special experts, retained by the
Issuers in connection with such registration (collectively, the "Registration
Expenses"). To the extent that any Registration Expenses are incurred, assumed
or paid by any holder of Registrable Securities or any placement or sales agent
therefor or underwriter thereof, the Issuers shall reimburse such person for the
full amount of the Registration Expenses so incurred, assumed or paid promptly
after receipt of a request therefor. Notwithstanding the foregoing, the holders
of the Registrable Securities being registered shall pay all agency fees and
commissions and underwriting discounts and commissions attributable to the sale
of such Registrable Securities and the fees and disbursements of any counsel or
other advisors or experts retained by such holders (severally or jointly), other
than the counsel and experts specifically referred to above.
5 Representations, Warranties and Covenants.
Except with respect to clauses (a) and (b) below, the Issuers
represent and warrant to, and agree with, each Purchaser and each of the holders
from time to time of Registrable Securities the information set forth in this
Section 5.
With respect to clauses (a) and (b) below, the Issuers covenant
that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus)
contained therein or furnished pursuant to Section 3(d) or Section 3(c)
hereof and any further amendments or supplements to any such registration
statement or prospectus, when it becomes effective or is filed with the
Commission, as the case may be, and, in the case of an underwritten
offering of Registrable Securities, at the time of the closing under the
underwriting agreement relating thereto, will conform in all material
respects to the requirements of the Securities Act and the Trust Indenture
Act and the rules and regulations of the Commission thereunder and will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at all times subsequent to the
Effective Time when a prospectus would be required to be delivered under
the Securities Act, other than from (i) such time as a notice has been
given to holders of Registrable Securities pursuant to
<PAGE> 20
Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time
as the Issuers furnishes an amended or supplemented prospectus pursuant to
Section 3(e) or Section 3(c)(iv) hereof, each such registration statement,
and each prospectus (including any summary prospectus) contained therein
or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then
amended or supplemented, will conform in all material respects to the
requirements of the Securities Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; provided,
however, that this covenant shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Issuers by a holder of Registrable Securities expressly for
use therein.
(b) Any documents incorporated by reference in any prospectus
referred to in Section 5(a) hereof, when they become or became effective
or are or were filed with the Commission, as the case may be, will conform
or conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and none of such
documents will contain or contained an untrue statement of a material fact
or will omit or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this covenant shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Issuers by a holder of Registrable Securities
expressly for use therein.
(c) The compliance by the Issuers with all of the provisions of this
Exchange and Registration Rights Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
material breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease, license, franchise agreement, permit or other material agreement or
instrument to which either of the Issuers or any of their subsidiaries is
a party or by which either of the Issuers or any of their subsidiaries is
bound or to which any of the property or assets of the Issuers or any of
their subsidiaries is subject, nor will such action result in any
violation of the provisions of the certificate of formation or limited
liability company agreement of the Company or the certificate of
incorporation or bylaws of Charter Capital or any statute or any order,
rule or regulation of any court or governmental agency or body, including
without limitation, the Communications Act of 1934, as amended, the Cable
Communications Policy Act of 1984, as amended, the Cable Television
Consumer Protection and Competition Act of 1992, as amended, and the
Telecommunications Act of 1996 (collectively, the "Cable Acts") or any
order, rule or regulation of the Federal Communications Commission (the
"FCC"), having jurisdiction over the Issuers or any of their subsidiaries
or any of their properties, except for any such violation which would not
materially impair the Issuers' ability to comply herewith; and no consent,
approval,
<PAGE> 21
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required, including, without
limitation, under the Cable Acts or any order, rule or regulation of the
FCC, for the consummation by the Issuers of the transactions contemplated
by this Exchange and Registration Rights Agreement, except the
registration under the Securities Act of the Notes, qualification of the
Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
State Notes or blue sky laws in connection with the offering and
distribution of the Notes.
(d) This Exchange and Registration Rights Agreement has been duly
authorized, executed and delivered by the Issuers.
6. Indemnification.
(a) Indemnification by the Issuers. The Issuers , jointly and
severally, (i) will indemnify and hold harmless each of the holders of
Registrable Securities included in an Exchange Offer Registration
Statement, each of the Electing Holders of Registrable Securities included
in a Shelf Registration Statement and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of
such Registrable Securities against any losses, claims, damages or
liabilities, joint or several, to which such holder, agent or underwriter
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Exchange Offer Registration
Statement or Shelf Registration Statement, as the case may be, under which
such Registrable Securities were registered under the Securities Act, or
any preliminary, final or summary prospectus contained therein or
furnished by the Issuers to any such holder, Electing Holder, agent or
underwriter, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) will reimburse such holder,
such Electing Holder, such agent and such underwriter for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that neither of the Issuers shall be liable
to any such persons in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, or preliminary, final or summary
prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Issuers by such
persons expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters.
The Issuers
<PAGE> 22
may require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 2(b) hereof and to
entering into any underwriting agreement or similar agreement with respect
thereto, that the Issuers shall have received an undertaking reasonably
satisfactory to them from the Electing Holder of such Registrable
Securities included in a Shelf Registration Statement and from each
underwriter or agent named in any such underwriting agreement or similar
agreement, severally and not jointly, to (i) indemnify and hold harmless
the Issuers and all other holders of Registrable Securities, against any
losses, claims, damages or liabilities to which the Issuers or such other
holders of Registrable Securities may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, or any preliminary, final or summary prospectus
contained therein or furnished by the Issuers to any such Electing Holder,
agent or underwriter, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Issuers by such Electing Holder
or underwriter expressly for use therein, and (ii) reimburse the Issuers
for any legal or other expenses reasonably incurred by the Issuers in
connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that no such Electing
Holder shall be required to undertake liability to any person under this
Section 6(b) for any amounts in excess of the dollar amount of the
proceeds to be received by such Electing Holder from the sale of such
Electing Holder's Registrable Securities pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party pursuant to
the indemnification provisions of or contemplated by this Section 6,
notify such indemnifying party in writing of the commencement of such
action; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party
otherwise than under the indemnification provisions of or contemplated by
Section 6(a) or 6(b) hereof. In case any such action shall be brought
against any indemnified party and it shall notify an indemnifying party of
the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense
<PAGE> 23
thereof, such indemnifying party shall not be liable to such indemnified
party for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act
by or on behalf of any indemnified party.
(d) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or
insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or by such indemnified
party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were determined by pro rata
allocation (even if the holders or any agents or underwriters or all of
them were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in this Section 6(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred
by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section
6(d), no holder shall be required to contribute any
<PAGE> 24
amount in excess of the amount by which the dollar amount of the proceeds
received by such holder from the sale of any Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) exceeds
the amount of any damages which such holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission, and no underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The holders' and any
underwriters' obligations in this Section 6(d) to contribute shall be
several in proportion to the principal amount of Registrable Securities
registered or underwritten, as the case may be, by them and not joint.
(e) The obligations of the Issuers under this Section 6 shall be in
addition to any liability which the Issuers may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and
partner of each holder, agent and underwriter and each person, if any, who
controls any holder, agent or underwriter within the meaning of the
Securities Act; and the obligations of the holders and any agents or
underwriters contemplated by this Section 6 shall be in addition to any
liability which the respective holder, agent or underwriter may otherwise
have and shall extend, upon the same terms and conditions, to each officer
(including any officer who signed any registration statement), director,
employee, representative or agent of the Issuers and to each person, if
any, who controls the Issuers within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by Electing Holders holding at least a majority in aggregate principal amount of
the Registrable Securities to be included in such offering, provided that such
designated managing underwriter or underwriters is or are reasonably acceptable
to the Issuers.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may participate in
any underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
<PAGE> 25
Each of the Issuers covenants to the holders of Registrable
Securities that to the extent it shall be required to do so under the Exchange
Act, it shall timely file the reports required to be filed by it under the
Exchange Act or the Securities Act (including the reports under Section 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted
by the Commission under the Securities Act) and the rules and regulations
adopted by the Commission thereunder, and shall take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitations of the
exemption provided by Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar or successor rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities in connection with that holder's sale pursuant to Rule
144, the Issuers shall deliver to such holder a written statement as to whether
it has complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Issuers represent, warrant,
covenant and agree that they have not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other Notes which would be
inconsistent with the terms contained in this Exchange and Registration Rights
Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if the Issuers fail to perform any of their
obligations hereunder and that the Purchasers and the holders from time to time
of the Registrable Securities may be irreparably harmed by any such failure, and
accordingly agree that the Purchasers and such holders, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of the Issuers under this
Exchange and Registration Rights Agreement in accordance with the terms and
conditions of this Exchange and Registration Rights Agreement, in any court of
the United States or any State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing and shall be deemed to have
been duly given (i) when delivered by hand, if delivered personally or by
courier, (ii) when sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered or certified mail, return receipt
requested or (iii) three days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) as follows: If to the
Issuers, c/o Charter Communications Holdings, LLC, 12444 Powerscourt Drive,
Suite 100, St. Louis, Missouri, 63131, Attention: Secretary, and if to a holder,
to the address of such holder set forth in the security register or other
records of the Issuers, or to such other address as the Issuers or any such
holder may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
<PAGE> 26
(d) Parties in Interest. All the terms and provisions of this
Exchange and Registration Rights Agreement shall be binding upon, shall inure to
the benefit of and shall be enforceable by the parties hereto and the holders
from time to time of the Registrable Securities and the respective successors
and assigns of the parties hereto and such holders. In the event that any
transferee of any holder of Registrable Securities shall acquire Registrable
Securities, in any manner, whether by gift, bequest, purchase, operation of law
or otherwise, such transferee shall, without any further writing or action of
any kind, be deemed a beneficiary hereof for all purposes and such Registrable
Securities shall be held subject to all of the terms of this Exchange and
Registration Rights Agreement, and by taking and holding such Registrable
Securities such transferee shall be entitled to receive the benefits of, and be
conclusively deemed to have agreed to be bound by all of the applicable terms
and provisions of this Exchange and Registration Rights Agreement. If the
Issuers shall so request, any such successor, assign or transferee shall agree
in writing to acquire and hold the Registrable Securities subject to all of the
applicable terms hereof.
(e) Survival. The respective indemnities, agreements,
representations, warranties and each other provision set forth in this Exchange
and Registration Rights Agreement or made pursuant hereto shall remain in full
force and effect regardless of any investigation (or statement as to the results
thereof) made by or on behalf of any holder of Registrable Securities, any
director, officer or partner of such holder, any agent or underwriter or any
director, officer or partner thereof, or any controlling person of any of the
foregoing, and shall survive delivery of and payment for the Registrable
Securities pursuant to the Purchase Agreement and the transfer and registration
of Registrable Securities by such holder and the consummation of an Exchange
Offer.
(f) GOVERNING LAW. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and Registration
Rights Agreement and shall not affect in any way the meaning or interpretation
of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration
Rights Agreement and the other writings referred to herein (including the
Indenture and the form of Notes) or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Exchange and Registration Rights Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Exchange and Registration Rights Agreement may be amended
and the observance of any term of this Exchange and Registration Rights
<PAGE> 27
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument duly executed by
the Issuers and the holders of at least a majority in aggregate principal amount
of the Registrable Securities at the time outstanding. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any amendment or waiver effected pursuant to this Section 9(h), whether or not
any notice, writing or marking indicating such amendment or waiver appears on
such Registrable Securities or is delivered to such holder.
(i) Inspection. For so long as this Exchange and Registration Rights
Agreement shall be in effect, this Exchange and Registration Rights Agreement
and a complete list of the names and addresses of all the holders of Registrable
Securities shall be made available for inspection and copying, upon reasonable
prior notice, on any business day during normal business hours by any holder of
Registrable Securities for proper purposes only (which shall include any purpose
related to the rights of the holders of Registrable Securities under the Notes,
the Indenture and this Agreement) at the offices of the Issuers at the address
thereof set forth in Section 9(c) above and at the office of the Trustee under
the Indenture.
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
<PAGE> 28
If the foregoing is in accordance with your understanding, please
sign and return to us counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Issuers. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Issuers for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
CHARTER COMMUNICATIONS HOLDINGS, LLC,
as an Issuer
By /s/ Curtis S. Shaw
--------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION, as an Issuer
By /s/ Curtis S. Shaw
--------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
TD SECURITIES (USA) INC.
FIRST UNION SECURITIES, INC.
PNC CAPITAL MARKETS, INC.
SUNTRUST EQUITABLE SECURITIES CORPORATION
By: GOLDMAN, SACHS & CO.
By /s/ Goldman, Sachs & Co.
-------------------------------
(Goldman, Sachs & Co.)
<PAGE> 29
EXHIBIT A
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE](a)
The Depository Trust Issuers ("DTC") has identified you as a DTC
Participant through which beneficial interests in the Charter Communications
Holdings, LLC (the "Company") and Charter Communications Holdings Capital
Corporation ("Charter Capital" and, together with the Company, the "Issuers")
10.00% Senior Notes due 2009 (the "Notes") are held.
The Issuers are in the process of registering the Notes under the
Securities Act of 1933, as amended, for resale by the beneficial owners thereof.
In order to have their Notes included in the registration statement, beneficial
owners must complete and return the enclosed Notice of Registration Statement
and Selling Securityholder Questionnaire.
It is important that beneficial owners of the Notes receive a copy
of the enclosed materials as soon as possible as their rights to have the Notes
included in the registration statement depend upon their returning the Notice
and Questionnaire by [Deadline For Response]. Please forward a copy of the
enclosed documents to each beneficial owner that holds interests in the Notes
through you. If you require more copies of the enclosed materials or have any
questions pertaining to this matter, please contact the Issuers c/o Charter
Communications Holdings, LLC, 12444 Powerscourt Drive, Suite 100, St. Louis,
Missouri, 63131, Attention: Secretary.
(a) Not less than 28 calendar days from date of mailing.
<PAGE> 30
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
Notice of Registration Statement
and
Selling Securityholder Questionnaire
(Date)
Reference is hereby made to the Exchange and Registration Rights
Agreement (the "Exchange and Registration Rights Agreement") between Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation (together, the "Issuers"), and the Purchasers named therein.
Pursuant to the Exchange and Registration Rights Agreement, the Issuers have
filed with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form [__] (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Issuers' 10.00% Senior Notes
due 2009 (the "Notes"). A copy of the Exchange and Registration Rights Agreement
is attached hereto. All capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Exchange and Registration Rights
Agreement.
Each beneficial owner of Registrable Securities is entitled to have
the Registrable Securities beneficially owned by it included in the Shelf
Registration Statement. In order to have Registrable Securities included in the
Shelf Registration Statement, this Notice of Registration Statement and Selling
Securityholder Questionnaire ("Notice and Questionnaire") must be completed,
executed and delivered to the Issuers' counsel at the address set forth herein
for receipt ON OR BEFORE [Deadline for Response]. Beneficial owners of
Registrable Securities who do not complete, execute and return this Notice and
Questionnaire by such date (i) will not be named as selling securityholders in
the Shelf Registration Statement and (ii) may not use the Prospectus forming a
part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and related prospectus.
<PAGE> 31
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item (3).
The undersigned, by signing and returning this Notice and Questionnaire, agrees
to be bound with respect to such Registrable Securities by the terms and
conditions of this Notice and Questionnaire and the Exchange and Registration
Rights Agreement, including, without limitation, Section 6 of the Exchange and
Registration Rights Agreement, as if the undersigned Selling Securityholder were
an original party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to deliver
to the Issuers and the Trustee the Notice of Transfer set forth in Exhibit B to
the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information
to the Issuers and represents and warrants that such information is accurate and
complete:
QUESTIONNAIRE
(1) (a) Full Legal Name of Selling Securityholder:
(b) Full Legal Name of Registered Holder (if not the same as in
(a) above) of Registrable Securities Listed in Item (3) below:
(c) Full Legal Name of DTC Participant (if applicable and if not
the same as (b) above) Through Which Registrable Securities
Listed in Item (3) below are Held:
(2) Address for Notices to Selling Securityholder:
-------------------------------------
-------------------------------------
-------------------------------------
Telephone:
-------------------------------------
Fax:
-------------------------------------
Contact Person:
-------------------------------------
<PAGE> 32
(3) Beneficial Ownership of Notes:
Except as set forth below in this Item (3), the undersigned does not
beneficially own any Notes.
(a) Principal amount of Registrable Securities beneficially owned:
---------------------------------------------------------------
CUSIP No(s). of such Registrable Securities:___________________
(b) Principal amount of Notes other than Registrable Securities
beneficially owned:
----------------------------------------------------------------
CUSIP No(s). of such other Notes: ______________________________
(c) Principal amount of Registrable Securities which the undersigned
wishes to be included in the Shelf Registration Statement:
------------------------------
CUSIP No(s). of such Registrable Securities to be included in
the Shelf Registration Statement:______________________________
(4) Beneficial Ownership of Other Securities of the Issuers:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any
other securities of the Issuers other than the Notes listed above in
Item (3).
State any exceptions here:
(5) Relationships with the Issuers:
Except as set forth below, neither the Selling Securityholder nor
any of its affiliates, officers, directors or principal equity
holders (5% or more) has held any position or office or has had any
other material relationship with the Issuers (or their respective
predecessors or affiliates) during the past three years.
State any exceptions here:
(6) Plan of Distribution:
<PAGE> 33
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Registrable Securities listed above in
Item (3) only as follows (if at all): Such Registrable Securities
may be sold from time to time directly by the undersigned Selling
Securityholder or, alternatively, through underwriters,
broker-dealers or agents. Such Registrable Securities may be sold in
one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the time
of sale, or at negotiated prices. Such sales may be effected in
transactions (which may involve crosses or block transactions) (i)
on any national securities exchange or quotation service on which
the Registered Notes may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise
than on such exchanges or services or in the over-the-counter
market, or (iv) through the writing of options. In connection with
sales of the Registrable Securities or otherwise, the Selling
Securityholder may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the
Registrable Securities in the course of hedging the positions they
assume. The Selling Securityholder may also sell Registrable
Securities short and deliver Registrable Securities to close out
such short positions, or loan or pledge Registrable Securities to
broker-dealers that in turn may sell such Notes.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it understands
its obligation to comply, and agrees that it will comply, with the provisions of
the Exchange Act and the rules and regulations thereunder, particularly
Regulation M.
In the event that the Selling Securityholder transfers all or any portion of the
Registrable Securities listed in Item (3) above after the date on which such
information is provided to the Issuers, the Selling Securityholder agrees to
notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Exchange and
Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of the
information contained herein in its answers to Items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Securityholder understands that such information
will be relied upon by the Issuers in connection with the preparation of the
Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section 3(d) of
the Exchange and Registration Rights Agreement to provide such information as
may be required by law for inclusion in the Shelf Registration Statement, the
Selling Securityholder agrees to promptly notify the Issuers of any inaccuracies
or changes in the information provided herein
<PAGE> 34
which may occur subsequent to the date hereof at any time while the Shelf
Registration Statement remains in effect. All notices hereunder and pursuant to
the Exchange and Registration Rights Agreement shall be made in writing, by
hand-delivery, first-class mail, or air courier guaranteeing overnight delivery
as follows:
(i) To the Issuers:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
(ii) With a copy to:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
Once this Notice and Questionnaire is executed by the Selling Securityholder and
received by the Issuers' counsel, the terms of this Notice and Questionnaire,
and the representations and warranties contained herein, shall be binding on,
shall inure to the benefit of and shall be enforceable by the respective
successors, heirs, personal representatives, and assigns of the Issuers and the
Selling Securityholder (with respect to the Registrable Securities beneficially
owned by such Selling Securityholder and listed in Item (3) above). This
Agreement shall be governed in all respects by the laws of the State of New York
without giving effect to any provisions relating to conflicts of laws.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.
<PAGE> 35
Dated:
---------------------------
--------------------------------------------------------------
Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable
Securities)
By
------------------------------------------------------------
Name:
Title:
<PAGE> 36
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE [DEADLINE FOR RESPONSE] TO THE ISSUERS' COUNSEL AT:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
<PAGE> 37
EXHIBIT B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
[Name of Trustee]
Charter Communications Holdings, LLC
Charter Communications Holdings Capital
Corporation
c/o [Name of Trustee]
[Address of Trustee]
Attention: Trust Officer
Re: Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation
(together, the "Issuers") 10.00% Senior Notes due 2009
Dear Sirs:
Please be advised that has transferred $ aggregate
-------------- ----------
principal amount of the above-referenced Notes pursuant to an effective
Registration Statement on Form [ ] (File No. 333- ) filed by the Issuers.
--- ----
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the above-named
beneficial owner of the Notes is named as a "Selling Holder" in the prospectus
dated [date] or in supplements thereto, and that the aggregate principal amount
of the Notes transferred are the Notes listed in such prospectus opposite such
owner's name.
Dated:
Very truly yours,
----------------------------------
(Name)
By:
-------------------------------
(Authorized Signature)
<PAGE> 1
Exhibit 4.2(a)
- --------------------------------------------------------------------------------
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION,
as Issuers
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee
--------
INDENTURE
Dated as of January 12, 2000
--------
10.25% Senior Notes Due 2010
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
- --------------------------- -----------------
<S> <C>
310(a)(1)...................................................................................... 7.10
(a)(2)......................................................................................... 7.10
(a)(3)......................................................................................... N.A.
(a)(4)......................................................................................... N.A.
(a)(5)......................................................................................... 7.10
(b)............................................................................................ 7.10
(c)............................................................................................ N.A.
311(a)......................................................................................... 7.11
(b)............................................................................................ 7.11
(c)............................................................................................ N.A.
312(a)......................................................................................... 2.05
(b)............................................................................................ 10.03
(c)............................................................................................ 10.03
313(a)......................................................................................... 7.06
(b)(1)......................................................................................... 10.03
(b)(2)......................................................................................... 7.07; 10.03
(c)............................................................................................ 7.06; 10.02
(d)............................................................................................ 7.06
314(a)......................................................................................... 4.03; 10.02
(b)............................................................................................ 10.02
(c)(1)......................................................................................... 10.04
(c)(2)......................................................................................... 10.04
(c)(3)......................................................................................... N.A.
(d)............................................................................................ N.A.
(e)............................................................................................ 10.05
(f)............................................................................................ N.A.
315(a)......................................................................................... 7.01
(b)............................................................................................ 7.05; 10.02
(c)............................................................................................ 7.01
(d)............................................................................................ 7.01
(e)............................................................................................ 6.11
316(a) (last sentence)......................................................................... 2.09
(a)(1)(A)...................................................................................... 6.05
(a)(1)(B)...................................................................................... 6.04
(a)(2)......................................................................................... N.A.
(b)............................................................................................ 6.07
(c)............................................................................................ 2.12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
317(a)(1)...................................................................................... 6.08
(a)(2)......................................................................................... 6.09
(b)............................................................................................ 2.04
318(a)......................................................................................... 10.01
(b)............................................................................................ N.A.
(c)............................................................................................ 10.01
</TABLE>
N.A. means Not Applicable.
* This Cross-Reference Table is not part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE..............................................1
Section 1.01. Definitions...................................................................1
Section 1.02. Other Definitions............................................................25
Section 1.03. Incorporation by Reference of Trust Indenture Act............................27
Section 1.04. Rules of Construction........................................................27
ARTICLE 2 THE NOTES..............................................................................28
Section 2.01. Form and Dating..............................................................28
Section 2.02. Execution and Authentication.................................................29
Section 2.03. Registrar and Paying Agent...................................................30
Section 2.04. Paying Agent to Hold Money in Trust..........................................30
Section 2.05. Holder Lists.................................................................31
Section 2.06. Transfer and Exchange........................................................31
Section 2.07. Replacement Notes............................................................45
Section 2.08. Outstanding Notes............................................................45
Section 2.09. Treasury Notes...............................................................46
Section 2.10. Temporary Notes..............................................................46
Section 2.11. Cancellation.................................................................46
Section 2.12. Defaulted Interest...........................................................47
ARTICLE 3 REDEMPTION AND PREPAYMENT..............................................................47
Section 3.01. Notices to Trustee...........................................................47
Section 3.02. Selection of Notes to Be Redeemed............................................47
Section 3.03. Notice of Redemption.........................................................48
Section 3.04. Effect of Notice of Redemption...............................................49
Section 3.05. Deposit of Redemption Price..................................................49
Section 3.06. Notes Redeemed in Part.......................................................49
Section 3.07. Optional Redemption..........................................................49
Section 3.08. Mandatory Redemption.........................................................50
Section 3.09. Offer to Purchase by Application of Excess Proceeds..........................51
ARTICLE 4 COVENANTS..............................................................................53
Section 4.01. Payment of Notes.............................................................53
Section 4.02. Maintenance of Office or Agency..............................................53
Section 4.03. Reports......................................................................54
Section 4.04. Compliance Certificate.......................................................55
Section 4.05. Taxes........................................................................56
Section 4.06. Stay, Extension and Usury Laws...............................................56
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Section 4.07. Restricted Payments..........................................................56
Section 4.08. Investments..................................................................59
Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries...............60
Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock...................62
Section 4.11. Limitation on Asset Sales....................................................65
Section 4.12. Sale and Leaseback Transactions..............................................67
Section 4.13. Transactions with Affiliates.................................................67
Section 4.14. Liens........................................................................68
Section 4.15. Corporate Existence..........................................................69
Section 4.16. Repurchase at the Option of Holders upon a Change of Control.................69
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness.......................71
Section 4.18. Payments for Consent.........................................................71
Section 4.19. Application of Fall-Away Covenants...........................................72
ARTICLE 5 SUCCESSORS............................................................................72
Section 5.01. Merger, Consolidation, or Sale of Assets.....................................72
Section 5.02. Successor Corporation Substituted............................................73
ARTICLE 6 DEFAULTS AND REMEDIES..................................................................73
Section 6.01. Events of Default............................................................73
Section 6.02. Acceleration.................................................................75
Section 6.03. Other Remedies...............................................................75
Section 6.04. Waiver of Existing Defaults..................................................76
Section 6.05. Control by Majority..........................................................76
Section 6.06. Limitation on Suits..........................................................76
Section 6.07. Rights of Holders of Notes to Receive Payment................................77
Section 6.08. Collection Suit by Trustee...................................................77
Section 6.09. Trustee May File Proofs of Claim.............................................77
Section 6.10. Priorities...................................................................78
Section 6.11. Undertaking for Costs........................................................78
ARTICLE 7 TRUSTEE................................................................................79
Section 7.01. Duties of Trustee............................................................79
Section 7.02. Rights of Trustee............................................................80
Section 7.03. Individual Rights of Trustee.................................................81
Section 7.04. Trustee's Disclaimer.........................................................81
Section 7.05. Notice of Defaults...........................................................81
Section 7.06. Reports by Trustee to Holders of the Notes...................................82
Section 7.07. Compensation and Indemnity...................................................82
Section 7.08. Replacement of Trustee.......................................................83
Section 7.09. Successor Trustee by Merger, etc.............................................84
Section 7.10. Eligibility; Disqualification................................................84
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Section 7.11. Preferential Collection of Claims Against the Issuers........................85
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE...............................................85
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.....................85
Section 8.02. Legal Defeasance and Discharge...............................................85
Section 8.03. Covenant Defeasance..........................................................86
Section 8.04. Conditions to Legal or Covenant Defeasance...................................86
Section 8.05. Deposited Money and Government Securities to Be Held in Trust; Other
Miscellaneous Provisions.............................................................88
Section 8.06. Repayment to Issuers.........................................................89
Section 8.07. Reinstatement................................................................89
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER.......................................................90
Section 9.01. Without Consent of Holders of Notes..........................................90
Section 9.02. With Consent of Holders of Notes.............................................90
Section 9.03. Compliance with Trust Indenture Act..........................................92
Section 9.04. Revocation and Effect of Consents............................................92
Section 9.05. Notation on or Exchange of Notes.............................................92
Section 9.06. Trustee to Sign Amendments, etc..............................................93
ARTICLE 10 MISCELLANEOUS.........................................................................93
Section 10.01. Trust Indenture Act Controls................................................93
Section 10.02. Notices.....................................................................93
Section 10.03. Communication by Holders of Notes with Other Holders of Notes...............94
Section 10.04. Certificate and Opinion as to Conditions Precedent..........................95
Section 10.05. Statements Required in Certificate or Opinion...............................95
Section 10.06. Rules by Trustee and Agents. ...............................................95
Section 10.07. No Personal Liability of Directors, Officers, Employees, Members and
Stockholders.........................................................................96
Section 10.08. Governing Law...............................................................96
Section 10.09. No Adverse Interpretation of Other Agreements...............................96
Section 10.10. Successors..................................................................96
Section 10.11. Severability................................................................96
Section 10.12. Counterpart Originals.......................................................96
Section 10.13. Table of Contents, Headings, etc............................................97
ARTICLE 11 SATISFACTION AND DISCHARGE............................................................97
Section 11.01. Satisfaction and Discharge of Indenture.....................................97
Section 11.02. Application of Trust Money..................................................98
EXHIBIT A........................................................................................A-1
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
EXHIBIT B........................................................................................B-1
EXHIBIT C........................................................................................C-1
EXHIBIT D........................................................................................D-1
</TABLE>
<PAGE> 8
INDENTURE dated as of January 12, 2000 among Charter
Communications Holdings, LLC, a Delaware limited liability company (as further
defined below, the "Company"), Charter Communications Holdings Capital
Corporation, a Delaware corporation (as further defined below, "Charter Capital"
and together with the Company, the "Issuers"), and Harris Trust and Savings
Bank, as trustee (the "Trustee").
The Issuers and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the Notes:
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form
of Exhibit A hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in an initial denomination equal
to the outstanding principal amount of the Initial Notes or any Initial
Additional Notes, in each case initially sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such
other Person is merged with or into or becomes a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
"Additional Notes" means the Issuers' 10.25% Senior Notes Due
2010 issued under this Indenture in addition to the Original Notes (other than
any Notes issued in respect of Original Notes pursuant to Section 2.06, 2.07,
2.10, 3.06, 3.09, 4.16 or 9.05).
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause
<PAGE> 9
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control. For purposes of this definition, the terms "controlling,
"controlled by" and "under common control with" shall have correlative meanings.
"Agent" means any Registrar or Paying Agent.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Acquisition" means (a) an Investment by the Company or any
of the Company's Restricted Subsidiaries in any other Person pursuant to which
such Person shall become a Restricted Subsidiary of the Company or any of its
Restricted Subsidiaries or shall be merged with or into the Company or any of
the Company's Restricted Subsidiaries, or (b) the acquisition by the Company or
any of the Company's Restricted Subsidiaries of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries, taken as a whole, shall be governed by Section 4.16
and/or Section 5.01 and not by the provisions of Section 4.11; and
(2) the issuance of Equity Interests by any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of the Company's
Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not be
deemed to be Asset Sales:
(1) any single transaction or series of related transactions
that: (a) involves assets having a fair market value of less than $100 million;
or (b) results in net proceeds to the
<PAGE> 10
Company and its Restricted Subsidiaries of less than $100 million;
(2) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of the Company to the Company or to another Wholly Owned Restricted
Subsidiary of the Company;
(4) a Restricted Payment that is permitted by Section 4.07 and a
Restricted Investment that is permitted by Section 4.08; and
(5) the incurrence of Permitted Liens and the disposition of
assets related to such Permitted Liens by the secured party pursuant to a
foreclosure.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction including any period
for which such lease has been extended or may, at the option of the lessee, be
extended. Such present value shall be calculated using a discount rate equal to
the rate of interest implicit in such transaction, determined in accordance with
GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal
or state law of any jurisdiction relating to bankruptcy, insolvency, winding up,
liquidation, reorganization or relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as such term is used in Section
13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition.
"Board of Directors" means the Board of Directors of the Company
or Charter Capital, as the case may be, or any authorized committee of the Board
of Directors of the Company or Charter Capital, as the case may be.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or Charter Capital, as the
case may be, to have been duly adopted by the Board of Directors of the Company
or Charter Capital, as the case may be, and to be in full force and effect on
the date of such certification and delivered to
<PAGE> 11
the Trustee.
"Business Day" means any day other than a Legal Holiday.
"Cable Related Business" means the business of owning cable
television systems and businesses ancillary, complementary and related thereto.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest (other than any debt obligation) or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Capital Stock Sale Proceeds" means the aggregate net cash
proceeds (including the fair market value of the non-cash proceeds, as
determined by an independent appraisal firm) received by the Company since the
Existing Notes Issue Date (x) as a contribution to the common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or (y) from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities of the Company
that have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary
of the Company).
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality thereof
(provided that the full faith
<PAGE> 12
and credit of the United States is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of twelve 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 having combined
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
at the time of acquisition of "B" or better;
(4) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having a rating of at least "P-1" from
Moody's or at least "A-1" from S&P and in each case maturing within twelve
months after the date of acquisition;
(6) corporate debt obligations maturing within twelve months
after the date of acquisition thereof, rated at the time of acquisition at least
"Aaa" or "P-1" by Moody's or "AAA" or "A-1" by S&P;
(7) auction-rate preferred stocks of any corporation maturing not
later than 45 days after the date of acquisition thereof, rated at the time of
acquisition at least "Aaa" by Moody's or "AAA" by S&P;
(8) securities issued by any state, commonwealth or territory of
the United States, or by any political subdivision or taxing authority thereof,
maturing not later than six months after the date of acquisition thereof, rated
at the time of acquisition at least "A" by Moody's or S&P; and
(9) money market or, mutual funds, at least 90% of the assets of
which constitute Cash Equivalents of the kinds described in clauses (1) through
(8) of this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, or of a Parent and its Subsidiaries, taken as a
whole, to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principal or a Related Party of the Principal;
<PAGE> 13
(2) the adoption of a plan relating to the liquidation or
dissolution of the Company or a Parent;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principal and Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 35% of the
Voting Stock of the Company or a Parent, measured by voting power rather than
number of shares, unless the Principal or a Related Party Beneficially Owns,
directly or indirectly, a greater percentage of Voting Stock of the Company,
measured by voting power rather than the number of shares, than such person;
(4) after the Issue Date, the first day on which a majority of
the members of the Board of Directors of the Company or the board of directors
of a Parent are not Continuing Directors; or
(5) the Company or a Parent consolidates with, or merges with or
into, any Person, or any Person consolidates with, or merges with or into, the
Company or a Parent, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company or such Parent is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company or such Parent outstanding
immediately prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person immediately after giving effect to such issuance.
"Charter Capital" means Charter Communications Holdings Capital
Corporation, a Delaware corporation, and any successor in interest thereto.
"Commission" or "SEC" means the Securities and Exchange
Commission.
"Company" means Charter Communications Holdings, LLC, a Delaware
limited liability company, and any successor in interest thereto.
"Consolidated EBITDA" means with respect to any Person, for any
period, the net income of such Person and its Restricted Subsidiaries for such
period plus, to the extent such amount was deducted in calculating such net
income:
(1) Consolidated Interest Expense;
(2) income taxes;
<PAGE> 14
(3) depreciation expense;
(4) amortization expense;
(5) all other non-cash items, extraordinary items, nonrecurring
and unusual items and the cumulative effects of changes in accounting principles
reducing such net income, less all non-cash items, extraordinary items,
nonrecurring and unusual items and cumulative effects of changes in accounting
principles increasing such net income, all as determined on a consolidated basis
for such Person and its Restricted Subsidiaries in conformity with GAAP;
(6) amounts actually paid during such period pursuant to a
deferred compensation plan; and
(7) for purposes of Section 4.10 only, Management Fees;
provided that Consolidated EBITDA shall not include:
(x) the net income (or net loss) of any Person that is not a
Restricted Subsidiary ("Other Person"), except (I) with respect to net income,
to the extent of the amount of dividends or other distributions actually paid to
such Person or any of its Restricted Subsidiaries by such Other Person during
such period and (II) with respect to net losses, to the extent of the amount of
investments made by such Person or any Restricted Subsidiary of such Person in
such Other Person during such period;
(y) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (3) of Section 4.07 (and
in such case, except to the extent includable pursuant to clause (x) above), the
net income (or net loss) of any Other Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with such
Person or any Restricted Subsidiaries or all or substantially all of the
property and assets of such Other Person are acquired by such Person or any of
its Restricted Subsidiaries; and
(z) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary (other than any agreement or instrument (i) evidencing
Indebtedness or preferred stock outstanding on the Issue Date or (ii) incurred
or issued thereafter in compliance with Section 4.10, provided that (a) the
terms of any such agreement restricting the declaration and payment of dividends
or similar distributions apply only in the event of a default with respect to a
financial covenant or a
<PAGE> 15
covenant relating to payment (beyond any applicable period of grace) contained
in such agreement or instrument, (b) such terms are determined by such Person to
be customary in comparable financings and (c) such restrictions are determined
by such Person not to materially affect the Issuers' ability to make principal
or interest payments on the Notes when due).
"Consolidated Indebtedness" means, with respect to any Person as
of any date of determination, the sum, without duplication, of:
(1) the total amount of outstanding Indebtedness of such Person
and its Restricted Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person that has
been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus
(3) the aggregate liquidation value of all Disqualified Stock of
such Person and all preferred stock of Restricted Subsidiaries of such Person,
in each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person
for any period, without duplication, the sum of
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization or original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations); and
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; and
(3) any interest expense on Indebtedness of another Person that
is guaranteed by such Person or one of its Restricted Subsidiaries or secured by
a Lien on assets of such Person or one of its Restricted Subsidiaries (whether
or not such Guarantee or Lien is called upon);
excluding, however, any amount of such interest of any Restricted Subsidiary if
the net income of such Restricted Subsidiary is excluded in the calculation of
Consolidated EBITDA pursuant to clause (z) of the definition thereof (but only
in the same proportion
<PAGE> 16
as the net income of such Restricted Subsidiary is excluded from the calculation
of Consolidated EBITDA pursuant to clause (z) of the definition thereof), in
each case, on a consolidated basis and in accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company or the board of directors of
a Parent who:
(1) was a member of such board of directors on the Issue Date; or
(2) was nominated for election or elected to such board of
directors with the approval of a majority of the Continuing Directors who were
members of such board of directors at the time of such nomination or election or
whose election or appointment was previously so approved.
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 10.02 or such other address as to which the
Trustee may give notice to the Issuers.
"Credit Facilities" means, with respect to the Company and/or its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or
the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06,
substantially in the form of Exhibit A hereto, except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Global Notes, the Person
specified in Section 2.03 as the Depositary with respect to the Notes, and any
and all successors thereto appointed as depositary hereunder and having become
such pursuant to the applicable provision of this Indenture.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the surviving Person) or the sale, assignment, or transfer,
lease conveyance or other disposition of all or substantially all of such
Person's assets or Capital Stock.
<PAGE> 17
"Disqualified Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible, or for which it
is exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07.
"Equity Interests" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any private or underwritten public
offering of Qualified Capital Stock of the Company or a Parent of which the
gross proceeds (x) to the Company or (y) received by the Company as a capital
contribution from such Parent, as the case may be, are at least $25 million.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Issuers' 10.25% Senior Notes due 2010,
containing terms substantially identical to the Initial Notes or any Initial
Additional Notes (except that (i) such Exchange Notes shall not contain terms
with respect to transfer restrictions and shall be registered under the
Securities Act and (ii) certain provisions relating to an increase in the stated
rate of interest thereon shall be eliminated), that are issued and exchanged for
(a) the Initial Notes, as provided for in the Registration Rights Agreement
relating to such Initial Notes and this Indenture or (b) such Initial Additional
Notes, as may be provided in any Registration Rights Agreement relating to such
Initial Additional Notes and this Indenture (including any amendment or
supplement thereto).
"Exchange Offer" means an offer to exchange Initial Notes or
Initial Additional Notes, if any, for Exchange Notes pursuant to a Registration
Rights Agreement.
<PAGE> 18
"Exchange Offer Registration Statement" means a registration
statement relating to an Exchange Offer as may be provided in any Registration
Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date, until such amounts are
repaid.
"Existing Notes Issue Date" means March 17, 1999.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Issue Date.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"Guarantee" or "guarantee" means a guarantee other than by
endorsement of negotiable instruments for collection in the ordinary course of
business, direct or indirect, in any manner including, without limitation, by
way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness, measured
as the lesser of the aggregate outstanding amount of the Indebtedness so
guaranteed and the face amount of the Guarantee.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements;
(2) interest rate option agreements, foreign currency exchange
agreements, foreign currency swap agreements; and
(3) other agreements or arrangements designed to protect such
Person against
<PAGE> 19
fluctuations in interest and currency exchange rates.
"Helicon Preferred Stock" means the preferred limited liability
company interest of Charter-Helicon LLC with an aggregate liquidation value of
$25 million outstanding on the Issue Date.
"Holder" means a holder of the Notes.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing the notional amount of any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
<PAGE> 20
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Additional Notes" means Additional Notes issued in an
offering not registered under the Securities Act.
"Initial Notes" means the Issuer's 10.25% Senior Notes Due 2010,
issued on the Issue Date (and any Notes issued in respect thereof pursuant to
Section 2.06, 2.07, 2.10, 3.06, 3.09, 4.16 or 9.05).
"Institutional Accredited Investor" means an institution that is
an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is not also a QIB.
"Investment Grade Rating" means a rating equal to or higher than
Baa3 (or the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Investments" means, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business), and
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means January 12, 2000.
"Issuers" has the meaning assigned to it in the preamble to this
Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Issuers and sent to all Holders of the Initial Notes or any
Initial Additional Notes for use by such Holders in connection with any Exchange
Offer.
"Leverage Ratio" means, as of any date, the ratio of:
<PAGE> 21
(1) the Consolidated Indebtedness of the Company on such date to
(2) the aggregate amount of Consolidated EBITDA for the Company
for the most recently ended fiscal quarter for which internal financial
statements are available multiplied by four (the "Reference Period").
In addition to the foregoing, for purposes of this definition, "Consolidated
EBITDA" shall be calculated on a pro forma basis after giving effect to
(1) the issuance of the Notes;
(2) the incurrence of the Indebtedness or the issuance of the
Disqualified Stock or other preferred stock of a Restricted Subsidiary (and the
application of the proceeds therefrom) giving rise to the need to make such
calculation and any incurrence or issuance (and the application of the proceeds
therefrom) or repayment of other Indebtedness or Disqualified Stock or other
preferred stock of a Restricted Subsidiary, other than the incurrence or
repayment of Indebtedness for ordinary working capital purposes, at any time
subsequent to the beginning of the Reference Period and on or prior to the date
of determination, as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the first day of the
Reference Period; and
(3) any Dispositions or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any person that becomes a Restricted Subsidiary as a result of such
Asset Acquisition) incurring, assuming or otherwise becoming liable for or
issuing Indebtedness, Disqualified Stock or preferred stock) made on or
subsequent to the first day of the Reference Period and on or prior to the date
of determination, as if such Disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness, Disqualified
Stock or preferred stock and also including any Consolidated EBITDA associated
with such Asset Acquisition, including any cost savings adjustments in
compliance with Regulation S-X promulgated by the Commission) had occurred on
the first day of the Reference Period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
<PAGE> 22
jurisdiction.
"Management Fees" means the fees payable to Charter
Communications, Inc. pursuant to the management agreements between Charter
Communications, Inc. and Charter Communication Operating LLC, and between
Charter Communications, Inc. and Restricted Subsidiaries of the Company
(including any Person that becomes a Restricted Subsidiary of the Company in
connection with the acquisition of Bresnan Communications Company Limited
Partnership), as such agreements exist on the Issue Date (or on the date of such
acquisition in the case of the aforementioned Bresnan acquisition), including
any amendment or replacement thereof, provided that any such amendment or
replacement is not more disadvantageous to the Holders of the Notes in any
material respect from such management agreements existing on the Issue Date.
"Moody's" means Moody's Investors Service, Inc. or any successor
to the rating agency business thereof.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof or taxes paid or payable as a
result thereof (including amounts distributable in respect of owners', partners'
or members' tax liabilities resulting from such sale), in each case after taking
into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of
Indebtedness.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;
(2) no default with respect to which (including any rights that
the holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of any
other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and
(3) as to which the lenders have been notified in writing that
they will not have
<PAGE> 23
any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" means the Initial Notes, any Additional Notes and the
Exchange Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice- President of such Person.
"Officers' Certificate" means a certificate signed on behalf of
the Company or Charter Capital, as the case may be, by two Officers of the
Company or Charter Capital, as the case may be, one of whom must be the
principal executive officer, the chief financial officer or the treasurer of the
Company or Charter Capital, as the case may be, that meets the requirements of
Section 10.05.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
10.05. The counsel may be an employee of or counsel to the Issuers, any
Subsidiary of the Issuers or the Trustee.
"Original Notes" means the Initial Notes and any Exchange Notes
issued in exchange therefor.
"Other Notes" means the 10.00% Senior Notes due 2009 of the
Issuers in an aggregate principal amount not to exceed the principal amount
issued on the Issue Date, and the 11.75% Senior Discount Notes due 2010 of the
Issuers in an aggregate principal amount not to exceed the principal amount
issued on the Issue Date.
"Parent" means Charter Communications, Inc. and/or Charter
Communications Holding Company, LLC, as applicable, and any successor Person or
any Person succeeding to the direct or indirect ownership of the Company.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Investments" means:
<PAGE> 24
(1) any Investment by the Company in a Restricted Subsidiary of
the Company, or any Investment by a Restricted Subsidiary of the Company in the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the
Company; or
(b) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.11;
(5) any Investment made out of the net cash proceeds of the issue
and sale since the Existing Notes Issue Date (other than to a Subsidiary of the
Company) of Equity Interests (other than Disqualified Stock) of the Company to
the extent that such net cash proceeds have not been applied to make a
Restricted Payment or to effect other transactions pursuant to Section 4.07 or
to the extent such net cash proceeds have not been used to incur Indebtedness
pursuant to clause (10) of Section 4.10;
(6) Investments in Productive Assets having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (6) since the Existing Notes
Issue Date, not to exceed $150 million; provided that the Company or any of its
Restricted Subsidiaries, after giving effect to such Investments, will own at
least 20% of the Voting Stock of such Person;
(7) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (7) since the Existing Notes
Issue Date, not to exceed $50 million; and
(8) Investments in customers and suppliers in the ordinary course
of business which either (A) generate accounts receivable or (B) are accepted in
settlement of bona fide disputes.
<PAGE> 25
"Permitted Liens" means:
(1) Liens on the assets of the Company securing Indebtedness and
other Obligations under clause (1) of Section 4.10;
(2) Liens in favor of the Company;
(3) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company;
(4) Liens on property existing at the time of acquisition thereof
by the Company; provided that such Liens were in existence prior to the
contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) purchase money mortgages or other purchase money liens
(including without limitation any Capital Lease Obligations) incurred by the
Company upon any fixed or capital assets acquired after the Issue Date or
purchase money mortgages (including without limitation Capital Lease
Obligations) on any such assets, whether or not assumed, existing at the time of
acquisition of such assets, whether or not assumed, so long as (i) such mortgage
or lien does not extend to or cover any of the assets of the Company, except the
asset so developed, constructed, or acquired, and directly related assets such
as enhancements and modifications thereto, substitutions, replacements, proceeds
(including insurance proceeds), products, rents and profits thereof, and (ii)
such mortgage or lien secures the obligation to pay the purchase price of such
asset, interest thereon and other charges, costs and expenses (including,
without limitation, the cost of design, development, construction, acquisition,
transportation, installation, improvement, and migration) and incurred in
connection therewith (or the obligation under such Capital Lease Obligation)
only;
(7) Liens existing on the Issue Date (other than in connection
with the Credit Facilities);
(8) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;
<PAGE> 26
(9) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(10) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;
(11) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligation, bankers' acceptance,
surety and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary course
of business (exclusive of obligations for the payment of borrowed money);
(12) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries;
(13) Liens of franchisors or other regulatory bodies arising in
the ordinary course of business;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases or other Uniform Commercial Code financing
statements for precautionary purposes relating to arrangements not constituting
Indebtedness;
(15) Liens arising from the rendering of a final judgment or
order against the Company or any of its Restricted Subsidiaries that does not
give rise to an Event of Default;
(16) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(17) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general parameters customary in
the industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Hedging Obligations and forward contracts, options,
future contracts, future options or similar
<PAGE> 27
agreements or arrangements designed solely to protect the Company or any of its
Restricted Subsidiaries from fluctuations in interest rates, currencies or the
price of commodities;
(18) Liens consisting of any interest or title of licensor in the
property subject to a license;
(19) Liens on the Capital Stock of Unrestricted Subsidiaries;
(20) Liens arising from sales or other transfers of accounts
receivable which are past due or otherwise doubtful of collection in the
ordinary course of business;
(21) Liens incurred in the ordinary course of business of the
Company with respect to obligations which in the aggregate do not exceed $50
million at any one time outstanding;
(22) Liens in favor of the Trustee arising under the provisions
in this Indenture and in the indentures relating to the Other Notes, in each
case under Section 7.07; and
(23) Liens in favor of the Trustee for its benefit and the
benefit of Holders and the holders of the Other Notes, as their respective
interests appear.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that unless permitted otherwise
by this Indenture, no Indebtedness of the Company or any of its Restricted
Subsidiaries, may be issued in exchange for, nor the net proceeds of such
Indebtedness be used to extend, refinance, renew, replace, defease or refund
Indebtedness of the Company or any of its Restricted Subsidiaries; provided,
further, that:
(1) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest and premium, if any,
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
<PAGE> 28
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by any
of its Restricted Subsidiaries who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
"Principal" means Paul G. Allen.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i)(A) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Productive Assets" means assets (including assets of a referent
Person owned directly or indirectly through ownership of Capital Stock) of a
kind used or useful in the Cable Related Business.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Stock.
"Rating Agencies" means Moody's and S&P.
"Registration Rights Agreement" means (a) the Exchange and
Registration Rights Agreement dated as of the Issue Date among the Issuers and
the initial purchasers named therein with respect to the Initial Notes and (b)
any registration rights agreement among the Issuers and the initial purchasers
named therein with respect to any Initial Additional Notes.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a global note substantially in
the form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and
<PAGE> 29
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in an initial denomination equal to the
outstanding principal amount of the Initial Notes or any Initial Additional
Notes, in each case initially sold in reliance on Rule 903 of Regulation S.
"Related Party" means:
(1) the spouse or an immediate family member, estate or heir of
the Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of the Principal and/or such
other Persons referred to in the immediately preceding clause (1).
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated under the Securities Act.
"S&P" means Standard & Poor's Ratings Service, a division of the
McGraw-Hill Companies, Inc. or any successor to the rating agency business
thereof.
<PAGE> 30
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means a "shelf" registration
statement providing for the registration and the sale on a continuous or delayed
basis of, the Initial Notes or any Initial Additional Notes as may be provided
in any Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the
Company which is a "Significant Subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Exchange Act.
"Special Interest" means special or additional interest in
respect of the Notes that is payable by the Issuers as liquidated damages upon
specified registration defaults pursuant to any Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the documentation
governing such Indebtedness on the Issue Date, or, if none, the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of
which at least 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person (or a combination thereof) and, in the case of any such entity of
which 50% of the total voting power of shares of Capital Stock is so owned or
controlled by such Person or one or more of the other Subsidiaries of such
Person, such Person and its Subsidiaries also has the right to control the
management of such entity pursuant to contract or otherwise; and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax" shall mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and any other liabilities
related thereto).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as
<PAGE> 31
in effect on the date on which this Indenture is qualified under the TIA;
provided, however, that in the event the Trust Indenture Act of 1939 is amended
after such date, then "TIA" means, to the extent required by such amendment, the
Trust Indenture Act of 1939 as so amended.
"Trustee" means Harris Trust and Savings Bank until a successor
replaces Harris Trust and Savings Bank in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes
that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global note
substantially in the form of Exhibit A attached hereto that bears the Global
Note Legend and that has the "Schedule of Exchanges of Interests in the Global
Note" attached thereto, and that is deposited with or on behalf of and
registered in the name of the Depositary, representing a series of Notes that do
not bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company
that is designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company unless such terms constitute Investments permitted by the covenant
described above under Section 4.08;
(3) is a Person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that is
not a director or executive officer of the Company or any of its Restricted
Subsidiaries, or has at least one
<PAGE> 32
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under
the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
board of directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at 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
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person and/or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
- ---- --------
<S> <C>
"Affiliate Transaction"..................................................................... 4.13
"Asset Sale Offer".......................................................................... 3.09
"Authentication Order"...................................................................... 2.02
"Change of Control Offer"................................................................... 4.16
"Change of Control Payment"................................................................. 4.16
"Change of Control Payment Date"............................................................ 4.16
"Covenant Defeasance"....................................................................... 8.03
"DTC"....................................................................................... 2.03
"Event of Default".......................................................................... 6.01
"Excess Proceeds"........................................................................... 4.11
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
"incur"..................................................................................... 4.10
"Legal Defeasance".......................................................................... 8.02
"Offer Period".............................................................................. 3.09
"Paying Agent".............................................................................. 2.03
"Payment Default"........................................................................... 6.01
"Permitted Debt"........................................................................... 4.10
"Preferred Stock Financing"................................................................. 4.10
"Purchase Date"............................................................................. 3.09
"Registrar"................................................................................. 2.03
"Restricted Payments"....................................................................... 4.07
"Subordinated Debt Financing"............................................................... 4.10
"Subordinated Notes"........................................................................ 4.10
"Subsidiary Guarantee"...................................................................... 4.17
"Suspended Covenants"....................................................................... 4.19
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Notes means the Issuers and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
<PAGE> 34
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time;
(g) references to any statute, law, rule or regulation shall be
deemed to refer to the same as from time to time amended and in effect and to
any successor statute, law, rule or regulation; and
(h) references to any contract, agreement or instrument shall
mean the same as amended, modified, supplemented or amended and restated from
time to time, in each case, in accordance with any applicable restrictions
contained in this Indenture.
ARTICLE 2 THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Issuers and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be
<PAGE> 35
controlling.
(b) Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibit A attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Notes from time to time
endorsed thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06.
(c) Euroclear and Cedel Procedures Applicable. The provisions of
the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Global Notes that are held by
Participants through Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for each Issuer by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
At any time and from time to time after the execution and
delivery of this Indenture, the Issuers may deliver Notes executed by the
Issuers to the Trustee for authentication; and the Trustee shall authenticate
and deliver (i) Initial Notes for original issue in the aggregate principal
amount of $325,000,000 and (ii) Additional Notes from time to time for original
issue in aggregate principal amount specified by the Issuers not to exceed
$175,000,000 and (iii) Exchange Notes from time to time for issue in exchange
for a like principal amount of Initial Notes or Initial Additional Notes, in
each case
<PAGE> 36
specified in clauses (i) through (iii) above, upon a written order of the
Issuers signed by an Officer of each of the Issuers (an "Authentication Order").
Such Authentication Order shall specify the amount of Notes to be authenticated
and the date on which the Notes are to be authenticated, whether such notes are
to be Initial Notes, Additional Notes or Exchange Notes and whether the Notes
are to be issued as one or more Global Notes and such other information as the
Issuers may include or the Trustee may reasonably request. The aggregate
principal amount of Notes outstanding at any time may not exceed $500,000,000
except as provided in Section 2.07. On the Issue Date, the Issuers will issue
$325,000,000 aggregate principal amount of Initial Notes.
The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Issuers.
Section 2.03. Registrar and Paying Agent.
The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuers may appoint one or more co- registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Issuers may change any
Paying Agent or Registrar without notice to any Holder. The Issuers shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Issuers fail to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Issuers or any of
their Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar
and Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium, if any, or
<PAGE> 37
interest on the Notes, and shall notify the Trustee of any default by the
Issuers in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Issuers at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Issuers or a Subsidiary) shall have no further liability for the money.
If the Issuers or a Subsidiary acts as Paying Agent, it shall segregate and hold
in a separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Issuers, the Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Issuers shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes
shall be exchanged by the Company for Definitive Notes if:
(i) the Issuers deliver to the Trustee notice from the
Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under
the Exchange Act and, in either case, a successor Depositary is not
appointed by the Issuers within 120 days after the date of such notice
from the Depositary; or
(ii) the Issuers in their sole discretion determine that
the Global Notes (in whole but not in part) should be exchanged for
Definitive Notes and deliver a written notice to such effect to the
Trustee; or
(iii) there shall have occurred and be continuing a
Default or Event of Default with respect to the Notes.
<PAGE> 38
Upon the occurrence of any of the preceding events in (i), (ii)
or (iii) above, Definitive Notes shall be issued in such names as the Depositary
shall instruct the Trustee. Global Notes also may be exchanged or replaced, in
whole or in part, as provided in Sections 2.07 and 2.10. Every Note
authenticated and delivered in exchange for, or in lieu of, a Global Note or any
portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a); however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f).
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global
Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance
with the transfer restrictions set forth in the Private Placement
Legend. Beneficial interests in any Unrestricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and
exchanges of beneficial interests that are not subject to Section
2.06(b)(i) above, the transferor of such beneficial interest must
deliver to the Registrar either:
(A)(1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with
the Applicable Procedures directing the Depositary to credit or
cause to be credited a beneficial interest in another Global Note
in an amount equal to the beneficial interest to be transferred
or exchanged; and
(A)(2) instructions given in accordance with the
Applicable Procedures containing information regarding the
Participant account to be credited with such increase; or
<PAGE> 39
(B)(1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with
the Applicable Procedures directing the Depositary to cause to be
issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged; and
(B)(2) instructions given by the Depositary to the
Registrar containing information regarding the Person in whose
name such Definitive Note shall be registered to effect the
transfer or exchange referred to in (1) above. Upon consummation
of an Exchange Offer by the Issuers in accordance with Section
2.06(f), the requirements of this Section 2.06(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered
by the holder of such beneficial interests in the Restricted
Global Notes. Upon satisfaction of all of the requirements for
transfer or exchange of beneficial interests in Global Notes
contained in this Indenture and the Notes or otherwise applicable
under the Securities Act, the Trustee shall adjust the principal
amount of the relevant Global Note(s) pursuant to Section
2.06(h).
(iii) Transfer of Beneficial Interests to Another
Restricted Global Note. A beneficial interest in any Restricted Global
Note may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in another Restricted Global Note if the
transfer complies with the requirements of Section 2.06(b)(ii) above and
the Registrar receives the following:
(A) if the transferee will take delivery in the
form of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the
form of a beneficial interest in the Regulation S Global Note,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in an Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant
to an Exchange Offer
<PAGE> 40
in accordance with a Registration Rights Agreement and the holder
of the beneficial interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer, certifies
in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the relevant Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) such transfer is effected by a broker-dealer
pursuant to the Exchange Registration Statement in accordance
with a Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange
such beneficial interest for a beneficial interest in an
Unrestricted Global Note, a certificate from such holder
in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer
such beneficial interest to a Person who shall take
delivery thereof in the form of a beneficial interest in
an Unrestricted Global Note, a certificate from such
holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.
If any such transfer is effected pursuant to subparagraph
(B) or (D) above at a time when an Unrestricted Global Note has not yet
been issued, the Issuers shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the aggregate principal amount of beneficial
interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or
<PAGE> 41
transferred to Persons who take delivery thereof in the form of, a beneficial
interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for
a Restricted Definitive Note or to transfer such
beneficial interest to a Person who takes delivery thereof in the form
of a Restricted Definitive Note, then, upon receipt by the Registrar of
the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being
transferred to an Institutional Accredited Investor in reliance
on an exemption from the registration requirements of the
Securities Act other than those listed in subparagraphs (B)
through (D) above, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being
transferred to the Issuers or any of their Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
<PAGE> 42
(G) if such beneficial interest is being
transferred pursuant to an effective registration statement under
the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h), and
the Issuers shall execute and the Trustee shall authenticate and deliver
to the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for
a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note pursuant
to this Section 2.06(c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest to
a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant
to an Exchange Offer in accordance with a Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the relevant Exchange Notes or (3) a Person who
is an affiliate (as defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) such transfer is effected by a broker-dealer
pursuant to an Exchange Registration Statement in accordance with
a Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global
<PAGE> 43
Note proposes to exchange such beneficial interest for a
Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item
(1)(b) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer
such beneficial interest to a Person who shall take
delivery thereof in the form of a Definitive Note that
does not bear the Private Placement Legend, a certificate
from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to the
effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial
interest for a Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive Note,
then, upon satisfaction of the conditions set forth in Section
2.06(b)(ii), the Trustee shall cause the aggregate principal amount of
the applicable Global Note to be reduced accordingly pursuant to Section
2.06(h), and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests in Global Notes.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a Restricted
Global Note or to transfer such Restricted
<PAGE> 44
Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the Holder of such Restricted Definitive
Note proposes to exchange such Note for a beneficial interest in
a Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set forth
in Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in reliance
on an exemption from the registration requirements of the
Securities Act other than those listed in subparagraphs (B)
through (D) above, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement under
the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the
<PAGE> 45
appropriate Restricted Global Note, in the case of clause (B) above,
the 144A Global Note, in the case of clause (C) above, the Regulation S
Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests
in Unrestricted Global Notes. A Holder of a Restricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Restricted Definitive Note to a Person who
takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant
to an Exchange Offer in accordance with a Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the relevant Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to a Shelf
Registration Statement in accordance with a Registration Rights
Agreement;
(C) such transfer is effected by a broker-dealer
pursuant to an Exchange Registration Statement in accordance with
a Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial interest
in the Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit C hereto, including the
certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of a beneficial interest in
the Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require,
an Opinion of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or transfer is in
compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are
no longer required in order to maintain compliance with the
Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section
<PAGE> 46
2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase
or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial
Interests in Unrestricted Global Notes. A Holder of an Unrestricted
Definitive Note may exchange such Note for a beneficial interest in an
Unrestricted Global Note or transfer such Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for such
an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to
a beneficial interest is effected pursuant to subparagraphs (ii)(B),
(ii)(D) or (iii) above at a time when an Unrestricted Global Note has
not yet been issued, the Issuers shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of Definitive Notes so
transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule
903 or Rule 904, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (2) thereof; and
<PAGE> 47
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof,
if applicable.
(ii) Restricted Definitive Notes to Unrestricted
Definitive Notes. Any Restricted Definitive Note may be exchanged by the
Holder thereof for an Unrestricted Definitive Note or transferred to a
Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant
to an Exchange Offer in accordance with a Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the relevant Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Issuers;
(B) any such transfer is effected pursuant to a
Shelf Registration Statement in accordance with a Registration
Rights Agreement;
(C) any such transfer is effected by a
broker-dealer pursuant to an Exchange Registration Statement in
accordance with a Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for an
Unrestricted Definitive Note, a certificate from such
Holder in the form of Exhibit C hereto, including the
certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a
Person who shall take delivery thereof in the form of an
Unrestricted Definitive Note, a certificate from such
Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Issuers to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
<PAGE> 48
(iii) Unrestricted Definitive Notes to Unrestricted
Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer
such Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register such
a transfer, the Registrar shall register the Unrestricted Definitive
Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of an Exchange Offer in
accordance with a Registration Rights Agreement, the Issuers shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the relevant
Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the
Issuers, and accepted for exchange in the relevant Exchange Offer and (ii)
Definitive Notes in an aggregate principal amount equal to the principal amount
of the Restricted Definitive Notes accepted for exchange in the relevant
Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Definitive Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of
all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below,
each Global Note and each Definitive Note (and all Notes issued
in exchange therefor or substitution thereof) shall bear the
legend in substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
(A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION
MEETING THE
<PAGE> 49
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION
COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED
INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES."
(B) Notwithstanding the foregoing, any Global Note
or Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(ii) Global Note Legend. Each Global Note shall bear a
legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER
ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS
HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE,
(II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT
TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE
DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF
THE INDENTURE AND (III) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
(h) Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11. At any
time prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note or for
<PAGE> 50
Definitive Notes, the principal amount of Notes represented by such Global Note
shall be reduced accordingly and an endorsement shall be made on such Global
Note by the Trustee or by the Depositary at the direction of the Trustee to
reflect such reduction; and if the beneficial interest is being exchanged for or
transferred to a Person who will take delivery thereof in the form of a
beneficial interest in another Global Note, such other Global Note shall be
increased accordingly and an endorsement shall be made on such Global Note by
the Trustee or by the Depositary at the direction of the Trustee to reflect such
increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Issuers shall execute and the Trustee shall authenticate Global
Notes and Definitive Notes upon the Issuers' order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive Note
for any registration of transfer or exchange, but the Issuers may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 3.09, 4.11, 4.16 and 9.05).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Issuers, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Issuers shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 and ending at the
close of business on the day of selection, (B) to register the transfer
of or to exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part
or (C) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note,
<PAGE> 51
the Trustee, any Agent and the Issuers may deem and treat the Person in
whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such
Notes and for all other purposes, and none of the Trustee, any Agent or
the Issuers shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the
Issuers and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Issuers shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Issuers, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Issuers may charge for their expenses in replacing a
Note.
Every replacement Note is an additional obligation of the Issuers
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions, and those described in this Section
as not outstanding. Except as set forth in Section 2.09, a Note does not cease
to be outstanding because either of the Issuers or an Affiliate of the Issuers
holds the Note; however, Notes held by an Issuer or a Subsidiary of an Issuer
shall not be deemed to be outstanding for purposes of Section 3.07(b).
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
<PAGE> 52
If the principal amount of any Note is considered paid under
Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than an Issuer, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by an Issuer, or by any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with an Issuer, shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, the
Issuers may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Issuers
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Issuers shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
Section 2.11. Cancellation.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes. Certification of the destruction of all canceled Notes shall be
delivered to the Issuers. The Issuers may not issue new Notes to replace Notes
that they have paid or that have been delivered to the Trustee for cancellation.
<PAGE> 53
Section 2.12. Defaulted Interest.
If the Issuers default in a payment of interest on the Notes,
they shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01. The Issuers shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Issuers shall fix or cause to be fixed
each such special record date and payment date; provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Issuers (or, upon the written request of the Issuers, the Trustee in the name
and at the expense of the Issuers) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
ARTICLE 3 REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Issuers elect to redeem Notes pursuant to the optional
redemption provisions of Section 3.07, it shall furnish to the Trustee, at least
30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in
an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Issuers in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts
<PAGE> 54
of $1,000 or whole multiples of $1,000; except that if all of the Notes of a
Holder are to be redeemed, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided
in the preceding sentence, provisions of this Indenture that apply to Notes
called for redemption also apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09, at least 30 days but
not more than 60 days before a redemption date, the Issuers shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' name and at their expense; provided, however, that
each of the Issuers shall have delivered to the Trustee, at least 45 days prior
to the redemption date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information
<PAGE> 55
to be stated in such notice as provided in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.03, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
At or prior to 10:00 a.m., New York City time, on the redemption
date, the Issuers shall deposit with the Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued interest on all Notes to
be redeemed on that date. The Trustee or the Paying Agent shall promptly return
to the Issuers any money deposited with the Trustee or the Paying Agent by the
Issuers in excess of the amounts necessary to pay the redemption price of, and
accrued interest on, all Notes to be redeemed.
If the Issuers comply with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Issuers to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Issuers
shall issue and, upon the Issuers' written request, the Trustee shall
authenticate for the Holder at the expense of the Issuers a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the
Issuers shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to January 15, 2005. Thereafter, the Issuers shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices
<PAGE> 56
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on January 15 of the years indicated
below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005 105.125%
2006 103.417%
2007 101.708%
2008 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to January 15, 2003, the Issuers may, on any one or more
occasions, redeem up to 35% of the original aggregate principal amount of the
Notes (including the principal amount of any Additional Notes) issued under this
Indenture on a pro rata basis (or nearly as pro rata as practicable) at a
redemption price of 110.25% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided that
(1) at least 65% of the original aggregate principal
amount of Notes (including the principal amount of any Additional Notes)
issued under this Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes held by the Company and
its Subsidiaries and the Guarantor and its Subsidiaries); and
(2) the redemption must occur within 60 days of the date
of the closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06.
Section 3.08. Mandatory Redemption.
Except as otherwise provided in Section 4.11 or Section 4.16
below, the Issuers shall not be required to make mandatory redemption payments
with respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that the Issuers shall be required to commence an
offer to all Holders to purchase Notes pursuant to Section 4.11 (an "Asset Sale
Offer"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days
<PAGE> 57
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Issuers shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.11 (the "Offer Amount") or, if less than the
Offer Amount has been tendered, all Notes tendered in response to the Asset Sale
Offer. Payment for any Notes so purchased shall be made in the same manner as
interest payments are made. Unless the Issuers default in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Purchase Date.
If the Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no Special Interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer the Issuers shall
send, by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.11 and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Issuers default in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer or may elect to have Notes purchased in integral multiples of
$1,000 only;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Issuers, a depositary, if
appointed by the Issuers, or a Paying Agent at the address
<PAGE> 58
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Issuers, the depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Issuers so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Issuers in accordance
with the terms of this Section 3.09. The Issuers, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Issuers for purchase, and the Issuers shall promptly issue a new Note, and
the Trustee, upon written request from the Issuers shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06.
ARTICLE 4 COVENANTS
Section 4.01. Payment of Notes.
<PAGE> 59
The Issuers shall pay or cause to be paid the principal, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Issuers or a Subsidiary thereof,
holds as of 10:00 a.m. New York City time on the due date money deposited by the
Issuers in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Issuers shall pay all
Special Interest, if any, in the same manner on the dates and in the amounts set
forth in any Registration Rights Agreement.
The Issuers shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; they shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to the
extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuers in respect of the Notes and this Indenture may be
served. The Issuers shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Issuers shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Issuers may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Issuers of their obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Issuers shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Issuers hereby designate the Harris Trust Company of New
York, an affiliate of the Trustee, as one such office or agency of the Issuers
in accordance with Section 2.03.
Section 4.03. Reports.
<PAGE> 60
Whether or not required by the Commission, so long as any Notes
are outstanding, the Issuers shall furnish to the Holders of Notes, within the
time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Issuers were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with
the Commission on Form 8-K if the Issuers were required to file such reports.
If the Issuers have designated any of their Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph shall include a reasonably detailed
presentation, either on the face of the financial statements or in the footnotes
thereto, and in Management's Discussion and Analysis of Financial Condition and
Results of Operations, of the financial condition and results of operations of
the Company and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of the
Company.
In addition, whether or not required by the Commission, the
Issuers shall file a copy of all of the information and reports referred to in
clauses (1) and (2) above with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year have been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a
<PAGE> 61
Default or Event of Default shall have occurred, describing all such Defaults or
Events of Default of which he or she may have knowledge and what action the
Company is taking or proposes to take with respect thereto) and that to the best
of his or her knowledge no event has occurred and remains in existence by reason
of which payments on account of the principal of or interest, if any, on the
Notes is prohibited or if such event has occurred, a description of the event
and what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03 above shall be
accompanied by a written statement of the Company's independent public
accountants (each of whom shall be a firm of established national reputation)
that in making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 or, if
any such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation. In the event that, after the Company has used its reasonable best
efforts to obtain the written statement of the Company's independent public
accountants required by the provisions of this paragraph, such statement cannot
be obtained, the Company shall deliver, in satisfaction of its obligations under
this Section 4.04, an Officers' Certificate (A) certifying that it has used its
reasonable best efforts to obtain such required statement but was unable to do
so and (B) attaching the written statement of the Company's accountants that the
Company received in lieu thereof.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries
to pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
Each of the Issuers covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the
<PAGE> 62
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and each of the Issuers (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary
of the Company);
(b) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company or any Restricted Subsidiary of the Company
(other than any such Equity Interests owned by the Company or any Restricted
Subsidiary of the Company); or
(c) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness that is
subordinated to the Notes, except a payment of interest or principal at the
Stated Maturity thereof (all such payments and other actions set forth in
clauses (a) through (c) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable quarter period,
have been permitted to incur at least
<PAGE> 63
$1.00 of additional Indebtedness pursuant to the Leverage Ratio test set
forth in the first paragraph of Section 4.10; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and each of
its Restricted Subsidiaries after the Existing Notes Issue Date
(excluding Restricted Payments permitted by clauses (2), (3), (4), (5),
(6), (7) and (8) of the next succeeding paragraph), shall not exceed, at
the date of determination, the sum of:
(a) an amount equal to 100% of the Consolidated
EBITDA of the Company since the Existing Notes Issue Date to the
end of the Company's most recently ended full fiscal quarter for
which internal financial statements are available, taken as a
single accounting period, less the product of 1.2 times the
Consolidated Interest Expense of the Company since the Existing
Notes Issue Date to the end of the Company's most recently ended
full fiscal quarter for which internal financial statements are
available, taken as a single accounting period, plus
(b) an amount equal to 100% of Capital Stock Sale
Proceeds less any such Capital Stock Sale Proceeds used in
connection with (i) an Investment made pursuant to clause (5) of
the definition of "Permitted Investments" or (ii) the incurrence
of Indebtedness pursuant to clause (10) of Section 4.10, plus
(c) $100 million.
So long as no Default has occurred and is continuing or would be
caused thereby, the preceding provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the
date of declaration thereof, if at said date of declaration such payment
would have complied with the provisions of this Indenture;
(2) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness of the Company in
exchange for, or out of the net proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, Equity Interests of
the Company (other than Disqualified Stock); provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of the Company or any of its
Restricted Subsidiaries with
<PAGE> 64
the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) regardless of whether a Default then exists, the
payment of any dividend or distribution to the extent necessary to
permit direct or indirect beneficial owners of shares of Capital Stock
of the Company to pay federal, state or local income tax liabilities
that would arise solely from income of the Company or any of its
Restricted Subsidiaries, as the case may be, for the relevant taxable
period and attributable to them solely as a result of the Company (and
any intermediate entity through which the Holder owns such shares) or
any of its Restricted Subsidiaries being a limited liability company,
partnership or similar entity for federal income tax purposes;
(5) regardless of whether a Default then exists, the
payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis;
(6) the payment of any dividend on the Helicon Preferred
Stock or the redemption, repurchase, retirement or other acquisition of
the Helicon Preferred Stock in an amount not in excess of its aggregate
liquidation value;
(7) the repurchase, redemption or other acquisition or
retirement for value, or the payment of any dividend or distribution to
the extent necessary to permit the repurchase, redemption or other
acquisition or retirement for value, of any Equity Interests of the
Company or a Parent held by any member of the Company's or such Parent's
management pursuant to any management equity subscription agreement or
stock option agreement in effect as of the date of this Indenture;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $10
million in any fiscal year of the Company; and
(8) payment of fees in connection with any acquisition,
merger or similar transaction in an amount that does not exceed an
amount equal to 1.25% of the transaction value of such acquisition,
merger or similar transaction.
The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or any of its
Restricted Subsidiaries pursuant to the Restricted Payment. The fair market
value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors of the Company, whose
resolution with respect thereto shall be delivered to the Trustee. Such Board of
Director's determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $100 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such
<PAGE> 65
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, together with a copy
of any fairness opinion or appraisal required by this Indenture.
Section 4.08. Investments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) make any Restricted Investment; or
(2) allow any Restricted Subsidiary of the Company to become an
Unrestricted Subsidiary,
unless, in each case:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of, and after giving effect
to, such Restricted Investment or such designation of a Restricted Subsidiary as
an Unrestricted Subsidiary, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of Section 4.10.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by this Section 4.08. If, at any time,
any Unrestricted Subsidiary would fail to meet the requirements as an
Unrestricted Subsidiary described in the definition of "Unrestricted
Subsidiary," it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of this Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
and, if such Indebtedness is not permitted to be incurred as of such date under
Section 4.10, the Company shall be in default. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under Section 4.10 calculated on a pro forma basis as if such designation had
occurred at the beginning of the Reference Period; and (2) no Default or
<PAGE> 66
Event of Default would be in existence following such designation.
Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, directly or indirectly, create or permit
to exist or become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its Capital
Stock to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its
Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date
(including, without limitation, the Credit Facilities) and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
such Existing Indebtedness, as in effect on the Issue Date;
(2) this Indenture, the Notes and the Other Notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred;
<PAGE> 67
(5) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on the property so acquired
of the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a
Restricted Subsidiary of the Company that restricts distributions by such
Restricted Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenant described above under
Section 4.14 that limit the right of the Company or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution
of assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business;
(12) restrictions contained in the terms of Indebtedness
permitted to be incurred under Section 4.10; provided that such restrictions are
no more restrictive than the terms contained in the Credit Facilities as in
effect on the Issue Date; and
(13) restrictions that are not materially more restrictive than
customary provisions in comparable financings and the management of the Company
determines that such restrictions will not materially impair the Company's
ability to make payments as required under the Notes.
Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become
<PAGE> 68
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of their
Restricted Subsidiaries to issue any shares of preferred stock unless the
Leverage Ratio would have been not greater than 8.75 to 1.0 determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of the most recently ended
fiscal quarter.
So long as no Default shall have occurred and be continuing or
would be caused thereby, the first paragraph of this covenant shall not prohibit
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by the Company and its Restricted Subsidiaries
of Indebtedness under the Credit Facilities; provided that the aggregate
principal amount of all Indebtedness of the Company and its Restricted
Subsidiaries outstanding under all Credit Facilities after giving effect to such
incurrence does not exceed an amount equal to $3.5 billion less the aggregate
amount of all Net Proceeds of Asset Sales applied by the Company or any of its
Subsidiaries in the case of an Asset Sale since the Existing Notes Issue Date to
repay Indebtedness under a Credit Facility pursuant to Section 4.11;
(2) the incurrence by the Company and its Restricted Subsidiaries
of Existing Indebtedness (other than the Credit Facilities);
(3) the incurrence on the Issue Date by the Company and its
Restricted Subsidiaries of Indebtedness represented by the Notes (other than any
Additional Notes) and the Other Notes;
(4) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement (including, without limitation, the cost of design, development,
construction, acquisition, transportation, installation, improvement, and
migration) of Productive Assets of the Company or any of its Restricted
Subsidiaries, in an aggregate principal amount not to exceed $75 million at any
time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace, in whole or in part,
Indebtedness (other than intercompany Indebtedness) that was permitted by this
Indenture to be incurred under the first paragraph of this covenant or clauses
(2) or (3) of this paragraph;
<PAGE> 69
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided that:
(a) if the Company is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Notes; and
(b)(i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary thereof
and (ii) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Wholly Owned Restricted Subsidiary
thereof, shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or any of its Restricted Subsidiaries
that was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indentures to be outstanding;
(8) the guarantee by the Company of Indebtedness of a Restricted
Subsidiary of the Company that was permitted to be incurred by another provision
of this Section 4.10;
(9) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at any
time outstanding not to exceed $300 million;
(10) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at any
time outstanding not to exceed 200% of the net cash proceeds received by the
Company from the sale of its Equity Interests (other than Disqualified Stock)
after the Existing Notes Issue Date to the extent such net cash proceeds have
not been applied to make Restricted Payments or to effect other transactions
pursuant to Section 4.07 or to make Permitted Investments pursuant to clause (5)
of the definition thereof; and
(11) the accretion or amortization of original issue discount and
the write up of Indebtedness in accordance with purchase accounting.
For purposes of determining compliance with this Section 4.10, in
the event that
<PAGE> 70
an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (11) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall be permitted to classify and from time to time to reclassify such
item of Indebtedness on the date of its incurrence in any manner that complies
with this covenant. For avoidance of doubt, Indebtedness incurred pursuant to a
single agreement, instrument, program, facility or line of credit may be
classified as Indebtedness arising in part under one of the clauses listed
above, and in part under any one or more of the clauses listed above, to the
extent that such Indebtedness satisfies the criteria for such clauses.
Notwithstanding the foregoing, in no event shall any Restricted
Subsidiary of the Company consummate a Subordinated Debt Financing or a
Preferred Stock Financing. A "Subordinated Debt Financing" or a "Preferred Stock
Financing", as the case may be, with respect to any Restricted Subsidiary of the
Company shall mean a public offering or private placement (whether pursuant to
Rule 144A under the Securities Act or otherwise) of Subordinated Notes or
preferred stock (whether or not such preferred stock constitutes Disqualified
Stock), as the case may be, of such Restricted Subsidiary to one or more
purchasers (other than to one or more Affiliates of the Company). "Subordinated
Notes" with respect to any Restricted Subsidiary of the Company shall mean
Indebtedness of such Restricted Subsidiary that is contractually subordinated in
right of payment to any other Indebtedness of such Restricted Subsidiary
(including, without limitation, Indebtedness under the Credit Facilities). The
foregoing limitation shall not apply to (i) any Indebtedness or preferred stock
of any Person existing at the time such Person is merged with or into or became
a Subsidiary of the Company; provided that such Indebtedness or preferred stock
was not incurred or issued in connection with, or in contemplation of, such
Person merging with or into, or becoming a Subsidiary of, the Company and (ii)
any Indebtedness or preferred stock of a Restricted Subsidiary issued in
connection with, and as part of the consideration for, an acquisition, whether
by stock purchase, asset sale, merger or otherwise, in each case involving such
Restricted Subsidiary, which Indebtedness or preferred stock is issued to the
seller or sellers of such stock or assets; provided that such Restricted
Subsidiary is not obligated to register such Indebtedness or preferred stock
under the Securities Act or obligated to provide information pursuant to Rule
144A under the Securities Act.
Section 4.11. Limitation on Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or a Restricted Subsidiary of the Company, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
<PAGE> 71
(2) such fair market value is determined by the Company's Board
of Directors and evidenced by a resolution of such Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash, Cash Equivalents
or readily marketable securities.
For purposes of this Section 4.11, each of the following shall be
deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary of the Company (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash, Cash
Equivalents or readily marketable securities within 60 days after receipt
thereof (to the extent of the cash, Cash Equivalents or readily marketable
securities received in that conversion); and
(c) Productive Assets.
Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or a Restricted Subsidiary of the Company, as the case
may be, may apply such Net Proceeds at its option:
(1) to repay debt under the Credit Facilities or any other
Indebtedness of the Restricted Subsidiaries of the Company (other than
Indebtedness represented by a guarantee of a Restricted Subsidiary of the
Company); or
(2) to invest in Productive Assets; provided that any Net
Proceeds which the Company or a Restricted Subsidiary of the Company, as the
case may be, has committed to invest in Productive Assets within 365 days of the
applicable Asset Sale may be invested in Productive Assets within two years of
such Asset Sale.
Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the preceding paragraph shall constitute "Excess
Proceeds." When the aggregate
<PAGE> 72
amount of Excess Proceeds exceeds $25 million, the Issuers shall make an Asset
Sale Offer to all Holders of Notes and all holders of other Indebtedness that is
pari passu with the Notes containing provisions requiring offers to purchase or
redeem with the proceeds of sales of assets to purchase the maximum principal
amount of Notes and such other pari passu Indebtedness that may be purchased out
of the Excess Proceeds (which amount includes the entire amount of the Net
Proceeds). The offer price in any Asset Sale Offer shall be payable in cash and
equal to 100% of principal amount plus accrued and unpaid interest, if any, to
the date of purchase. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
such other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
In the event that the Issuers shall be required to commence an
offer to Holders to purchase Notes pursuant to this Section 4.11, they shall
follow the procedures specified in Section 3.09.
Section 4.12. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if:
(1) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
under the Leverage Ratio test in the first paragraph of Section 4.10 and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.14; and
(2) the transfer of assets in that sale and leaseback transaction
is permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under Section 4.11.
The foregoing restrictions do not apply to a sale and leaseback
transaction if the lease is for a period, including renewal rights, of not in
excess of three years.
Section 4.13. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or
<PAGE> 73
amend any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each, an "Affiliate
Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $15 million, a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority of the members of
such Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $50 million, an opinion as to the fairness to the Holders of
such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of the prior
paragraph:
(1) any existing employment agreement entered into by the Company
or any of its Subsidiaries and any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary;
(2) transactions between or among the Company and/or its
Restricted Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company and customary indemnification and insurance
arrangements in favor of directors, regardless of affiliation with the Company
or any of its Restricted Subsidiaries;
(4) payment of management fees pursuant to management agreements
either (A) existing on the Issue Date or (B) entered into after the Issue Date,
to the extent that such management agreements provide for percentage fees no
higher than the percentage fees
<PAGE> 74
existing under the management agreements existing on the Issue Date;
(5) Restricted Payments that are permitted by Section 4.07 and
Restricted Investments that are permitted by Section 4.08; and
(6) Permitted Investments.
Section 4.14. Liens.
The Company shall not, directly or indirectly, create, incur,
assume or suffer to exist any Lien of any kind securing Indebtedness,
Attributable Debt or trade payables on any asset now owned or hereafter
acquired, except Permitted Liens.
Section 4.15. Corporate Existence.
Subject to Article 5, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries (other than
Charter Capital), if the Board of Directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Subsidiaries, taken as a whole, and that the loss thereof
is not adverse in any material respect to the Holders of the Notes.
Section 4.16. Repurchase at the Option of Holders upon a Change of Control.
If a Change of Control occurs, each Holder of Notes shall have
the right to require the Issuers to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of that Holder's Notes pursuant to a Change of
Control Offer. In the Change of Control Offer, the Issuers shall offer (a
"Change of Control Offer") a payment (the "Change of Control Payment") in cash
equal to 101% of the aggregate principal amount of Notes repurchased plus
accrued and unpaid interest thereon, if any, to the date of purchase.
Within ten days following any Change of Control, the Issuers
shall mail a notice to each Holder (with a copy to the Trustee) describing the
transaction or transactions that constitute the Change of Control and stating:
<PAGE> 75
(a) the purchase price and the purchase date, which shall not
exceed 30 Business Days from the date such notice is mailed (the "Change of
Control Payment Date");
(b) that any Note not tendered shall continue to accrue interest;
(c) that, unless the Issuers default in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date;
(d) that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer shall be required to surrender the Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date;
(e) that Holders shall be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
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 Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have the Notes purchased; and
(f) that Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Issuers shall comply with the requirements of Rule 14e-1
under the Exchange Act (or any successor rules) and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Issuers shall, to the
extent lawful:
(a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(b) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so tendered; and
(c) deliver or cause to be delivered to the Trustee the Notes so
accepted together
<PAGE> 76
with an Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Issuers.
The Paying Agent shall promptly pay to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the Issuers to make a
Change of Control Offer following a Change of Control shall be applicable
regardless of whether or not any other provisions in this Indenture are
applicable. Except as described above with respect to a Change of Control, this
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Issuers repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
Notwithstanding any other provision of this Section 4.16, the
Issuers shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of Control Offer made by the Issuers and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness.
The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company except in respect of the Credit
Facilities (the "Guaranteed Indebtedness") unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
Guarantee (a "Subsidiary Guarantee") of the payment of the Notes by such
Restricted Subsidiary and (ii) until one year after all the Notes have been paid
in full in cash, such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary of the Company as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee or any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary. If the Guaranteed
<PAGE> 77
Indebtedness is subordinated to the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated to the Notes.
Section 4.18. Payments for Consent.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
and is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Section 4.19. Application of Fall-Away Covenants.
During any period of time that (a) the Notes have Investment
Grade Ratings from both Rating Agencies and (b) no Default or Event of Default
has occurred and is continuing, the Company and its Restricted Subsidiaries
shall not be subject to the provisions of Sections 4.07, 4.08, 4.09, 4.10, 4.11,
4.12, 4.13 and clause (4) of the first paragraph of Section 5.01 (collectively,
the "Suspended Covenants"). In the event that the Company and its Restricted
Subsidiaries are not subject to the Suspended Covenants for any period of time
as a result of the preceding sentence and, subsequently, one or both of the
Rating Agencies withdraws its ratings or downgrades the ratings assigned to the
Notes below the required Investment Grade Ratings or a Default or Event of
Default occurs and is continuing, then the Company and its Restricted
Subsidiaries shall thereafter again be subject to the Suspended Covenants and
compliance with the Suspended Covenants with respect to the Restricted Payments
made after the time of such withdrawal, downgrade, Default or Event of Default
will be calculated in accordance with the terms of Section 4.07 as though such
covenant had been in effect during the entire period of time from the Issue
Date.
ARTICLE 5 SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
Neither of the Issuers may, directly or indirectly: (1)
consolidate or merge with or into another Person (whether or not such Issuer is
the surviving corporation); or (2) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of its properties or assets, in one or more
related transactions, to another Person; unless:
(1) either: (a) such Issuer is the surviving corporation; or (b)
the Person formed
<PAGE> 78
by or surviving any such consolidation or merger (if other than such Issuer) or
to which such sale, assignment, transfer, conveyance or other disposition shall
have been made is a Person organized or existing under the laws of the United
States, any state thereof or the District of Columbia (provided that if the
Person formed by or surviving any such consolidation or merger with either
Issuer is a limited liability company or other Person other than a corporation,
a corporate co-issuer shall also be an obligor with respect to the Notes);
(2) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and this Indenture pursuant to
agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of
Default exists; and
(4) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) will, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, either (A) be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in the
first paragraph of Section 4.10 or (B) have a Leverage Ratio immediately after
giving effect to such consolidation or merger no greater than the Leverage Ratio
immediately prior to such consolidation or merger.
In addition, the Company may not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or more related
transactions, to any other Person. This Section 5.01 shall not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or among
the Company and any of its Wholly-Owned Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of either Issuer in accordance with Section 5.01, the successor
Person formed by such consolidation or into which either Issuer is merged or to
which such transfer is made shall succeed to and (except in the case of a lease)
be substituted for, and may exercise every right and power of, such Issuer under
this Indenture with the same effect as if such successor Person had been named
therein as such Issuer, and (except in the case of a lease) such Issuer shall be
released from the obligations under the Notes and this Indenture, except with
respect to any obligations that arise from, or are related to, such transaction.
<PAGE> 79
ARTICLE 6 DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Issuers default in the payment when due of interest on
the Notes and such default continues for a period of 30 days;
(b) the Issuers default in payment when due of the principal of
or premium, if any, on the Notes;
(c) the Company or any of its Restricted Subsidiaries fails to
comply with any of the provisions of Sections 4.16 or 5.01;
(d) the Company or any of its Restricted Subsidiaries fails to
comply with any of their other covenants or agreements in this Indenture for 30
days after written notice thereof has been given to the Company by the Trustee
or to the Company and the Trustee by Holders of at least 25% of the aggregate
principal amount of the Notes outstanding;
(e) the Company or any of its Restricted Subsidiaries defaults
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
(or the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists or is created
after the Issue Date, if that default:
(1) is caused by a failure to pay at final stated maturity
the principal amount on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default
(a "Payment Default"); or
(2) results in the acceleration of such Indebtedness prior
to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$100 million or more;
(f) the Company or any of its Restricted Subsidiaries fails to
pay final judgments which are non-appealable aggregating in excess of $100
million (net of applicable
<PAGE> 80
insurance which has not been denied in writing by the insurer), which judgments
are not paid, discharged or stayed for a period of 60 days;
(g) the Company or any of its Significant Subsidiaries pursuant
to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a custodian of it or
for all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its
creditors; or
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or for all or substantially all of the property
of the Company or any of its Significant Subsidiaries; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02. Acceleration.
In the case of an Event of Default arising from clause (g) or (h)
of Section 6.01 with respect to the Company, all outstanding Notes shall become
due and payable immediately without further action or notice. If any other Event
of Default occurs and is continuing, the Trustee by notice to the Issuers or the
Holders of at least 25% in principal amount of the then outstanding Notes by
notice to the Issuers and the Trustee may declare all the Notes to be due and
payable immediately. The Holders of a majority in aggregate principal amount of
the Notes then outstanding by written notice to the Trustee may on behalf of all
of the Holders rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal, interest or premium that has become due
solely because
<PAGE> 81
of the acceleration) have been cured or waived.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Existing Defaults.
Holders of not less than a majority in aggregate principal amount
of the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability. The Trustee may take any other action which it
deems proper that is not inconsistent with any such directive.
Section 6.06. Limitation on Suits.
<PAGE> 82
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Note to receive payment of principal, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Issuers for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
<PAGE> 83
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Issuers
(or any other obligor upon the Notes), their creditors or their property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make
such payments to the Trustee, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Notes for principal, premium, if any and interest, respectively; and
Third: to the Issuers or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders
<PAGE> 84
of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7 TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
gross negligent action, its own gross negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
<PAGE> 85
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was grossly negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or other paper or documents.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
<PAGE> 86
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from either of the Issuers shall be
sufficient if signed by an Officer of such Issuer.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) The Trustee shall not be charged with knowledge of any
Default or Event of Default unless either (i) a Responsible Officer of the
Trustee shall have actual knowledge of such Default or Event of Default or (ii)
written notice of such Default or Event of Default shall have been given to the
Trustee by the Issuers or any Holder.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Issuers or any
Affiliate of the Issuers with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Issuers' use of the proceeds from the Notes or
any money paid to the Issuers or upon the Issuers' direction under any provision
of this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
<PAGE> 87
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days after the Trustee acquires
knowledge thereof. Except in the case of a Default or Event of Default in
payment of principal of, premium, if any, or interest on any Note, the Trustee
may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders
of Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Issuers shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuers shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Issuers shall, jointly and severally, indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Issuers (including this Section 7.07) and defending itself against
any claim (whether asserted by the Issuers or any Holder or any other person) or
liability in connection with the exercise or performance of any of its
<PAGE> 88
powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its gross negligence or willful misconduct. The
Trustee shall notify the Issuers promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuers shall not relieve the
Issuers of their obligations hereunder. The Issuers shall defend the claim and
the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Issuers shall pay the reasonable fees and expenses of such
counsel. The Issuers need not pay for any settlement made without their consent,
which consent shall not be unreasonably withheld.
The obligations of the Issuers this Section 7.07 shall survive
resignation or removal of the Trustee and the satisfaction and discharge of this
Indenture.
To secure the Issuers' payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or removal
of the Trustee and the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2)
to the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Issuers. The Holders of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
<PAGE> 89
(c) a custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Issuers shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Issuers.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers,
or the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder who has been
a Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee; provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Issuers' obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report
<PAGE> 90
of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
Section 7.11. Preferential Collection of Claims Against the Issuers.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at the option of their respective Boards of
Directors evidenced by a resolution set forth in an Officers' Certificate of
each of the Issuers, at any time, elect to have either Section 8.02 or 8.03 be
applied to all outstanding Notes upon compliance with the conditions set forth
below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option
applicable to this Section 8.02, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04, be deemed to have been discharged
from their obligations with respect to all outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, Legal Defeasance means that the Issuers shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all their other obligations under such
Notes and this Indenture (and the Trustee, on demand of and at the expense of
the Issuers, shall execute proper instruments acknowledging the same), except
for the following provisions which shall survive until otherwise terminated or
discharged hereunder:
(a) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due from the trust referred to below;
(b) the Issuers' obligations with respect to the Notes concerning
issuing
<PAGE> 91
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of the
Trustee and the Issuers' obligations in connection therewith; and
(d) the Legal Defeasance provisions of this Indenture;
Subject to compliance with this Article 8, the Issuers may
exercise their option under this Section 8.02 notwithstanding the prior exercise
of their option under Section 8.03.
Section 8.03. Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option
applicable to this Section 8.03, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04, be released from their obligations
under the covenants contained in Article 5 and Sections 4.03, 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.19 with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Issuers may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01
of the option applicable to this Section 8.03, subject to the satisfaction of
the conditions set forth in Section 8.04, Sections 6.01(c) through 6.01(f) shall
not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 to the outstanding Notes:
<PAGE> 92
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Issue Date,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result
in a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or any
of the Restricted Subsidiaries is a party or by which the Company or any of the
Restricted Subsidiaries is bound;
(6) the Company must have delivered to the applicable Trustee an
opinion of counsel to the effect that after the 91st day assuming no intervening
bankruptcy, that no Holder is an insider of either of the Issuers following the
deposit and that such deposit
<PAGE> 93
would not be deemed by a court of competent jurisdiction a transfer for the
benefit of either Issuer in its capacity as such, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(8) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Notwithstanding the foregoing, the opinion of counsel required by
clause (2) above with respect to a Legal Defeasance need not be delivered if all
Notes not theretofore delivered to the Trustee for cancellation (i) have become
due and payable or (ii) will become due and payable on the maturity date within
one year, by their terms or under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Issuers.
Section 8.05. Deposited Money and Government Securities to Be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 in respect of the outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the provisions of
such Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Issuers acting as Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon the request
of the Issuers any money
<PAGE> 94
or non-callable Government Securities held by it as provided in Section 8.04
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a)), are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuers.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Issuers, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Issuers on their request or (if then held by the Issuers) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Issuers for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Issuers as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Issuers cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Issuers.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Issuers' obligations under this Indenture and the
Notes, shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 8.02 or 8.03, as
the case may be; provided, however, that, if the Issuers make any payment of
principal of, premium, if any, or interest on any Note following the
reinstatement of their obligations, the Issuers shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
<PAGE> 95
Notwithstanding Section 9.02 of this Indenture, the Issuers and
the Trustee may amend or supplement this Indenture or the Notes without the
consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(c) to provide for or confirm the issuance of Additional Notes;
(d) to provide for the assumption of either Issuer's obligations
to Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the assets of such Issuer pursuant to Article 5;
(e) to make any change that would provide any additional rights
or benefits to the Holders of Notes or that does not adversely affect the legal
rights under this Indenture of any such Holder; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA or otherwise as
necessary to comply with applicable law.
Upon the request of the Issuers accompanied by a resolution of
their respective Boards of Directors authorizing the execution of any such
amended or supplemental Indenture, and upon receipt by the Trustee of the
documents described in Section 7.02, the Trustee shall join with the Issuers in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, this Indenture
(including Sections 4.11 and 4.16) or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or a tender offer or exchange offer
for, Notes) and, subject to Sections 6.04 and 6.07, any existing Default or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
<PAGE> 96
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or a tender offer or exchange offer for, Notes).
Section 2.08 shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Issuers accompanied by a resolution of
their respective Boards of Directors authorizing the execution of any such
amended or supplemental Indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in Section
7.02, the Trustee shall join with the Issuers in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07, the Holders
of a majority in aggregate principal amount of the Notes then outstanding may
waive compliance in a particular instance by the Issuers with any provision of
this Indenture or the Notes. However, without the consent of each Holder
affected, an amendment, supplement or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter the payment provisions with respect to the redemption of the Notes
(other than provisions relating to Sections 4.11 and 4.16);
(c) reduce the rate of or extend the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a
<PAGE> 97
waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, or premium, if any, or interest on the Notes;
(g) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described in Sections 4.11 and
4.16); or
(h) make any change in this Section 9.02.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with the
TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized
<PAGE> 98
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Issuers
may not sign an amendment or supplemental Indenture until their respective
Boards of Directors approve it. In executing any amended or supplemental
indenture, the Trustee shall be entitled to receive and (subject to Section
7.01) shall be fully protected in relying upon, in addition to the documents
required by Section 10.04, an Officer's Certificate and an Opinion of Counsel,
in each case from each of the Issuers, stating that the execution of such
amended or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10 MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
Section 10.02. Notices.
Any notice or communication by the Issuers or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Issuers:
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Telecopier No.: (314) 965-8793
Attention: Secretary
With a copy to:
Paul, Hastings, Janofsky & Walker LLP Irell & Manella
399 Park Avenue 1800 Avenue of the Stars
31st Floor Suite 900
New York, New York 10022 Los Angeles, California 90067
Telecopier No.: (212) 319-4090 Telecopier No.: (310) 556-5393
Attention: Leigh P. Ryan, Esq. Attention: Meredith Jackson, Esq.
If to the Trustee:
<PAGE> 99
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Telecopier No.: (312) 461-3525
Attention: Corporate Trust Department
The Issuers or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuers mail a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Issuers, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c). Section 10.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Issuers to the Trustee to
take any action under this Indenture, the Issuers shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05) stating that, in the
<PAGE> 100
opinion of the signers, all conditions precedent and covenants, if any, provided
for in this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 10.07. No Personal Liability of Directors, Officers, Employees, Members
and Stockholders.
No director, officer, employee, incorporator, member or
stockholder of the Issuers, as such, shall have any liability for any
obligations of the Issuers under the Notes, this 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.
<PAGE> 101
Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE,
THE NOTES OR ANY GUARANTEE.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Issuers or their Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
Section 10.10. Successors.
All agreements of the Issuers in this Indenture and the Notes, as
the case may be, shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 10.11. Severability.
In case any provision in this Indenture or the Notes, as the case
may be, shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions.
<PAGE> 102
ARTICLE 11 SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to
any surviving rights of registration of transfer or exchange of Notes herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Issuers, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.07 and (ii)
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuers and thereafter repaid to the
Issuers or discharged from such trust,) have been delivered to the
Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and at
the expense, of the Issuers,
and the Issuers, in the case of (i), (ii) or (iii) above, have deposited
or caused to be deposited with the Trustee as trust funds in trust for
the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the
date of such deposit (in the case of Notes which have become due and
payable) or to the maturity or redemption thereof, as the case may be;
(2) the Issuers have paid or caused to be paid all other sums
payable hereunder by the Issuers; and
(3) each of the Issuers have delivered to the Trustee an
Officers' Certificate and
<PAGE> 103
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article 11, the obligations of the Issuers to the Trustee under Section
7.07, and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (1) of this Section, the obligations of the Trustee
under Section 11.02 shall survive.
Section 11.02. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 11.01
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money
has been deposited with the Trustee.
[Signatures on following page]
<PAGE> 104
SIGNATURES
Dated as of January 12, 2000
CHARTER COMMUNICATIONS HOLDINGS, LLC, as
an Issuer
By /s/ Curtis S. Shaw
--------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel and Secretary
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION, as an Issuer
By /s/ Curtis S. Shaw
--------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel and Secretary
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By /s/ Judith Bartolini
--------------------------------------
Name: Judith Bartolini
Title: Vice President
<PAGE> 105
EXHIBIT A
[Face of Note]
CUSIP NO. [ ]
---------------
10.25% Senior Notes due 2010
No.
$[ ]
----------------
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
promise to pay to _________________________________________________________
or registered assigns,
the principal amount of _____________________________________ Dollars
($______________________________) on January 15, 2010.
Interest Payment Dates: January 15 and July 15
Record Dates: January 1 and July 1
Subject to Restrictions set forth in this Note.
Dated: January 12, 2000
CHARTER COMMUNICATIONS HOLDINGS, LLC
By
-------------------------------------
Name:
Title:
<PAGE> 106
By
-------------------------------------
Name:
Title:
<PAGE> 107
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
-----------------------------------
Authorized Signatory
<PAGE> 108
[Back of Note]
10.25% Senior Notes due 2010
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."(1)
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES."(2)
(1) This paragraph should be included only if the Note is issued in global form.
(2) This paragraph should be removed upon the exchange of Notes for Exchange
Notes in an Exchange Offer or upon the registration of the Notes pursuant to
the terms of a
<PAGE> 109
Registration Rights Agreement.
<PAGE> 110
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Charter Communications Holdings, LLC, a Delaware
limited liability company (the "Company"), and Charter Communications Holdings
Capital Corporation, a Delaware corporation ("Charter Capital" and, together
with the Company, the "Issuers"), promise to pay interest on the principal
amount of this Note at the rate of 10.25% per annum from January 12, 2000 until
maturity. The interest rate on the Notes is subject to increase pursuant to the
provisions of the Registration Rights Agreement. The Issuers will pay interest
semi-annually in arrears on January 15 and July 15 of each year (each an
"Interest Payment Date"), or if any such day is not a Business Day, on the next
succeeding Business Day. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of issuance; provided that if there is no existing Default in the payment
of interest, and if this Note is authenticated between a record date referred to
on the face and the next succeeding Interest Payment Date, interest shall accrue
from such next succeeding Interest Payment Date; provided, further, that the
first Interest Payment Date shall be July 15, 2000. The Issuers shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; they
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Issuers shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the January 1 or July 1 next preceding the Interest
Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. The Notes will be payable as to
principal, premium, if any, and interest at the office or agency of the Issuers
maintained for such purpose within or without the City and State of New York,
or, at the option of the Issuers, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest and premium on all Global
Notes and all other Notes the Holders of which shall have provided wire transfer
instructions to the Issuers or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust and
Savings
<PAGE> 111
Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Issuers may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture
dated as of January 12, 2000 ("Indenture") between the Issuers and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Issuers limited to $500,000,000
million in principal amount, of which $325,000,000 million in aggregate
principal amount of Notes was issued on the Issue Date.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes prior to January 15, 2005.
Thereafter, the Issuers shall have the option to redeem the Notes, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the twelve-month period beginning on January 15 of the years
indicated below:
Year Percentage
---- ----------
2005 105.125%
2006 103.417%
2007 101.708%
2008 and thereafter 100.000%
(b) Notwithstanding the provisions of clause (a) of this
Paragraph 5, at any time prior to January 15, 2003, the Issuers may on any one
or more occasions redeem up to 35% of the original aggregate principal amount of
the Notes (including the principal amount of any Additional Notes) issued under
the Indenture on a pro rata basis (or as nearly pro rata as practicable), at a
redemption price of 110.25% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided that
(1) at least 65% of the original aggregate principal
amount of Notes (including the principal amount of any Additional Notes)
issued under the Indenture remains outstanding immediately after the
occurrence of such redemption (excluding Notes
<PAGE> 112
held by the Company and its Subsidiaries); and
(2) the redemption must occur within 60 days of the date
of the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as otherwise provided in Paragraph 7 below, the Issuers
shall not be required to make mandatory redemption payments with respect to the
Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuers shall make an
offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of purchase (the "Change of Control
Payment"). Within 10 days following any Change of Control, the Issuers shall
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the Change
of Control Payment Date specified in such notice, pursuant to the procedures
required by the Indenture and described in such notice.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sale, when the aggregate amount of Excess Proceeds exceeds $25.0 million,
the Issuers shall commence an offer (an "Asset Sale Offer") pursuant to Section
4.11 of the Indenture to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions requiring
offers to purchase or redeem with the proceeds of sales of assets to purchase
the maximum principal amount of Notes and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds (which amount includes the
entire amount of the Net Proceeds). The offer price in any Asset Sale Offer will
be payable in cash and equal to 100% of principal amount plus accrued and unpaid
interest, if any, to the date of purchase. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and such other pari passu Indebtedness tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and such other pari passu Indebtedness to be purchased on a pro
rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of
<PAGE> 113
the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed by
first class mail at least 30 days but not more than 60 days before the
redemption date to each Holder whose Notes are to be redeemed at its registered
address. Notices of redemption may not be conditional. No Notes of $1,000 or
less may be redeemed in part. Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000, unless all of the Notes
held by a Holder are to be redeemed. On and after the redemption date interest
ceases to accrue on Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes). Without the consent of any Holder of a Note, the
Issuers and the Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption
of an Issuers' obligations to Holders of Notes in the case of a merger or
consolidation or sale of all or substantially all of the assets of either Issuer
to make any change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture
<PAGE> 114
under the TIA or otherwise as necessary to comply with applicable law.
12. DEFAULTS AND REMEDIES. Each of the following is an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes, (ii) default in payment when due of the principal of or premium, if any,
on the Notes, (iii) failure by the Company or any of its Restricted Subsidiaries
to comply with Sections 4.16 and 5.01 of the Indenture, (iv) failure by the
Company or any of its Restricted Subsidiaries for 30 days after written notice
thereof has been given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% of the principal amount of the Notes
outstanding to comply with any of their other covenants or agreements in the
Indenture, (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or
is created after the date of the Indenture, if that default: (a) is caused by a
failure to pay at final stated maturity the principal amount of such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default"); or (b) results
in the acceleration of such Indebtedness prior to its express maturity, and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$100 million or more, (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments which are non-appealable aggregating in
excess of $100 million (net of applicable insurance which has not been denied in
writing by the insurer), which judgments are not paid, discharged or stayed for
a period of 60 days or (vii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries. In the case of an
Event of Default arising from certain events of bankruptcy or insolvency with
respect to the Company, all outstanding Notes will become due and payable
without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee by notice to the Issuers or the Holders of at least 25%
in principal amount of the then outstanding Notes by notice to the Issuers and
the Trustee may declare all the Notes to be due and payable. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in aggregate principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing
<PAGE> 115
Default or Event of Default in the payment of interest on, or the principal of,
the Notes. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture. Upon becoming aware of any
Default or Event of Default, the Company is required to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH ISSUERS. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or their Affiliates, and may otherwise deal with the
Issuers or their Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator, member or stockholder of either of the Issuers, as such, shall not
have any liability for any obligations of the Issuers under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. GOVERNING LAW. This Note and the Indenture shall be governed
by and construed in accordance with the laws of the State of New York, as
applied to contracts made and performed within the State of New York, without
regard to principles of conflict of laws. Each of the parties hereto and the
holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Note.
16. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in any Registration Rights
Agreement.
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Issuers have
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the
<PAGE> 116
accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other identification
numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive
Suite 100
St. Louis, Missouri 63131
Attention: Secretary
Telecopier No.: (314) 965-0555
<PAGE> 117
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________________________________ to
transfer this Note on the books of the Issuers. The agent may substitute another
to act for him.
Date:
------------------------------
Your Signature:
------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*:
-----------------------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
<PAGE> 118
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.11 or 4.16 of the Indenture, check the appropriate box
below:
[ ] Section 4.11 [ ] Section 4.16
If you want to elect to have only part of the Note purchased by
the Company pursuant to Section 4.11 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$
----------------------------
Date:
---------------------
Your Signature:
------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:
----------------------------------------------------
Signature Guarantee*:
------------------------------------------------------
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
<PAGE> 119
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount of Principal
decrease in Amount of Amount
Principal increase in of this Global
Amount Principal Note
of this Amount following Signature of authorized
Date of Global of this Global such decrease officer of Trustee or
Exchange Note Note (or increase) Note Custodian
-------- --------- -------------- -------------- -----------------------
</TABLE>
<PAGE> 120
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 10.25% Senior Notes due 2010
Reference is hereby made to the Indenture, dated as of January
12, 2000 (the "Indenture"), among Charter Communications Holdings, LLC (the
"Company") and Charter Communications Holdings Capital Corporation ("Charter
Capital" and, together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
___________________ (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in
the principal amount of $ _____________________________ in such Note[s] or
interests (the "Transfer"), to ___________________________ (the "Transferee"),
as further specified in Annex A hereto. In connection with the Transfer, the
Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. / / Check if Transferee will take delivery of a beneficial
interest in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction
<PAGE> 121
meeting the requirements of Rule 144A and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
2. / / Check if Transferee will take delivery of a beneficial
interest in the Regulation S Global Note or a Definitive Note pursuant to
Regulation S. The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor
hereby further certifies that (i) the Transfer is not being made to a person in
the United States and (x) at the time the buy order was originated, the
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act and (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.
3. / / Check and complete if Transferee will take delivery of a
beneficial interest in a Definitive Note pursuant to any provision of the
Securities Act other than Rule 144A or Regulation S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) / / such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act; or
(b) / / such Transfer is being effected to the Company or a
subsidiary thereof; or
(c) / / such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery
<PAGE> 122
requirements of the Securities Act; or
(d) / / such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this certification),
to the effect that such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Global Note and/or the Definitive Notes and in
the Indenture and the Securities Act.
4. / / Check if Transferee will take delivery of a beneficial
interest in an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) / / Check if Transfer is pursuant to Rule 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) / / Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
<PAGE> 123
(c) / / Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuers.
- --------------------------------------------
[Insert Name of Transferor]
By
------------------------------------------
Name:
Title:
Dated:
---------------------------------------
<PAGE> 124
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) / / a beneficial interest in the:
(i) / / 144A Global Note (CUSIP __________), or
(ii) / / Regulation S Global Note (CUSIP _________), or
(b) / / a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) / / a beneficial interest in the:
(i) / / 144A Global Note (CUSIP __________), or
(ii) / / Regulation S Global Note (CUSIP _________), or
(iii) / / Unrestricted Global Note (CUSIP _________); or
(b) / / a Restricted Definitive Note; or
(c) / / an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
<PAGE> 125
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 10.25% Senior Notes due 2010
(CUSIP ______________________)
Reference is hereby made to the Indenture, dated as of January
12, 2000 (the "Indenture"), among Charter Communications Holdings, LLC (the
"Company") and Charter Communications Holdings Capital Corporation ("Charter
Capital" and, together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
__________________________ (the "Owner") owns and proposes to
exchange the Note[s] or interest in such Note[s] specified herein, in the
principal amount of $____________________________ in such Note[s] or interests
(the "Exchange"). In connection with the Exchange, the Owner hereby certifies
that:
1. Exchange of Restricted Definitive Notes or Beneficial
Interests in a Restricted Global Note for Unrestricted Definitive Notes or
Beneficial Interests in an Unrestricted Global Note
(a) / / Check if Exchange is from beneficial interest in a
Restricted Global Note to beneficial interest in an Unrestricted Global Note. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to
<PAGE> 126
the Global Notes and pursuant to and in accordance with the United States
Securities Act of 1933, as amended (the "Securities Act"), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b) / / Check if Exchange is from beneficial interest in a
Restricted Global Note to Unrestricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) / / Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) / / Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial
Interests in Restricted
<PAGE> 127
Global Notes for Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes
(a) / / Check if Exchange is from beneficial interest in a
Restricted Global Note to Restricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) / / Check if Exchange is from Restricted Definitive Note to
beneficial interest in a Restricted Global Note. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] |_| 144A Global Note or |_| Regulation S Global Note with an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuers.
- --------------------------------------------
[Insert Name of Transferor]
By
------------------------------------------
Name:
Title:
Dated:
--------------------------------------
<PAGE> 128
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 10.25% Senior Notes due 2010
Reference is hereby made to the Indenture, dated as of January
12, 2000 (the "Indenture"), among Charter Communications Holdings, LLC (the
"Company") and Charter Communications Holdings Capital Corporation ("Charter
Capital" and, together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount of:
(a) / / a beneficial interest in a Global Note, or
(b) / / a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered
<PAGE> 129
under the Securities Act, and that the Notes and any interest therein may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell the Notes or any interest therein, we will do so
only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) to an institutional "accredited investor" (as defined below) that,
prior to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you and to the Company a signed letter substantially in the
form of this letter and an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144(k) under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial interest in a Global Note
from us in a transaction meeting the requirements of clauses (A) through (E) of
this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuers such certifications, legal opinions and other information as you and the
Issuers may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy to any interested party
in any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby.
- --------------------------------------------
[Insert Name of Transferor]
<PAGE> 130
By
------------------------------------------
Name:
Title:
Dated:
--------------------------------------
<PAGE> 1
Exhibit 4.2(c)
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
$325,000,000 10.25% SENIOR NOTES DUE 2010
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
January 12, 2000
Goldman, Sachs & Co.
Chase Securities Inc.
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
First Union Securities, Inc.
PNC Capital Markets, Inc.
SunTrust Equitable Securities Corporation
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Charter Communications Holdings, LLC, a Delaware limited liability
company (the "Company"), and Charter Communications Holdings Capital
Corporation, a Delaware corporation ("Charter Capital" and, together with the
Company, the "Issuers"), propose, subject to the terms and conditions stated
herein, to issue and sell to the Purchasers (as defined herein) upon the terms
set forth in the Purchase Agreement (as defined herein) their $325,000,000
aggregate principal amount of 10.25% Senior Notes due 2010 (the "Notes"). As an
inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchasers thereunder, the
Issuers agree with the Purchasers for the benefit of holders (as defined herein)
from time to time of the Registrable Securities (as defined herein) as follows:
<PAGE> 2
1. Certain Definitions. For purposes of this Exchange and
Registration Rights Agreement, the following terms shall have the following
respective meanings:
"Base Interest" shall mean the interest that would otherwise accrue
on the Notes under the terms thereof and the Indenture, without giving
effect to the provisions of this Exchange and Registration Rights
Agreement.
The term "broker-dealer" shall mean any broker or dealer registered
with the Commission under the Exchange Act.
"Closing Date" shall mean the date on which the Notes are initially
issued.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
Exchange Act or the Securities Act, whichever is the relevant statute for
the particular purpose.
"Effective Time," in the case of (i) an Exchange Offer Registration,
shall mean the time and date as of which the Commission declares the
Exchange Offer Registration Statement effective or as of which the
Exchange Offer Registration Statement otherwise becomes effective and (ii)
a Shelf Registration, shall mean the time and date as of which the
Commission declares the Shelf Registration Statement effective or as of
which the Shelf Registration Statement otherwise becomes effective.
"Electing Holder" shall mean any holder of Registrable Securities
that has returned a completed and signed Notice and Questionnaire to the
Issuers in accordance with Section 3(d)(ii) or 3(d)(iii) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or
any successor thereto, as the same shall be amended from time to time.
"Exchange Notes" shall have the meaning assigned thereto in Section
2(a) hereof.
"Exchange Offer" shall have the meaning assigned thereto in Section
2(a) hereof.
"Exchange Offer Registration" shall have the meaning assigned
thereto in Section 3(c) hereof.
"Exchange Offer Registration Statement" shall have the meaning
assigned thereto in Section 2(a) hereof.
The term "holder" shall mean each of the Purchasers and other
persons who acquire Registrable Securities from time to time (including
any successors or assigns), in each
<PAGE> 3
case for so long as such person is a registered holder of any Registrable
Securities.
"Indenture" shall mean the Indenture governing the Notes, dated as
of January 12, 2000 between the Issuers and Harris Trust and Savings Bank,
as Trustee, as the same shall be amended from time to time.
"Notes" shall mean, collectively, the 10.25% Senior Notes due 2010
of the Issuers to be issued and sold to the Purchasers, and Notes issued
in exchange therefor or in lieu thereof, pursuant to the Indenture.
"Notice and Questionnaire" means a Notice of Registration Statement
and Selling Securityholder Questionnaire substantially in the form of
Exhibit A hereto.
The term "person" shall mean a corporation, association,
partnership, organization, business, individual, government or political
subdivision thereof or governmental agency.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
January 6, 2000, between the Purchasers and the Issuers relating to the
Notes.
"Purchasers" shall mean the Purchasers named in Schedule I to the
Purchase Agreement.
"Registrable Securities" shall mean the Notes; provided, however,
that a Note shall cease to be a Registrable Security when (i) in the
circumstances contemplated by Section 2(a) hereof, such Note has been
exchanged for an Exchange Note in an Exchange Offer as contemplated in
Section 2(a) hereof (provided that any Exchange Note that, pursuant to the
last two sentences of Section 2(a), is included in a prospectus for use in
connection with resales by broker-dealers shall be deemed to be a
Registrable Security with respect to Sections 5, 6 and 9 hereof until
resale of such Registrable Security has been effected within the 180-day
period referred to in Section 2(a)(y)); (ii) in the circumstances
contemplated by Section 2(b) hereof, a Shelf Registration Statement
registering such Note under the Securities Act has been declared or
becomes effective and such Note has been sold or otherwise transferred by
the holder thereof pursuant to and in a manner contemplated by such
effective Shelf Registration Statement; (iii) such Note is sold pursuant
to Rule 144 under circumstances in which any legend borne by such Note
relating to restrictions on transferability thereof, under the Securities
Act or otherwise, is removed by the Issuers or pursuant to the Indenture;
(iv) such Security is eligible to be sold pursuant to paragraph (k) of
Rule 144; or (v) such Security shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto in
Section 2(c) hereof.
<PAGE> 4
"Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in Section
2(a) hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate of
the Issuers within the meaning of Rule 405, (ii) a holder who acquires
Exchange Notes outside the ordinary course of such holder's business,
(iii) a holder who has arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing Exchange
Notes and (iv) a holder that is a broker-dealer, but only with respect to
Exchange Notes received by such broker-dealer pursuant to an Exchange
Offer in exchange for Registrable Securities acquired by the broker-dealer
directly from the Issuers.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such
rule promulgated under the Securities Act (or any successor provision), as
the same shall be amended from time to time.
"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned thereto in
Section 2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned
thereto in Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in
Section 2(c) hereof.
"subsidiaries" shall mean subsidiaries which would be "significant
subsidiaries" as defined in Rule 1-02(w) of Regulation S-X under the
Exchange Act.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or
any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Exchange and Registration Rights Agreement, and the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Issuers agree to
file under the
<PAGE> 5
Securities Act, as soon as practicable, but no later than 120 days after
the Closing Date, a registration statement relating to an offer to
exchange (such registration statement, the "Exchange Offer Registration
Statement", and such offer, the "Exchange Offer") any and all of the Notes
for a like aggregate principal amount of notes issued by the Issuers,
which notes are substantially identical in all material respects to the
Notes (and are entitled to the benefits of a trust indenture which has
terms identical in all material respects to the Indenture or is the
Indenture and which has been qualified under the Trust Indenture Act),
except that they have been registered pursuant to an effective
registration statement under the Securities Act and do not contain
provisions for the additional interest contemplated in Section 2(c) below
(such notes hereinafter called "Exchange Notes"). The Issuers agree to use
their reasonable best efforts to cause the Exchange Offer Registration
Statement to become or be declared effective under the Securities Act as
soon as practicable, but no later than 180 days after the Closing Date.
The Exchange Offer will be registered under the Securities Act on the
appropriate form and will comply with all applicable tender offer rules
and regulations under the Exchange Act. The Issuers further agree to use
their reasonable best efforts to complete the Exchange Offer promptly, but
no later than 30 business days or longer, if required by the federal
securities laws, after such registration statement has become effective,
hold the Exchange Offer open for at least 30 days and exchange Exchange
Notes for all Registrable Securities that have been properly tendered and
not withdrawn on or prior to the expiration of the Exchange Offer. The
Exchange Offer will be deemed to have been "completed" only if the
Exchange Notes received by holders, other than Restricted Holders, in the
Exchange Offer in exchange for Registrable Securities are, upon receipt,
transferable by each such holder without restriction under the Securities
Act and the Exchange Act and without material restrictions under the blue
sky or securities laws of a substantial majority of the States of the
United States of America. The Exchange Offer shall be deemed to have been
completed upon the earlier to occur of (i) the Issuers having exchanged
the Exchange Notes for all outstanding Registrable Securities pursuant to
the Exchange Offer and (ii) the Issuers having exchanged, pursuant to the
Exchange Offer, Exchange Notes for all Registrable Securities that have
been properly tendered and not withdrawn before the expiration of the
Exchange Offer, which shall be on a date that is at least 30 business days
following the commencement of the Exchange Offer. The Issuers agree (x) to
include in the Exchange Offer Registration Statement a prospectus for use
in any resales by any holder of Exchange Notes that is a broker-dealer and
(y) to keep such Exchange Offer Registration Statement effective for a
period (the "Resale Period") beginning when Exchange Notes are first
issued in the Exchange Offer and ending upon the earlier of the expiration
of the 180th day after the Exchange Offer has been completed or such time
as such broker-dealers no longer own any Registrable Securities. With
respect to such Exchange Offer Registration Statement, such holders shall
have the benefit of the rights of indemnification and contribution set
forth in Sections 6(a), (c), (d) and (e) hereof.
(b) If (i) on or prior to the time the Exchange Offer is completed
existing law or
<PAGE> 6
Commission policy or interpretations are changed such that the Exchange
Notes received by holders, other than Restricted Holders, in the Exchange
Offer in exchange for Registrable Securities are not or would not be, upon
receipt, transferable by each such holder without restriction under the
Securities Act, (ii) the Exchange Offer has not been completed within 210
days following the Closing Date or (iii) the Exchange Offer is not
available to any holder of the Notes, the Issuers shall, in lieu of (or,
in the case of clause (iii), in addition to) conducting the Exchange Offer
contemplated by Section 2(a), file under the Securities Act on or prior to
30 business days after the time such obligation to file arises, a "shelf"
registration statement providing for the registration of, and the sale on
a continuous or delayed basis by the holders of, all of the Registrable
Securities, pursuant to Rule 415 or any similar rule that may be adopted
by the Commission (such filing, the "Shelf Registration" and such
registration statement, the "Shelf Registration Statement"). The Issuers
agree to use their reasonable best efforts (x) to cause the Shelf
Registration Statement to become or be declared effective by the
Commission no later than 90 days after such obligation to file arises and
to keep such Shelf Registration Statement continuously effective for a
period ending on the earlier of (i) the second anniversary of the
Effective Time or (ii) such time as there are no longer any Registrable
Securities outstanding; provided, however, that no holder shall be
entitled to be named as a selling securityholder in the Shelf Registration
Statement or to use the prospectus forming a part thereof for resales of
Registrable Securities unless such holder is an Electing Holder, and (y)
after the Effective Time of the Shelf Registration Statement, promptly
upon the request of any holder of Registrable Securities that is not then
an Electing Holder, to take any action reasonably necessary to enable such
holder to use the prospectus forming a part thereof for resales of
Registrable Securities, including, without limitation, any action
necessary to identify such holder as a selling securityholder in the Shelf
Registration Statement, provided, however, that nothing in this clause (y)
shall relieve any such holder of the obligation to return a completed and
signed Notice and Questionnaire to the Issuers in accordance with Section
3(d)(iii) hereof. The Issuers further agree to supplement or make
amendments to the Shelf Registration Statement, as and when required by
the rules, regulations or instructions applicable to the registration form
used by the Issuers for such Shelf Registration Statement or by the
Securities Act or rules and regulations thereunder for shelf registration,
and the Issuers agree to furnish to each Electing Holder copies of any
such supplement or amendment prior to its being used or promptly following
its filing with the Commission.
(c) In the event that (i) the Issuers have not filed the Exchange
Offer Registration Statement or Shelf Registration Statement on or before
the date on which such registration statement is required to be filed
pursuant to Section 2(a) or 2(b), respectively, or (ii) such Exchange
Offer Registration Statement or Shelf Registration Statement has not
become effective or been declared effective by the Commission on or before
the date on which such registration statement is required to become or be
declared effective
<PAGE> 7
pursuant to Section 2(a) or 2(b), respectively, or (iii) the Exchange
Offer has not been completed within 30 business days after the initial
effective date of the Exchange Offer Registration Statement relating to
the Exchange Offer (if the Exchange Offer is then required to be made) or
(iv) any Exchange Offer Registration Statement or Shelf Registration
Statement required by Section 2(a) or 2(b) hereof is filed and becomes or
is declared effective but shall thereafter either be withdrawn by the
Issuers or shall become subject to an effective stop order issued pursuant
to Section 8(d) of the Securities Act suspending the effectiveness of such
registration statement (except as specifically permitted herein) without
being succeeded immediately by an additional registration statement filed
and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default" and each period during which a Registration
Default has occurred and is continuing, a "Registration Default Period"),
then, as liquidated damages for such Registration Default, subject to the
provisions of Section 9(b), special interest ("Special Interest"), in
addition to the Base Interest, shall accrue on the aggregate principal
amount of the outstanding Notes at a per annum rate of 0.25% for the first
90 days of the Registration Default Period, at a per annum rate of 0.50%
for the second 90 days of the Registration Default Period, at a per annum
rate of 0.75% for the third 90 days of the Registration Default Period and
at a per annum rate of 1.0% thereafter for the remaining portion of the
Registration Default Period. All accrued Special Interest shall be paid in
cash by the Issuers on each Interest Payment Date (as defined in the
Indenture). Notwithstanding the foregoing and anything in this Agreement
to the contrary, in the case of an event referred to in clause (ii) above,
a "Registration Default" shall be deemed not to have occurred so long as
the Issuers, in their sole reasonable judgment, are using and continuing
to use their reasonable best efforts to cause such Exchange Offer
Registration Statement or Shelf Registration Statement, as the case may
be, to become or be declared effective.
(d) The Issuers shall use their reasonable best efforts to take all
actions necessary or advisable to be taken by them to ensure that the
transactions contemplated herein are effected as so contemplated in
Section 2(a) or 2(b) hereof.
(e) Any reference herein to a registration statement as of any time
shall be deemed to include any document incorporated, or deemed to be
incorporated, therein by reference as of such time and any reference
herein to any post-effective amendment to a registration statement as of
any time shall be deemed to include any document incorporated, or deemed
to be incorporated, therein by reference as of such time.
3. Registration Procedures.
If the Issuers file a registration statement pursuant to Section
2(a) or Section 2(b), the following provisions shall apply:
<PAGE> 8
(a) At or before the Effective Time of the Exchange Offer or the
Shelf Registration, as the case may be, the Issuers shall cause the
Indenture to be qualified under the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Issuers shall
appoint a new trustee thereunder pursuant to the applicable provisions of
the Indenture.
(c) In connection with the Issuers' obligations with respect to the
registration of Exchange Notes as contemplated by Section 2(a) (the
"Exchange Offer Registration"), if applicable, the Issuers shall, as soon
as practicable (or as otherwise specified):
(i) prepare and file with the Commission, as soon as
practicable but no later than 120 days after the Closing Date, an
Exchange Offer Registration Statement on any form which may be
utilized by the Issuers and which shall permit the Exchange Offer
and resales of Exchange Notes by broker-dealers during the Resale
Period to be effected as contemplated by Section 2(a), and use their
reasonable best efforts to cause such Exchange Offer Registration
Statement to become or be declared effective as soon as practicable
thereafter, but no later than 180 days after the Closing Date;
(ii) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Exchange Offer
Registration Statement and the prospectus included therein as may be
necessary to effect and maintain the effectiveness of such Exchange
Offer Registration Statement for the periods and purposes
contemplated in Section 2(a) hereof and as may be required by the
applicable rules and regulations of the Commission and the
instructions applicable to the form of such Exchange Offer
Registration Statement, and promptly provide each broker-dealer
holding Exchange Notes with such number of copies of the prospectus
included therein (as then amended or supplemented), in conformity in
all material respects with the requirements of the Securities Act
and the Trust Indenture Act and the rules and regulations of the
Commission thereunder, as such broker-dealer reasonably may request
prior to the expiration of the Resale Period, for use in connection
with resales of Exchange Notes;
(iii) promptly notify each broker-dealer that has requested
or received copies of the prospectus included in such registration
statement, and confirm such advice in writing, (A) when such
Exchange Offer Registration Statement or the prospectus included
therein or any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to such Exchange Offer
Registration Statement or any post-effective amendment, when the
same has become effective, (B) of any comments by the Commission and
by the blue sky or securities commissioner
<PAGE> 9
or regulator of any state with respect thereto, or any request by
the Commission for amendments or supplements to such Exchange Offer
Registration Statement or prospectus or for additional information,
(C) of the issuance by the Commission of any stop order suspending
the effectiveness of such Exchange Offer Registration Statement or
the initiation or, to the knowledge of the Issuers, threatening of
any proceedings for that purpose, (D) if at any time the
representations and warranties of the Issuers contemplated by
Section 5 hereof cease to be true and correct in all material
respects, (E) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Exchange Notes
for sale in any jurisdiction or the initiation or, to the knowledge
of the Issuers, threatening of any proceeding for such purpose, or
(F) at any time during the Resale Period when a prospectus is
required to be delivered under the Securities Act, that such
Exchange Offer Registration Statement, prospectus, prospectus
amendment or supplement or post-effective amendment does not conform
in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder, or contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(iv) in the event that the Issuers would be required,
pursuant to Section 3(e)(iii)(F) above, to notify any broker-dealers
holding Exchange Notes, the Issuers shall prepare and furnish to
each such holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to
purchasers of such Exchange Notes during the Resale Period, such
prospectus conforms in all material respects to the applicable
requirements of the Securities Act and the Trust Indenture Act and
the rules and regulations of the Commission thereunder and shall not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(v) use their reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of such
Exchange Offer Registration Statement or any post-effective
amendment thereto as soon as practicable;
(vi) use their reasonable best efforts to (A) register or
qualify the Exchange Notes under the securities laws or blue sky
laws of such jurisdictions as are contemplated by Section 2(a) no
later than the commencement of the Exchange Offer, (B) keep such
registrations or qualifications in effect and comply with such laws
so as to permit the continuance of offers, sales and dealings
therein in such jurisdictions until the expiration of the Resale
Period and (C) take any and all other actions as may be reasonably
necessary or advisable to enable each broker-dealer holding Exchange
<PAGE> 10
Notes to consummate the disposition thereof in such jurisdictions;
provided, however, that neither of the Issuers shall be required for
any such purpose to (1) qualify as a foreign corporation or limited
liability company, as the case may be, in any jurisdiction wherein
it would not otherwise be required to qualify but for the
requirements of this Section 3(c)(vi), (2) consent to general
service of process in any such jurisdiction or (3) make any changes
to its certificate of incorporation or by-laws (or other
organizational document) or any agreement between it and holders of
its ownership interests;
(vii) use their reasonable best efforts to obtain the
consent or approval of each governmental agency or authority,
whether federal, state or local, which may be required to effect the
Exchange Offer Registration, the Exchange Offer and the offering and
sale of Exchange Notes by broker-dealers during the Resale Period;
(viii) provide a CUSIP number for all Exchange Notes, not
later than the applicable Effective Time;
(ix) comply with all applicable rules and regulations of
the Commission, and make generally available to its securityholders
as soon as practicable but no later than eighteen months after the
effective date of such Exchange Offer Registration Statement, an
earning statement of the Company and its subsidiaries complying with
Section 11(a) of the Securities Act (including, at the option of the
Company, Rule 158 thereunder).
(d) In connection with the Issuers' obligations with respect to the
Shelf Registration, if applicable, the Issuers shall, as soon as
practicable (or as otherwise specified):
(i) prepare and file with the Commission within the time
periods specified in Section 2(b), a Shelf Registration Statement on
any form which may be utilized by the Issuers and which shall
register all of the Registrable Securities for resale by the holders
thereof in accordance with such method or methods of disposition as
may be specified by such of the holders as, from time to time, may
be Electing Holders and use their reasonable best efforts to cause
such Shelf Registration Statement to become or be declared effective
within the time periods specified in Section 2(b);
(ii) not less than 30 calendar days prior to the Effective
Time of the Shelf Registration Statement, mail the Notice and
Questionnaire to the holders of Registrable Securities; no holder
shall be entitled to be named as a selling securityholder in the
Shelf Registration Statement as of the Effective Time, and no holder
shall be entitled to use the prospectus forming a part thereof for
resales of Registrable Securities at any time, unless such holder
has returned a completed and signed Notice and Questionnaire to the
Issuers by the deadline for response set forth therein; provided,
however, holders of Registrable Securities shall have at least 28
<PAGE> 11
calendar days from the date on which the Notice and Questionnaire is
first mailed to such holders to return a completed and signed Notice
and Questionnaire to the Issuers;
(iii) after the Effective Time of the Shelf Registration
Statement, upon the request of any holder of Registrable Securities
that is not then an Electing Holder, promptly send a Notice and
Questionnaire to such holder; provided that the Issuers shall not be
required to take any action to name such holder as a selling
securityholder in the Shelf Registration Statement or to enable such
holder to use the prospectus forming a part thereof for resales of
Registrable Securities until such holder has returned a completed
and signed Notice and Questionnaire to the Issuers;
(iv) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Shelf
Registration Statement and the prospectus included therein as may be
necessary to effect and maintain the effectiveness of such Shelf
Registration Statement for the period specified in Section 2(b)
thereof and as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the
form of such Shelf Registration Statement, and furnish to the
Electing Holders copies of any such supplement or amendment
simultaneously with or prior to its being used or filed with the
Commission;
(v) comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities
covered by such Shelf Registration Statement in accordance with the
intended methods of disposition by the Electing Holders provided for
in such Shelf Registration Statement;
(vi) provide (A) the Electing Holders, (B) the underwriters
(which term, for purposes of this Exchange and Registration Rights
Agreement, shall include a person deemed to be an underwriter within
the meaning of Section 2(a)(11) of the Securities Act), if any,
thereof, (C) any sales or placement agent therefor, (D) counsel for
any such underwriter or agent and (E) not more than one counsel for
all the Electing Holders the opportunity to participate in the
preparation of such Shelf Registration Statement, each prospectus
included therein or filed with the Commission and each amendment or
supplement thereto;
(vii) for a reasonable period prior to the filing of such
Shelf Registration Statement, and throughout the period specified in
Section 2(b), make available at reasonable times at the Issuers'
principal place of business or such other reasonable place for
inspection by the persons referred to in Section 3(d)(vi) who shall
certify to the Issuers that they have a current intention to sell
the Registrable Securities pursuant to the Shelf Registration such
financial and other relevant information and books and
<PAGE> 12
records of the Issuers, and cause the officers, employees, counsel
and independent certified public accountants of the Issuers to
respond to such inquiries, as shall be reasonably necessary, in the
judgment of the respective counsel referred to in such Section, to
conduct a reasonable investigation within the meaning of Section 11
of the Securities Act; provided, however, that each such party shall
be required to maintain in confidence and not to disclose to any
other person any information or records reasonably designated by the
Issuers as being confidential, until such time as (A) such
information becomes a matter of public record (whether by virtue of
its inclusion in such registration statement or otherwise, except as
a result of a breach of this or any other obligation of
confidentiality to the Issuers), or (B) such person shall be
required so to disclose such information pursuant to a subpoena or
order of any court or other governmental agency or body having
jurisdiction over the matter (subject to the requirements of such
order, and only after such person shall have given the Issuers
prompt prior written notice of such requirement), or (C) such
information is required to be set forth in such Shelf Registration
Statement or the prospectus included therein or in an amendment to
such Shelf Registration Statement or an amendment or supplement to
such prospectus in order that such Shelf Registration Statement,
prospectus, amendment or supplement, as the case may be, complies
with applicable requirements of the federal securities laws and the
rules and regulations of the Commission and does not contain an
untrue statement of a material fact or omit to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(viii) promptly notify each of the Electing Holders, any
sales or placement agent therefor and any underwriter thereof (which
notification may be made through any managing underwriter that is a
representative of such underwriter for such purpose) and confirm
such advice in writing, (A) when such Shelf Registration Statement
or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with
respect to such Shelf Registration Statement or any post-effective
amendment, when the same has become effective, (B) of any comments
by the Commission and by the blue sky or securities commissioner or
regulator of any state with respect thereto, or any request by the
Commission for amendments or supplements to such Shelf Registration
Statement or prospectus or for additional information, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of such Shelf Registration Statement or the initiation
or, to the knowledge of the Issuers, threatening of any proceedings
for that purpose, (D) if at any time the representations and
warranties of the Issuers contemplated by Section 3(d)(xvii) or
Section 5 hereof cease to be true and correct in all material
respects, (E) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or, to the
knowledge of the Issuers, threatening of any proceeding for such
purpose, or (F) if at any time when a
<PAGE> 13
prospectus is required to be delivered under the Securities Act,
that such Shelf Registration Statement, prospectus, prospectus
amendment or supplement or post-effective amendment does not conform
in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder, or contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(ix) use their reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement or any post-effective amendment thereto as
soon as practicable;
(x) if requested by any managing underwriter or
underwriters, any placement or sales agent or any Electing Holder,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as is required by the applicable rules
and regulations of the Commission, and as such managing underwriter
or underwriters, such agent or such Electing Holder specifies should
be included therein relating to the terms of the sale of such
Registrable Securities, including information (i) with respect to
the principal amount of Registrable Securities being sold by such
Electing Holder or agent or to any underwriters, the name and
description of such Electing Holder, agent or underwriter, the
offering price of such Registrable Securities, and any discount,
commission or other compensation payable in respect thereof and the
purchase price being paid therefor by such underwriters and (ii)
with respect to any other material terms of the offering of the
Registrable Securities to be sold by such Electing Holder or agent
or to such underwriters; and make all required filings of such
prospectus supplement or post-effective amendment upon notification
of the matters to be incorporated in such prospectus supplement or
post-effective amendment;
(xi) furnish to each Electing Holder, each placement or
sales agent, if any, therefor, each underwriter, if any, thereof and
the respective counsel referred to in Section 3(d)(vi) hereof an
executed copy (or, in the case of an Electing Holder, a conformed
copy) of such Shelf Registration Statement, each such amendment and
supplement thereto (in each case including all exhibits thereto (in
the case of an Electing Holder of Registrable Securities, upon
request) and documents incorporated by reference therein) and such
number of copies of such Shelf Registration Statement (excluding
exhibits thereto and documents incorporated by reference therein
unless specifically so requested by such Electing Holder, agent or
underwriter, as the case may be) and of the prospectus included in
such Shelf Registration Statement (including each preliminary
prospectus and any summary prospectus), in conformity
<PAGE> 14
in all material respects with the applicable requirements of the
Securities Act and the Trust Indenture Act, and the rules and
regulations of the Commission thereunder, and such other documents,
as such Electing Holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the offering and
disposition of the Registrable Securities owned by such Electing
Holder, offered or sold by such agent or underwritten by such
underwriter and to permit such Electing Holder, agent and
underwriter to satisfy the prospectus delivery requirements of the
Securities Act; and the Issuers hereby consent to the use of such
prospectus (including such preliminary and summary prospectus) and
any amendment or supplement thereto by each such Electing Holder and
by any such agent and underwriter, in each case in the form most
recently provided to such person by the Issuers, in connection with
the offering and sale of the Registrable Securities covered by the
prospectus (including such preliminary and summary prospectus) or
any supplement or amendment thereto;
(xii) use their reasonable best efforts to (A) register or
qualify the Registrable Securities to be included in such Shelf
Registration Statement under such securities laws or blue sky laws
of such jurisdictions as any Electing Holder and each placement or
sales agent, if any, therefor and underwriter, if any, thereof shall
reasonably request, (B) keep such registrations or qualifications in
effect and comply with such laws so as to permit the continuance of
offers, sales and dealings therein in such jurisdictions during the
period the Shelf Registration is required to remain effective under
Section 2(b) above and for so long as may be necessary to enable any
such Electing Holder, agent or underwriter to complete its
distribution of Notes pursuant to such Shelf Registration Statement
and (C) take any and all other actions as may be reasonably
necessary or advisable to enable each such Electing Holder, agent,
if any, and underwriter, if any, to consummate the disposition in
such jurisdictions of such Registrable Securities; provided,
however, that none of the Issuers shall be required for any such
purpose to (1) qualify as a foreign corporation or limited liability
company, as the case may be, in any jurisdiction wherein it would
not otherwise be required to qualify but for the requirements of
this Section 3(d)(xii), (2) consent to general service of process in
any such jurisdiction or (3) make any changes to its certificate of
incorporation or by-laws (or other organizational document) or any
agreement between it and holders of its ownership interests;
(xiii) use their reasonable best efforts to obtain the
consent or approval of each governmental agency or authority,
whether federal, state or local, which may be required to effect the
Shelf Registration or the offering or sale in connection therewith
or to enable the selling holder or holders to offer, or to
consummate the disposition of, their Registrable Securities;
(xiv) unless any Registrable Securities shall be in
book-entry only form, cooperate with the Electing Holders and the
managing underwriters, if any, to
<PAGE> 15
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates,
if so required by any securities exchange upon which any Registrable
Securities are listed, shall be penned, lithographed or engraved, or
produced by any combination of such methods, on steel engraved
borders, and which certificates shall not bear any restrictive
legends; and, in the case of an underwritten offering, enable such
Registrable Securities to be in such denominations and registered in
such names as the managing underwriters may request at least two
business days prior to any sale of the Registrable Securities;
(xv) provide a CUSIP number for all Registrable Securities,
not later than the applicable Effective Time;
(xvi) enter into one or more underwriting agreements,
engagement letters, agency agreements, "best efforts" underwriting
agreements or similar agreements, as appropriate, including
customary provisions relating to indemnification and contribution,
and take such other actions in connection therewith as any Electing
Holders of at least 20% in aggregate principal amount of the
Registrable Securities at the time outstanding shall request in
order to expedite or facilitate the disposition of such Registrable
Securities;
(xvii) whether or not an agreement of the type referred to
in Section 3(d)(xvi) hereof is entered into, and whether or not any
portion of the offering contemplated by the Shelf Registration is an
underwritten offering or is made through a placement or sales agent
or any other entity, (A) make such representations and warranties to
the Electing Holders and the placement or sales agent, if any,
therefor and the underwriters, if any, thereof in form, substance
and scope as are customarily made in connection with an offering of
debt securities pursuant to any appropriate agreement or to a
registration statement filed on the form applicable to the Shelf
Registration; (B) obtain an opinion of counsel to the Issuers in
customary form, subject to customary limitations, assumptions and
exclusions, and covering such matters, of the type customarily
covered by such an opinion, as the managing underwriters, if any, or
as any Electing Holders of at least 20% in aggregate principal
amount of the Registrable Securities at the time outstanding may
reasonably request, addressed to such Electing Holder or Electing
Holders and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof and dated the date of the Effective
Time of such Shelf Registration Statement (and if such Shelf
Registration Statement contemplates an underwritten offering of a
part or all of the Registrable Securities, dated the date of the
closing under the underwriting agreement relating thereto) (it being
agreed that the matters to be covered by such opinion shall include
the matters set forth in paragraphs (b) and (d) of Section 7 of the
Purchase Agreement to the extent applicable to an offering of this
type); (C) obtain a "cold comfort" letter or letters from the
independent certified public accountants of the Issuers addressed to
<PAGE> 16
the selling Electing Holders, the placement or sales agent, if any,
therefor or the underwriters, if any, thereof, dated (i) the
effective date of such Shelf Registration Statement and (ii) the
effective date of any prospectus supplement to the prospectus
included in such Shelf Registration Statement or post-effective
amendment to such Shelf Registration Statement which includes
unaudited or audited financial statements as of a date or for a
period subsequent to that of the latest such statements included in
such prospectus (and, if such Shelf Registration Statement
contemplates an underwritten offering pursuant to any prospectus
supplement to the prospectus included in such Shelf Registration
Statement or post-effective amendment to such Shelf Registration
Statement which includes unaudited or audited financial statements
as of a date or for a period subsequent to that of the latest such
statements included in such prospectus, dated the date of the
closing under the underwriting agreement relating thereto), such
letter or letters to be in customary form and covering such matters
of the type customarily covered by letters of such type; (D) deliver
such documents and certificates, including officers' certificates,
as may be reasonably requested by any Electing Holders of at least
20% in aggregate principal amount of the Registrable Securities at
the time outstanding or the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof to evidence
the accuracy of the representations and warranties made pursuant to
clause (A) above or those contained in Section 5(a) hereof and the
compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement or other similar agreement
entered into by the Issuers pursuant to Section 3(d)(xvi); and (E)
undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Section 6
hereof;
(xviii) notify in writing each holder of Registrable
Securities of any proposal by the Issuers to amend or waive any
provision of this Exchange and Registration Rights Agreement
pursuant to Section 9(h) hereof and of any amendment or waiver
effected pursuant thereto, each of which notices shall contain the
substance of the amendment or waiver proposed or effected, as the
case may be;
(xix) in the event that any broker-dealer registered under
the Exchange Act shall underwrite any Registrable Securities or
participate as a member of an underwriting syndicate or selling
group or "assist in the distribution" (within the meaning of the
Conduct Rules (the "Conduct Rules") of the National Association of
Securities Dealers, Inc. ("NASD") or any successor thereto, as
amended from time to time) thereof, whether as a holder of such
Registrable Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise, assist
such broker-dealer in complying with the requirements of such
Conduct Rules, including by (A) if such Conduct Rules shall so
require, engaging a "qualified independent underwriter" (as defined
in such Conduct Rules) to participate in the
<PAGE> 17
preparation of the Shelf Registration Statement relating to such
Registrable Securities, to exercise usual standards of due diligence
in respect thereto and, if any portion of the offering contemplated
by such Shelf Registration Statement is an underwritten offering or
is made through a placement or sales agent, to recommend the yield
of such Registrable Securities, (B) indemnifying any such qualified
independent underwriter to the extent of the indemnification of
underwriters provided in Section 6 hereof (or to such other
customary extent as may be requested by such underwriter), and (C)
providing such information to such broker-dealer as may be required
in order for such broker-dealer to comply with the requirements of
the Conduct Rules; and
(xx) comply with all applicable rules and regulations of
the Commission, and make generally available to its securityholders
as soon as practicable but in any event not later than eighteen
months after the effective date of such Shelf Registration
Statement, an earning statement of the Company and its subsidiaries
complying with Section 11(a) of the Securities Act (including, at
the option of the Company, Rule 158 thereunder).
(e) In the event that the Issuers would be required, pursuant to
Section 3(d)(viii)(F) above, to notify the Electing Holders, the placement
or sales agent, if any, therefor and the managing underwriters, if any,
thereof, the Issuers shall prepare and furnish to each of the Electing
Holders, to each placement or sales agent, if any, and to each such
underwriter, if any, a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Registrable Securities, such prospectus conforms in all material respects
to the applicable requirements of the Securities Act and the Trust
Indenture Act, and the rules and regulations of the Commission thereunder,
and shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing. Each Electing Holder agrees that upon receipt of any notice from
the Issuers pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder
shall forthwith discontinue the disposition of Registrable Securities
pursuant to the Shelf Registration Statement applicable to such
Registrable Securities until such Electing Holder shall have received
copies of such amended or supplemented prospectus, and if so directed by
the Issuers, such Electing Holder shall deliver to the Issuers (at the
Issuers' expense) all copies, other than permanent file copies, then in
such Electing Holder's possession of the prospectus covering such
Registrable Securities at the time of receipt of such notice.
(f) In the event of a Shelf Registration, in addition to the
information required to be provided by each Electing Holder in its Notice
and Questionnaire, the Issuers may require such Electing Holder to furnish
to the Issuers such additional information regarding such Electing Holder
and such Electing Holder's intended method of distribution of Registrable
Securities as may be required in order to comply with the Securities Act.
<PAGE> 18
Each such Electing Holder agrees to notify the Issuers as promptly as
practicable of any inaccuracy or change in information previously
furnished by such Electing Holder to the Issuers or of the occurrence of
any event in either case as a result of which any prospectus relating to
such Shelf Registration contains or would contain an untrue statement of a
material fact regarding such Electing Holder or such Electing Holder's
intended method of disposition of such Registrable Securities or omits to
state any material fact regarding such Electing Holder or such Electing
Holder's intended method of disposition of such Registrable Securities
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly
to furnish to the Issuers any additional information required to correct
and update any previously furnished information or required so that such
prospectus shall not contain, with respect to such Electing Holder or the
disposition of such Registrable Securities, an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
4. Registration Expenses.
The Issuers agree, subject to the last sentence of this Section, to
bear and to pay or cause to be paid promptly all expenses incident to the
Issuers' performance of or compliance with this Exchange and Registration Rights
Agreement, including (a) all Commission and any NASD registration, filing and
review fees and expenses including fees and disbursements of counsel for the
placement or sales agent or underwriters in connection with such registration,
filing and review, (b) all fees and expenses in connection with the
qualification of the Notes for offering and sale under the securities laws and
blue sky laws referred to in Section 3(d)(xii) hereof and determination of their
eligibility for investment under the laws of such jurisdictions as any managing
underwriters or the Electing Holders may designate, including any fees and
disbursements of counsel for the Electing Holders or underwriters in connection
with such qualification and determination, (c) all expenses relating to the
preparation, printing, production, distribution and reproduction of each
registration statement required to be filed hereunder, each prospectus included
therein or prepared for distribution pursuant hereto, each amendment or
supplement to the foregoing, the expenses of preparing the Notes for delivery
and the expenses of printing or producing any underwriting agreements,
agreements among underwriters, selling agreements and blue sky or legal
investment memoranda and all other documents in connection with the offering,
sale or delivery of Notes to be disposed of (including certificates representing
the Notes), (d) messenger, telephone and delivery expenses relating to the
offering, sale or delivery of Notes and the preparation of documents referred in
clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any
agent of the Trustee and any reasonable fees and expenses for counsel for the
Trustee and of any collateral agent or custodian, (f) internal expenses
(including all salaries and expenses of the Issuers' officers and employees
performing legal or
<PAGE> 19
accounting duties), (g) fees, disbursements and expenses of counsel and
independent certified public accountants of the Issuers (including the expenses
of any opinions or "cold comfort" letters required by or incident to such
performance and compliance), (h) fees, disbursements and expenses of any
"qualified independent underwriter" engaged pursuant to Section 3(d)(xix)
hereof, (i) reasonable fees, disbursements and expenses of one counsel for the
Electing Holders retained in connection with a Shelf Registration, as selected
by the Electing Holders of at least a majority in aggregate principal amount of
the Registrable Securities held by Electing Holders (which counsel shall be
reasonably satisfactory to the Issuers), (j) any fees charged by securities
rating services for rating the Notes, and (k) reasonable fees, expenses and
disbursements of any other persons, including special experts, retained by the
Issuers in connection with such registration (collectively, the "Registration
Expenses"). To the extent that any Registration Expenses are incurred, assumed
or paid by any holder of Registrable Securities or any placement or sales agent
therefor or underwriter thereof, the Issuers shall reimburse such person for the
full amount of the Registration Expenses so incurred, assumed or paid promptly
after receipt of a request therefor. Notwithstanding the foregoing, the holders
of the Registrable Securities being registered shall pay all agency fees and
commissions and underwriting discounts and commissions attributable to the sale
of such Registrable Securities and the fees and disbursements of any counsel or
other advisors or experts retained by such holders (severally or jointly), other
than the counsel and experts specifically referred to above.
5. Representations, Warranties and Covenants.
Except with respect to clauses (a) and (b) below, the Issuers
represent and warrant to, and agree with, each Purchaser and each of the holders
from time to time of Registrable Securities the information set forth in this
Section 5.
With respect to clauses (a) and (b) below, the Issuers covenant
that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus)
contained therein or furnished pursuant to Section 3(d) or Section 3(c)
hereof and any further amendments or supplements to any such registration
statement or prospectus, when it becomes effective or is filed with the
Commission, as the case may be, and, in the case of an underwritten
offering of Registrable Securities, at the time of the closing under the
underwriting agreement relating thereto, will conform in all material
respects to the requirements of the Securities Act and the Trust Indenture
Act and the rules and regulations of the Commission thereunder and will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at all times subsequent to the
Effective Time when a prospectus would be required to be delivered under
the Securities Act, other than from (i) such time as a notice has been
given to holders of Registrable Securities pursuant to
<PAGE> 20
Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time
as the Issuers furnishes an amended or supplemented prospectus pursuant to
Section 3(e) or Section 3(c)(iv) hereof, each such registration statement,
and each prospectus (including any summary prospectus) contained therein
or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then
amended or supplemented, will conform in all material respects to the
requirements of the Securities Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; provided,
however, that this covenant shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Issuers by a holder of Registrable Securities expressly for
use therein.
(b) Any documents incorporated by reference in any prospectus
referred to in Section 5(a) hereof, when they become or became effective
or are or were filed with the Commission, as the case may be, will conform
or conformed in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and none of such
documents will contain or contained an untrue statement of a material fact
or will omit or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that this covenant shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Issuers by a holder of Registrable Securities
expressly for use therein.
(c) The compliance by the Issuers with all of the provisions of this
Exchange and Registration Rights Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
material breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease, license, franchise agreement, permit or other material agreement or
instrument to which either of the Issuers or any of their subsidiaries is
a party or by which either of the Issuers or any of their subsidiaries is
bound or to which any of the property or assets of the Issuers or any of
their subsidiaries is subject, nor will such action result in any
violation of the provisions of the certificate of formation or limited
liability company agreement of the Company or the certificate of
incorporation or bylaws of Charter Capital or any statute or any order,
rule or regulation of any court or governmental agency or body, including
without limitation, the Communications Act of 1934, as amended, the Cable
Communications Policy Act of 1984, as amended, the Cable Television
Consumer Protection and Competition Act of 1992, as amended, and the
Telecommunications Act of 1996 (collectively, the "Cable Acts") or any
order, rule or regulation of the Federal Communications Commission (the
"FCC"), having jurisdiction over the Issuers or any of their subsidiaries
or any of their properties, except for any such violation which would not
materially impair the Issuers' ability to comply herewith; and no consent,
approval,
<PAGE> 21
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required, including, without
limitation, under the Cable Acts or any order, rule or regulation of the
FCC, for the consummation by the Issuers of the transactions contemplated
by this Exchange and Registration Rights Agreement, except the
registration under the Securities Act of the Notes, qualification of the
Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
State Notes or blue sky laws in connection with the offering and
distribution of the Notes.
(d) This Exchange and Registration Rights Agreement has been duly
authorized, executed and delivered by the Issuers.
6. Indemnification.
(a) Indemnification by the Issuers. The Issuers , jointly and
severally, (i) will indemnify and hold harmless each of the holders of
Registrable Securities included in an Exchange Offer Registration
Statement, each of the Electing Holders of Registrable Securities included
in a Shelf Registration Statement and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of
such Registrable Securities against any losses, claims, damages or
liabilities, joint or several, to which such holder, agent or underwriter
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Exchange Offer Registration
Statement or Shelf Registration Statement, as the case may be, under which
such Registrable Securities were registered under the Securities Act, or
any preliminary, final or summary prospectus contained therein or
furnished by the Issuers to any such holder, Electing Holder, agent or
underwriter, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) will reimburse such holder,
such Electing Holder, such agent and such underwriter for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that neither of the Issuers shall be liable
to any such persons in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, or preliminary, final or summary
prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Issuers by such
persons expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters.
The Issuers
<PAGE> 22
may require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 2(b) hereof and to
entering into any underwriting agreement or similar agreement with respect
thereto, that the Issuers shall have received an undertaking reasonably
satisfactory to them from the Electing Holder of such Registrable
Securities included in a Shelf Registration Statement and from each
underwriter or agent named in any such underwriting agreement or similar
agreement, severally and not jointly, to (i) indemnify and hold harmless
the Issuers and all other holders of Registrable Securities, against any
losses, claims, damages or liabilities to which the Issuers or such other
holders of Registrable Securities may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, or any preliminary, final or summary prospectus
contained therein or furnished by the Issuers to any such Electing Holder,
agent or underwriter, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Issuers by such Electing Holder
or underwriter expressly for use therein, and (ii) reimburse the Issuers
for any legal or other expenses reasonably incurred by the Issuers in
connection with investigating or defending any such action or claim as
such expenses are incurred; provided, however, that no such Electing
Holder shall be required to undertake liability to any person under this
Section 6(b) for any amounts in excess of the dollar amount of the
proceeds to be received by such Electing Holder from the sale of such
Electing Holder's Registrable Securities pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party pursuant to
the indemnification provisions of or contemplated by this Section 6,
notify such indemnifying party in writing of the commencement of such
action; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party
otherwise than under the indemnification provisions of or contemplated by
Section 6(a) or 6(b) hereof. In case any such action shall be brought
against any indemnified party and it shall notify an indemnifying party of
the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense
<PAGE> 23
thereof, such indemnifying party shall not be liable to such indemnified
party for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act
by or on behalf of any indemnified party.
(d) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or
insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or by such indemnified
party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were determined by pro rata
allocation (even if the holders or any agents or underwriters or all of
them were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in this Section 6(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred
by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section
6(d), no holder shall be required to contribute any amount in excess of
the amount by which the dollar amount of the proceeds received by such
holder from the sale of any Registrable Securities (after deducting any
fees, discounts and commissions applicable thereto) exceeds the amount of
any damages which such holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged
omission, and no underwriter shall be required to contribute any
<PAGE> 24
amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The holders' and any
underwriters' obligations in this Section 6(d) to contribute shall be
several in proportion to the principal amount of Registrable Securities
registered or underwritten, as the case may be, by them and not joint.
(e) The obligations of the Issuers under this Section 6 shall be in
addition to any liability which the Issuers may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and
partner of each holder, agent and underwriter and each person, if any, who
controls any holder, agent or underwriter within the meaning of the
Securities Act; and the obligations of the holders and any agents or
underwriters contemplated by this Section 6 shall be in addition to any
liability which the respective holder, agent or underwriter may otherwise
have and shall extend, upon the same terms and conditions, to each officer
(including any officer who signed any registration statement), director,
employee, representative or agent of the Issuers and to each person, if
any, who controls the Issuers within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by Electing Holders holding at least a majority in aggregate principal amount of
the Registrable Securities to be included in such offering, provided that such
designated managing underwriter or underwriters is or are reasonably acceptable
to the Issuers.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may participate in
any underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
<PAGE> 25
Each of the Issuers covenants to the holders of Registrable
Securities that to the extent it shall be required to do so under the Exchange
Act, it shall timely file the reports required to be filed by it under the
Exchange Act or the Securities Act (including the reports under Section 13 and
15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted
by the Commission under the Securities Act) and the rules and regulations
adopted by the Commission thereunder, and shall take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitations of the
exemption provided by Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar or successor rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities in connection with that holder's sale pursuant to Rule
144, the Issuers shall deliver to such holder a written statement as to whether
it has complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Issuers represent, warrant,
covenant and agree that they have not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other Notes which would be
inconsistent with the terms contained in this Exchange and Registration Rights
Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if the Issuers fail to perform any of their
obligations hereunder and that the Purchasers and the holders from time to time
of the Registrable Securities may be irreparably harmed by any such failure, and
accordingly agree that the Purchasers and such holders, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of the Issuers under this
Exchange and Registration Rights Agreement in accordance with the terms and
conditions of this Exchange and Registration Rights Agreement, in any court of
the United States or any State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and
other communications hereunder shall be in writing and shall be deemed to have
been duly given (i) when delivered by hand, if delivered personally or by
courier, (ii) when sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered or certified mail, return receipt
requested or (iii) three days after being deposited in the mail (registered or
certified mail, postage prepaid, return receipt requested) as follows: If to the
Issuers, c/o Charter Communications Holdings, LLC, 12444 Powerscourt Drive,
Suite 100, St. Louis, Missouri, 63131, Attention: Secretary, and if to a holder,
to the address of such holder set forth in the security register or other
records of the Issuers, or to such other address as the Issuers or any such
holder may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
<PAGE> 26
(d) Parties in Interest. All the terms and provisions of this
Exchange and Registration Rights Agreement shall be binding upon, shall inure to
the benefit of and shall be enforceable by the parties hereto and the holders
from time to time of the Registrable Securities and the respective successors
and assigns of the parties hereto and such holders. In the event that any
transferee of any holder of Registrable Securities shall acquire Registrable
Securities, in any manner, whether by gift, bequest, purchase, operation of law
or otherwise, such transferee shall, without any further writing or action of
any kind, be deemed a beneficiary hereof for all purposes and such Registrable
Securities shall be held subject to all of the terms of this Exchange and
Registration Rights Agreement, and by taking and holding such Registrable
Securities such transferee shall be entitled to receive the benefits of, and be
conclusively deemed to have agreed to be bound by all of the applicable terms
and provisions of this Exchange and Registration Rights Agreement. If the
Issuers shall so request, any such successor, assign or transferee shall agree
in writing to acquire and hold the Registrable Securities subject to all of the
applicable terms hereof.
(e) Survival. The respective indemnities, agreements,
representations, warranties and each other provision set forth in this Exchange
and Registration Rights Agreement or made pursuant hereto shall remain in full
force and effect regardless of any investigation (or statement as to the results
thereof) made by or on behalf of any holder of Registrable Securities, any
director, officer or partner of such holder, any agent or underwriter or any
director, officer or partner thereof, or any controlling person of any of the
foregoing, and shall survive delivery of and payment for the Registrable
Securities pursuant to the Purchase Agreement and the transfer and registration
of Registrable Securities by such holder and the consummation of an Exchange
Offer.
(f) GOVERNING LAW. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and Registration
Rights Agreement and shall not affect in any way the meaning or interpretation
of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration
Rights Agreement and the other writings referred to herein (including the
Indenture and the form of Notes) or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Exchange and Registration Rights Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Exchange and Registration Rights Agreement may be amended
and the observance of any term of this Exchange and Registration Rights
<PAGE> 27
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument duly executed by
the Issuers and the holders of at least a majority in aggregate principal amount
of the Registrable Securities at the time outstanding. Each holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any amendment or waiver effected pursuant to this Section 9(h), whether or not
any notice, writing or marking indicating such amendment or waiver appears on
such Registrable Securities or is delivered to such holder.
(i) Inspection. For so long as this Exchange and Registration Rights
Agreement shall be in effect, this Exchange and Registration Rights Agreement
and a complete list of the names and addresses of all the holders of Registrable
Securities shall be made available for inspection and copying, upon reasonable
prior notice, on any business day during normal business hours by any holder of
Registrable Securities for proper purposes only (which shall include any purpose
related to the rights of the holders of Registrable Securities under the Notes,
the Indenture and this Agreement) at the offices of the Issuers at the address
thereof set forth in Section 9(c) above and at the office of the Trustee under
the Indenture.
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
<PAGE> 28
If the foregoing is in accordance with your understanding, please
sign and return to us counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Issuers. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Issuers for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
CHARTER COMMUNICATIONS HOLDINGS, LLC,
as an Issuer
By /s/ Curtis S. Shaw
------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION, as an Issuer
By /s/ Curtis S. Shaw
------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
TD SECURITIES (USA) INC.
FIRST UNION SECURITIES, INC.
PNC CAPITAL MARKETS, INC.
SUNTRUST EQUITABLE SECURITIES CORPORATION
By: GOLDMAN, SACHS & CO.
By /s/ Goldman, Sachs & Co.
--------------------------------------
(Goldman, Sachs & Co.)
<PAGE> 29
EXHIBIT A
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE](a)
The Depository Trust Issuers ("DTC") has identified you as a DTC
Participant through which beneficial interests in the Charter Communications
Holdings, LLC (the "Company") and Charter Communications Holdings Capital
Corporation ("Charter Capital" and, together with the Company, the "Issuers")
10.25% Senior Notes due 2010 (the "Notes") are held.
The Issuers are in the process of registering the Notes under the
Securities Act of 1933, as amended, for resale by the beneficial owners thereof.
In order to have their Notes included in the registration statement, beneficial
owners must complete and return the enclosed Notice of Registration Statement
and Selling Securityholder Questionnaire.
It is important that beneficial owners of the Notes receive a copy
of the enclosed materials as soon as possible as their rights to have the Notes
included in the registration statement depend upon their returning the Notice
and Questionnaire by [Deadline For Response]. Please forward a copy of the
enclosed documents to each beneficial owner that holds interests in the Notes
through you. If you require more copies of the enclosed materials or have any
questions pertaining to this matter, please contact the Issuers c/o Charter
Communications Holdings, LLC, 12444 Powerscourt Drive, Suite 100, St. Louis,
Missouri, 63131, Attention: Secretary.
(a) Not less than 28 calendar days from date of mailing.
<PAGE> 30
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
Notice of Registration Statement
and
Selling Securityholder Questionnaire
(Date)
Reference is hereby made to the Exchange and Registration Rights
Agreement (the "Exchange and Registration Rights Agreement") between Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation (together, the "Issuers"), and the Purchasers named therein.
Pursuant to the Exchange and Registration Rights Agreement, the Issuers have
filed with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form [__] (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Issuers' 10.25% Senior Notes
due 2010 (the "Notes"). A copy of the Exchange and Registration Rights Agreement
is attached hereto. All capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Exchange and Registration Rights
Agreement.
Each beneficial owner of Registrable Securities is entitled to have
the Registrable Securities beneficially owned by it included in the Shelf
Registration Statement. In order to have Registrable Securities included in the
Shelf Registration Statement, this Notice of Registration Statement and Selling
Securityholder Questionnaire ("Notice and Questionnaire") must be completed,
executed and delivered to the Issuers' counsel at the address set forth herein
for receipt ON OR BEFORE [Deadline for Response]. Beneficial owners of
Registrable Securities who do not complete, execute and return this Notice and
Questionnaire by such date (i) will not be named as selling securityholders in
the Shelf Registration Statement and (ii) may not use the Prospectus forming a
part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and related prospectus.
<PAGE> 31
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item (3).
The undersigned, by signing and returning this Notice and Questionnaire, agrees
to be bound with respect to such Registrable Securities by the terms and
conditions of this Notice and Questionnaire and the Exchange and Registration
Rights Agreement, including, without limitation, Section 6 of the Exchange and
Registration Rights Agreement, as if the undersigned Selling Securityholder were
an original party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to deliver
to the Issuers and the Trustee the Notice of Transfer set forth in Exhibit B to
the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information
to the Issuers and represents and warrants that such information is accurate and
complete:
QUESTIONNAIRE
(1) (a) Full Legal Name of Selling Securityholder:
(b) Full Legal Name of Registered Holder (if not the same as in
(a) above) of Registrable Securities Listed in Item (3) below:
(c) Full Legal Name of DTC Participant (if applicable and if not
the same as (b) above) Through Which Registrable Securities Listed in Item (3)
below are Held:
(2) Address for Notices to Selling Securityholder:
-------------------------------------
-------------------------------------
-------------------------------------
Telephone:
----------------------------------
Fax:
----------------------------------
Contact Person:
----------------------------------
<PAGE> 32
(3) Beneficial Ownership of Notes:
Except as set forth below in this Item (3), the undersigned does not
beneficially own any Notes.
(a) Principal amount of Registrable Securities beneficially owned:
---------------------------------------------------------------
CUSIP No(s). of such Registrable Securities:
--------------------
(b) Principal amount of Notes other than Registrable Securities
beneficially owned:
---------------------------------------------------------------
CUSIP No(s). of such other Notes:
----------------------------
(c) Principal amount of Registrable Securities which the undersigned
wishes to be included in the Shelf Registration Statement:
---------------------------
CUSIP No(s). of such Registrable Securities to be included in
the Shelf Registration Statement:
-------------------------------
(4) Beneficial Ownership of Other Securities of the Issuers:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any
other securities of the Issuers other than the Notes listed above in
Item (3).
State any exceptions here:
(5) Relationships with the Issuers:
Except as set forth below, neither the Selling Securityholder nor
any of its affiliates, officers, directors or principal equity
holders (5% or more) has held any position or office or has had any
other material relationship with the Issuers (or their respective
predecessors or affiliates) during the past three years.
State any exceptions here:
(6) Plan of Distribution:
<PAGE> 33
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Registrable Securities listed above in
Item (3) only as follows (if at all): Such Registrable Securities
may be sold from time to time directly by the undersigned Selling
Securityholder or, alternatively, through underwriters,
broker-dealers or agents. Such Registrable Securities may be sold in
one or more transactions at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the time
of sale, or at negotiated prices. Such sales may be effected in
transactions (which may involve crosses or block transactions) (i)
on any national securities exchange or quotation service on which
the Registered Notes may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise
than on such exchanges or services or in the over-the-counter
market, or (iv) through the writing of options. In connection with
sales of the Registrable Securities or otherwise, the Selling
Securityholder may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the
Registrable Securities in the course of hedging the positions they
assume. The Selling Securityholder may also sell Registrable
Securities short and deliver Registrable Securities to close out
such short positions, or loan or pledge Registrable Securities to
broker-dealers that in turn may sell such Notes.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it understands
its obligation to comply, and agrees that it will comply, with the provisions of
the Exchange Act and the rules and regulations thereunder, particularly
Regulation M.
In the event that the Selling Securityholder transfers all or any portion of the
Registrable Securities listed in Item (3) above after the date on which such
information is provided to the Issuers, the Selling Securityholder agrees to
notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Exchange and
Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of the
information contained herein in its answers to Items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Securityholder understands that such information
will be relied upon by the Issuers in connection with the preparation of the
Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section 3(d) of
the Exchange and Registration Rights Agreement to provide such information as
may be required by law for inclusion in the Shelf Registration Statement, the
Selling Securityholder agrees to promptly notify the Issuers of any inaccuracies
or changes in the information provided herein
<PAGE> 34
which may occur subsequent to the date hereof at any time while the Shelf
Registration Statement remains in effect. All notices hereunder and pursuant to
the Exchange and Registration Rights Agreement shall be made in writing, by
hand-delivery, first-class mail, or air courier guaranteeing overnight delivery
as follows:
(i) To the Issuers:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
(ii) With a copy to:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
Once this Notice and Questionnaire is executed by the Selling Securityholder and
received by the Issuers' counsel, the terms of this Notice and Questionnaire,
and the representations and warranties contained herein, shall be binding on,
shall inure to the benefit of and shall be enforceable by the respective
successors, heirs, personal representatives, and assigns of the Issuers and the
Selling Securityholder (with respect to the Registrable Securities beneficially
owned by such Selling Securityholder and listed in Item (3) above). This
Agreement shall be governed in all respects by the laws of the State of New York
without giving effect to any provisions relating to conflicts of laws.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.
<PAGE> 35
Dated:
-------------------------
--------------------------------------------------------------
Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable
Securities)
By
--------------------------------------
Name:
Title:
<PAGE> 36
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE [DEADLINE FOR RESPONSE] TO THE ISSUERS' COUNSEL AT:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
<PAGE> 37
EXHIBIT B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
[Name of Trustee]
Charter Communications Holdings, LLC
Charter Communications Holdings Capital
Corporation
c/o [Name of Trustee]
[Address of Trustee]
Attention: Trust Officer
Re: Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation
(together, the "Issuers") 10.25% Senior Notes due 2010
Dear Sirs:
Please be advised that ______________ has transferred $__________ aggregate
principal amount of the above-referenced Notes pursuant to an effective
Registration Statement on Form [___] (File No. 333-____) filed by the Issuers.
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the above-named
beneficial owner of the Notes is named as a "Selling Holder" in the prospectus
dated [date] or in supplements thereto, and that the aggregate principal amount
of the Notes transferred are the Notes listed in such prospectus opposite such
owner's name.
Dated:
Very truly yours,
----------------------------------
(Name)
By:
------------------------------
(Authorized Signature)
<PAGE> 1
Exhibit 4.3(a)
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION,
as Issuers
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee
______________
INDENTURE
Dated as of January 12, 2000
______________
11.75% Senior Discount Notes Due 2010
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07; 10.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 10.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 10.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 10.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a) (last sentence) . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
<S> <C>
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
</TABLE>
N.A. means Not Applicable.
* This Cross-Reference Table is not part of the Indenture.
ii
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------------------------------
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------
Section 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------------------------------------------
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------------
ARTICLE 2 THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------
Section 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------------
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------------------------
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------------------------
Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------------------
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------
Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
--------------
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
---------------
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
------------------
ARTICLE 3 REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------------------
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
------------------
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------------------------
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
--------------------
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
------------------------------
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
---------------------------
Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
----------------------
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
-------------------
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
--------------------
Section 3.09. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 47
---------------------------------------------------
ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
---------
Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
----------------
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-------------------------------
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-------
Section 4.04. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
----------------------
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-----
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Section 4.06. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 52
------------------------------
Section 4.07. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 52
-------------------
Section 4.08. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 55
-----------
Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . .. 55
--------------------------------------------------------------
Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . . . . . . . . . . . . . . .. 57
----------------------------------------------------------
Section 4.11. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 60
-------------------------
Section 4.12. Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 61
-------------------------------
Section 4.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 62
----------------------------
Section 4.14. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 63
-----
Section 4.15. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 63
-------------------
Section 4.16. Repurchase at the Option of Holders upon a Change of Control . . . . . . . . . . . . . . . . . . . .. 63
------------------------------------------------------------
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness . . . . . . . . . . . . . . . . . . . . . . .. 65
------------------------------------------------------
Section 4.18. Payments for Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66
--------------------
Section 4.19. Application of Fall-Away Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66
----------------------------------
ARTICLE 5 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66
----------
Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66
----------------------------------------
Section 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 67
---------------------------------
ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68
---------------------
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68
-----------------
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 69
------------
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 70
--------------
Section 6.04. Waiver of Existing Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 70
---------------------------
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 70
-------------------
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 71
-------------------
Section 6.07. Rights of Holders of Notes to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . .. 71
---------------------------------------------
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 71
--------------------------
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 72
--------------------------------
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 72
----------
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 73
---------------------
ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 73
-------
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 73
-----------------
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 74
-----------------
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 75
----------------------------
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 75
--------------------
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 75
------------------
Section 7.06. Reports by Trustee to Holders of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 76
------------------------------------------
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 76
--------------------------
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 77
----------------------
Section 7.09. Successor Trustee by Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 78
--------------------------------
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
-----------------------------
Section 7.11. Preferential Collection of Claims Against the Issuers . . . . . . . . . . . . . . . . . . . . . . . . 78
-----------------------------------------------------
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
----------------------------------------
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 78
--------------------------------------------------------
Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
------------------------------
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
-------------------
Section 8.04. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
------------------------------------------
Section 8.05. Deposited Money and Government Securities to Be Held in Trust; Other Miscellaneous Provisions . . . . 81
---------------------------------------------------------------------------------------------
Section 8.06. Repayment to Issuers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
--------------------
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
-------------
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
--------------------------------
Section 9.01. Without Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
-----------------------------------
Section 9.02. With Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
--------------------------------
Section 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
-----------------------------------
Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
---------------------------------
Section 9.05. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
--------------------------------
Section 9.06. Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
-------------------------------
ARTICLE 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
-------------
Section 10.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
----------------------------
Section 10.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
-------
Section 10.03. Communication by Holders of Notes with Other Holders of Notes . . . . . . . . . . . . . . . . . . . . 87
-------------------------------------------------------------
Section 10.04. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 87
--------------------------------------------------
Section 10.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
---------------------------------------------
Section 10.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
---------------------------
Section 10.07. No Personal Liability of Directors, Officers, Employees, Members and Stockholders . . . . . . . . . . 88
---------------------------------------------------------------------------------
Section 10.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
-------------
Section 10.09. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
---------------------------------------------
Section 10.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
----------
Section 10.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
------------
Section 10.12. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
---------------------
Section 10.13. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
--------------------------------
ARTICLE 11 SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
--------------------------
Section 11.01. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
---------------------------------------
Section 11.02. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
--------------------------
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . B-1
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . D-1
</TABLE>
vi
<PAGE> 8
INDENTURE dated as of January 12, 2000 among Charter
Communications Holdings, LLC, a Delaware limited liability company (as further
defined below, the "Company"), Charter Communications Holdings Capital
Corporation, a Delaware corporation (as further defined below, "Charter
Capital" and together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee (the "Trustee").
The Issuers and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the
11.75% Senior Discount Notes due 2010 (the "Notes"):
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the
form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of, and registered in the name
of, the Depositary or its nominee that will be issued in an initial
denomination equal to the outstanding principal amount at maturity of the Notes
sold in reliance on Rule 144A.
"Accreted Value" is defined to mean, for any specific date,
the amount calculated pursuant to (i), (ii), (iii) or (iv) for each $ 1,000 of
principal amount at maturity of the Notes:
(i) if the specified date occurs on one or more of the
following dates (excluding the Issue Date, each a "Semi-Annual Accrual Date"),
the Accreted Value will equal the amount set forth below for such Semi-Annual
Accrual Date:
<TABLE>
<CAPTION>
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
<S> <C>
Issue Date $564.48
January 15, 2000 565.02
July 15, 2000 598.21
January 15, 2001 633.36
July 15, 2001 670.57
January 15, 2002 709.96
July 15, 2002 751.67
January 15, 2003 795.84
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
<S> <C>
July 15, 2003 842.59
January 15, 2004 892.09
July 15, 2004 944.51
January 15, 2005 $1,000.00
</TABLE>
(ii) if the specified date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) $564.48 and (b) an
amount equal to the product of (1) the Accreted Value for the first Semi-Annual
Accrual Date less $564.48 multiplied by (2) a fraction, the numerator of which
is the number of days from the Issue Date of the Notes to the specified date,
using a 360-day year of twelve 30-day months, and the denominator of which is
the number of days elapsed from the Issue Date to the first Semi-Annual Accrual
Date, using a 360-day year of twelve 30-day months;
(iii) if the specified date occurs between two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted Value
for the Semi-Annual Accrual Date immediately preceding such specified date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for the
immediately preceding Semi-Annual Accrual Date multiplied by (2) a fraction,
the numerator of which is the number of days from the immediately preceding
Semi-Annual Accrual Date to the specified date, using a 360-day year of twelve
30-day months, and the denominator of which is 180; or
(iv) if the specified date occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such
other Person is merged with or into or becomes a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any
<PAGE> 10
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control. For purposes of this definition, the
terms "controlling, "controlled by" and "under common control with" shall have
correlative meanings.
"Agent" means any Registrar or Paying Agent.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer
or exchange.
"Asset Acquisition" means (a) an Investment by the Company or
any of the Company's Restricted Subsidiaries in any other Person pursuant to
which such Person shall become a Restricted Subsidiary of the Company or any of
its Restricted Subsidiaries or shall be merged with or into the Company or any
of the Company's Restricted Subsidiaries, or (b) the acquisition by the Company
or any of the Company's Restricted Subsidiaries of the assets of any Person
which constitute all or substantially all of the assets of such Person, any
division or line of business of such Person or any other properties or assets
of such Person other than in the ordinary course of business.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries, taken as a whole, shall be governed by Section
4.16 and/or Section 5.01 and not by the provisions of Section 4.11; and
(2) the issuance of Equity Interests by any of the Company's
Restricted Subsidiaries or the sale of Equity Interests in any of the Company's
Restricted Subsidiaries.
Notwithstanding the preceding, the following items shall not
be deemed to be Asset Sales:
(1) any single transaction or series of related transactions
that: (a) involves assets having a fair market value of less than $100 million;
or (b) results in net proceeds to the Company and its Restricted Subsidiaries
of less than $100 million;
<PAGE> 11
(2) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company;
(4) a Restricted Payment that is permitted by Section 4.07 and
a Restricted Investment that is permitted by Section 4.08; and
(5) the incurrence of Permitted Liens and the disposition of
assets related to such Permitted Liens by the secured party pursuant to a
foreclosure.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction including any period
for which such lease has been extended or may, at the option of the lessee, be
extended. Such present value shall be calculated using a discount rate equal
to the rate of interest implicit in such transaction, determined in accordance
with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law of any jurisdiction relating to bankruptcy, insolvency,
winding up, liquidation, reorganization or relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating
the beneficial ownership of any particular "person" (as such term is used in
Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have
beneficial ownership of all securities that such "person" has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition.
"Board of Directors" means the Board of Directors of the
Company or Charter Capital, as the case may be, or any authorized committee of
the Board of Directors of the Company or Charter Capital, as the case may be.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company or Charter Capital, as
the case may be, to have been duly adopted by the Board of Directors of the
Company or Charter Capital, as the case may be, and to be in full force and
effect on the date of such certification and delivered to the Trustee.
<PAGE> 12
"Business Day" means any day other than a Legal Holiday.
"Cable Related Business" means the business of owning cable
television systems and businesses ancillary, complementary and related thereto.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of
a capital lease that would at that time be required to be capitalized on a
balance sheet in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest (other than any debt obligation) or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Capital Stock Sale Proceeds " means the aggregate net cash
proceeds (including the fair market value of the non-cash proceeds, as
determined by an independent appraisal firm) received by the Company since the
Existing Notes Issue Date (x) as a contribution to the common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or (y) from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt securities
of the Company that have been converted into or exchanged for such Equity
Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of the Company).
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than twelve months
from the date of acquisition;
<PAGE> 13
(3) certificates of deposit and eurodollar time deposits with
maturities of twelve 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 having combined
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
at the time of acquisition of "B" or better;
(4) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having a rating of at least "P-1" from
Moody's or at least "A-1" from S&P and in each case maturing within twelve
months after the date of acquisition;
(6) corporate debt obligations maturing within twelve months
after the date of acquisition thereof, rated at the time of acquisition at
least "Aaa" or "P-1" by Moody's or "AAA" or "A-1" by S&P;
(7) auction-rate preferred stocks of any corporation maturing
not later than 45 days after the date of acquisition thereof, rated at the time
of acquisition at least "Aaa" by Moody's or "AAA" by S&P;
(8) securities issued by any state, commonwealth or territory
of the United States, or by any political subdivision or taxing authority
thereof, maturing not later than six months after the date of acquisition
thereof, rated at the time of acquisition at least "A" by Moody's or S&P; and
(9) money market or, mutual funds, at least 90% of the assets
of which constitute Cash Equivalents of the kinds described in clauses (1)
through (8) of this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the
following:
(1) the sale, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, or of a Parent and its Subsidiaries, taken as a
whole, to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principal or a Related Party of the Principal;
(2) the adoption of a plan relating to the liquidation or
dissolution of the Company or a Parent;
<PAGE> 14
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principal and Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 35% of the
Voting Stock of the Company or a Parent, measured by voting power rather than
number of shares, unless the Principal or a Related Party Beneficially Owns,
directly or indirectly, a greater percentage of Voting Stock of the Company,
measured by voting power rather than the number of shares, than such person;
(4) after the Issue Date, the first day on which a majority of
the members of the Board of Directors of the Company or the board of directors
of a Parent are not Continuing Directors; or
(5) the Company or a Parent consolidates with, or merges with
or into, any Person, or any Person consolidates with, or merges with or into,
the Company or a Parent, in any such event pursuant to a transaction in which
any of the outstanding Voting Stock of the Company or such Parent is converted
into or exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company or such Parent outstanding
immediately prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person immediately after giving effect to such
issuance.
"Charter Capital" means Charter Communications Holdings
Capital Corporation, a Delaware corporation, and any successor in interest
thereto.
"Commission" or "SEC" means the Securities and Exchange
Commission.
"Company" means Charter Communications Holdings, LLC, a
Delaware limited liability company, and any successor in interest thereto.
"Consolidated EBITDA" means with respect to any Person, for
any period, the net income of such Person and its Restricted Subsidiaries for
such period plus, to the extent such amount was deducted in calculating such
net income:
(1) Consolidated Interest Expense;
(2) income taxes;
(3) depreciation expense;
(4) amortization expense;
<PAGE> 15
(5) all other non-cash items, extraordinary items,
nonrecurring and unusual items and the cumulative effects of changes in
accounting principles reducing such net income, less all non-cash items,
extraordinary items, nonrecurring and unusual items and cumulative effects of
changes in accounting principles increasing such net income, all as determined
on a consolidated basis for such Person and its Restricted Subsidiaries in
conformity with GAAP;
(6) amounts actually paid during such period pursuant to a
deferred compensation plan; and
(7) for purposes of Section 4.10 only, Management Fees;
provided that Consolidated EBITDA shall not include:
(x) the net income (or net loss) of any Person that is not a
Restricted Subsidiary ("Other Person"), except (I) with respect to net income,
to the extent of the amount of dividends or other distributions actually paid
to such Person or any of its Restricted Subsidiaries by such Other Person
during such period and (II) with respect to net losses, to the extent of the
amount of investments made by such Person or any Restricted Subsidiary of such
Person in such Other Person during such period;
(y) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (3) of Section 4.07
(and in such case, except to the extent includable pursuant to clause (x)
above), the net income (or net loss) of any Other Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated with
such Person or any Restricted Subsidiaries or all or substantially all of the
property and assets of such Other Person are acquired by such Person or any of
its Restricted Subsidiaries; and
(z) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary (other than any agreement or instrument (i) evidencing
Indebtedness or preferred stock outstanding on the Issue Date or (ii) incurred
or issued thereafter in compliance with Section 4.10, provided that (a) the
terms of any such agreement restricting the declaration and payment of
dividends or similar distributions apply only in the event of a default with
respect to a financial covenant or a covenant relating to payment (beyond any
applicable period of grace) contained in such agreement or instrument, (b) such
terms are determined by such Person
<PAGE> 16
to be customary in comparable financings and (c) such restrictions are
determined by such Person not to materially affect the Issuers' ability to make
principal or interest payments on the Notes when due).
"Consolidated Indebtedness" means, with respect to any Person
as of any date of determination, the sum, without duplication, of:
(1) the total amount of outstanding Indebtedness of such
Person and its Restricted Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person that
has been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus
(3) the aggregate liquidation value of all Disqualified Stock
of such Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Expense" means, with respect to any
Person for any period, without duplication, the sum of
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization or original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations); and
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; and
(3) any interest expense on Indebtedness of another Person
that is guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such Guarantee or Lien is called upon);
excluding, however, any amount of such interest of any Restricted Subsidiary if
the net income of such Restricted Subsidiary is excluded in the calculation of
Consolidated EBITDA pursuant to clause (z) of the definition thereof (but only
in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Consolidated EBITDA pursuant to clause (z) of
the definition thereof), in each case, on a
<PAGE> 17
consolidated basis and in accordance with GAAP.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company or the board of directors
of a Parent who:
(1) was a member of such board of directors on the Issue Date;
or
(2) was nominated for election or elected to such board of
directors with the approval of a majority of the Continuing Directors who were
members of such board of directors at the time of such nomination or election
or whose election or appointment was previously so approved.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 or such other address as to
which the Trustee may give notice to the Issuers.
"Credit Facilities" means, with respect to the Company and/or
its Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06,
substantially in the form of Exhibit A hereto, except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Global Notes, the
Person specified in Section 2.03 as the Depositary with respect to the Notes,
and any and all successors thereto appointed as depositary hereunder and having
become such pursuant to the applicable provision of this Indenture.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the surviving Person) or the sale, assignment, or transfer,
lease conveyance or other disposition of all or substantially all of such
Person's assets or Capital Stock.
<PAGE> 18
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible, or for
which it is exchangeable, in each case at the option of the holder thereof), or
upon the happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the Notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require the Company to repurchase
such Capital Stock upon the occurrence of a change of control or an asset sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
Section 4.07.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any private or underwritten public
offering of Qualified Capital Stock of the Company or a Parent of which the
gross proceeds (x) to the Company or (y) received by the Company as a capital
contribution from such Parent, as the case may be, are at least $25 million.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f).
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and
its Restricted Subsidiaries in existence on the Issue Date, until such amounts
are repaid.
"Existing Notes Issue Date" means March 17, 1999.
"Full Accretion Date" means January 15, 2005, the first date
on which the
<PAGE> 19
Accreted Value of the Notes has accreted to an amount equal to the principal
amount at maturity of the Notes.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Issue Date.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"Guarantee" or "guarantee" means a guarantee other than by
endorsement of negotiable instruments for collection in the ordinary course of
business, direct or indirect, in any manner including, without limitation, by
way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness, measured
as the lesser of the aggregate outstanding amount of the Indebtedness so
guaranteed and the face amount of the Guarantee.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements;
(2) interest rate option agreements, foreign currency exchange
agreements, foreign currency swap agreements; and
(3) other agreements or arrangements designed to protect such
Person against fluctuations in interest and currency exchange rates.
"Helicon Preferred Stock" means the preferred limited
liability company interest of Charter-Helicon LLC with an aggregate liquidation
value of $25 million outstanding
<PAGE> 20
on the Issue Date.
"Holder" means a holder of the Notes.
"Indebtedness" means, with respect to any specified Person,
any indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the
purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable; or
(6) representing the notional amount of any Hedging
Obligations, if and to the extent any of the preceding items (other than
letters of credit and Hedging Obligations) would appear as a liability upon a
balance sheet of the specified Person prepared in accordance with GAAP. In
addition, the term "Indebtedness" includes all Indebtedness of others secured
by a Lien on any asset of the specified Person (whether or not such
Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount; and
(2) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act that is not
<PAGE> 21
also a QIB.
"Investment Grade Rating" means a rating equal to or higher
than Baa3 (or the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), and purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means January 12, 2000.
"Issuers" has the meaning assigned to it in the preamble to
this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Issuers and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Leverage Ratio" means, as of any date, the ratio of:
(1) the Consolidated Indebtedness of the Company on such date
to
(2) the aggregate amount of Consolidated EBITDA for the
Company for the most recently ended fiscal quarter for which internal financial
statements are available multiplied by four (the "Reference Period").
In addition to the foregoing, for purposes of this definition, "Consolidated
EBITDA" shall be calculated on a pro forma basis after giving effect to
(1) the issuance of the Notes;
(2) the incurrence of the Indebtedness or the issuance of the
Disqualified Stock
<PAGE> 22
or other preferred stock of a Restricted Subsidiary (and the application of the
proceeds therefrom) giving rise to the need to make such calculation and any
incurrence or issuance (and the application of the proceeds therefrom) or
repayment of other Indebtedness or Disqualified Stock or other preferred stock
of a Restricted Subsidiary, other than the incurrence or repayment of
Indebtedness for ordinary working capital purposes, at any time subsequent to
the beginning of the Reference Period and on or prior to the date of
determination, as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the first day of
the Reference Period; and
(3) any Dispositions or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any person that becomes a Restricted Subsidiary as a result of such
Asset Acquisition) incurring, assuming or otherwise becoming liable for or
issuing Indebtedness, Disqualified Stock or preferred stock) made on or
subsequent to the first day of the Reference Period and on or prior to the date
of determination, as if such Disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Indebtedness, Disqualified
Stock or preferred stock and also including any Consolidated EBITDA associated
with such Asset Acquisition, including any cost savings adjustments in
compliance with Regulation S-X promulgated by the Commission) had occurred on
the first day of the Reference Period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
"Management Fees" means the fees payable to Charter
Communications, Inc. pursuant to the management agreements between Charter
Communications, Inc. and Charter Communication Operating LLC, and between
Charter Communications, Inc. and Restricted Subsidiaries of the Company
(including any Person that becomes a Restricted Subsidiary of the Company in
connection with the acquisition of Bresnan Communications Company Limited
Partnership), as such agreements exist on the Issue Date (or on the date of
such acquisition in the case of the aforementioned Bresnan acquisition),
including any amendment or replacement thereof, provided that any such
amendment or replacement is not more disadvantageous to the Holders of the
Notes in any material respect from such management agreements existing on the
Issue Date.
"Moody's" means Moody's Investors Service, Inc. or any
successor to the rating
<PAGE> 23
agency business thereof.
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof or taxes paid or payable as a
result thereof (including amounts distributable in respect of owners',
partners' or members' tax liabilities resulting from such sale), in each case
after taking into account any available tax credits or deductions and any tax
sharing arrangements and amounts required to be applied to the repayment of
Indebtedness.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness), (b)
is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights
that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both any
holder of any other Indebtedness (other than the Notes) of the Company or any
of its Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any
<PAGE> 24
Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company or Charter Capital, as the case may be, by two Officers of the
Company or Charter Capital, as the case may be, one of whom must be the
principal executive officer, the chief financial officer or the treasurer of
the Company or Charter Capital, as the case may be, that meets the requirements
of Section 10.05.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
10.05. The counsel may be an employee of or counsel to the Issuers, any
Subsidiary of the Issuers or the Trustee.
"Other Notes" means the 10.00% Senior Notes due 2009 of the
Issuers in an aggregate principal amount not to exceed the principal amount
issued on the Issue Date, and the 10.25% Senior Notes due 2010 of the Issuers
in an aggregate principal amount not to exceed the principal amount issued on
the Issue Date.
"Parent" means Charter Communications, Inc. and/or Charter
Communications Holding Company, LLC, as applicable, and any successor Person or
any Person succeeding to the direct or indirect ownership of the Company.
"Participant" means, with respect to the Depositary, Euroclear
or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Investments" means:
(1) any Investment by the Company in a Restricted Subsidiary
of the Company, or any Investment by a Restricted Subsidiary of the Company in
the Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of
the Company; or
(b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of
its assets to, or is liquidated into, the Company or a Restricted
Subsidiary of the Company;
(4) any Investment made as a result of the receipt of non-cash
consideration
<PAGE> 25
from an Asset Sale that was made pursuant to and in compliance with Section
4.11;
(5) any Investment made out of the net cash proceeds of the
issue and sale since the Existing Notes Issue Date (other than to a Subsidiary
of the Company) of Equity Interests (other than Disqualified Stock) of the
Company to the extent that such net cash proceeds have not been applied to make
a Restricted Payment or to effect other transactions pursuant to Section 4.07
or to the extent such net cash proceeds have not been used to incur
Indebtedness pursuant to clause (10) of Section 4.10;
(6) Investments in Productive Assets having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (6) since the Existing Notes
Issue Date, not to exceed $150 million; provided that the Company or any of its
Restricted Subsidiaries, after giving effect to such Investments, will own at
least 20% of the Voting Stock of such Person;
(7) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (7) since the Existing Notes
Issue Date, not to exceed $50 million; and
(8) Investments in customers and suppliers in the ordinary
course of business which either (A) generate accounts receivable or (B) are
accepted in settlement of bona fide disputes.
"Permitted Liens" means:
(1) Liens on the assets of the Company securing Indebtedness
and other Obligations under clause (1) of Section 4.10;
(2) Liens in favor of the Company;
(3) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company;
(4) Liens on property existing at the time of acquisition
thereof by the Company; provided that such Liens were in existence prior to the
contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations,
surety or appeal
<PAGE> 26
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business;
(6) purchase money mortgages or other purchase money liens
(including without limitation any Capital Lease Obligations) incurred by the
Company upon any fixed or capital assets acquired after the Issue Date or
purchase money mortgages (including without limitation Capital Lease
Obligations) on any such assets, whether or not assumed, existing at the time
of acquisition of such assets, whether or not assumed, so long as (i) such
mortgage or lien does not extend to or cover any of the assets of the Company,
except the asset so developed, constructed, or acquired, and directly related
assets such as enhancements and modifications thereto, substitutions,
replacements, proceeds (including insurance proceeds), products, rents and
profits thereof, and (ii) such mortgage or lien secures the obligation to pay
the purchase price of such asset, interest thereon and other charges, costs and
expenses (including, without limitation, the cost of design, development,
construction, acquisition, transportation, installation, improvement, and
migration) and incurred in connection therewith (or the obligation under such
Capital Lease Obligation) only;
(7) Liens existing on the Issue Date (other than in connection
with the Credit Facilities);
(8) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;
(9) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(10) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;
(11) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory or regulatory obligation, bankers'
acceptance, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the
<PAGE> 27
payment of borrowed money);
(12) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the Company
or any of its Restricted Subsidiaries;
(13) Liens of franchisors or other regulatory bodies arising
in the ordinary course of business;
(14) Liens arising from filing Uniform Commercial Code
financing statements regarding leases or other Uniform Commercial Code
financing statements for precautionary purposes relating to arrangements not
constituting Indebtedness;
(15) Liens arising from the rendering of a final judgment or
order against the Company or any of its Restricted Subsidiaries that does not
give rise to an Event of Default;
(16) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(17) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general parameters customary in
the industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Hedging Obligations and forward contracts, options,
future contracts, future options or similar agreements or arrangements designed
solely to protect the Company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of commodities;
(18) Liens consisting of any interest or title of licensor in
the property subject to a license;
(19) Liens on the Capital Stock of Unrestricted Subsidiaries;
(20) Liens arising from sales or other transfers of accounts
receivable which are past due or otherwise doubtful of collection in the
ordinary course of business;
(21) Liens incurred in the ordinary course of business of the
Company with respect to obligations which in the aggregate do not exceed $50
million at any one time outstanding;
(22) Liens in favor of the Trustee arising under the
provisions in this Indenture
<PAGE> 28
and in the indentures relating to the Other Notes, in each case under Section
7.07; and
(23) Liens in favor of the Trustee for its benefit and the
benefit of Holders and the holders of the Other Notes, as their respective
interests appear.
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Restricted Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, other Indebtedness of the Company or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that unless
permitted otherwise by this Indenture, no Indebtedness of the Company or any of
its Restricted Subsidiaries, may be issued in exchange for, nor the net
proceeds of such Indebtedness be used to extend, refinance, renew, replace,
defease or refund Indebtedness of the Company or any of its Restricted
Subsidiaries; provided, further, that:
(1) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest and premium, if any,
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to,
the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by
any of its Restricted Subsidiaries who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof or any other entity.
<PAGE> 29
"Principal" means Paul G. Allen.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i)(A) to be placed on all Notes issued under this Indenture
except where otherwise permitted by the provisions of this Indenture.
"Productive Assets" means assets (including assets of a
referent Person owned directly or indirectly through ownership of Capital
Stock) of a kind used or useful in the Cable Related Business.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Stock.
"Rating Agencies" means Moody's and S&P.
"Registration Rights Agreement" means the Exchange and
Registration Rights Agreement dated as of the Issue Date among the Issuers and
the initial purchasers named therein with respect to the Notes issued on the
Issue Date.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a global note substantially
in the form of Exhibit A hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of, the Depositary or its nominee that will be issued in an initial
denomination equal to the outstanding principal amount at maturity of the Notes
initially sold in reliance on Rule 903 of Regulation S.
"Related Party" means:
(1) the spouse or an immediate family member, estate or heir
of the Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
an 80% or more controlling interest of which consist of the Principal and/or
such other Persons referred to in the immediately preceding clause (1).
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
<PAGE> 30
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated under the Securities
Act.
"S&P" means Standard & Poor's Ratings Service, a division of
the McGraw-Hill Companies, Inc. or any successor to the rating agency business
thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of
the Company which is a "Significant Subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Exchange Act.
"Special Interest" has the meaning set forth in the
Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the documentation
governing such Indebtedness on the Issue Date, or, if none, the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
<PAGE> 31
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of
which at least 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and, in the case of any
such entity of which 50% of the total voting power of shares of Capital Stock
is so owned or controlled by such Person or one or more of the other
Subsidiaries of such Person, such Person and its Subsidiaries also has the
right to control the management of such entity pursuant to contract or
otherwise; and
(2) any partnership (a) the sole general partner or the
managing general partner of which is such Person or a Subsidiary of such Person
or (b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax" shall mean any tax, duty, levy, impost, assessment or
other governmental charge (including penalties, interest and any other
liabilities related thereto).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA; provided, however, that in the event the Trust Indenture Act of
1939 is amended after such date, then "TIA" means, to the extent required by
such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means Harris Trust and Savings Bank until a
successor replaces Harris Trust and Savings Bank in accordance with the
applicable provisions of this Indenture and thereafter means the successor
serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Global Note" means a permanent global note
substantially in the form of Exhibit A attached hereto that bears the Global
Note Legend and that has the "Schedule of Exchanges of Interests in the Global
Note" attached thereto, and that is deposited with or on behalf of and
registered in the name of the Depositary, representing a series of Notes that
do not bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company
that is designated by the Board of Directors of the Company as an Unrestricted
Subsidiary
<PAGE> 32
pursuant to a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company unless such terms constitute Investments permitted by the covenant
described above under Section 4.08;
(3) is a Person with respect to which neither the Company nor
any of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and
(5) has at least one director on its board of directors that
is not a director or executive officer of the Company or any of its Restricted
Subsidiaries, or has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of
the board of directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at 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
(2) the then outstanding principal amount of such
Indebtedness.
<PAGE> 33
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person and/or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -----------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . 4.13
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . 3.09
"Authentication Order" . . . . . . . . . . . . . . . . . . . 2.02
"Change of Control Offer" . . . . . . . . . . . . . . . . . . 4.16
"Change of Control Payment" . . . . . . . . . . . . . . . . . 4.16
"Change of Control Payment Date" . . . . . . . . . . . . . . 4.16
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . 8.03
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Event of Default" . . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . 4.11
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . 8.02
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Default" . . . . . . . . . . . . . . . . . . . . . . 6.01
"Permitted Debt" . . . . . . . . . . . . . . . . . . . . . 4.10
"Preferred Stock Financing" . . . . . . . . . . . . . . . . . 4.10
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . 3.09
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . . . . . . 4.07
"Subordinated Debt Financing" . . . . . . . . . . . . . . . . 4.10
"Subordinated Notes" . . . . . . . . . . . . . . . . . . . . 4.10
"Subsidiary Guarantee" . . . . . . . . . . . . . . . . . . . 4.17
"Suspended Covenants" . . . . . . . . . . . . . . . . . . . . 4.19
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
<PAGE> 34
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the Notes means the Issuers and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time;
(g) references to any statute, law, rule or regulation shall
be deemed to refer to the same as from time to time amended and in effect and
to any successor statute, law, rule or regulation; and
<PAGE> 35
(h) references to any contract, agreement or instrument shall
mean the same as amended, modified, supplemented or amended and restated from
time to time, in each case, in accordance with any applicable restrictions
contained in this Indenture.
ARTICLE 2 THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 principal amount
at maturity and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Issuers and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions
of this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the
Global Note Legend thereon and the "Schedule of Exchanges of Interests
in the Global Note" attached thereto). Notes issued in definitive form
shall be substantially in the form of Exhibit A attached hereto (but
without the Global Note Legend thereon and without the "Schedule of
Exchanges of Interests in the Global Note" attached thereto). Each
Global Note shall represent such of the outstanding Notes as shall be
specified therein and each shall provide that it shall represent the
aggregate principal amount at maturity of outstanding Notes from time
to time endorsed thereon and that the aggregate principal amount at
maturity of outstanding Notes represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of
any increase or decrease in the aggregate principal amount at maturity
of outstanding Notes represented thereby shall be made by the Trustee
or the custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06.
(c) Euroclear and Cedel Procedures Applicable. The provisions
of the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel
Bank" and "Customer
<PAGE> 36
Handbook" of Cedel Bank shall be applicable to transfers of beneficial
interests in the Regulation S Global Notes that are held by Participants
through Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for each Issuer by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuers signed
by an Officer of each of the Issuers (an "Authentication Order"), authenticate
Notes for original issue in the aggregate principal amount at maturity of
$532,000,000. The aggregate principal amount at maturity of Notes outstanding
at any time may not exceed such amount except as provided in Section 2.07. On
the Issue Date, the Issuers will issue $532,000,000 aggregate principal amount
at maturity of Notes.
The Trustee may appoint an authenticating agent acceptable to
the Issuers to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Issuers. Section 2.3. Registrar and Paying Agent.
The Issuers shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and
exchange. The Issuers may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. The Issuers may
change any Paying Agent or Registrar without notice to any Holder. The Issuers
shall notify the Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Issuers fail to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. The Issuers
or any of their Subsidiaries may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to act as
<PAGE> 37
Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the
Registrar and Paying Agent and to act as Custodian with respect to the Global
Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of Accreted Value, premium, if any, or interest on the Notes, and shall
notify the Trustee of any default by the Issuers in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Issuers at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Issuers or a Subsidiary) shall
have no further liability for the money. If the Issuers or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any
bankruptcy or reorganization proceedings relating to the Issuers, the Trustee
shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Issuers shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times
as the Trustee may request in writing, a list in such form and as of such date
as the Trustee may reasonably require of the names and addresses of the Holders
of Notes and the Issuers shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Notes shall be exchanged by the Company for Definitive Notes if:
(i) the Issuers deliver to the Trustee notice from
the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under
the Exchange Act and, in either case, a successor Depositary
<PAGE> 38
is not appointed by the Issuers within 120 days after the date of such
notice from the Depositary; or
(ii) the Issuers in their sole discretion determine
that the Global Notes (in whole but not in part) should be exchanged for
Definitive Notes and deliver a written notice to such effect to the Trustee; or
(iii) there shall have occurred and be continuing a
Default or Event of Default with respect to the Notes.
Upon the occurrence of any of the preceding events in (i),
(ii) or (iii) above, Definitive Notes shall be issued in such names as the
Depositary shall instruct the Trustee. Global Notes also may be exchanged or
replaced, in whole or in part, as provided in Sections 2.07 and 2.10. Every
Note authenticated and delivered in exchange for, or in lieu of, a Global Note
or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10,
shall be authenticated and delivered in the form of, and shall be, a Global
Note. A Global Note may not be exchanged for another Note other than as
provided in this Section 2.06(a); however, beneficial interests in a Global
Note may be transferred and exchanged as provided in Section 2.06(b), (c) or
(f).
(b) Transfer and Exchange of Beneficial Interests in the
Global Notes. The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Notes shall be subject to restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Notes also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
(i) Transfer of Beneficial Interests in the Same
Global Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance
with the transfer restrictions set forth in the Private Placement
Legend. Beneficial interests in any Unrestricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders
or instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and
exchanges of beneficial interests that are not subject to Section
2.06(b)(i) above, the transferor of such beneficial interest must
<PAGE> 39
deliver to the Registrar either:
(A)(1) a written order from a Participant or
an Indirect Participant given to the Depositary in accordance
with the Applicable Procedures directing the Depositary to
credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial
interest to be transferred or exchanged; and
(A)(2) instructions given in accordance with
the Applicable Procedures containing information regarding the
Participant account to be credited with such increase; or
(B)(1) a written order from a Participant or
an Indirect Participant given to the Depositary in accordance
with the Applicable Procedures directing the Depositary to
cause to be issued a Definitive Note in an amount equal to the
beneficial interest to be transferred or exchanged; and
(B)(2) instructions given by the Depositary
to the Registrar containing information regarding the Person
in whose name such Definitive Note shall be registered to
effect the transfer or exchange referred to in (1) above.
Upon consummation of an Exchange Offer by the Issuers in accordance
with Section 2.06(f), the requirements of this Section 2.06(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar
of the instructions contained in the Letter of Transmittal delivered
by the holder of such beneficial interests in the Restricted Global
Notes. Upon satisfaction of all of the requirements for transfer or
exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities
Act, the Trustee shall adjust the principal amount at maturity of the
relevant Global Note(s) pursuant to Section 2.06(h).
(iii) Transfer of Beneficial Interests to Another
Restricted Global Note. A beneficial interest in any Restricted Global
Note may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in another Restricted Global Note if the
transfer complies with the requirements of Section 2.06(b)(ii) above
and the Registrar receives the following:
(A) if the transferee will take delivery in
the form of a beneficial interest in the 144A Global Note,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (1)
thereof; and
(B) if the transferee will take delivery in
the form of a beneficial interest in the Regulation S Global
Note, then the transferor must deliver a
<PAGE> 40
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in
a Restricted Global Note for Beneficial Interests in an Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may
be exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the holder of the beneficial
interest to be transferred, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
broker-dealer pursuant to the Exchange Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a)
thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in
<PAGE> 41
form reasonably acceptable to the Registrar to the effect that such
exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
If any such transfer is effected pursuant to
subparagraph (B) or (D) above at a time when an Unrestricted Global
Note has not yet been issued, the Issuers shall issue and, upon
receipt of an Authentication Order in accordance with Section 2.02,
the Trustee shall authenticate one or more Unrestricted Global Notes
in an aggregate principal amount at maturity equal to the aggregate
principal amount at maturity of beneficial interests transferred
pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests
for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes
to Restricted Definitive Notes. If any holder of a beneficial interest
in a Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note or to transfer such
beneficial interest to a Person who takes delivery thereof in the form
of a Restricted Definitive Note, then, upon receipt by the Registrar
of the following documentation:
(A) if the holder of such beneficial interest
in a Restricted Global Note proposes to exchange such
beneficial interest for a Restricted Definitive Note, a
certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
<PAGE> 42
(E) if such beneficial interest is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable;
(F) if such beneficial interest is being
transferred to the Issuers or any of their Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount at maturity of
the applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h), and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions
a Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct
the Registrar through instructions from the Depositary and the
Participant or Indirect Participant. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall bear the Private Placement Legend and shall be
subject to all restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes
to Unrestricted Definitive Notes. A holder of a beneficial interest in
a Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the holder of such
beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
<PAGE> 43
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
broker-dealer pursuant to the Exchange Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a Definitive
Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit
C hereto, including the certifications in item (1)(b)
thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in
the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global
Notes to Unrestricted Definitive Notes. If any holder of a beneficial
interest in an Unrestricted Global Note proposes to exchange such
beneficial interest for a Definitive Note or to transfer such
beneficial interest to a Person who takes delivery thereof in the form
of a Definitive Note, then, upon satisfaction of the conditions set
forth in Section 2.06(b)(ii), the Trustee shall cause the aggregate
principal amount at maturity of the applicable Global Note to be
reduced accordingly pursuant to Section 2.06(h), and the Issuers shall
execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii) shall be
registered in such name or names and in such authorized
<PAGE> 44
denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee
shall deliver such Definitive Notes to the Persons in whose names such
Notes are so registered. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii) shall not
bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests in Global Notes.
(i) Restricted Definitive Notes to Beneficial
Interests in Restricted Global Notes. If any Holder of a Restricted
Definitive Note proposes to exchange such Note for a beneficial
interest in a Restricted Global Note or to transfer such Restricted
Definitive Notes to a Person who takes delivery thereof in the form of
a beneficial interest in a Restricted Global Note, then, upon receipt
by the Registrar of the following documentation:
(A) if the Holder of such Restricted
Definitive Note proposes to exchange such Note for a
beneficial interest in a Restricted Global Note, a certificate
from such Holder in the form of Exhibit C hereto, including
the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is
being transferred to a QIB in accordance with Rule 144A under
the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
(C) if such Restricted Definitive Note is
being transferred to a Non-U.S. Person in an offshore
transaction in accordance with Rule 903 or Rule 904 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such Restricted Definitive Note is
being transferred pursuant to an exemption from the
registration requirements of the Securities Act in accordance
with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is
being transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications,
certificates and Opinion of
<PAGE> 45
Counsel required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is
being transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is
being transferred pursuant to an effective registration
statement under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note,
increase or cause to be increased the aggregate principal
amount at maturity of, in the case of clause (A) above, the
appropriate Restricted Global Note, in the case of clause (B)
above, the 144A Global Note, in the case of clause (C) above,
the Regulation S Global Note.
(ii) Restricted Definitive Notes to Beneficial
Interests in Unrestricted Global Notes. A Holder of a Restricted
Definitive Note may exchange such Note for a beneficial interest in an
Unrestricted Global Note or transfer such Restricted Definitive Note
to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Issuers;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
broker-dealer pursuant to the Exchange Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive
Notes proposes to exchange such Notes for a
beneficial interest in the Unrestricted Global Note,
a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (1)(c)
thereof; or
<PAGE> 46
(2) if the Holder of such Definitive
Notes proposes to transfer such Notes to a Person who
shall take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note,
a certificate from such Holder in the form of Exhibit
B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
Upon satisfaction of the conditions of any of the
subparagraphs in this Section 2.06(d)(ii), the Trustee shall
cancel the Definitive Notes and increase or cause to be
increased the aggregate principal amount at maturity of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial
Interests in Unrestricted Global Notes. A Holder of an Unrestricted
Definitive Note may exchange such Note for a beneficial interest in an
Unrestricted Global Note or transfer such Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount at maturity of one of the Unrestricted
Global Notes.
If any such exchange or transfer from a Definitive
Note to a beneficial interest is effected pursuant to subparagraphs
(ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global
Note has not yet been issued, the Issuers shall issue and, upon
receipt of an Authentication Order in accordance with Section 2.02,
the Trustee shall authenticate one or more Unrestricted Global Notes
in an aggregate principal amount at maturity equal to the principal
amount at maturity of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's
compliance with the provisions of this Section 2.06(e), the Registrar shall
register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by its attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as
<PAGE> 47
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted
Definitive Notes. Any Restricted Definitive Note may be transferred to
and registered in the name of Persons who take delivery thereof in the
form of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to
Rule 144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to
Rule 903 or Rule 904, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to
any other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted
Definitive Notes. Any Restricted Definitive Note may be exchanged by
the Holder thereof for an Unrestricted Definitive Note or transferred
to a Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Issuers;
(B) any such transfer is effected pursuant to
the Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a
broker-dealer pursuant to the Exchange Registration Statement
in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to
<PAGE> 48
exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in
item (1)(d) thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a
Person who shall take delivery thereof in the form of
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests, an Opinion of Counsel in form
reasonably acceptable to the Issuers to the effect that such
exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order
to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted
Definitive Notes. A Holder of Unrestricted Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Note. Upon receipt of a request to
register such a transfer, the Registrar shall register the
Unrestricted Definitive Notes pursuant to the instructions from the
Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer
in accordance with the Registration Rights Agreement, the Issuers shall issue
and, upon receipt of an Authentication Order in accordance with Section 2.02,
the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount at maturity equal to the principal amount at
maturity of the beneficial interests in the Restricted Global Notes tendered
for acceptance by Persons that certify in the applicable Letters of Transmittal
that (x) they are not broker-dealers, (y) they are not participating in a
distribution of the Exchange Notes and (z) they are not affiliates (as defined
in Rule 144) of the Issuers, and accepted for exchange in the Exchange Offer
and (ii) Definitive Notes in an aggregate principal amount at maturity equal to
the principal amount at maturity of the Restricted Definitive Notes accepted
for exchange in the Exchange Offer. Concurrently with the issuance of such
Notes, the Trustee shall cause the aggregate principal amount at maturity of
the applicable Restricted Global Notes to be reduced accordingly, and the
Issuers shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of
all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
<PAGE> 49
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B)
below, each Global Note and each Definitive Note (and all
Notes issued in exchange therefor or substitution thereof)
shall bear the legend in substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT")
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A)(1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN
OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL
ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS
OF THE STATES OF THE UNITED STATES."
(B) Notwithstanding the foregoing, any Global
Note or Definitive Note issued pursuant to subparagraphs
(b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii),
(e)(iii) or (f) to this Section 2.06 (and all Notes issued in
exchange therefor or substitution thereof) shall not bear the
Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a
legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY
<PAGE> 50
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS
HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE,
(II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT TO SECTION 2.06(A) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (III) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
(h) Cancellation and/or Adjustment of Global Notes. At such
time as all beneficial interests in a particular Global Note have been
exchanged for Definitive Notes or a particular Global Note has been redeemed,
repurchased or canceled in whole and not in part, each such Global Note shall
be returned to or retained and canceled by the Trustee in accordance with
Section 2.11. At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for or transferred to a Person who will
take delivery thereof in the form of a beneficial interest in another Global
Note or for Definitive Notes, the principal amount at maturity of Notes
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note by the Trustee or by the Depositary at the
direction of the Trustee to reflect such reduction; and if the beneficial
interest is being exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Note,
such other Global Note shall be increased accordingly and an endorsement shall
be made on such Global Note by the Trustee or by the Depositary at the
direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and
exchanges, the Issuers shall execute and the Trustee shall
authenticate Global Notes and Definitive Notes upon the Issuers' order
or at the Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Issuers may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other
than any such transfer taxes or similar governmental charge payable
upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.11,
4.16 and 9.05).
(iii) The Registrar shall not be required to register
the transfer of or exchange any Note selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed
in part.
<PAGE> 51
(iv) All Global Notes and Definitive Notes issued
upon any registration of transfer or exchange of Global Notes or
Definitive Notes shall be the valid obligations of the Issuers,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Global Notes or Definitive Notes surrendered upon
such registration of transfer or exchange.
(v) The Issuers shall not be required (A) to issue,
to register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 and ending at the
close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in
whole or in part, except the unredeemed portion of any Note being
redeemed in part or (C) to register the transfer of or to exchange a
Note between a record date and the next succeeding Interest Payment
Date.
(vi) Prior to due presentment for the registration of
a transfer of any Note, the Trustee, any Agent and the Issuers may
deem and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes,
and none of the Trustee, any Agent or the Issuers shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02.
(viii) All certifications, certificates and Opinions
of Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the
Issuers and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Issuers shall issue and the
Trustee, upon receipt of an Authentication Order, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Issuers, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Issuers to protect the
Issuers, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Issuers may charge for their
expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Issuers and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other
<PAGE> 52
Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions, and those described
in this Section as not outstanding. Except as set forth in Section 2.09, a Note
does not cease to be outstanding because either of the Issuers or an Affiliate
of the Issuers holds the Note; however, Notes held by an Issuer or a Subsidiary
of an Issuer shall not be deemed to be outstanding for purposes of Section
3.07(b).
If a Note is replaced pursuant to Section 2.07, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the Accreted Value of any Note is considered paid under
Section 4.01, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than an Issuer, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount at maturity of Notes have concurred in any direction, waiver or consent,
Notes owned by an Issuer, or by any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with an Issuer,
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery,
the Issuers may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that
the Issuers considers appropriate for temporary Notes and as shall be
reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers
shall prepare and the Trustee shall authenticate definitive Notes in exchange
for
<PAGE> 53
temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
Section 2.11. Cancellation.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes. Certification of the destruction of all canceled Notes shall be
delivered to the Issuers. The Issuers may not issue new Notes to replace Notes
that they have paid or that have been delivered to the Trustee for
cancellation.
Section 2.12. Defaulted Interest.
If the Issuers default in a payment of interest on the Notes,
they shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01. The Issuers shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Issuers shall fix or cause to be
fixed each such special record date and payment date; provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Issuers (or, upon the written request of the Issuers, the Trustee in
the name and at the expense of the Issuers) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3 REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Issuers elect to redeem Notes pursuant to the optional
redemption provisions of Section 3.07, it shall furnish to the Trustee, at
least 30 days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the Accreted Value
of Notes to be redeemed and (iv) the redemption price.
<PAGE> 54
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Issuers in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the Accreted Value thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 principal amount at
maturity or whole multiples of $1,000 principal amount at maturity; except that
if all of the Notes of a Holder are to be redeemed, the entire outstanding
amount of Notes held by such Holder, even if not a multiple of $1,000 principal
amount at maturity, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09, at least 30 days
but not more than 60 days before a redemption date, the Issuers shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
Accreted Value or the principal amount at maturity of such Note to be redeemed
and that, after the redemption date upon surrender of such Note, a new Note or
Notes in principal amount at maturity equal to the unredeemed portion shall be
issued upon cancellation of the original Note;
<PAGE> 55
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption
payment, interest on Notes called for redemption ceases to accrue, or the
Accreted Value on the Notes ceases to increase, as the case may be, on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being redeemed;
and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' name and at their expense; provided, however, that
each of the Issuers shall have delivered to the Trustee, at least 45 days prior
to the redemption date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.03, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
At or prior to 10:00 a.m., New York City time, on the
redemption date, the Issuers shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date. The Trustee or the Paying Agent shall
promptly return to the Issuers any money deposited with the Trustee or the
Paying Agent by the Issuers in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If the Issuers comply with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender
<PAGE> 56
for redemption because of the failure of the Issuers to comply with the
preceding paragraph, interest shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided
in the Notes and in Section 4.01.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Issuers
shall issue and, upon the Issuers' written request, the Trustee shall
authenticate for the Holder at the expense of the Issuers a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07,
the Issuers shall not have the option to redeem the Notes pursuant to this
Section 3.07 prior to January 15, 2005. Thereafter, the Issuers shall have the
option to redeem the Notes, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount at maturity) set forth below plus accrued and unpaid interest
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on January 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005 105.875%
2006 103.917%
2007 101.958%
2008 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Section 3.07, at any time prior to January 15, 2003, the Issuers may, on any
one or more occasions, redeem up to 35% of the aggregate principal amount at
maturity of the Notes originally issued under this Indenture on a pro rata
basis (or nearly as pro rata as practicable) at a redemption price of 111.75%
of the Accreted Value thereof, plus, after the Full Accretion Date, accrued and
unpaid interest to the redemption date, with the net cash proceeds of one or
more Equity Offerings; provided that
(1) at least 65% of the aggregate principal amount at
maturity of Notes originally issued under this Indenture remains
outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company and its Subsidiaries); and
<PAGE> 57
(2) the redemption must occur within 60 days of the date
of the closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06.
Section 3.08. Mandatory Redemption.
Except as otherwise provided in Section 4.11 or Section 4.16
below, the Issuers shall not be required to make mandatory redemption payments
with respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that the Issuers shall be required to commence an
offer to all Holders to purchase Notes pursuant to Section 4.11 (an "Asset Sale
Offer"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Issuers shall purchase the principal amount at maturity
of Notes required to be purchased pursuant to Section 4.11 (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made. Unless the Issuers
default in making such payment, any Note accepted for payment pursuant to the
Asset Sale Offer shall cease to accrue interest after the Purchase Date.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no Special Interest shall be payable
to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer the Issuers shall
send, by first class mail, a notice to the Trustee and each of the Holders,
with a copy to the Trustee. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and
<PAGE> 58
Section 4.11 and the length of time the Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Issuers default in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer or may elect to have Notes purchased in integral multiples
of $1,000 principal amount at maturity only;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Issuers, a depositary, if
appointed by the Issuers, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election
if the Issuers, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount at maturity of the Note the Holder delivered for purchase and
a statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate Accreted Value of Notes surrendered
by Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Issuers so that only Notes in denominations of $1,000
principal amount at maturity, or integral multiples thereof, shall be
purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount at maturity to the unpurchased
portion of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an
<PAGE> 59
Officers' Certificate stating that such Notes or portions thereof were accepted
for payment by the Issuers in accordance with the terms of this Section 3.09.
The Issuers, the Depositary or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Purchase Date)
mail or deliver to each tendering Holder an amount equal to the purchase price
of the Notes tendered by such Holder and accepted by the Issuers for purchase,
and the Issuers shall promptly issue a new Note, and the Trustee, upon written
request from the Issuers, shall authenticate and mail or deliver such new Note
to such Holder, in a principal amount at maturity equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted shall be promptly
mailed or delivered by the Issuers to the Holder thereof. The Issuers shall
publicly announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06.
ARTICLE 4 COVENANTS
Section 4.01. Payment of Notes.
The Issuers shall pay or cause to be paid the Accreted Value
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Accreted Value, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Issuers
or a Subsidiary thereof, holds as of 10:00 a.m. New York City time on the due
date money deposited by the Issuers in immediately available funds and
designated for and sufficient to pay all Accreted Value, premium, if any, and
interest then due. The Issuers shall pay all Special Interest, if any, in the
same manner on the dates and in the amounts set forth in the Registration
Rights Agreement.
The Issuers shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 1% per annum in excess of the then applicable interest rate
on the Notes to the extent lawful; they shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Issuers in respect of the
<PAGE> 60
Notes and this Indenture may be served. The Issuers shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Issuers shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee.
The Issuers may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Issuers of their obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Issuers shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Issuers hereby designate the Harris Trust Company of New
York, an affiliate of the Trustee, as one such office or agency of the Issuers
in accordance with Section 2.03.
Section 4.03. Reports.
Whether or not required by the Commission, so long as any
Notes are outstanding, the Issuers shall furnish to the Holders of Notes,
within the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Issuers were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section and, with respect to the annual information only, a report on the
annual financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed
with the Commission on Form 8-K if the Issuers were required to file such
reports.
If the Issuers have designated any of their Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual financial information
required by the preceding paragraph shall include a reasonably detailed
presentation, either on the face of the financial statements or in the
footnotes thereto, and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, of the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
<PAGE> 61
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company.
In addition, whether or not required by the Commission, the
Issuers shall file a copy of all of the information and reports referred to in
clauses (1) and (2) above with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year have been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.03 above shall be
accompanied by a written statement of the Company's independent public
accountants (each of whom shall be a firm of established national reputation)
that in making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 or, if
any such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation. In the event that, after the Company has used its reasonable best
efforts to obtain the written statement of the Company's independent public
accountants required by the provisions of this paragraph, such statement cannot
be obtained, the Company shall deliver, in satisfaction of its obligations
under this Section 4.04, an Officers' Certificate (A) certifying that it has
used
<PAGE> 62
its reasonable best efforts to obtain such required statement but was unable to
do so and (B) attaching the written statement of the Company's accountants that
the Company received in lieu thereof.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes. Section 4.6.
Stay, Extension and Usury Laws.
Each of the Issuers covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and each of
the Issuers (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) or to the direct or indirect holders of the Company's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or to the Company or a Restricted Subsidiary
of the Company);
<PAGE> 63
(b) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company or any Restricted Subsidiary of the Company
(other than any such Equity Interests owned by the Company or any Restricted
Subsidiary of the Company); or
(c) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value, any Indebtedness that
is subordinated to the Notes, except a payment of interest or principal at the
Stated Maturity thereof (all such payments and other actions set forth in
clauses (a) through (c) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof;
and
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth
in the first paragraph of Section 4.10; and
(3) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Company
and each of its Restricted Subsidiaries after the Existing Notes Issue
Date (excluding Restricted Payments permitted by clauses (2), (3),
(4), (5), (6), (7) and (8) of the next succeeding paragraph), shall
not exceed, at the date of determination, the sum of:
(a) an amount equal to 100% of the
Consolidated EBITDA of the Company since the Existing Notes
Issue Date to the end of the Company's most recently ended
full fiscal quarter for which internal financial statements
are available, taken as a single accounting period, less the
product of 1.2 times the Consolidated Interest Expense of the
Company since the Existing Notes Issue Date to the end of the
Company's most recently ended full fiscal quarter for which
internal financial statements are available, taken as a single
accounting period, plus
(b) an amount equal to 100% of Capital Stock
Sale Proceeds less any such Capital Stock Sale Proceeds used
in connection with (i) an Investment made pursuant to clause
(5) of the definition of "Permitted Investments" or (ii) the
incurrence of Indebtedness pursuant to clause (10) of Section
4.10, plus
<PAGE> 64
(c) $100 million.
So long as no Default has occurred and is continuing or would
be caused thereby, the preceding provisions shall not prohibit:
(1) the payment of any dividend within 60 days after
the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of this Indenture;
(2) the redemption, repurchase, retirement,
defeasance or other acquisition of any subordinated Indebtedness of
the Company in exchange for, or out of the net proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3) (b)
of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness of the Company or any of its
Restricted Subsidiaries with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness;
(4) regardless of whether a Default then exists, the
payment of any dividend or distribution to the extent necessary to
permit direct or indirect beneficial owners of shares of Capital Stock
of the Company to pay federal, state or local income tax liabilities
that would arise solely from income of the Company or any of its
Restricted Subsidiaries, as the case may be, for the relevant taxable
period and attributable to them solely as a result of the Company (and
any intermediate entity through which the Holder owns such shares) or
any of its Restricted Subsidiaries being a limited liability company,
partnership or similar entity for federal income tax purposes;
(5) regardless of whether a Default then exists, the
payment of any dividend by a Restricted Subsidiary of the Company to
the holders of its common Equity Interests on a pro rata basis;
(6) the payment of any dividend on the Helicon
Preferred Stock or the redemption, repurchase, retirement or other
acquisition of the Helicon Preferred Stock in an amount not in excess
of its aggregate liquidation value;
(7) the repurchase, redemption or other acquisition
or retirement for value, or the payment of any dividend or
distribution to the extent necessary to permit the repurchase,
redemption or other acquisition or retirement for value, of any Equity
<PAGE> 65
Interests of the Company or a Parent held by any member of the
Company's or such Parent's management pursuant to any management
equity subscription agreement or stock option agreement in effect as
of the date of this Indenture; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $10 million in any fiscal year of the
Company; and
(8) payment of fees in connection with any
acquisition, merger or similar transaction in an amount that does not
exceed an amount equal to 1.25% of the transaction value of such
acquisition, merger or similar transaction.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or any of its
Restricted Subsidiaries pursuant to the Restricted Payment. The fair market
value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors of the Company, whose
resolution with respect thereto shall be delivered to the Trustee. Such Board
of Director's determination must be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
the fair market value exceeds $100 million. Not later than the date of making
any Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
Section 4.08. Investments.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(1) make any Restricted Investment; or
(2) allow any Restricted Subsidiary of the Company to become
an Unrestricted Subsidiary,
unless, in each case:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) the Company would, at the time of, and after giving effect
to, such Restricted Investment or such designation of a Restricted Subsidiary
as an Unrestricted Subsidiary,
<PAGE> 66
have been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Leverage Ratio test set forth in the first paragraph of Section 4.10.
Any designation of a Subsidiary of the Company as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the preceding conditions and was permitted by this Section 4.08.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements as an Unrestricted Subsidiary described in the definition of
"Unrestricted Subsidiary," it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.10, the Company shall be in default.
The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such
Indebtedness is permitted under the covenant described under Section 4.10
calculated on a pro forma basis as if such designation had occurred at the
beginning of the Reference Period; and (2) no Default or Event of Default would
be in existence following such designation.
Section 4.09. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, directly or indirectly, create or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on its
Capital Stock to the Company or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its profits,
or pay any indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(2) make loans or advances to the Company or any of its
Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries.
However, the preceding restrictions shall not apply to encumbrances or
restrictions existing under or by reason of:
<PAGE> 67
(1) Existing Indebtedness as in effect on the Issue Date
(including, without limitation, the Credit Facilities) and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
such Existing Indebtedness, as in effect on the Issue Date;
(2) this Indenture, the Notes and the Other Notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of
a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in leases entered into
in the ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a
Restricted Subsidiary of the Company that restricts distributions by such
Restricted Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenant described above under
Section 4.14 that limit the right of the Company or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
<PAGE> 68
(10) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the ordinary course of
business;
(12) restrictions contained in the terms of Indebtedness
permitted to be incurred under Section 4.10; provided that such restrictions
are no more restrictive than the terms contained in the Credit Facilities as in
effect on the Issue Date; and
(13) restrictions that are not materially more restrictive
than customary provisions in comparable financings and the management of the
Company determines that such restrictions will not materially impair the
Company's ability to make payments as required under the Notes.
Section 4.10. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and the Company shall not issue any
Disqualified Stock and shall not permit any of their Restricted Subsidiaries to
issue any shares of preferred stock unless the Leverage Ratio would have been
not greater than 8.75 to 1.0 determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of the most recently ended fiscal quarter.
So long as no Default shall have occurred and be continuing or
would be caused thereby, the first paragraph of this covenant shall not
prohibit the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(1) the incurrence by the Company and its Restricted
Subsidiaries of Indebtedness under the Credit Facilities; provided that the
aggregate principal amount of all Indebtedness of the Company and its
Restricted Subsidiaries outstanding under all Credit Facilities after giving
effect to such incurrence does not exceed an amount equal to $3.5 billion less
the aggregate amount of all Net Proceeds of Asset Sales applied by the Company
or any of its Subsidiaries in the case of an Asset Sale since the Existing
Notes Issue Date to repay Indebtedness under a Credit Facility pursuant to
Section 4.11;
(2) the incurrence by the Company and its Restricted
Subsidiaries of Existing
<PAGE> 69
Indebtedness (other than the Credit Facilities);
(3) the incurrence on the Issue Date by the Company and its
Restricted Subsidiaries of Indebtedness represented by the Notes and the Other
Notes;
(4) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement (including, without limitation, the cost of design,
development, construction, acquisition, transportation, installation,
improvement, and migration) of Productive Assets of the Company or any of its
Restricted Subsidiaries, in an aggregate principal amount not to exceed $75
million at any time outstanding;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace, in whole or in
part, Indebtedness (other than intercompany Indebtedness) that was permitted by
this Indenture to be incurred under the first paragraph of this covenant or
clauses (2) or (3) of this paragraph;
(6) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Restricted Subsidiaries; provided that:
(a) if the Company is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
Notes; and
(b)(i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary thereof
and (ii) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary thereof, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or any of its
Restricted Subsidiaries that was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the Indentures to be outstanding;
<PAGE> 70
(8) the guarantee by the Company of Indebtedness of a
Restricted Subsidiary of the Company that was permitted to be incurred by
another provision of this Section 4.10;
(9) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at any
time outstanding not to exceed $300 million;
(10) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount at any
time outstanding not to exceed 200% of the net cash proceeds received by the
Company from the sale of its Equity Interests (other than Disqualified Stock)
after the Existing Notes Issue Date to the extent such net cash proceeds have
not been applied to make Restricted Payments or to effect other transactions
pursuant to Section 4.07 or to make Permitted Investments pursuant to clause
(5) of the definition thereof; and
(11) the accretion or amortization of original issue discount
and the write up of Indebtedness in accordance with purchase accounting.
For purposes of determining compliance with this Section 4.10,
in the event that an item of proposed Indebtedness meets the criteria of more
than one of the categories of Permitted Debt described in clauses (1) through
(11) above, or is entitled to be incurred pursuant to the first paragraph of
this covenant, the Company shall be permitted to classify and from time to time
to reclassify such item of Indebtedness on the date of its incurrence in any
manner that complies with this covenant. For avoidance of doubt, Indebtedness
incurred pursuant to a single agreement, instrument, program, facility or line
of credit may be classified as Indebtedness arising in part under one of the
clauses listed above, and in part under any one or more of the clauses listed
above, to the extent that such Indebtedness satisfies the criteria for such
clauses.
Notwithstanding the foregoing, in no event shall any
Restricted Subsidiary of the Company consummate a Subordinated Debt Financing
or a Preferred Stock Financing. A "Subordinated Debt Financing" or a "Preferred
Stock Financing", as the case may be, with respect to any Restricted Subsidiary
of the Company shall mean a public offering or private placement (whether
pursuant to Rule 144A under the Securities Act or otherwise) of Subordinated
Notes or preferred stock (whether or not such preferred stock constitutes
Disqualified Stock), as the case may be, of such Restricted Subsidiary to one
or more purchasers (other than to one or more Affiliates of the Company).
"Subordinated Notes" with respect to any Restricted Subsidiary of the Company
shall mean Indebtedness of such Restricted Subsidiary that is contractually
subordinated in right of payment to any other Indebtedness of such Restricted
Subsidiary (including, without limitation, Indebtedness under the Credit
Facilities). The foregoing limitation shall not apply to (i) any Indebtedness
or preferred stock of any Person existing at the
<PAGE> 71
time such Person is merged with or into or became a Subsidiary of the Company;
provided that such Indebtedness or preferred stock was not incurred or issued
in connection with, or in contemplation of, such Person merging with or into,
or becoming a Subsidiary of, the Company and (ii) any Indebtedness or preferred
stock of a Restricted Subsidiary issued in connection with, and as part of the
consideration for, an acquisition, whether by stock purchase, asset sale,
merger or otherwise, in each case involving such Restricted Subsidiary, which
Indebtedness or preferred stock is issued to the seller or sellers of such
stock or assets; provided that such Restricted Subsidiary is not obligated to
register such Indebtedness or preferred stock under the Securities Act or
obligated to provide information pursuant to Rule 144A under the Securities
Act.
Section 4.11. Limitation on Asset Sales.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or a Restricted Subsidiary of the Company, as
the case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2) such fair market value is determined by the Company's
Board of Directors and evidenced by a resolution of such Board of Directors set
forth in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash, Cash Equivalents
or readily marketable securities.
For purposes of this Section 4.11, each of the following shall
be deemed to be cash:
(a) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary of the Company (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes) that are assumed
by the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash, Cash
Equivalents or readily marketable securities
<PAGE> 72
within 60 days after receipt thereof (to the extent of the cash, Cash
Equivalents or readily marketable securities received in that conversion); and
(c) Productive Assets.
Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, the Company or a Restricted Subsidiary of the Company, as the case
may be, may apply such Net Proceeds at its option:
(1) to repay debt under the Credit Facilities or any other
Indebtedness of the Restricted Subsidiaries of the Company (other than
Indebtedness represented by a guarantee of a Restricted Subsidiary of the
Company); or
(2) to invest in Productive Assets; provided that any Net
Proceeds which the Company or a Restricted Subsidiary of the Company, as the
case may be, has committed to invest in Productive Assets within 365 days of
the applicable Asset Sale may be invested in Productive Assets within two years
of such Asset Sale.
Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the preceding paragraph shall constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $25 million,
the Issuers shall make an Asset Sale Offer to all Holders of Notes and all
holders of other Indebtedness that is pari passu with the Notes containing
provisions requiring offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount at maturity of Notes and such
other pari passu Indebtedness that may be purchased out of the Excess Proceeds
(which amount includes the entire amount of the Net Proceeds). The offer price
in any Asset Sale Offer shall be payable in cash and equal to 100% of the
Accreted Value thereof plus, after the Full Accretion Date, accrued and unpaid
interest, if any, to the date of purchase. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by this Indenture. If the aggregate
Accreted Value of Notes and such other pari passu Indebtedness tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and such other pari passu Indebtedness to be purchased on a
pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
In the event that the Issuers shall be required to commence an
offer to Holders to purchase Notes pursuant to this Section 4.11, they shall
follow the procedures specified in Section 3.09.
Section 4.12. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries
<PAGE> 73
to, enter into any sale and leaseback transaction; provided that the Company
may enter into a sale and leaseback transaction if:
(1) the Company could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction under the Leverage Ratio test in the first paragraph of Section
4.10 and (b) incurred a Lien to secure such Indebtedness pursuant to Section
4.14; and
(2) the transfer of assets in that sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under Section
4.11.
The foregoing restrictions do not apply to a sale and
leaseback transaction if the lease is for a period, including renewal rights,
of not in excess of three years.
Section 4.13. Transactions with Affiliates.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $15 million, a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with this covenant
and that such Affiliate Transaction has been approved by a majority of
the members of such Board of Directors; and
(b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $50 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of
national standing.
<PAGE> 74
The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of the
prior paragraph:
(1) any existing employment agreement entered into by the
Company or any of its Subsidiaries and any employment agreement entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such
Restricted Subsidiary;
(2) transactions between or among the Company and/or its
Restricted Subsidiaries;
(3) payment of reasonable directors fees to Persons who are
not otherwise Affiliates of the Company and customary indemnification and
insurance arrangements in favor of directors, regardless of affiliation with
the Company or any of its Restricted Subsidiaries;
(4) payment of management fees pursuant to management
agreements either (A) existing on the Issue Date or (B) entered into after the
Issue Date, to the extent that such management agreements provide for
percentage fees no higher than the percentage fees existing under the
management agreements existing on the Issue Date;
(5) Restricted Payments that are permitted by Section 4.07 and
Restricted Investments that are permitted by Section 4.08; and
(6) Permitted Investments.
Section 4.14. Liens.
The Company shall not, directly or indirectly, create, incur,
assume or suffer to exist any Lien of any kind securing Indebtedness,
Attributable Debt or trade payables on any asset now owned or hereafter
acquired, except Permitted Liens.
Section 4.15. Corporate Existence.
Subject to Article 5, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries (other
than Charter
<PAGE> 75
Capital), if the Board of Directors of the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries , taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.16. Repurchase at the Option of Holders upon a Change of Control.
If a Change of Control occurs, each Holder of Notes shall have
the right to require the Issuers to repurchase all or any part (equal to $1,000
principal amount at maturity or an integral multiple thereof) of that Holder's
Notes pursuant to a Change of Control Offer. In the Change of Control Offer,
the Issuers shall offer (a "Change of Control Offer") a payment (the "Change of
Control Payment") in cash equal to 101% of the Accreted Value plus, for any
Change of Control Offer occurring after the Full Accretion Date, accrued and
unpaid interest thereon, if any, to the date of purchase.
Within ten days following any Change of Control, the Issuers
shall mail a notice to each Holder (with a copy to the Trustee) describing the
transaction or transactions that constitute the Change of Control and stating:
(a) the purchase price and the purchase date, which shall not
exceed 30 Business Days from the date such notice is mailed (the "Change of
Control Payment Date");
(b) that any Note not tendered shall continue to accrete in
value or accrue interest;
(c) that, unless the Issuers default in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrete in value or accrue interest
after the Change of Control Payment Date;
(d) that Holders electing to have any Notes purchased pursuant
to a Change of Control Offer shall be required to surrender the Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date;
(e) that Holders shall be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on the
second 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 at maturity of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and
<PAGE> 76
(f) that Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount at maturity to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount at maturity or an integral multiple
thereof.
The Issuers shall comply with the requirements of Rule 14e-1
under the Exchange Act (or any successor rules) and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Issuers shall, to
the extent lawful:
(a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer;
(b) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all Notes or portions thereof so
tendered; and
(c) deliver or cause to be delivered to the Trustee the Notes
so accepted together with an Officers' Certificate stating the aggregate
principal amount at maturity of Notes or portions thereof being purchased by
the Issuers.
The Paying Agent shall promptly pay to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount or principal amount at
maturity, as applicable, to any unpurchased portion of the Notes surrendered,
if any; provided that each such new Note shall be in a principal amount or
principal amount at maturity, as applicable, of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The provisions described above that require the Issuers to
make a Change of Control Offer following a Change of Control shall be
applicable regardless of whether or not any other provisions in this Indenture
are applicable. Except as described above with respect to a Change of Control,
this Indenture does not contain provisions that permit the Holders of the Notes
to require that the Issuers repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
Notwithstanding any other provision of this Section 4.16, the
Issuers shall not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in this
Indenture applicable to a Change of
<PAGE> 77
Control Offer made by the Issuers and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness.
The Company shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to
secure the payment of any other Indebtedness of the Company except in respect
of the Credit Facilities (the "Guaranteed Indebtedness") unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the Guarantee (a "Subsidiary Guarantee") of the payment
of the Notes by such Restricted Subsidiary and (ii) until one year after all
the Notes have been paid in full in cash, such Restricted Subsidiary waives and
will not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement, indemnity or subrogation or any other rights
against the Company or any other Restricted Subsidiary of the Company as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; provided that this paragraph shall not be applicable to any
Guarantee or any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Section 4.18. Payments for Consent.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Notes unless such consideration is offered
to be paid and is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Section 4.19. Application of Fall-Away Covenants.
During any period of time that (a) the Notes have Investment
Grade Ratings from both Rating Agencies and (b) no Default or Event of Default
has occurred and is continuing, the Company and its Restricted Subsidiaries
shall not be subject to the provisions of Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13 and clause (4) of the first paragraph of Section 5.01
(collectively, the "Suspended Covenants"). In the event that the Company and
its Restricted Subsidiaries are not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence and, subsequently, one or
both of
<PAGE> 78
the Rating Agencies withdraws its ratings or downgrades the ratings assigned to
the Notes below the required Investment Grade Ratings or a Default or Event of
Default occurs and is continuing, then the Company and its Restricted
Subsidiaries shall thereafter again be subject to the Suspended Covenants and
compliance with the Suspended Covenants with respect to the Restricted Payments
made after the time of such withdrawal, downgrade, Default or Event of Default
will be calculated in accordance with the terms of Section 4.07 as though such
covenant had been in effect during the entire period of time from the Issue
Date.
ARTICLE 5 SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Assets.
Neither of the Issuers may, directly or indirectly: (1)
consolidate or merge with or into another Person (whether or not such Issuer is
the surviving corporation); or (2) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of its properties or assets, in one or more
related transactions, to another Person; unless:
(1) either: (a) such Issuer is the surviving corporation; or
(b) the Person formed by or surviving any such consolidation or merger (if
other than such Issuer) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is a Person organized or existing
under the laws of the United States, any state thereof or the District of
Columbia (provided that if the Person formed by or surviving any such
consolidation or merger with either Issuer is a limited liability company or
other Person other than a corporation, a corporate co-issuer shall also be an
obligor with respect to the Notes);
(2) the Person formed by or surviving any such consolidation
or merger (if other than the Company) or the Person to which such sale,
assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Notes and this Indenture
pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default exists;
and
(4) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company) will, on the date of such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, either (A) be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Leverage Ratio test set forth in the
<PAGE> 79
first paragraph of Section 4.10 or (B) have a Leverage Ratio immediately after
giving effect to such consolidation or merger no greater than the Leverage
Ratio immediately prior to such consolidation or merger.
In addition, the Company may not, directly or indirectly,
lease all or substantially all of its properties or assets, in one or more
related transactions, to any other Person. This Section 5.01 shall not apply to
a sale, assignment, transfer, conveyance or other disposition of assets between
or among the Company and any of its Wholly-Owned Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of either Issuer in accordance with Section 5.01, the successor
Person formed by such consolidation or into which either Issuer is merged or to
which such transfer is made shall succeed to and (except in the case of a
lease) be substituted for, and may exercise every right and power of, such
Issuer under this Indenture with the same effect as if such successor Person
had been named therein as such Issuer, and (except in the case of a lease) such
Issuer shall be released from the obligations under the Notes and this
Indenture, except with respect to any obligations that arise from, or are
related to, such transaction.
ARTICLE 6 DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Issuers default in the payment when due of interest on
the Notes and such default continues for a period of 30 days;
(b) the Issuers default in payment when due of the Accreted
Value of or premium, if any, on the Notes;
(c) the Company or any of its Restricted Subsidiaries fails to
comply with any of the provisions of Sections 4.16 or 5.01;
(d) the Company or any of its Restricted Subsidiaries fails to
comply with any of their other covenants or agreements in this Indenture for 30
days after written notice thereof has been given to the Company by the Trustee
or to the Company and the Trustee by Holders of at least 25% of the aggregate
principal amount at maturity of the Notes
<PAGE> 80
outstanding;
(e) the Company or any of its Restricted Subsidiaries defaults
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
(or the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists or is created
after the Issue Date, if that default:
(1) is caused by a failure to pay at final stated
maturity the principal amount on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default"); or
(2) results in the acceleration of such Indebtedness
prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been so accelerated, aggregates
$100 million or more;
(f) the Company or any of its Restricted Subsidiaries fails to
pay final judgments which are non-appealable aggregating in excess of $100
million (net of applicable insurance which has not been denied in writing by
the insurer), which judgments are not paid, discharged or stayed for a period
of 60 days;
(g) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a custodian of it
or for all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its
creditors; or
(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
<PAGE> 81
(i) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case;
(ii) appoints a custodian of the Company or any of
its Significant Subsidiaries or for all or substantially all of the
property of the Company or any of its Significant Subsidiaries; or
(iii) orders the liquidation of the Company or any of
its Significant Subsidiaries;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02. Acceleration.
In the case of an Event of Default arising from clause (g) or
(h) of Section 6.01 with respect to the Company, all outstanding Notes shall
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee by notice to the
Issuers or the Holders of at least 25% in aggregate principal amount at
maturity of the then outstanding Notes by notice to the Issuers and the Trustee
may declare all the Notes to be due and payable immediately in an amount equal
to (x) the Accreted Value of the Notes outstanding on the date of acceleration,
if such declaration is made prior to the Full Accretion Date or (y) the entire
principal amount at maturity of all the Notes outstanding on the date of
acceleration plus accrued interest, if any, to the date of acceleration, if
such declaration is made after the Full Accretion Date. The Holders of a
majority in aggregate principal amount at maturity of the Notes then
outstanding by written notice to the Trustee may on behalf of all of the
Holders rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of Accreted Value, interest or premium that has become due
solely because of the acceleration) have been cured or waived.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of Accreted Value,
premium, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence
<PAGE> 82
in the Event of Default. All remedies are cumulative to the extent permitted by
law.
Section 6.04. Waiver of Existing Defaults.
Holders of not less than a majority in aggregate principal
amount at maturity of the then outstanding Notes by notice to the Trustee may
on behalf of the Holders of all of the Notes waive an existing Default or Event
of Default and its consequences hereunder, except a continuing Default or Event
of Default in the payment of the Accreted Value of, premium, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal
amount at maturity of the then outstanding Notes may rescind an acceleration
and its consequences, including any related payment default that resulted from
such acceleration). Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount at maturity of the
then outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability. The Trustee may take any other
action which it deems proper that is not inconsistent with any such directive.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount
at maturity of the then outstanding Notes make a written request to the Trustee
to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
<PAGE> 83
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
aggregate principal amount at maturity of the then outstanding Notes do not
give the Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of Accreted Value, premium, if
any, and interest on the Note, on or after the respective due dates expressed
in the Note (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Issuers for the whole
amount of Accreted Value of, premium, if any, and interest remaining unpaid on
the Notes and interest on overdue Accreted Value and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Issuers (or any other obligor upon the Notes), their creditors or their
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the
<PAGE> 84
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 out of
the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to
or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for Accreted Value, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for Accreted Value, premium, if any and interest,
respectively; and
Third: to the Issuers or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
<PAGE> 85
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07, or a suit by Holders of more than
10% in aggregate principal amount at maturity of the then outstanding Notes.
ARTICLE 7 TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this Indenture and the Trustee
need perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its
own gross negligent action, its own gross negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was grossly negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 6.05.
<PAGE> 86
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or other paper or documents.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from either of the Issuers shall be
sufficient if signed by an
<PAGE> 87
Officer of such Issuer.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) The Trustee shall not be charged with knowledge of any
Default or Event of Default unless either (i) a Responsible Officer of the
Trustee shall have actual knowledge of such Default or Event of Default or (ii)
written notice of such Default or Event of Default shall have been given to the
Trustee by the Issuers or any Holder.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Issuers or any
Affiliate of the Issuers with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes,
it shall not be accountable for the Issuers' use of the proceeds from the Notes
or any money paid to the Issuers or upon the Issuers' direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after the Trustee
acquires knowledge thereof. Except in the case of a Default or Event of Default
in payment of Accreted Value of, premium, if any, or interest on any Note, the
Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.
<PAGE> 88
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA ss. 313(d).
The Issuers shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
Section 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuers shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Issuers shall, jointly and severally, indemnify the
Trustee against any and all losses, liabilities or expenses incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Issuers (including this Section 7.07) and defending
itself against any claim (whether asserted by the Issuers or any Holder or any
other person) or liability in connection with the exercise or performance of
any of its powers or duties hereunder, except to the extent any such loss,
liability or expense may be attributable to its gross negligence or willful
misconduct. The Trustee shall notify the Issuers promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Issuers
shall not relieve the Issuers of their obligations hereunder. The Issuers shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee
may have separate counsel and the Issuers shall pay the reasonable fees and
expenses of such counsel. The Issuers need not pay for any settlement made
without their consent, which consent shall not be unreasonably withheld.
The obligations of the Issuers this Section 7.07 shall survive
resignation or
<PAGE> 89
removal of the Trustee and the satisfaction and discharge of this Indenture.
To secure the Issuers' payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or
removal of the Trustee and the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) occurs, the expenses and
the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Issuers. The
Holders of a majority in aggregate principal amount at maturity of the then
outstanding Notes may remove the Trustee by so notifying the Trustee and the
Issuers in writing. The Issuers may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Issuers shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount at maturity of the then
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Issuers.
<PAGE> 90
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Issuers, or the Holders of at least 10% in aggregate principal amount at
maturity of the then outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder who has
been a Holder for at least six months, fails to comply with Section 7.10, such
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee; provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Issuers' obligations under Section 7.07 shall continue
for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
Section 7.11. Preferential Collection of Claims Against the Issuers.
The Trustee is subject to TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to
<PAGE> 91
TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at the option of their respective Boards of
Directors evidenced by a resolution set forth in an Officers' Certificate of
each of the Issuers, at any time, elect to have either Section 8.02 or 8.03 be
applied to all outstanding Notes upon compliance with the conditions set forth
below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 of the option
applicable to this Section 8.02, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04, be deemed to have been discharged
from their obligations with respect to all outstanding Notes on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance").
For this purpose, Legal Defeasance means that the Issuers shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of Section 8.05 and the other Sections of this Indenture referred to
in (a) and (b) below, and to have satisfied all their other obligations under
such Notes and this Indenture (and the Trustee, on demand of and at the expense
of the Issuers, shall execute proper instruments acknowledging the same),
except for the following provisions which shall survive until otherwise
terminated or discharged hereunder:
(1) the rights of Holders of outstanding Notes to receive
payments in respect of the Accreted Value or principal of, premium, if any, and
interest on such Notes when such payments are due from the trust referred to
below;
(2) the Issuers' obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the
Trustee and the Issuers' obligations in connection therewith; and
(4) the Legal Defeasance provisions of this Indenture;
<PAGE> 92
Subject to compliance with this Article 8, the Issuers may
exercise their option under this Section 8.02 notwithstanding the prior
exercise of their option under Section 8.03.
Section 8.03. Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 of the option
applicable to this Section 8.03, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04, be released from their obligations
under the covenants contained in Article 5 and Sections 4.03, 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.19 with respect to the
outstanding Notes on and after the date the conditions set forth in Section
8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Issuers may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01
of the option applicable to this Section 8.03, subject to the satisfaction of
the conditions set forth in Section 8.04, Sections 6.01(c) through 6.01(f)
shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
<PAGE> 93
(2) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or any
of the Restricted Subsidiaries is a party or by which the Company or any of the
Restricted Subsidiaries is bound;
(6) the Company must have delivered to the applicable Trustee
an opinion of counsel to the effect that after the 91st day assuming no
intervening bankruptcy, that no Holder is an insider of either of the Issuers
following the deposit and that such deposit would not be deemed by a court of
competent jurisdiction a transfer for the benefit of either Issuer in its
capacity as such, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
<PAGE> 94
(8) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Notwithstanding the foregoing, the opinion of counsel required
by clause (2) above with respect to a Legal Defeasance need not be delivered if
all Notes not theretofore delivered to the Trustee for cancellation (i) have
become due and payable or (ii) will become due and payable on the maturity date
within one year, by their terms or under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Issuers.
Section 8.05. Deposited Money and Government Securities to Be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 in respect of the outstanding Notes shall
be held in trust and applied by the Trustee, in accordance with the provisions
of such Notes and this Indenture, to the payment, either directly or through
any Paying Agent (including the Issuers acting as Paying Agent) as the Trustee
may determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or
non-callable Government Securities deposited pursuant to Section 8.04 or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Issuers from time to time upon the
request of the Issuers any money or non-callable Government Securities held by
it as provided in Section 8.04 which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a)), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.06. Repayment to Issuers.
<PAGE> 95
Any money deposited with the Trustee or any Paying Agent, or
then held by the Issuers, in trust for the payment of the Accreted Value of,
premium, if any, or interest on any Note and remaining unclaimed for two years
after such principal, and premium, if any, or interest has become due and
payable shall be paid to the Issuers on their request or (if then held by the
Issuers) shall be discharged from such trust; and the Holder of such Note shall
thereafter look only to the Issuers for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Issuers as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Issuers cause to be published
once, in the New York Times and The Wall Street Journal (national edition),
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Issuers.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Issuers' obligations under this Indenture and the
Notes, shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 8.02 or 8.03,
as the case may be; provided, however, that, if the Issuers make any payment of
Accreted Value of, premium, if any, or interest on any Note following the
reinstatement of their obligations, the Issuers shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Issuers
and the Trustee may amend or supplement this Indenture or the Notes without the
consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
<PAGE> 96
(c) to provide for the assumption of either Issuer's
obligations to Holders of Notes in the case of a merger or consolidation or
sale of all or substantially all of the assets of such Issuer pursuant to
Article 5;
(d) to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under this Indenture of any such Holder; or
(e) to comply with requirements of the SEC in order to effect
or maintain the qualification of this Indenture under the TIA or otherwise as
necessary to comply with applicable law.
Upon the request of the Issuers accompanied by a resolution of
their respective Boards of Directors authorizing the execution of any such
amended or supplemental Indenture, and upon receipt by the Trustee of the
documents described in Section 7.02, the Trustee shall join with the Issuers in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, this Indenture
(including Sections 4.11 and 4.16) or the Notes may be amended or supplemented
with the consent of the Holders of at least a majority in aggregate principal
amount at maturity of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or a tender
offer or exchange offer for, Notes) and, subject to Sections 6.04 and 6.07, any
existing Default or compliance with any provision of this Indenture or the
Notes may be waived with the consent of the Holders of a majority in aggregate
principal amount at maturity of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or a tender
offer or exchange offer for, Notes). Section 2.08 shall determine which Notes
are considered to be "outstanding" for purposes of this Section 9.02.
Upon the request of the Issuers accompanied by a resolution of
their respective Boards of Directors authorizing the execution of any such
amended or supplemental Indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02, the Trustee shall join with the Issuers in the
<PAGE> 97
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture directly affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07, the
Holders of a majority in aggregate principal amount at maturity of the Notes
then outstanding may waive compliance in a particular instance by the Issuers
with any provision of this Indenture or the Notes. However, without the consent
of each Holder affected, an amendment, supplement or waiver under this Section
9.02 may not (with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount at maturity of Notes whose
Holders must consent to an amendment, supplement or waiver;
(b) reduce the Accreted Value of or change the fixed maturity
of any Note or alter the payment provisions with respect to the redemption of
the Notes (other than provisions relating to Sections 4.11 and 4.16);
(c) reduce the rate of or extend the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
Accreted Value of, or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount at maturity of the Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of Accreted Value of, or premium, if any, or interest on the
Notes;
(g) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described in Sections 4.11 and
4.16); or
<PAGE> 98
(h) make any change in this Section 9.02.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with
the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent
Holder of a Note may revoke the consent as to its Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Issuers in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Issuers may not sign an amendment or supplemental Indenture until their
respective Boards of Directors approve it. In executing any amended or
supplemental indenture, the Trustee shall be entitled to receive and (subject
to Section 7.01) shall be fully protected in relying upon, in addition to the
documents required by Section 10.04, an Officer's Certificate and an Opinion of
Counsel, in each case from each of the Issuers, stating that the execution of
such amended or supplemental indenture is authorized or permitted by this
Indenture.
<PAGE> 99
ARTICLE 10 MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall
control.
Section 10.02. Notices.
Any notice or communication by the Issuers or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Issuers:
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Telecopier No.: (314) 965-8793
Attention: Secretary
With a copy to:
Paul, Hastings, Janofsky & Walker LLP Irell & Manella
399 Park Avenue 1800 Avenue of the Stars
31st Floor Suite 900
New York, New York 10022 Los Angeles, California 90067
Telecopier No.: (212) 319-4090 Telecopier No.: (310) 556-5393
Attention: Leigh P. Ryan, Esq. Attention: Meredith Jackson, Esq.
If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Telecopier No.: (312) 461-3525
Attention: Corporate Trust Department
The Issuers or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
<PAGE> 100
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA ss. 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Issuers mail a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 10.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Issuers, the Trustee, the Registrar and anyone else shall have the protection
of TIA ss. 312(c).
Section 10.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee
to take any action under this Indenture, the Issuers shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
<PAGE> 101
Section 10.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
Section 10.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 10.07. No Personal Liability of Directors, Officers, Employees, Members
and Stockholders.
No director, officer, employee, incorporator, member or
stockholder of the Issuers, as such, shall have any liability for any
obligations of the Issuers under the Notes, this 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.
Section 10.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE> 102
EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS INDENTURE, THE NOTES OR ANY GUARANTEE.
Section 10.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Issuers or their Subsidiaries or of
any other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 10.10. Successors.
All agreements of the Issuers in this Indenture and the Notes,
as the case may be, shall bind their respective successors. All agreements of
the Trustee in this Indenture shall bind its successors.
Section 10.11. Severability.
In case any provision in this Indenture or the Notes, as the
case may be, shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
Section 10.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions.
ARTICLE 11 SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as
to any surviving
<PAGE> 103
rights of registration of transfer or exchange of Notes herein expressly
provided for), and the Trustee, on demand of and at the expense of the Issuers,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) all Notes theretofore authenticated and delivered
(other than (i) Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.07 and (ii)
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Issuers and thereafter repaid
to the Issuers or discharged from such trust,) have been delivered to
the Trustee for cancellation; or
(B) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name,
and at the expense, of the Issuers,
and the Issuers, in the case of (i), (ii) or (iii) above, have
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Notes which have
become due and payable) or to the maturity or redemption thereof, as
the case may be;
(2) the Issuers have paid or caused to be paid all other sums
payable hereunder by the Issuers; and
(3) each of the Issuers have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article 11, the obligations of the Issuers to the Trustee under Section
7.07, and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (1) of this Section, the obligations of the Trustee
under Section 11.02 shall survive.
<PAGE> 104
Section 11.02. Application of Trust Money.
All money deposited with the Trustee pursuant to Section 11.01
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money
has been deposited with the Trustee.
[Signatures on following page]
<PAGE> 105
SIGNATURES
Dated as of January 12, 2000
CHARTER COMMUNICATIONS HOLDINGS, LLC, as
an Issuer
By /s/ Curtis S. Shaw
_____________________________________
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION, as an Issuer
By /s/ Curtis S. Shaw
_____________________________________
Name: Curtis S. Shaw
Title:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By /s/ Judith Bartolini
_____________________________________
Name: Judith Bartolini
Title: Vice President
<PAGE> 106
EXHIBIT A
[Face of Note]
CUSIP NO. [_______________]
11.75% Senior Discount Notes due 2010
No.
$[________________]
CHARTER COMMUNICATIONS HOLDINGS, LLC
and
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
promise to pay to _________________________________________________________
or registered assigns,
the principal amount at maturity of _____________________________________
Dollars
($______________________________) on January 15, 2010.
Interest Payment Dates: January 15 and July 15
Record Dates: January 1 and July 1
Subject to Restrictions set forth in this Note.
Dated: January 12, 2000
CHARTER COMMUNICATIONS HOLDINGS, LLC
By_____________________________________
Name:
Title:
A-1
<PAGE> 107
By_____________________________________
Name:
Title:
A-2
<PAGE> 108
CHARTER COMMUNICATIONS HOLDINGS CAPITAL
CORPORATION
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
This is one of the Notes referred to
in the within-mentioned Indenture:
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By: __________________________________
Authorized Signatory
A-3
<PAGE> 109
[Back of Note]
11.75% Senior Discount Notes due 2010
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE ISSUE PRICE IS
$564.48, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $435.52, THE ISSUE DATE IS
JANUARY 12, 2000 AND THE YIELD TO MATURITY IS 11.75% PER ANNUM.
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE
MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(A) OF THE
INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE ISSUERS."(1)
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
A-4
<PAGE> 110
SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES."(2)
(1) This paragraph should be included only if the Note is issued in global
form.
(2) This paragraph should be removed upon the exchange of Notes for Exchange
Notes in the Exchange Offer or upon the registration of the Notes pursuant
to the terms of the Registration Rights Agreement.
A-5
<PAGE> 111
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Charter Communications Holdings, LLC, a Delaware limited
liability company (the "Company"), and Charter Communications Holdings Capital
Corporation, a Delaware corporation ("Charter Capital" and, together with the
Company, the "Issuers"), promise to pay interest on the principal amount at
maturity of this Note at the rate of 11.75% per annum. The interest rate on the
Notes is subject to increase pursuant to the provisions of the Registration
Rights Agreement. The Issuers will pay interest semi-annually in arrears on
January 15 and July 15 of each year (each an "Interest Payment Date"), or if
any such day is not a Business Day, on the next succeeding Business Day
commencing on July 15, 2005. The principal amount at maturity of this Note
will not bear or accrue cash interest until January 15, 2005. Cash interest on
the Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from January 15, 2005; provided that if there
is no existing Default in the payment of interest, and if this Note is
authenticated between a record date referred to on the face and the next
succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date. The Issuers shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
Accreted Value and premium, if any, from time to time on demand at a rate that
is 1% per annum in excess of the rate then in effect; they shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Issuers shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the January 1 or July 1 next preceding the Interest
Payment Date, even if such Notes are canceled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. The Notes will be payable as to
Accreted Value, premium, if any, and interest at the office or agency of the
Issuers maintained for such purpose within or without the City and State of New
York, or, at the option of the Issuers, payment of interest may be made by
check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of immediately available
funds will be required with respect to Accreted Value of and interest and
premium on all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Issuers or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
A-6
<PAGE> 112
3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust and Savings
Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Issuers may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture dated as
of January 12, 2000 ("Indenture") between the Issuers and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and
be controlling. The Notes are obligations of the Issuers limited to
$532,000,000 in aggregate principal amount at maturity, of which all
$532,000,000 in aggregate principal amount at maturity of Notes were issued on
the Issue Date.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Paragraph 5, the Issuers
shall not have the option to redeem the Notes prior to January 15, 2005.
Thereafter, the Issuers shall have the option to redeem the Notes, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount at maturity) set forth
below plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on
January 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005 105.875%
2006 103.917%
2007 101.958%
2008 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5,
at any time prior to January 15, 2003, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount at maturity of the
Notes originally issued under the Indenture on a pro rata basis (or as nearly
pro rata as practicable), at a redemption price of 111.75% of the Accreted
Value thereof, plus, after the Full Accretion Date, accrued and unpaid interest
to the redemption date, with the net cash proceeds of one or more Equity
Offerings; provided that
(1) at least 65% of the aggregate principal amount at maturity of
Notes originally issued under the Indenture remains outstanding immediately
after the
A-7
<PAGE> 113
occurrence of such redemption (excluding Notes held by the Company and its
Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the
closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as otherwise provided in Paragraph 7 below, the Issuers shall
not be required to make mandatory redemption payments with respect to the
Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuers shall make an offer
(a "Change of Control Offer") to repurchase all or any part (equal to $1,000
principal amount at maturity or an integral multiple thereof) of each Holder's
Notes at a purchase price equal to 101% of the Accreted Value thereof plus, for
any Change of Control Offer occurring after the Full Accretion Date, accrued
and unpaid interest thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within 10 days following any Change of Control, the Issuers
shall mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
Change of Control Payment Date specified in such notice, pursuant to the
procedures required by the Indenture and described in such notice.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sale, when the aggregate amount of Excess Proceeds exceeds $25.0 million, the
Issuers shall commence an offer (an "Asset Sale Offer") pursuant to Section
4.11 of the Indenture to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions requiring
offers to purchase or redeem with the proceeds of sales of assets to purchase
the maximum principal amount of Notes and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds (which amount includes the
entire amount of the Net Proceeds). The offer price in any Asset Sale Offer
will be payable in cash and equal to 100% of the Accreted Value thereof plus,
after the Full Accretion Date, accrued and unpaid interest, if any, to the date
of purchase. If any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes and
such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes and such
other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to
A-8
<PAGE> 114
have such Notes purchased by completing the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed by first
class mail at least 30 days but not more than 60 days before the redemption
date to each Holder whose Notes are to be redeemed at its registered address.
Notices of redemption may not be conditional. No Notes of $1,000 principal
amount at maturity or less may be redeemed in part. Notes in denominations
larger than $1,000 principal amount at maturity may be redeemed in part but
only in whole multiples of $1,000 principal amount at maturity, unless all of
the Notes held by a Holder are to be redeemed. On and after the redemption date
Accreted Value ceases to accrete and interest ceases to accrue, as the case may
be, on Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 principal amount at maturity and
integral multiples of $1,000 principal amount at maturity. The transfer of
Notes may be registered and Notes may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Issuers
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a
record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in aggregate principal amount at maturity of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
aggregate principal amount at maturity of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes). Without the consent of any
Holder of a Note, the Issuers and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of an Issuers' obligations to Holders of
Notes in the case of a merger or consolidation or sale of
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<PAGE> 115
all or substantially all of the assets of either Issuer to make any change that
would provide any additional rights or benefits to the Holders of Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA or otherwise as
necessary to comply with applicable law.
12. DEFAULTS AND REMEDIES. Each of the following is an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes, (ii) default in payment when due of the Accreted Value of or premium, if
any, on the Notes, (iii) failure by the Company or any of its Restricted
Subsidiaries to comply with Sections 4.16 and 5.01 of the Indenture, (iv)
failure by the Company or any of its Restricted Subsidiaries for 30 days after
written notice thereof has been given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% of the aggregate
principal amount at maturity of the Notes outstanding to comply with any of
their other covenants or agreements in the Indenture, (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the date of the
Indenture, if that default: (a) is caused by a failure to pay at final stated
maturity the principal amount of such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default"); or (b) results in the acceleration of such Indebtedness
prior to its express maturity, and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $100 million or more, (vi) failure by
the Company or any of its Restricted Subsidiaries to pay final judgments which
are non-appealable aggregating in excess of $100 million (net of applicable
insurance which has not been denied in writing by the insurer), which judgments
are not paid, discharged or stayed for a period of 60 days or (vii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries. In the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, all
outstanding Notes will become due and payable without further action or notice.
If any other Event of Default occurs and is continuing, the Trustee by notice
to the Issuers or the Holders of at least 25% in aggregate principal amount at
maturity of the then outstanding Notes by notice to the Issuers and the Trustee
may declare all the Notes to be due and payable in an amount equal to (x) the
Accreted Value of the Notes outstanding on the date of acceleration, if such
declaration is made prior to the Full Accretion Date or (y) the entire
principal amount at maturity of all the Notes outstanding on the date of
acceleration, plus accrued interest, if any, to the date of acceleration, if
such declaration is made after the Full Accretion Date. Holders may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain
A-10
<PAGE> 116
limitations, Holders of a majority in aggregate principal amount at maturity of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount at maturity of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
Accreted Value of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture. Upon becoming
aware of any Default or Event of Default, the Company is required to deliver to
the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH ISSUERS. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or their Affiliates, and may otherwise deal with the
Issuers or their Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator, member or stockholder of either of the Issuers, as such, shall
not have any liability for any obligations of the Issuers under the Notes or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. GOVERNING LAW. This Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, as applied
to contracts made and performed within the State of New York, without regard to
principles of conflict of laws. Each of the parties hereto and the holders
agree to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Note.
16. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
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18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Exchange and
Registration Rights Agreement dated as of January 12, 2000, among the Issuers
and the initial purchasers named therein (the "Registration Rights Agreement").
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive
Suite 100
St. Louis, Missouri 63131
Attention: Secretary
Telecopier No.: (314) 965-0555
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<PAGE> 118
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:___________________________________
(Insert assignee's legal name)
________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________________________________ to
transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
Date:______________________________
Your Signature:_____________________________________________________
(Sign exactly as your name appears on the face of this
Note)
Signature Guarantee*:________________________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
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<PAGE> 119
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.11 or 4.16 of the Indenture, check the appropriate box
below:
|_| Section 4.11 |_| Section 4.16
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.11 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$ _______________________
Date:____________________
Your Signature: ____________________________________________________
(Sign exactly as your name appears on the face of this
Note)
Tax Identification No.: _______________________________________________
Signature Guarantee*: _______________________________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-14
<PAGE> 120
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE*
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Amount of Principal
decrease in Amount of Amount at
Principal increase in Maturity
Amount Principal of this Global
at Maturity Amount at Note
of this Maturity following Signature of authorized
Date of Global of this Global such decrease officer of Trustee or
Exchange Note Note (or increase) Note Custodian
-------- ----------- -------------- -------------- -----------------------
<S> <C> <C> <C> <C>
</TABLE>
A-15
<PAGE> 121
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 11.75% Senior Discount Notes due 2010
Reference is hereby made to the Indenture, dated as of January 12,
2000 (the "Indenture"), among Charter Communications Holdings, LLC (the
"Company") and Charter Communications Holdings Capital Corporation ("Charter
Capital" and, together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
___________________ (the "Transferor") owns and proposes to transfer
the Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount at maturity of $ _____________________________ in such Note[s]
or interests (the "Transfer"), to ___________________________ (the
"Transferee"), as further specified in Annex A hereto. In connection with the
Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. |_| Check if Transferee will take delivery of a beneficial interest
in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Definitive Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and
such Person and each such account is a "qualified institutional buyer" within
the meaning of Rule 144A in a transaction
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<PAGE> 122
meeting the requirements of Rule 144A and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the 144A Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
2. |_| Check if Transferee will take delivery of a beneficial interest
in the Regulation S Global Note or a Definitive Note pursuant to Regulation S.
The Transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the Transferor hereby
further certifies that (i) the Transfer is not being made to a person in the
United States and (x) at the time the buy order was originated, the Transferee
was outside the United States or such Transferor and any Person acting on its
behalf reasonably believed and believes that the Transferee was outside the
United States or (y) the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act and (iii) the transaction is
not part of a plan or scheme to evade the registration requirements of the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Regulation S Global Note and/or the Definitive
Note and in the Indenture and the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a
beneficial interest in a Definitive Note pursuant to any provision of the
Securities Act other than Rule 144A or Regulation S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act; or
(b) |_| such Transfer is being effected to the Company or a subsidiary
thereof; or
(c) |_| such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery
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<PAGE> 123
requirements of the Securities Act; or
(d) |_| such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that it has not engaged in any general solicitation
within the meaning of Regulation D under the Securities Act and the Transfer
complies with the transfer restrictions applicable to beneficial interests in a
Restricted Global Note or Restricted Definitive Notes and the requirements of
the exemption claimed, which certification is supported by (1) a certificate
executed by the Transferee in the form of Exhibit D to the Indenture and (2) an
Opinion of Counsel provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act. Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Note and/or the Definitive Notes and in the Indenture and
the Securities Act.
4. |_| Check if Transferee will take delivery of a beneficial interest
in an Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) |_| Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) |_| Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
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<PAGE> 124
(c) |_| Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
____________________________________________
[Insert Name of Transferor]
By__________________________________________
Name:
Title:
Dated: ______________________________________
B-4
<PAGE> 125
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP __________), or
(ii) |_| Regulation S Global Note (CUSIP _________), or
(b) |_| a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP __________), or
(ii) |_| Regulation S Global Note (CUSIP _________), or
(iii) |_| Unrestricted Global Note (CUSIP _________); or
(b) |_| a Restricted Definitive Note; or
(c) |_| an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
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<PAGE> 126
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 11.75% Senior Discount Notes due 2010
(CUSIP ______________________)
Reference is hereby made to the Indenture, dated as of January 12,
2000 (the "Indenture"), among Charter Communications Holdings, LLC (the
"Company") and Charter Communications Holdings Capital Corporation ("Charter
Capital" and, together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
__________________________ (the "Owner") owns and proposes to exchange
the Note[s] or interest in such Note[s] specified herein, in the principal
amount at maturity of $____________________________ in such Note[s] or
interests (the "Exchange"). In connection with the Exchange, the Owner hereby
certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in
a Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to
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<PAGE> 127
the Global Notes and pursuant to and in accordance with the United States
Securities Act of 1933, as amended (the "Securities Act"), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any
state of the United States.
(b) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) |_| Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the beneficial interest is
being acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
(d) |_| Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner
hereby certifies (i) the Unrestricted Definitive Note is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to Restricted Definitive
Notes and pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the Unrestricted Definitive Note is being acquired in compliance with
any applicable blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
in Restricted Global
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<PAGE> 128
Notes
(a) |_| Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note to beneficial
interest in a Restricted Global Note. In connection with the Exchange of the
Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE]
|_| 144A Global Note or |_| Regulation S Global Note with an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being
acquired for the Owner's own account without transfer and (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to
the Restricted Global Notes and pursuant to and in accordance with the
Securities Act, and in compliance with any applicable blue sky securities laws
of any state of the United States. Upon consummation of the proposed Exchange
in accordance with the terms of the Indenture, the beneficial interest issued
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Issuers.
____________________________________________
[Insert Name of Transferor]
By__________________________________________
Name:
Title:
Dated: ______________________________________
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<PAGE> 129
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
c/o Charter Communications, Inc.
12444 Powerscourt Drive, Suite 100
St. Louis, Missouri 63131
Harris Trust and Savings Bank
311 West Monroe, 12th Floor
Chicago, Illinois 60606
Attn: Corporate Trust Department
Re: 11.75% Senior Discount Notes due 2010
Reference is hereby made to the Indenture, dated as of January 12,
2000 (the "Indenture"), among Charter Communications Holdings, LLC (the
"Company") and Charter Communications Holdings Capital Corporation ("Charter
Capital" and, together with the Company, the "Issuers"), and Harris Trust and
Savings Bank, as trustee. Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount at maturity of:
(a) |_| a beneficial interest in a Global Note, or
(b) |_| a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest
therein may not be offered or
D-1
<PAGE> 130
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell the Notes or any interest therein, we will do so only
(A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A
under the Securities Act to a "qualified institutional buyer" (as defined
therein), (C) to an institutional "accredited investor" (as defined below)
that, prior to such transfer, furnishes (or has furnished on its behalf by a
U.S. broker-dealer) to you and to the Company a signed letter substantially in
the form of this letter and an Opinion of Counsel in form reasonably acceptable
to the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144(k) under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial interest in a Global Note
from us in a transaction meeting the requirements of clauses (A) through (E) of
this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuers such certifications, legal opinions and other information as you and
the Issuers may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased
by us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy to any interested party
in any administrative or legal proceedings or official inquiry with respect to
the matters covered hereby.
____________________________________________
[Insert Name of Transferor]
D-2
<PAGE> 131
By__________________________________________
Name:
Title:
Dated: ______________________________________
D-3
<PAGE> 1
Exhibit 4.3(c)
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
$532,000,000 11.75% Senior Discount Notes due 2010
Exchange and Registration Rights Agreement
------------------------------------------
January 12, 2000
Goldman, Sachs & Co.
Chase Securities Inc.
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
TD Securities (USA) Inc.
First Union Securities, Inc.
PNC Capital Markets, Inc.
SunTrust Equitable Securities Corporation
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Charter Communications Holdings, LLC, a Delaware limited liability
company (the "Company"), and Charter Communications Holdings Capital
Corporation, a Delaware corporation ("Charter Capital" and, together with the
Company, the "Issuers"), propose, subject to the terms and conditions stated
herein, to issue and sell to the Purchasers (as defined herein) upon the terms
set forth in the Purchase Agreement (as defined herein) their $532,000,000
aggregate principal amount at maturity of 11.75% Senior Discount Notes due 2010
(the "Notes"). As an inducement to the Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the
Purchasers thereunder, the Issuers agree with the Purchasers for the benefit of
holders (as defined herein) from time to time of the Registrable Securities (as
defined herein) as follows:
<PAGE> 2
1. Certain Definitions. For purposes of this Exchange and Registration
Rights Agreement, the following terms shall have the following respective
meanings:
"Base Interest" shall mean the interest that would otherwise accrue on
the Notes under the terms thereof and the Indenture, without giving effect
to the provisions of this Exchange and Registration Rights Agreement.
The term "broker-dealer" shall mean any broker or dealer registered
with the Commission under the Exchange Act.
"Closing Date" shall mean the date on which the Notes are initially
issued.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
Exchange Act or the Securities Act, whichever is the relevant statute for
the particular purpose.
"Effective Time," in the case of (i) an Exchange Offer Registration,
shall mean the time and date as of which the Commission declares the
Exchange Offer Registration Statement effective or as of which the Exchange
Offer Registration Statement otherwise becomes effective and (ii) a Shelf
Registration, shall mean the time and date as of which the Commission
declares the Shelf Registration Statement effective or as of which the Shelf
Registration Statement otherwise becomes effective.
"Electing Holder" shall mean any holder of Registrable Securities that
has returned a completed and signed Notice and Questionnaire to the Issuers
in accordance with Section 3(d)(ii) or 3(d)(iii) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
"Exchange Notes" shall have the meaning assigned thereto in Section 2
(a)hereof.
"Exchange Offer" shall have the meaning assigned thereto in Section 2
(a)hereof.
"Exchange Offer Registration" shall have the meaning assigned thereto
in Section 3(c) hereof.
"Exchange Offer Registration Statement" shall have the meaning assigned
thereto in Section 2(a) hereof.
The term "holder" shall mean each of the Purchasers and other persons
who acquire Registrable Securities from time to time (including any
successors or assigns), in each
<PAGE> 3
case for so long as such person is a registered holder of any Registrable
Securities.
"Indenture" shall mean the Indenture governing the Notes, dated as of
January 12, 2000 between the Issuers and Harris Trust and Savings Bank, as
Trustee, as the same shall be amended from time to time.
"Notes" shall mean, collectively, the 11.75% Senior Discount Notes due
2010 of the Issuers to be issued and sold to the Purchasers, and Notes
issued in exchange therefor or in lieu thereof, pursuant to the Indenture.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
The term "person" shall mean a corporation, association, partnership,
organization, business, individual, government or political subdivision
thereof or governmental agency.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
January 6, 2000, between the Purchasers and the Issuers relating to the
Notes.
"Purchasers" shall mean the Purchasers named in Schedule I to the
Purchase Agreement.
"Registrable Securities" shall mean the Notes; provided, however, that
a Note shall cease to be a Registrable Security when (i) in the
circumstances contemplated by Section 2(a) hereof, such Note has been
exchanged for an Exchange Note in an Exchange Offer as contemplated in
Section 2(a) hereof (provided that any Exchange Note that, pursuant to the
last two sentences of Section 2(a), is included in a prospectus for use in
connection with resales by broker-dealers shall be deemed to be a
Registrable Security with respect to Sections 5, 6 and 9 hereof until
resale of such Registrable Security has been effected within the 180-day
period referred to in Section 2(a)(y)); (ii) in the circumstances
contemplated by Section 2(b) hereof, a Shelf Registration Statement
registering such Note under the Securities Act has been declared or becomes
effective and such Note has been sold or otherwise transferred by the
holder thereof pursuant to and in a manner contemplated by such effective
Shelf Registration Statement; (iii) such Note is sold pursuant to Rule 144
under circumstances in which any legend borne by such Note relating to
restrictions on transferability thereof, under the Securities Act or
otherwise, is removed by the Issuers or pursuant to the Indenture; (iv)
such Security is eligible to be sold pursuant to paragraph (k) of Rule 144;
or (v) such Security shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto in
Section 2(c) hereof.
<PAGE> 4
"Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in Section 2(a)
hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate of the
Issuers within the meaning of Rule 405, (ii) a holder who acquires Exchange
Notes outside the ordinary course of such holder's business, (iii) a holder
who has arrangements or understandings with any person to participate in
the Exchange Offer for the purpose of distributing Exchange Notes and (iv)
a holder that is a broker-dealer, but only with respect to Exchange Notes
received by such broker-dealer pursuant to an Exchange Offer in exchange
for Registrable Securities acquired by the broker-dealer directly from the
Issuers.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such
rule promulgated under the Securities Act (or any successor provision), as
the same shall be amended from time to time.
"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned thereto in Section
2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned thereto
in Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in Section
2(c) hereof.
"subsidiaries" shall mean subsidiaries which would be "significant
subsidiaries" as defined in Rule 1-02(w) of Regulation S-X under the
Exchange Act.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or
any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of
this Exchange and Registration Rights Agreement, and the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Exchange and Registration Rights Agreement as a whole and not to any
particular Section or other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Issuers agree to file
under the
<PAGE> 5
Securities Act, as soon as practicable, but no later than 120 days after the
Closing Date, a registration statement relating to an offer to exchange
(such registration statement, the "Exchange Offer Registration Statement",
and such offer, the "Exchange Offer") any and all of the Notes for a like
aggregate principal amount of notes issued by the Issuers, which notes are
substantially identical in all material respects to the Notes (and are
entitled to the benefits of a trust indenture which has terms identical in
all material respects to the Indenture or is the Indenture and which has
been qualified under the Trust Indenture Act), except that they have been
registered pursuant to an effective registration statement under the
Securities Act and do not contain provisions for the additional interest
contemplated in Section 2(c) below (such notes hereinafter called "Exchange
Notes"). The Issuers agree to use their reasonable best efforts to cause the
Exchange Offer Registration Statement to become or be declared effective
under the Securities Act as soon as practicable, but no later than 180 days
after the Closing Date. The Exchange Offer will be registered under the
Securities Act on the appropriate form and will comply with all applicable
tender offer rules and regulations under the Exchange Act. The Issuers
further agree to use their reasonable best efforts to complete the Exchange
Offer promptly, but no later than 30 business days or longer, if required by
the federal securities laws, after such registration statement has become
effective, hold the Exchange Offer open for at least 30 days and exchange
Exchange Notes for all Registrable Securities that have been properly
tendered and not withdrawn on or prior to the expiration of the Exchange
Offer. The Exchange Offer will be deemed to have been "completed" only if
the Exchange Notes received by holders, other than Restricted Holders, in
the Exchange Offer in exchange for Registrable Securities are, upon receipt,
transferable by each such holder without restriction under the Securities
Act and the Exchange Act and without material restrictions under the blue
sky or securities laws of a substantial majority of the States of the United
States of America. The Exchange Offer shall be deemed to have been completed
upon the earlier to occur of (i) the Issuers having exchanged the Exchange
Notes for all outstanding Registrable Securities pursuant to the Exchange
Offer and (ii) the Issuers having exchanged, pursuant to the Exchange Offer,
Exchange Notes for all Registrable Securities that have been properly
tendered and not withdrawn before the expiration of the Exchange Offer,
which shall be on a date that is at least 30 business days following the
commencement of the Exchange Offer. The Issuers agree (x) to include in the
Exchange Offer Registration Statement a prospectus for use in any resales by
any holder of Exchange Notes that is a broker-dealer and (y) to keep such
Exchange Offer Registration Statement effective for a period (the "Resale
Period") beginning when Exchange Notes are first issued in the Exchange
Offer and ending upon the earlier of the expiration of the 180th day after
the Exchange Offer has been completed or such time as such broker-dealers no
longer own any Registrable Securities. With respect to such Exchange Offer
Registration Statement, such holders shall have the benefit of the rights of
indemnification and contribution set forth in Sections 6(a), (c), (d) and
(e) hereof.
(b) If (i) on or prior to the time the Exchange Offer is completed
existing law or
<PAGE> 6
Commission policy or interpretations are changed such that the Exchange
Notes received by holders, other than Restricted Holders, in the Exchange
Offer in exchange for Registrable Securities are not or would not be, upon
receipt, transferable by each such holder without restriction under the
Securities Act, (ii) the Exchange Offer has not been completed within 210
days following the Closing Date or (iii) the Exchange Offer is not available
to any holder of the Notes, the Issuers shall, in lieu of (or, in the case
of clause (iii), in addition to) conducting the Exchange Offer contemplated
by Section 2(a), file under the Securities Act on or prior to 30 business
days after the time such obligation to file arises, a "shelf" registration
statement providing for the registration of, and the sale on a continuous or
delayed basis by the holders of, all of the Registrable Securities, pursuant
to Rule 415 or any similar rule that may be adopted by the Commission (such
filing, the "Shelf Registration" and such registration statement, the "Shelf
Registration Statement"). The Issuers agree to use their reasonable best
efforts (x) to cause the Shelf Registration Statement to become or be
declared effective by the Commission no later than 90 days after such
obligation to file arises and to keep such Shelf Registration Statement
continuously effective for a period ending on the earlier of (i) the second
anniversary of the Effective Time or (ii) such time as there are no longer
any Registrable Securities outstanding; provided, however, that no holder
shall be entitled to be named as a selling securityholder in the Shelf
Registration Statement or to use the prospectus forming a part thereof for
resales of Registrable Securities unless such holder is an Electing Holder,
and (y) after the Effective Time of the Shelf Registration Statement,
promptly upon the request of any holder of Registrable Securities that is
not then an Electing Holder, to take any action reasonably necessary to
enable such holder to use the prospectus forming a part thereof for resales
of Registrable Securities, including, without limitation, any action
necessary to identify such holder as a selling securityholder in the Shelf
Registration Statement, provided, however, that nothing in this clause (y)
shall relieve any such holder of the obligation to return a completed and
signed Notice and Questionnaire to the Issuers in accordance with Section
3(d)(iii) hereof. The Issuers further agree to supplement or make amendments
to the Shelf Registration Statement, as and when required by the rules,
regulations or instructions applicable to the registration form used by the
Issuers for such Shelf Registration Statement or by the Securities Act or
rules and regulations thereunder for shelf registration, and the Issuers
agree to furnish to each Electing Holder copies of any such supplement or
amendment prior to its being used or promptly following its filing with the
Commission.
(c) In the event that (i) the Issuers have not filed the Exchange Offer
Registration Statement or Shelf Registration Statement on or before the date
on which such registration statement is required to be filed pursuant to
Section 2(a) or 2(b), respectively, or (ii) such Exchange Offer Registration
Statement or Shelf Registration Statement has not become effective or been
declared effective by the Commission on or before the date on which such
registration statement is required to become or be declared effective
<PAGE> 7
pursuant to Section 2(a) or 2(b), respectively, or (iii) the Exchange Offer
has not been completed within 30 business days after the initial effective
date of the Exchange Offer Registration Statement relating to the Exchange
Offer (if the Exchange Offer is then required to be made) or (iv) any
Exchange Offer Registration Statement or Shelf Registration Statement
required by Section 2(a) or 2(b) hereof is filed and becomes or is declared
effective but shall thereafter either be withdrawn by the Issuers or shall
become subject to an effective stop order issued pursuant to Section 8(d)
of the Securities Act suspending the effectiveness of such registration
statement (except as specifically permitted herein) without being succeeded
immediately by an additional registration statement filed and declared
effective (each such event referred to in clauses (i) through (iv), a
"Registration Default" and each period during which a Registration Default
has occurred and is continuing, a "Registration Default Period"), then, as
liquidated damages for such Registration Default, subject to the provisions
of Section 9(b), special interest ("Special Interest"), in addition to the
Base Interest, shall accrue on the average Accreted Value (as defined in
the Indenture) of the outstanding Notes at a per annum rate of 0.25% for
the first 90 days of the Registration Default Period, at a per annum rate
of 0.50% for the second 90 days of the Registration Default Period, at a
per annum rate of 0.75% for the third 90 days of the Registration Default
Period and at a per annum rate of 1.0% thereafter for the remaining portion
of the Registration Default Period. All accrued Special Interest shall be
paid in cash by the Issuers on each Interest Payment Date (as defined in
the Indenture). Notwithstanding the foregoing and anything in this
Agreement to the contrary, in the case of an event referred to in clause
(ii) above, a "Registration Default" shall be deemed not to have occurred
so long as the Issuers, in their sole reasonable judgment, are using and
continuing to use their reasonable best efforts to cause such Exchange
Offer Registration Statement or Shelf Registration Statement, as the case
may be, to become or be declared effective.
(d) The Issuers shall use their reasonable best efforts to take all
actions necessary or advisable to be taken by them to ensure that the
transactions contemplated herein are effected as so contemplated in Section
2(a) or 2(b) hereof.
(e) Any reference herein to a registration statement as of any time
shall be deemed to include any document incorporated, or deemed to be
incorporated, therein by reference as of such time and any reference herein
to any post-effective amendment to a registration statement as of any time
shall be deemed to include any document incorporated, or deemed to be
incorporated, therein by reference as of such time.
3. Registration Procedures.
If the Issuers file a registration statement pursuant to Section 2(a)
or Section 2(b), the following provisions shall apply:
<PAGE> 8
(a) At or before the Effective Time of the Exchange Offer or the Shelf
Registration, as the case may be, the Issuers shall cause the Indenture to
be qualified under the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the appointment
of a new trustee under the Indenture, the Issuers shall appoint a new
trustee thereunder pursuant to the applicable provisions of the Indenture.
(c) In connection with the Issuers' obligations with respect to the
registration of Exchange Notes as contemplated by Section 2(a) (the
"Exchange Offer Registration"), if applicable, the Issuers shall, as soon
as practicable (or as otherwise specified):
(i) prepare and file with the Commission, as soon as practicable
but no later than 120 days after the Closing Date, an Exchange Offer
Registration Statement on any form which may be utilized by the Issuers
and which shall permit the Exchange Offer and resales of Exchange Notes
by broker-dealers during the Resale Period to be effected as
contemplated by Section 2(a), and use their reasonable best efforts to
cause such Exchange Offer Registration Statement to become or be
declared effective as soon as practicable thereafter, but no later than
180 days after the Closing Date;
(ii) as soon as practicable prepare and file with the Commission
such amendments and supplements to such Exchange Offer Registration
Statement and the prospectus included therein as may be necessary to
effect and maintain the effectiveness of such Exchange Offer
Registration Statement for the periods and purposes contemplated in
Section 2(a) hereof and as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the
form of such Exchange Offer Registration Statement, and promptly provide
each broker-dealer holding Exchange Notes with such number of copies of
the prospectus included therein (as then amended or supplemented), in
conformity in all material respects with the requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations
of the Commission thereunder, as such broker-dealer reasonably may
request prior to the expiration of the Resale Period, for use in
connection with resales of Exchange Notes;
(iii)promptly notify each broker-dealer that has requested or
received copies of the prospectus included in such registration
statement, and confirm such advice in writing, (A) when such Exchange
Offer Registration Statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been
filed, and, with respect to such Exchange Offer Registration Statement
or any post-effective amendment, when the same has become effective, (B)
of any comments by the Commission and by the blue sky or securities
commissioner
<PAGE> 9
or regulator of any state with respect thereto, or any request by the
Commission for amendments or supplements to such Exchange Offer
Registration Statement or prospectus or for additional information,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of such Exchange Offer Registration Statement or the
initiation or, to the knowledge of the Issuers, threatening of any
proceedings for that purpose, (D) if at any time the representations
and warranties of the Issuers contemplated by Section 5 hereof cease
to be true and correct in all material respects, (E) of the receipt by
the Issuers of any notification with respect to the suspension of the
qualification of the Exchange Notes for sale in any jurisdiction or
the initiation or, to the knowledge of the Issuers, threatening of any
proceeding for such purpose, or (F) at any time during the Resale
Period when a prospectus is required to be delivered under the
Securities Act, that such Exchange Offer Registration Statement,
prospectus, prospectus amendment or supplement or post-effective
amendment does not conform in all material respects to the applicable
requirements of the Securities Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder, or contains an
untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(iv) in the event that the Issuers would be required, pursuant to
Section 3(e)(iii)(F) above, to notify any broker-dealers holding
Exchange Notes, the Issuers shall prepare and furnish to each such
holder a reasonable number of copies of a prospectus supplemented or
amended so that, as thereafter delivered to purchasers of such Exchange
Notes during the Resale Period, such prospectus conforms in all material
respects to the applicable requirements of the Securities Act and the
Trust Indenture Act and the rules and regulations of the Commission
thereunder and shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(v) use their reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of such Exchange Offer
Registration Statement or any post-effective amendment thereto as soon
as practicable;
(vi) use their reasonable best efforts to (A) register or qualify
the Exchange Notes under the securities laws or blue sky laws of such
jurisdictions as are contemplated by Section 2(a) no later than the
commencement of the Exchange Offer, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions
until the expiration of the Resale Period and (C) take any and all other
actions as may be reasonably necessary or advisable to enable each
broker-dealer holding Exchange
<PAGE> 10
Notes to consummate the disposition thereof in such jurisdictions;
provided, however, that neither of the Issuers shall be required for
any such purpose to (1) qualify as a foreign corporation or limited
liability company, as the case may be, in any jurisdiction wherein it
would not otherwise be required to qualify but for the requirements of
this Section 3(c)(vi), (2) consent to general service of process in
any such jurisdiction or (3) make any changes to its certificate of
incorporation or by-laws (or other organizational document) or any
agreement between it and holders of its ownership interests;
(vii)use their reasonable best efforts to obtain the consent or
approval of each governmental agency or authority, whether federal,
state or local, which may be required to effect the Exchange Offer
Registration, the Exchange Offer and the offering and sale of Exchange
Notes by broker-dealers during the Resale Period;
(viii) provide a CUSIP number for all Exchange Notes, not later
than the applicable Effective Time;
(ix) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon
as practicable but no later than eighteen months after the effective
date of such Exchange Offer Registration Statement, an earning statement
of the Company and its subsidiaries complying with Section 11(a) of the
Securities Act (including, at the option of the Company, Rule 158
thereunder).
(d) In connection with the Issuers' obligations with respect to the
Shelf Registration, if applicable, the Issuers shall, as soon as practicable
(or as otherwise specified):
(i) prepare and file with the Commission within the time periods
specified in Section 2(b), a Shelf Registration Statement on any form
which may be utilized by the Issuers and which shall register all of the
Registrable Securities for resale by the holders thereof in accordance
with such method or methods of disposition as may be specified by such
of the holders as, from time to time, may be Electing Holders and use
their reasonable best efforts to cause such Shelf Registration Statement
to become or be declared effective within the time periods specified in
Section 2(b);
(ii) not less than 30 calendar days prior to the Effective Time of
the Shelf Registration Statement, mail the Notice and Questionnaire to
the holders of Registrable Securities; no holder shall be entitled to
be named as a selling securityholder in the Shelf Registration
Statement as of the Effective Time, and no holder shall be entitled to
use the prospectus forming a part thereof for resales of Registrable
Securities at any time, unless such holder has returned a completed
and signed Notice and Questionnaire to the Issuers by the deadline for
response set forth therein; provided, however, holders of Registrable
Securities shall have at least 28
<PAGE> 11
calendar days from the date on which the Notice and Questionnaire is
first mailed to such holders to return a completed and signed Notice
and Questionnaire to the Issuers;
(iii)after the Effective Time of the Shelf Registration Statement,
upon the request of any holder of Registrable Securities that is not
then an Electing Holder, promptly send a Notice and Questionnaire to
such holder; provided that the Issuers shall not be required to take any
action to name such holder as a selling securityholder in the Shelf
Registration Statement or to enable such holder to use the prospectus
forming a part thereof for resales of Registrable Securities until such
holder has returned a completed and signed Notice and Questionnaire to
the Issuers;
(iv) as soon as practicable prepare and file with the Commission
such amendments and supplements to such Shelf Registration Statement and
the prospectus included therein as may be necessary to effect and
maintain the effectiveness of such Shelf Registration Statement for the
period specified in Section 2(b) thereof and as may be required by the
applicable rules and regulations of the Commission and the instructions
applicable to the form of such Shelf Registration Statement, and furnish
to the Electing Holders copies of any such supplement or amendment
simultaneously with or prior to its being used or filed with the
Commission;
(v) comply with the provisions of the Securities Act with respect
to the disposition of all of the Registrable Securities covered by such
Shelf Registration Statement in accordance with the intended methods of
disposition by the Electing Holders provided for in such Shelf
Registration Statement;
(vi) provide (A) the Electing Holders, (B) the underwriters (which
term, for purposes of this Exchange and Registration Rights Agreement,
shall include a person deemed to be an underwriter within the meaning of
Section 2(a)(11) of the Securities Act), if any, thereof, (C) any sales
or placement agent therefor, (D) counsel for any such underwriter or
agent and (E) not more than one counsel for all the Electing Holders the
opportunity to participate in the preparation of such Shelf Registration
Statement, each prospectus included therein or filed with the Commission
and each amendment or supplement thereto;
(vii)for a reasonable period prior to the filing of such Shelf
Registration Statement, and throughout the period specified in Section
2(b), make available at reasonable times at the Issuers' principal place
of business or such other reasonable place for inspection by the persons
referred to in Section 3(d)(vi) who shall certify to the Issuers that
they have a current intention to sell the Registrable Securities
pursuant to the Shelf Registration such financial and other relevant
information and books and
<PAGE> 12
records of the Issuers, and cause the officers, employees, counsel and
independent certified public accountants of the Issuers to respond to
such inquiries, as shall be reasonably necessary, in the judgment of
the respective counsel referred to in such Section, to conduct a
reasonable investigation within the meaning of Section 11 of the
Securities Act; provided, however, that each such party shall be
required to maintain in confidence and not to disclose to any other
person any information or records reasonably designated by the Issuers
as being confidential, until such time as (A) such information becomes
a matter of public record (whether by virtue of its inclusion in such
registration statement or otherwise, except as a result of a breach of
this or any other obligation of confidentiality to the Issuers), or
(B) such person shall be required so to disclose such information
pursuant to a subpoena or order of any court or other governmental
agency or body having jurisdiction over the matter (subject to the
requirements of such order, and only after such person shall have
given the Issuers prompt prior written notice of such requirement), or
(C) such information is required to be set forth in such Shelf
Registration Statement or the prospectus included therein or in an
amendment to such Shelf Registration Statement or an amendment or
supplement to such prospectus in order that such Shelf Registration
Statement, prospectus, amendment or supplement, as the case may be,
complies with applicable requirements of the federal securities laws
and the rules and regulations of the Commission and does not contain
an untrue statement of a material fact or omit to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(viii) promptly notify each of the Electing Holders, any sales or
placement agent therefor and any underwriter thereof (which notification
may be made through any managing underwriter that is a representative of
such underwriter for such purpose) and confirm such advice in writing,
(A) when such Shelf Registration Statement or the prospectus included
therein or any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to such Shelf Registration
Statement or any post-effective amendment, when the same has become
effective, (B) of any comments by the Commission and by the blue sky or
securities commissioner or regulator of any state with respect thereto,
or any request by the Commission for amendments or supplements to such
Shelf Registration Statement or prospectus or for additional
information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of such Shelf Registration Statement or the
initiation or, to the knowledge of the Issuers, threatening of any
proceedings for that purpose, (D) if at any time the representations and
warranties of the Issuers contemplated by Section 3(d)(xvii) or Section
5 hereof cease to be true and correct in all material respects, (E) of
the receipt by the Issuers of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale
in any jurisdiction or the initiation or, to the knowledge of the
Issuers, threatening of any proceeding for such purpose, or (F) if at
any time when a
<PAGE> 13
prospectus is required to be delivered under the Securities Act, that
such Shelf Registration Statement, prospectus, prospectus amendment or
supplement or post-effective amendment does not conform in all
material respects to the applicable requirements of the Securities Act
and the Trust Indenture Act and the rules and regulations of the
Commission thereunder, or contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances then existing;
(ix) use their reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of such registration statement
or any post-effective amendment thereto as soon as practicable;
(x) if requested by any managing underwriter or underwriters, any
placement or sales agent or any Electing Holder, promptly incorporate
in a prospectus supplement or post-effective amendment such
information as is required by the applicable rules and regulations of
the Commission, and as such managing underwriter or underwriters, such
agent or such Electing Holder specifies should be included therein
relating to the terms of the sale of such Registrable Securities,
including information (i) with respect to the principal amount of
Registrable Securities being sold by such Electing Holder or agent or
to any underwriters, the name and description of such Electing Holder,
agent or underwriter, the offering price of such Registrable
Securities, and any discount, commission or other compensation payable
in respect thereof and the purchase price being paid therefor by such
underwriters and (ii) with respect to any other material terms of the
offering of the Registrable Securities to be sold by such Electing
Holder or agent or to such underwriters; and make all required filings
of such prospectus supplement or post-effective amendment upon
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(xi) furnish to each Electing Holder, each placement or sales
agent, if any, therefor, each underwriter, if any, thereof and the
respective counsel referred to in Section 3(d)(vi) hereof an executed
copy (or, in the case of an Electing Holder, a conformed copy) of such
Shelf Registration Statement, each such amendment and supplement thereto
(in each case including all exhibits thereto (in the case of an Electing
Holder of Registrable Securities, upon request) and documents
incorporated by reference therein) and such number of copies of such
Shelf Registration Statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by
such Electing Holder, agent or underwriter, as the case may be) and of
the prospectus included in such Shelf Registration Statement (including
each preliminary prospectus and any summary prospectus), in conformity
<PAGE> 14
in all material respects with the applicable requirements of the
Securities Act and the Trust Indenture Act, and the rules and
regulations of the Commission thereunder, and such other documents, as
such Electing Holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the offering and disposition
of the Registrable Securities owned by such Electing Holder, offered or
sold by such agent or underwritten by such underwriter and to permit
such Electing Holder, agent and underwriter to satisfy the prospectus
delivery requirements of the Securities Act; and the Issuers hereby
consent to the use of such prospectus (including such preliminary and
summary prospectus) and any amendment or supplement thereto by each such
Electing Holder and by any such agent and underwriter, in each case in
the form most recently provided to such person by the Issuers, in
connection with the offering and sale of the Registrable Securities
covered by the prospectus (including such preliminary and summary
prospectus) or any supplement or amendment thereto;
(xii)use their reasonable best efforts to (A) register or qualify
the Registrable Securities to be included in such Shelf Registration
Statement under such securities laws or blue sky laws of such
jurisdictions as any Electing Holder and each placement or sales agent,
if any, therefor and underwriter, if any, thereof shall reasonably
request, (B) keep such registrations or qualifications in effect and
comply with such laws so as to permit the continuance of offers, sales
and dealings therein in such jurisdictions during the period the Shelf
Registration is required to remain effective under Section 2(b) above
and for so long as may be necessary to enable any such Electing Holder,
agent or underwriter to complete its distribution of Notes pursuant to
such Shelf Registration Statement and (C) take any and all other actions
as may be reasonably necessary or advisable to enable each such Electing
Holder, agent, if any, and underwriter, if any, to consummate the
disposition in such jurisdictions of such Registrable Securities;
provided, however, that none of the Issuers shall be required for any
such purpose to (1) qualify as a foreign corporation or limited
liability company, as the case may be, in any jurisdiction wherein it
would not otherwise be required to qualify but for the requirements of
this Section 3(d)(xii), (2) consent to general service of process in any
such jurisdiction or (3) make any changes to its certificate of
incorporation or by-laws (or other organizational document) or any
agreement between it and holders of its ownership interests;
(xiii) use their reasonable best efforts to obtain the consent or
approval of each governmental agency or authority, whether federal,
state or local, which may be required to effect the Shelf Registration
or the offering or sale in connection therewith or to enable the selling
holder or holders to offer, or to consummate the disposition of, their
Registrable Securities;
(xiv) unless any Registrable Securities shall be in book-entry only
form, cooperate with the Electing Holders and the managing underwriters,
if any, to
<PAGE> 15
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates, if
so required by any securities exchange upon which any Registrable
Securities are listed, shall be penned, lithographed or engraved, or
produced by any combination of such methods, on steel engraved
borders, and which certificates shall not bear any restrictive
legends; and, in the case of an underwritten offering, enable such
Registrable Securities to be in such denominations and registered in
such names as the managing underwriters may request at least two
business days prior to any sale of the Registrable Securities;
(xv) provide a CUSIP number for all Registrable Securities, not
later than the applicable Effective Time;
(xvi) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including customary provisions
relating to indemnification and contribution, and take such other
actions in connection therewith as any Electing Holders of at least 20%
in aggregate principal amount of the Registrable Securities at the time
outstanding shall request in order to expedite or facilitate the
disposition of such Registrable Securities;
(xvii) whether or not an agreement of the type referred to in
Section 3(d)(xvi) hereof is entered into, and whether or not any portion
of the offering contemplated by the Shelf Registration is an
underwritten offering or is made through a placement or sales agent or
any other entity, (A) make such representations and warranties to the
Electing Holders and the placement or sales agent, if any, therefor and
the underwriters, if any, thereof in form, substance and scope as are
customarily made in connection with an offering of debt securities
pursuant to any appropriate agreement or to a registration statement
filed on the form applicable to the Shelf Registration; (B) obtain an
opinion of counsel to the Issuers in customary form, subject to
customary limitations, assumptions and exclusions, and covering such
matters, of the type customarily covered by such an opinion, as the
managing underwriters, if any, or as any Electing Holders of at least
20% in aggregate principal amount of the Registrable Securities at the
time outstanding may reasonably request, addressed to such Electing
Holder or Electing Holders and the placement or sales agent, if any,
therefor and the underwriters, if any, thereof and dated the date of the
Effective Time of such Shelf Registration Statement (and if such Shelf
Registration Statement contemplates an underwritten offering of a part
or all of the Registrable Securities, dated the date of the closing
under the underwriting agreement relating thereto) (it being agreed that
the matters to be covered by such opinion shall include the matters set
forth in paragraphs (b) and (d) of Section 7 of the Purchase Agreement
to the extent applicable to an offering of this type); (C) obtain a
"cold comfort" letter or letters from the independent certified public
accountants of the Issuers addressed to
<PAGE> 16
the selling Electing Holders, the placement or sales agent, if any,
therefor or the underwriters, if any, thereof, dated (i) the effective
date of such Shelf Registration Statement and (ii) the effective date
of any prospectus supplement to the prospectus included in such Shelf
Registration Statement or post-effective amendment to such Shelf
Registration Statement which includes unaudited or audited financial
statements as of a date or for a period subsequent to that of the
latest such statements included in such prospectus (and, if such Shelf
Registration Statement contemplates an underwritten offering pursuant
to any prospectus supplement to the prospectus included in such Shelf
Registration Statement or post-effective amendment to such Shelf
Registration Statement which includes unaudited or audited financial
statements as of a date or for a period subsequent to that of the
latest such statements included in such prospectus, dated the date of
the closing under the underwriting agreement relating thereto), such
letter or letters to be in customary form and covering such matters of
the type customarily covered by letters of such type; (D) deliver such
documents and certificates, including officers' certificates, as may be
reasonably requested by any Electing Holders of at least 20% in
aggregate principal amount of the Registrable Securities at the time
outstanding or the placement or sales agent, if any, therefor and the
managing underwriters, if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (A) above or
those contained in Section 5(a) hereof and the compliance with or
satisfaction of any agreements or conditions contained in the
underwriting agreement or other similar agreement entered into by the
Issuers pursuant to Section 3(d)(xvi); and (E) undertake such
obligations relating to expense reimbursement, indemnification and
contribution as are provided in Section 6 hereof;
(xviii) notify in writing each holder of Registrable Securities of
any proposal by the Issuers to amend or waive any provision of this
Exchange and Registration Rights Agreement pursuant to Section 9(h)
hereof and of any amendment or waiver effected pursuant thereto, each of
which notices shall contain the substance of the amendment or waiver
proposed or effected, as the case may be;
(xix) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or participate
as a member of an underwriting syndicate or selling group or "assist in
the distribution" (within the meaning of the Conduct Rules (the "Conduct
Rules") of the National Association of Securities Dealers, Inc. ("NASD")
or any successor thereto, as amended from time to time) thereof, whether
as a holder of such Registrable Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, assist such broker-dealer in complying with the requirements
of such Conduct Rules, including by (A) if such Conduct Rules shall so
require, engaging a "qualified independent underwriter" (as defined in
such Conduct Rules) to participate in the
<PAGE> 17
preparation of the Shelf Registration Statement relating to such
Registrable Securities, to exercise usual standards of due diligence in
respect thereto and, if any portion of the offering contemplated by such
Shelf Registration Statement is an underwritten offering or is made
through a placement or sales agent, to recommend the yield of such
Registrable Securities, (B) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 6 hereof (or to such other customary extent as may
be requested by such underwriter), and (C) providing such information to
such broker-dealer as may be required in order for such broker-dealer to
comply with the requirements of the Conduct Rules; and
(xx) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon
as practicable but in any event not later than eighteen months after the
effective date of such Shelf Registration Statement, an earning
statement of the Company and its subsidiaries complying with Section
11(a) of the Securities Act (including, at the option of the Company,
Rule 158 thereunder).
(e) In the event that the Issuers would be required, pursuant to
Section 3(d)(viii)(F) above, to notify the Electing Holders, the
placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof, the Issuers shall prepare and furnish
to each of the Electing Holders, to each placement or sales agent, if
any, and to each such underwriter, if any, a reasonable number of
copies of a prospectus supplemented or amended so that, as thereafter
delivered to purchasers of Registrable Securities, such prospectus
conforms in all material respects to the applicable requirements of
the Securities Act and the Trust Indenture Act, and the rules and
regulations of the Commission thereunder, and shall not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
Each Electing Holder agrees that upon receipt of any notice from the
Issuers pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder
shall forthwith discontinue the disposition of Registrable Securities
pursuant to the Shelf Registration Statement applicable to such
Registrable Securities until such Electing Holder shall have received
copies of such amended or supplemented prospectus, and if so directed by
the Issuers, such Electing Holder shall deliver to the Issuers (at the
Issuers' expense) all copies, other than permanent file copies, then in
such Electing Holder's possession of the prospectus covering such
Registrable Securities at the time of receipt of such notice.
(f) In the event of a Shelf Registration, in addition to the
information required to be provided by each Electing Holder in its Notice
and Questionnaire, the Issuers may require such Electing Holder to furnish
to the Issuers such additional information regarding such Electing Holder
and such Electing Holder's intended method of distribution of Registrable
Securities as may be required in order to comply with the Securities Act.
<PAGE> 18
Each such Electing Holder agrees to notify the Issuers as promptly as
practicable of any inaccuracy or change in information previously furnished
by such Electing Holder to the Issuers or of the occurrence of any event in
either case as a result of which any prospectus relating to such Shelf
Registration contains or would contain an untrue statement of a material
fact regarding such Electing Holder or such Electing Holder's intended
method of disposition of such Registrable Securities or omits to state any
material fact regarding such Electing Holder or such Electing Holder's
intended method of disposition of such Registrable Securities required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly to
furnish to the Issuers any additional information required to correct and
update any previously furnished information or required so that such
prospectus shall not contain, with respect to such Electing Holder or the
disposition of such Registrable Securities, an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing.
4. Registration Expenses.
The Issuers agree, subject to the last sentence of this Section, to bear
and to pay or cause to be paid promptly all expenses incident to the
Issuers' performance of or compliance with this Exchange and Registration
Rights Agreement, including (a) all Commission and any NASD registration,
filing and review fees and expenses including fees and disbursements of
counsel for the placement or sales agent or underwriters in connection with
such registration, filing and review, (b) all fees and expenses in
connection with the qualification of the Notes for offering and sale under
the securities laws and blue sky laws referred to in Section 3(d)(xii)
hereof and determination of their eligibility for investment under the laws
of such jurisdictions as any managing underwriters or the Electing Holders
may designate, including any fees and disbursements of counsel for the
Electing Holders or underwriters in connection with such qualification and
determination, (c) all expenses relating to the preparation, printing,
production, distribution and reproduction of each registration statement
required to be filed hereunder, each prospectus included therein or
prepared for distribution pursuant hereto, each amendment or supplement to
the foregoing, the expenses of preparing the Notes for delivery
and the expenses of printing or producing any underwriting agreements,
agreements among underwriters, selling agreements and blue sky or legal
investment memoranda and all other documents in connection with the
offering, sale or delivery of Notes to be disposed of (including
certificates representing the Notes), (d) messenger, telephone and delivery
expenses relating to the offering, sale or delivery of Notes and the
preparation of documents referred in clause (c) above, (e) fees and
expenses of the Trustee under the Indenture, any agent of the Trustee and
any reasonable fees and expenses for counsel for the Trustee and of any
collateral agent or custodian, (f) internal expenses (including all
salaries and expenses of the Issuers' officers and employees performing
legal or
<PAGE> 19
accounting duties), (g) fees, disbursements and expenses of counsel and
independent certified public accountants of the Issuers (including the
expenses of any opinions or "cold comfort" letters required by or incident
to such performance and compliance), (h) fees, disbursements and expenses
of any "qualified independent underwriter" engaged pursuant to Section
3(d)(xix) hereof, (i) reasonable fees, disbursements and expenses of one
counsel for the Electing Holders retained in connection with a Shelf
Registration, as selected by the Electing Holders of at least a majority in
aggregate principal amount of the Registrable Securities held by Electing
Holders (which counsel shall be reasonably satisfactory to the Issuers),
(j) any fees charged by securities rating services for rating the Notes,
and (k) reasonable fees, expenses and disbursements of any other persons,
including special experts, retained by the Issuers in connection with such
registration (collectively, the "Registration Expenses"). To the extent
that any Registration Expenses are incurred, assumed or paid by any holder
of Registrable Securities or any placement or sales agent therefor or
underwriter thereof, the Issuers shall reimburse such person for the full
amount of the Registration Expenses so incurred, assumed or paid promptly
after receipt of a request therefor. Notwithstanding the foregoing, the
holders of the Registrable Securities being registered shall pay all agency
fees and commissions and underwriting discounts and commissions
attributable to the sale of such Registrable Securities and the fees and
disbursements of any counsel or other advisors or experts retained by such
holders (severally or jointly), other than the counsel and experts
specifically referred to above.
5. Representations, Warranties and Covenants.
Except with respect to clauses (a) and (b) below, the Issuers represent
and warrant to, and agree with, each Purchaser and each of the holders from
time to time of Registrable Securities the information set forth in this
Section 5.
With respect to clauses (a) and (b) below, the Issuers covenant that:
(a) Each registration statement covering Registrable Securities and each
prospectus (including any preliminary or summary prospectus) contained
therein or furnished pursuant to Section 3(d) or Section 3(c) hereof and any
further amendments or supplements to any such registration statement or
prospectus, when it becomes effective or is filed with the Commission, as
the case may be, and, in the case of an underwritten offering of Registrable
Securities, at the time of the closing under the underwriting agreement
relating thereto, will conform in all material respects to the requirements
of the Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
and at all times subsequent to the Effective Time when a prospectus would be
required to be delivered under the Securities Act, other than from (i) such
time as a notice has been given to holders of Registrable Securities
pursuant to
<PAGE> 20
Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time
as the Issuers furnishes an amended or supplemented prospectus pursuant to
Section 3(e) or Section 3(c)(iv) hereof, each such registration statement,
and each prospectus (including any summary prospectus) contained therein or
furnished pursuant to Section 3(d) or Section 3(c) hereof, as then amended
or supplemented, will conform in all material respects to the requirements
of the Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; provided,
however, that this covenant shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Issuers by a holder of Registrable Securities expressly for
use therein.
(b) Any documents incorporated by reference in any prospectus referred
to in Section 5(a) hereof, when they become or became effective or are or
were filed with the Commission, as the case may be, will conform or
conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and none of such documents will
contain or contained an untrue statement of a material fact or will omit or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that this
covenant shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Issuers
by a holder of Registrable Securities expressly for use therein.
(c) The compliance by the Issuers with all of the provisions of this
Exchange and Registration Rights Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
material breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease, license, franchise agreement, permit or other material agreement or
instrument to which either of the Issuers or any of their subsidiaries is a
party or by which either of the Issuers or any of their subsidiaries is
bound or to which any of the property or assets of the Issuers or any of
their subsidiaries is subject, nor will such action result in any
violation of the provisions of the certificate of formation or limited
liability company agreement of the Company or the certificate of
incorporation or bylaws of Charter Capital or any statute or any order, rule
or regulation of any court or governmental agency or body, including
without limitation, the Communications Act of 1934, as amended, the Cable
Communications Policy Act of 1984, as amended, the Cable Television
Consumer Protection and Competition Act of 1992, as amended, and the
Telecommunications Act of 1996 (collectively, the "Cable Acts") or any
order, rule or regulation of the Federal Communications Commission (the
"FCC"), having jurisdiction over the Issuers or any of their subsidiaries
or any of their properties, except for any such violation which would not
materially impair the Issuers' ability to comply herewith; and no consent,
approval,
<PAGE> 21
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required, including,
without limitation, under the Cable Acts or any order, rule or regulation
of the FCC, for the consummation by the Issuers of the transactions
contemplated by this Exchange and Registration Rights Agreement, except the
registration under the Securities Act of the Notes, qualification of the
Indenture under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
State Notes or blue sky laws in connection with the offering and
distribution of the Notes.
(d) This Exchange and Registration Rights Agreement has been duly
authorized, executed and delivered by the Issuers.
6. Indemnification.
(a) Indemnification by the Issuers. The Issuers , jointly and severally,
(i) will indemnify and hold harmless each of the holders of Registrable
Securities included in an Exchange Offer Registration Statement, each of the
Electing Holders of Registrable Securities included in a Shelf Registration
Statement and each person who participates as a placement or sales agent or
as an underwriter in any offering or sale of such Registrable Securities
against any losses, claims, damages or liabilities, joint or several, to
which such holder, agent or underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact
contained in any Exchange Offer Registration Statement or Shelf
Registration Statement, as the case may be, under which such Registrable
Securities were registered under the Securities Act, or any preliminary,
final or summary prospectus contained therein or furnished by the Issuers
to any such holder, Electing Holder, agent or underwriter, or any amendment
or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
(ii) will reimburse such holder, such Electing Holder, such agent and such
underwriter for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that neither of the Issuers shall
be liable to any such persons in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, or preliminary, final or summary
prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Issuers by such
persons expressly for use therein.
(b) Indemnification by the Holders and any Agents and Underwriters. The
Issuers
<PAGE> 22
may require, as a condition to including any Registrable Securities
in any registration statement filed pursuant to Section 2(b) hereof and to
entering into any underwriting agreement or similar agreement with respect
thereto, that the Issuers shall have received an undertaking reasonably
satisfactory to them from the Electing Holder of such Registrable Securities
included in a Shelf Registration Statement and from each underwriter or
agent named in any such underwriting agreement or similar agreement,
severally and not jointly, to (i) indemnify and hold harmless the Issuers
and all other holders of Registrable Securities, against any losses, claims,
damages or liabilities to which the Issuers or such other holders of
Registrable Securities may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, or any preliminary, final or summary prospectus
contained therein or furnished by the Issuers to any such Electing Holder,
agent or underwriter, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Issuers by such Electing Holder
or underwriter expressly for use therein, and (ii) reimburse the Issuers
for any legal or other expenses reasonably incurred by the Issuers in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that no such Electing Holder
shall be required to undertake liability to any person under this Section
6(b) for any amounts in excess of the dollar amount of the proceeds to be
received by such Electing Holder from the sale of such Electing Holder's
Registrable Securities pursuant to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party pursuant to the
indemnification provisions of or contemplated by this Section 6,
notify such indemnifying party in writing of the commencement of such
action; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party
otherwise than under the indemnification provisions of or contemplated by
Section 6(a) or 6(b) hereof. In case any such action shall be brought
against any indemnified party and it shall notify an indemnifying party of
the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
<PAGE> 23
thereof, such indemnifying party shall not be liable to such indemnified
party for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act
by or on behalf of any indemnified party.
(d) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or
insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or by such indemnified
party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were determined by pro rata
allocation (even if the holders or any agents or underwriters or all of
them were treated as one entity for such purpose) or by any other method of
allocation which does not take
account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, or liabilities (or actions in respect thereof)
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), no holder shall be required to contribute
any amount in excess of the amount by which the dollar amount of the
proceeds received by such holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) exceeds the amount of any damages which such holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission, and no underwriter shall be required to
contribute any
<PAGE> 24
amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The holders' and any
underwriters' obligations in this Section 6(d) to contribute shall be
several in proportion to the principal amount of Registrable Securities
registered or underwritten, as the case may be, by them and not joint.
(e) The obligations of the Issuers under this Section 6 shall be in
addition to any liability which the Issuers may otherwise have and shall
extend, upon the same terms and conditions, to each officer, director and
partner of each holder, agent and underwriter and each person, if any, who
controls any holder, agent or underwriter within the meaning of the
Securities Act; and the obligations of the holders and any agents or
underwriters contemplated by this Section 6 shall be in addition to any
liability which the respective holder, agent or underwriter may otherwise
have and shall extend, upon the same terms and conditions, to each officer
(including any officer who signed any registration statement), director,
employee, representative or agent of the Issuers and to each person, if any,
who controls the Issuers within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an
underwritten offering, the managing underwriter or underwriters thereof
shall be designated by Electing Holders holding at least a majority in
aggregate principal amount of the Registrable Securities to be included in
such offering, provided that such designated managing underwriter or
underwriters is or are reasonably acceptable to the Issuers.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may
participate in any underwritten offering hereunder unless such holder (i)
agrees to sell such holder's Registrable Securities on the basis provided
in any underwriting arrangements approved by the persons entitled hereunder
to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements.
8. Rule 144.
<PAGE> 25
Each of the Issuers covenants to the holders of Registrable Securities
that to the extent it shall be required to do so under the Exchange Act, it
shall timely file the reports required to be filed by it under the Exchange
Act or the Securities Act (including the reports under Section 13 and 15(d)
of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted
by the Commission under the Securities Act) and the rules and regulations
adopted by the Commission thereunder, and shall take such further action as
any holder of Registrable Securities may reasonably request, all to the
extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the
limitations of the exemption provided by Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or any similar or successor
rule or regulation hereafter adopted by the Commission. Upon the request of
any holder of Registrable Securities in connection with that holder's sale
pursuant to Rule 144, the Issuers shall deliver to such holder a written
statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Issuers represent, warrant, covenant
and agree that they have not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other Notes which
would be inconsistent with the terms contained in this Exchange and
Registration Rights Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if the Issuers fail to perform any of
their obligations hereunder and that the Purchasers and the holders from
time to time of the Registrable Securities may be irreparably harmed by any
such failure, and accordingly agree that the Purchasers and such holders,
in addition to any other remedy to which they may be entitled at law or in
equity, shall be entitled to compel specific performance of the obligations
of the Issuers under this Exchange and Registration Rights Agreement in
accordance with the terms and conditions of this Exchange and Registration
Rights Agreement, in any court of the United States or any State thereof
having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have
been duly given (i) when delivered by hand, if delivered personally or by
courier, (ii) when sent by facsimile (with written confirmation of
receipt), provided that a copy is mailed by registered or certified mail,
return receipt requested or (iii) three days after being deposited in the
mail (registered or certified mail, postage prepaid, return receipt
requested) as follows: If to the Issuers, c/o Charter Communications
Holdings, LLC, 12444 Powerscourt Drive, Suite 100, St. Louis, Missouri,
63131, Attention: Secretary, and if to a holder, to the address of such
holder set forth in the security register or other records of the Issuers,
or to such other address as the Issuers or any such holder may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
<PAGE> 26
(d) Parties in Interest. All the terms and provisions of this Exchange
and Registration Rights Agreement shall be binding upon, shall inure to the
benefit of and shall be enforceable by the parties hereto and the holders
from time to time of the Registrable Securities and the respective
successors and assigns of the parties hereto and such holders. In the event
that any transferee of any holder of Registrable Securities shall acquire
Registrable Securities, in any manner, whether by gift, bequest, purchase,
operation of law or otherwise, such transferee shall, without any further
writing or action of any kind, be deemed a beneficiary hereof for all
purposes and such Registrable Securities shall be held subject to all of
the terms of this Exchange and Registration Rights Agreement, and by taking
and holding such Registrable Securities such transferee shall be entitled
to receive the benefits of, and be conclusively deemed to have agreed to be
bound by all of the applicable terms and provisions of this Exchange and
Registration Rights Agreement. If the Issuers shall so request, any such
successor, assign or transferee shall agree in writing to acquire and hold
the Registrable Securities subject to all of the applicable terms hereof.
(e) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Exchange and
Registration Rights Agreement or made pursuant hereto shall remain in full
force and effect regardless of any investigation (or statement as to the
results thereof) made by or on behalf of any holder of Registrable
Securities, any director, officer or partner of such holder, any agent or
underwriter or any director, officer or partner thereof, or any controlling
person of any of the foregoing, and shall survive delivery of and payment
for the Registrable Securities pursuant to the Purchase Agreement and the
transfer and registration of Registrable Securities by such holder and the
consummation of an Exchange Offer.
(f) GOVERNING LAW. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO
CONFLICTS OF LAW.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are
inserted for convenience only, do not constitute a part of this
Exchange and Registration Rights Agreement and shall not affect in any
way the meaning or interpretation of this Exchange and Registration
Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration Rights
Agreement and the other writings referred to herein (including the
Indenture and the form of Notes) or delivered pursuant hereto which
form a part hereof contain the entire understanding of the parties
with respect to its subject matter. This Exchange and Registration
Rights Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter. This Exchange
and Registration Rights
<PAGE> 27
Agreement may be amended and the observance of any term of this Exchange
and Registration Rights Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a
written instrument duly executed by the Issuers and the holders of at least
a majority in aggregate principal amount of the Registrable Securities at
the time outstanding. Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any amendment or waiver
effected pursuant to this Section 9(h), whether or not any notice, writing
or marking indicating such amendment or waiver appears on such Registrable
Securities or is delivered to such holder.
(i) Inspection. For so long as this Exchange and Registration Rights
Agreement shall be in effect, this Exchange and Registration Rights
Agreement and a complete list of the names and addresses of all the holders
of Registrable Securities shall be made available for inspection and
copying, upon reasonable prior notice, on any business day during normal
business hours by any holder of Registrable Securities for proper purposes
only (which shall include any purpose related to the rights of the holders
of Registrable Securities under the Notes, the Indenture and this
Agreement) at the offices of the Issuers at the address thereof set forth
in Section 9(c) above and at the office of the Trustee under the Indenture.
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same
instrument.
<PAGE> 28
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Purchasers, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Purchasers and the Issuers.
It is understood that your acceptance of this letter on behalf of each of the
Purchasers is pursuant to the authority set forth in a form of Agreement among
Purchasers, the form of which shall be submitted to the Issuers for examination
upon request, but without warranty on your part as to the authority of the
signers thereof.
Very truly yours,
CHARTER COMMUNICATIONS HOLDINGS, LLC,
as an Issuer
By /s/ Curtis S. Shaw
---------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
CHARTER COMMUNICATIONS HOLDINGS
CAPITAL CORPORATION, as an Issuer
By /s/ Curtis S. Shaw
---------------------------------------
Name: Curtis S. Shaw
Title: SVP, General Counsel & Secretary
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
FLEETBOSTON ROBERTSON STEPHENS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
TD SECURITIES (USA) INC.
FIRST UNION SECURITIES, INC.
PNC CAPITAL MARKETS, INC.
SUNTRUST EQUITABLE SECURITIES CORPORATION
By: GOLDMAN, SACHS & CO.
By /s/ Goldman, Sachs & Co.
--------------------------------------
(Goldman, Sachs & Co.)
<PAGE> 29
EXHIBIT A
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
INSTRUCTION TO DTC PARTICIPANTS
-------------------------------
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE](a)
The Depository Trust Issuers ("DTC") has identified you as a DTC
Participant through which beneficial interests in the Charter
Communications Holdings, LLC (the "Company") and Charter Communications
Holdings Capital Corporation ("Charter Capital" and, together with the
Company, the "Issuers") 11.75% Senior Discount Notes due 2010 (the "Notes")
are held.
The Issuers are in the process of registering the Notes under the
Securities Act of 1933, as amended, for resale by the beneficial owners
thereof. In order to have their Notes included in the registration
statement, beneficial owners must complete and return the enclosed Notice
of Registration Statement and Selling Securityholder Questionnaire.
It is important that beneficial owners of the Notes receive a copy of
the enclosed materials as soon as possible as their rights to have the
Notes included in the registration statement depend upon their returning
the Notice and Questionnaire by [Deadline For Response]. Please forward a
copy of the enclosed documents to each beneficial owner that holds
interests in the Notes through you. If you require more copies of the
enclosed materials or have any questions pertaining to this matter, please
contact the Issuers c/o Charter Communications Holdings, LLC, 12444
Powerscourt Drive, Suite 100, St. Louis, Missouri, 63131, Attention:
Secretary.
(a) Not less than 28 calendar days from date of mailing.
<PAGE> 30
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
Notice of Registration Statement
and
Selling Securityholder Questionnaire
------------------------------------
(Date)
Reference is hereby made to the Exchange and Registration Rights
Agreement (the "Exchange and Registration Rights Agreement") between
Charter Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation (together, the "Issuers"), and the Purchasers named
therein. Pursuant to the Exchange and Registration Rights Agreement, the
Issuers have filed with the United States Securities and Exchange
Commission (the "Commission") a registration statement on Form [__] (the
"Shelf Registration Statement") for the registration and resale under Rule
415 of the Securities Act of 1933, as amended (the "Securities Act"), of
the Issuers' 11.75% Senior Discount Notes due 2010 (the "Notes"). A copy of
the Exchange and Registration Rights Agreement is attached hereto. All
capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Exchange and Registration Rights Agreement.
Each beneficial owner of Registrable Securities is entitled to have the
Registrable Securities beneficially owned by it included in the Shelf
Registration Statement. In order to have Registrable Securities included in
the Shelf Registration Statement, this Notice of Registration Statement and
Selling Securityholder Questionnaire ("Notice and Questionnaire") must be
completed, executed and delivered to the Issuers' counsel at the address
set forth herein for receipt ON OR BEFORE [Deadline for Response].
Beneficial owners of Registrable Securities who do not complete, execute
and return this Notice and Questionnaire by such date (i) will not be named
as selling securityholders in the Shelf Registration Statement and (ii) may
not use the Prospectus forming a part thereof for resales of Registrable
Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are
advised to consult their own securities law counsel regarding the
consequences of being named or not being named as a selling securityholder
in the Shelf Registration Statement and related prospectus.
<PAGE> 31
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item
(3). The undersigned, by signing and returning this Notice and
Questionnaire, agrees to be bound with respect to such Registrable
Securities by the terms and conditions of this Notice and Questionnaire and
the Exchange and Registration Rights Agreement, including, without
limitation, Section 6 of the Exchange and Registration Rights Agreement, as
if the undersigned Selling Securityholder were an original party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to
deliver to the Issuers and the Trustee the Notice of Transfer set forth in
Exhibit B to the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information to
the Issuers and represents and warrants that such information is accurate
and complete:
QUESTIONNAIRE
(1) (a)Full Legal Name of Selling Securityholder:
(b)Full Legal Name of Registered Holder (if not the same as in (a)
above) of Registrable Securities Listed in Item (3) below:
(c)Full Legal Name of DTC Participant (if applicable and if not
the same as (b) above) Through Which Registrable Securities Listed in Item
(3) below are Held:
(2) Address for Notices to Selling Securityholder:
-------------------------------------
-------------------------------------
-------------------------------------
Telephone:
-------------------------------------
Fax:
-------------------------------------
Contact Person:
-------------------------------------
<PAGE> 32
(3) Beneficial Ownership of Notes:
Except as set forth below in this Item (3), the undersigned does
not beneficially own any Notes.
(a)Principal amount of Registrable Securities beneficially owned:
--------------------------------------------------------------
CUSIP No(s). of such Registrable Securities:
-------------------
(b)Principal amount of Notes other than Registrable Securities
beneficially owned:
---------------------------------------------------------------
CUSIP No(s). of such other Notes:
-----------------------------
(c)Principal amount of Registrable Securities which the
undersigned wishes to be included in the Shelf Registration
Statement:
---------------------------
CUSIP No(s). of such Registrable Securities to be included in the
Shelf Registration Statement:
------------------------------------
(4) Beneficial Ownership of Other Securities of the Issuers:
Except as set forth below in this Item (4), the undersigned
Selling Securityholder is not the beneficial or registered owner
of any other securities of the Issuers other than the Notes listed
above in Item (3).
State any exceptions here:
(5) Relationships with the Issuers:
Except as set forth below, neither the Selling Securityholder nor
any of its affiliates, officers, directors or principal equity
holders (5% or more) has held any position or office or has had
any other material relationship with the Issuers (or their
respective predecessors or affiliates) during the past three
years.
State any exceptions here:
(6) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder
intends to distribute
<PAGE> 33
the Registrable Securities listed above in Item (3) only as
follows (if at all): Such Registrable Securities may be sold from
time to time directly by the undersigned Selling Securityholder
or, alternatively, through underwriters, broker-dealers or
agents. Such Registrable Securities may be sold in one or more
transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale,
or at negotiated prices. Such sales may be effected in
transactions (which may involve crosses or block transactions)
(i) on any national securities exchange or quotation service on
which the Registered Notes may be listed or quoted at the time of
sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or services or in the
over-the-counter market, or (iv) through the writing of options.
In connection with sales of the Registrable Securities or
otherwise, the Selling Securityholder may enter into hedging
transactions with broker-dealers, which may in turn engage in
short sales of the Registrable Securities in the course of
hedging the positions they assume. The Selling Securityholder may
also sell Registrable Securities short and deliver Registrable
Securities to close out such short positions, or loan or pledge
Registrable Securities to broker-dealers that in turn may sell
such Notes.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with
the provisions of the Exchange Act and the rules and regulations
thereunder, particularly Regulation M.
In the event that the Selling Securityholder transfers all or any portion
of the Registrable Securities listed in Item (3) above after the date on
which such information is provided to the Issuers, the Selling
Securityholder agrees to notify the transferee(s) at the time of the
transfer of its rights and obligations under this Notice and Questionnaire
and the Exchange and Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of
the information contained herein in its answers to Items (1) through (6)
above and the inclusion of such information in the Shelf Registration
Statement and related Prospectus. The Selling Securityholder understands
that such information will be relied upon by the Issuers in connection with
the preparation of the Shelf Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section
3(d) of the Exchange and Registration Rights Agreement to provide such
information as may be required by law for inclusion in the Shelf
Registration Statement, the Selling Securityholder agrees to promptly
notify the Issuers of any inaccuracies or changes in the information
provided herein which may occur subsequent to the date hereof at any time
while the Shelf Registration
<PAGE> 34
Statement remains in effect. All notices hereunder and pursuant to the
Exchange and Registration Rights Agreement shall be made in writing, by
hand-delivery, first-class mail, or air courier guaranteeing overnight
delivery as follows:
(i) To the Issuers:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
(ii) With a copy to:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Issuers' counsel, the terms of this
Notice and Questionnaire, and the representations and warranties contained
herein, shall be binding on, shall inure to the benefit of and shall be
enforceable by the respective successors, heirs, personal representatives,
and assigns of the Issuers and the Selling Securityholder (with respect to
the Registrable Securities beneficially owned by such Selling
Securityholder and listed in Item (3) above). This Agreement shall be
governed in all respects by the laws of the State of New York without
giving effect to any provisions relating to conflicts of laws.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person
or by its duly authorized agent.
Dated:
---------------------------
<PAGE> 35
--------------------------------------------------------------
Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable
Securities)
By
------------------------------------------------------------
Name:
Title:
<PAGE> 36
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR
RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE ISSUERS' COUNSEL AT:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
<PAGE> 37
EXHIBIT B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
[Name of Trustee]
Charter Communications Holdings, LLC
Charter Communications Holdings Capital
Corporation
c/o [Name of Trustee]
[Address of Trustee]
Attention: Trust Officer
Re: Charter Communications Holdings, LLC
and Charter Communications Holdings Capital Corporation
(together, the "Issuers") 11.75% Senior Discount Notes due 2010
Dear Sirs:
Please be advised that ______________ has transferred $__________ aggregate
principal amount of the above-referenced Notes pursuant to an effective
Registration Statement on Form [___] (File No. 333-____) filed by the
Issuers.
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the
above-named beneficial owner of the Notes is named as a "Selling Holder" in
the prospectus dated [date] or in supplements thereto, and that the
aggregate principal amount of the Notes transferred are the Notes listed in
such prospectus opposite such owner's name.
Dated:
Very truly yours,
----------------------------------
(Name)
By:
------------------------------
(Authorized Signature)
<PAGE> 1
EXHIBIT 5.1
January 24, 2000
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
12444 Powerscourt Drive
Suite 100
St. Louis, Missouri 63131
Re: Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
Registration Statement on Form S-4
Ladies and Gentlemen:
This opinion is delivered in our capacity as counsel to Charter
Communications Holdings, LLC, a Delaware limited liability company, and Charter
Communications Holdings Capital Corporation, a Delaware corporation (together,
the "Issuers"), in connection with the Issuers' registration statement on Form
S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"). The Registration Statement relates to the offering by the
Issuers of 10.00% Senior Notes due 2009, 10.25% Senior Notes due 2010 and
11.75% Senior Discount Notes due 2010 (collectively, the "Notes")
In connection with this opinion, we have examined copies or originals
of such documents, resolutions, certificates and instruments of the Issuers as
we have deemed necessary to form a basis for the opinion hereinafter expressed.
In addition, we have reviewed certificates of public officials, statutes,
records and other instruments and documents as we have deemed necessary to form
a basis for the opinion hereinafter expressed. In our examination of the
foregoing, we have assumed, without independent investigation, (i) the
genuineness of all signatures and the authority of all persons or entities
signing all documents examined by us, and (ii) the authenticity of all documents
submitted to us as originals and the conformity to authentic original documents
of all copies submitted to us as certified, conformed or photostatic copies.
<PAGE> 2
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
January 24, 2000
Page 2
With regard to certain factual matters, we have relied, without
independent investigation or verification, upon statements and representations
of representatives of the Issuers.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, when the Notes have been duly authenticated by Harris Trust
and Savings Bank in its capacity as Trustee, and duly executed and delivered on
behalf of the Issuers against payment therefor as contemplated by the
registration statement, the Notes will be legally issued and will constitute
binding obligations of the Issuers, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance and transfer, moratorium or
other laws now or hereafter in effect relating to or affecting the rights or
remedies of creditors generally and by general principles of equity (whether
applied in a proceeding at law or in equity) including, without limitation,
standards of materiality, good faith and reasonableness in the interpretation
and enforcement of contracts, and the application of such principles to limit
the availability of equitable remedies such as specific performance.
We are members of the Bar of the State of New York, and, accordingly,
do not purport to be experts on or to be qualified to express any opinion
herein concerning, nor do we express any opinion herein concerning, the laws of
any jurisdiction other than the laws of the State of New York.
We hereby consent to being named as counsel to the Issuers in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters," and to the inclusion of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act, or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF PAUL, HASTINGS, JANOFKSY & WALKER LLP]
January 24, 2000
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
12444 Powerscourt Drive
Suite 100
St Louis, Missouri 63131
Re: Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
Registration Statement on Form S-4
Ladies and Gentlemen:
Reference is made to the registration statement on Form S-4 (the
"Registration Statement") to be filed by Charter Communications Holdings, LLC, a
Delaware limited liability company, and Charter Communications Holdings Capital
Corporation, a Delaware corporation (together, the "Issuers"), with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended. The Registration Statement relates to the offer to exchange (the
"Exchange Offer") by the Issuers the 10.00% Senior Notes due 2009, 10.25% Senior
Notes due 2010 and 11.75% Senior Discount Notes due 2010 (collectively, the "New
Notes") for any and all outstanding 10.00% Senior Notes due 2009, 10.25% Senior
Notes due 2010 and 11.75% Senior Discount Notes due in 2010 of the Issuers
(collectively, the "Original Notes"). Capitalized terms used herein and that are
not separately defined shall have the meanings assigned to them in the
Registration Statement.
We have examined the Registration Statement and such other
documents as we have deemed necessary and appropriate to render our opinion
expressed below. In our examination of such material, we have relied upon the
current and continued accuracy of the factual matters we have considered, and we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to all original
documents of all copies of documents submitted to us. We assume that all
transactions relating to the exchange pursuant to the Exchange Offer will be
carried out in accordance with the terms of the governing documents without any
amendments thereto or waiver of any terms thereof, and that such documents
represent the entire agreement of the parties thereto.
Based upon and subject to the foregoing, and consideration of
applicable law, the discussion set forth under the caption "Material United
States Federal Income Tax Considerations" in the Registration Statement, subject
to the limitations described therein, constitutes our opinion with respect to
the material United States federal income tax consequences of the Exchange Offer
relevant to U.S. holders, and the ownership and
<PAGE> 2
Charter Communications Holdings, LLC
Charter Communications Holdings Capital Corporation
January 24, 2000
Page 2
disposition of the New Notes relevant to the U.S. holders and, in certain
circumstances, non-U.S. holders. Our opinion is based on United States federal
income tax laws, Treasury regulations, Internal Revenue Service ("IRS") rulings,
official pronouncements and judicial decisions, all as in effect on the date
hereof and all of which are subject to change, possibly with retroactive effect,
or different interpretations, and we do not undertake to update or supplement
this letter to reflect any such changes.
No opinion is expressed on any matters other than those specifically
referred to herein. The opinion expressed herein is for your benefit and for the
benefit of the holders of the New Notes and may not be relied upon in any manner
or for any purpose by any other person.
The opinion set forth in this letter has no binding effect on the IRS or
the courts of the United States. We have not sought and will not seek any
rulings from the IRS with respect to any matters referred to herein. No
assurance can be given that, if the matter were contested, the IRS or a court
would agree with the opinion set forth in this letter.
We hereby consent to being named as counsel to the Issuers in the
Registration Statement, to the references therein to our firm under the caption
"Material United States Federal Income Tax Considerations," and to the inclusion
of this opinion as an exhibit to the Registration Statement. In giving this
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act, or the rules
and regulations of the Commission thereunder.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
PAUL, HASTINGS, JANOFKSY & WALKER LLP
<PAGE> 1
Exhibit 10.1(a)
EXECUTION COPY
FIRST AMENDMENT, dated as of June 28, 1999 (this "First Amendment"), to
the CREDIT AGREEMENT, dated as of March 18, 1999 (the "Credit Agreement"), among
CHARTER COMMUNICATIONS OPERATING, LLC (the "Borrower"), CHARTER COMMUNICATIONS
HOLDINGS LLC, the Lenders parties to the Credit Agreement, the Documentation
Agents and Syndication Agents named therein and THE CHASE MANHATTAN BANK and
NATIONSBANK, N.A., as Administrative Agents (in such capacity, the
"Administrative Agents"). Terms defined in the Credit Agreement shall be used in
this First Amendment with their defined meanings unless otherwise defined
herein.
W I T N E S S E T H:
WHEREAS, the Borrower wishes to amend the Credit Agreement in the
manner set forth herein; and
WHEREAS, each of the parties hereto is willing to enter into this First
Amendment on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION I. AMENDMENTS TO CREDIT AGREEMENT.
1. Section 1.1 - Exchange Date. The definition of "Exchange
Date" contained in Section 1.1 of the Credit Agreement is hereby
amended and restated in its entirety as follows:
"Exchange Date": the date of consummation of any Exchange.
2. Section 1.1 - Specified Subordinated Debt. The definition
of "Specified Subordinated Debt" contained in Section 1.1 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"Specified Subordinated Debt": any Indebtedness of the
Borrower issued directly or indirectly to Paul G. Allen or any of his
Affiliates, so long as such Indebtedness (a) qualifies as Specified
Long-Term Indebtedness and (b) has terms and conditions substantially
identical to those set forth in Exhibit I.
3. Section 1.1 - New Definitions. The following definitions
are hereby added to Section 1.1 of the Credit Agreement in the
appropriate alphabetical order:
<PAGE> 2
"Exchange Excess Amount": as defined in Section 7.5(f).
"Excluded Exchange Excess Amount": any Exchange Excess Amount
determined pursuant to one or more Exchanges consummated after the
Stage One Closing Date until the aggregate Exchange Excess Percentages
equal 15%. For the purposes of this definition, the "Exchange Excess
Percentage" with respect to any Exchange that results in an Exchange
Excess Amount shall equal the quotient (expressed as a percentage) of
such Exchange Excess Amount divided by Annualized Pro Forma Operating
Cash Flow determined as of the relevant Exchange Date.
4. Section 2.9(a). Section 2.9(a) of the Credit Agreement is
hereby deleted in its entirety and replaced with the reference
"[INTENTIONALLY OMITTED]."
5. Section 7.2(g). Section 7.2(g) of the Credit Agreement is
hereby amended by changing the words "90 days" contained therein to the
words "120 days."
6. Section 7.2(j). Clause (ii) of Section 7.2(j) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(ii) except in the case of the Senior Notes, 100% of the Net
Cash Proceeds thereof (other than any such Net Cash Proceeds
that are applied to refinance other Indebtedness of Holdings
to the extent permitted by Section 7.8) shall be used by
Charter Holdings to make Investments in one or more of its
operating Affiliates"
7. Section 7.4. Section 7.4 of the Credit Agreement is hereby
amended by adding the following new paragraph (f) to the end thereof:
"(f) so long as no Default of Event of Default has occurred or
is continuing or would result therefrom, Charter Holdings may
be merged or consolidated with any Affiliate of Paul G. Allen
(provided that either (i) Charter Holdings is the continuing
or surviving entity or (ii) if Charter Holdings is not the
continuing or surviving entity, such continuing or surviving
entity assumes the obligations of Charter Holdings under the
Loan Documents to which it is a party pursuant to an
instrument in form and substance reasonably satisfactory to
the Administrative Agents and, in connection therewith, the
Administrative Agents shall receive such legal opinions,
certificates and other documents as they may reasonably
request)"
2
<PAGE> 3
8. Section 7.5(e). The second parenthetical contained in
Section 7.5(e) of the Credit Agreement is hereby amended and restated
in its entirety as follows:
"(it being understood that Exchange Excess Amounts (other than
Excluded Exchange Excess Amounts) shall be deemed to
constitute usage of availability in respect of Dispositions
pursuant to this Section 7.5(e))"
9. Section 7.5(f). Section 7.5(f) of the Credit Agreement is
hereby amended and restated in its entirety as follows:
"(f) any Exchange by the Borrower and its Subsidiaries;
provided that (i) on the date of such Exchange, no Default or
Event of Default shall have occurred and be continuing or
would result therefrom; (ii) in the event that the Annualized
Asset Cash Flow Amount attributable to the assets being
Exchanged exceeds the annualized asset cash flow amount
(determined in a manner comparable to the manner in which
Annualized Asset Cash Flow Amounts are determined hereunder)
of the assets received in connection with such Exchange (such
excess amount, an "Exchange Excess Amount"), then, unless such
Exchange Excess Amount is an Excluded Exchange Excess Amount,
the Disposition of such Exchange Excess Amount is permitted by
clauses (ii) and (iii) of Section 7.5(e); and (iii) the Net
Cash Proceeds of such Exchange, if any, shall be applied to
prepay the Term Loans to the extent required by Section
2.9(b)"
10. Section 7.6(c). Clause (ii) of Section 7.6(c) of the
Credit Agreement is hereby amended and restated in its entirety as
follows:
"(ii) the Borrower may make distributions to Charter Holdings
as described in the last sentence of Section 7.9"
11. Section 7.6(d). Section 7.6(d) of the Credit Agreement is
hereby amended and restated in its entirety as follows:
"(d) the Borrower may make distributions to Charter Holdings
to permit Charter Holdings (or any parent company thereof) to
pay (i) attorneys' fees, investment banking fees, accountants'
fees, underwriting discounts and commissions and other
customary fees and expenses actually incurred in connection
with any issuance, sale or incurrence by Charter Holdings (or
any such parent company) of Equity Interests or Indebtedness
(other than any such amounts customarily paid out of the
proceeds of transactions of such type), provided, that such
amounts shall be allocated in an appropriate manner
(determined after consultation with the Administrative Agents)
3
<PAGE> 4
among the Borrower and the other operating Subsidiaries, if
any, of the issuer or obligor in respect of such Equity
Interests or Indebtedness, (ii) costs and expenses incurred in
connection with the Exchange Offers (as defined in the Senior
Note Indenture) and (iii) other administrative expenses
(including legal, accounting, other professional fees and
costs, printing and other such fees and expenses) incurred in
the ordinary course of business, in an aggregate amount in the
case of this clause (iii) not to exceed $2,000,000 in any
fiscal year"
12. Section 7.7(f). Clause (ii) of Section 7.7(f) of the
Credit Agreement is hereby amended by adding the following words after
the words "Paul Allen Contributions" in the parenthetical contained
therein:
"and Consideration consisting of operating assets transferred
in connection with Exchanges"
13. Section 7.7(h). Section 7.7(h) of the Credit Agreement is
hereby amended by changing the amount "$100,000,000" contained therein
to the amount "$300,000,000".
14. Section 7.9. Section 7.9 of the Credit Agreement is hereby
amended by adding the following sentence to the end thereof:
"Notwithstanding anything to the contrary in this Section 7.9,
so long as no Default or Event of Default shall have occurred
and be continuing, the Borrower shall be permitted to pay
(either directly or by way of distribution to Charter
Holdings) amounts not in excess of 1.0% of the aggregate
enterprise value of Investments permitted hereby (excluding
the Marcus Combination) to certain members of the Charter
Group."
15. Section 7.14(b). Section 7.14(b) of the Credit Agreement
is hereby amended and restated in its entirety as follows:
"(b) In the case of Charter Holdings and the Borrower, (i)
conduct, transact or otherwise engage in, or commit to
conduct, transact or otherwise engage in, any business or
operations other than those incidental to its ownership of the
Equity Interests of other Persons or (ii) own, lease, manage
or otherwise operate any properties or assets other than
Equity Interests of other Persons"
16. Section 8(j). Section 8(j) of the Credit Agreement is
hereby amended and restated in its entirety as follows:
4
<PAGE> 5
"(j)(i) the Paul Allen Group shall cease to have the power,
directly or indirectly, to vote or direct the voting of Equity
Interests having at least 51% (determined on a fully diluted
basis) of the ordinary voting power for the management of
Charter; (ii) the Paul Allen Group shall cease to own of
record and beneficially, directly or indirectly, Equity
Interests of Charter representing at least 51% (determined on
a fully diluted basis) of the economic interests therein
(provided that such percentage shall be reduced to 25% after
the consummation of an Initial Public Offering); (iii) a
Specified Change in Control shall occur; or (iv) the Borrower
shall cease to be a direct Wholly Owned Subsidiary of
Holdings"
17. Section 8(k). Section 8(k) of the Credit Agreement is
hereby deleted in its entirety and replaced with the reference
"[INTENTIONALLY OMITTED]".
SECTION II. MISCELLANEOUS.
1. No Change. Except as expressly provided herein, no term or
provision of the Credit Agreement shall be amended, modified or
supplemented, and each term and provision of the Credit Agreement shall
remain in full force and effect.
2. Effectiveness. This First Amendment shall become effective
as of the date hereof upon receipt by the Administrative Agents of (a)
counterparts hereof duly executed by Holdings and the Borrower and (b)
consent letters authorizing the Administrative Agents to enter into
this First Amendment from the Required Lenders, provided, that the
amendment described in paragraph 4 of Section I of this First Amendment
shall not become effective until consent letters authorizing the
Administrative Agents to enter into this First Amendment have been
received from the Required Prepayment Lenders.
3. Counterparts. This First Amendment may be executed by the
parties hereto in any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the
same instrument.
4. GOVERNING LAW. THIS FIRST AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS FIRST AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered as of the day and year first above written.
CHARTER COMMUNICATIONS HOLDINGS LLC
By: /s/ Eloise A. Engman
_______________________________________
Name: Eloise A. Engman
Title: Vice President
CHARTER COMMUNICATIONS OPERATING, LLC
By: /s/ Eloise A. Engman
_______________________________________
Name: Eloise A. Engman
Title: Vice President
THE CHASE MANHATTAN BANK,
as an Administrative Agent
By: /s/ Edmund DeForest
_______________________________________
Name: Edmund DeForest
Title: Vice President
NATIONSBANK, N.A., as an Administrative Agent
By: /s/ A. Cacheria
_______________________________________
Name: A. Cacheria
Title: M/D
6
<PAGE> 1
Exhibit 10.1(b)
SECOND AMENDMENT, dated as of December 14, 1999 (this "Second Amendment"),
to the CREDIT AGREEMENT, dated as of March 18, 1999, as amended by the First
Amendment dated as of June 28, 1999 (the "Credit Agreement"), among CHARTER
COMMUNICATIONS OPERATING, LLC (the "Borrower"), CHARTER COMMUNICATIONS HOLDINGS
LLC, the Lenders parties to the Credit Agreement, the Documentation Agents and
Syndication Agents named therein and THE CHASE MANHATTAN BANK and BANK OF
AMERICA, N.A., as Administrative Agents (in such capacity, the "Administrative
Agents"). Terms defined in the Credit Agreement shall be used in this Second
Amendment with their defined meanings unless otherwise defined herein.
W I T N E S S E T H :
WHEREAS, the Borrower wishes to amend the Credit Agreement in the manner
set forth herein; and
WHEREAS, each of the parties hereto is willing to enter into this Second
Amendment on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT.
1. Section 1.1 -- Amended Definition. The defined term "Specified Senior
Notes" is amended and restated in its entirety as follows:
"Specified Senior Notes": the collective reference to (a) any Senior Notes
having a maturity approximately eight years after the Stage One Closing Date
and (b) any other Indebtedness incurred pursuant to Section 7.2(j) having a
maturity on or prior to March 17, 2009, provided, that no more than
$900,000,000 of Specified Senior Notes shall be outstanding.
2. Section 7.2(i). Clause (ii) of Section 7.2(j) of the Credit Agreement
is hereby amended and restated in its entirety as follows:
"(ii) except in the case of the Senior Notes, 100% of any Net Cash Proceeds
thereof (other than any such Net Cash Proceeds that are applied to refinance
other Indebtedness of Holdings to the extent permitted by Section 7.8) shall
be used by Charter Holdings (or shall have been used) to make Investments in
one more of Charter Holdings' Affiliates primarily involved (either directly
or through Subsidiaries) in businesses of the type described in Section
7.14(a)"
SECTION II. MISCELLANEOUS.
1. No Change. Except as expressly provided herein, no term or provision of
the Credit Agreement shall be amended, modified or supplemented, and each term
and provision of the Credit Agreement shall remain in full force and effect.
2. Effectiveness. This Second Amendment shall become effective as of the
date hereof upon receipt by the Administrative Agents of (a) counterparts
hereof duly executed by Holdings and the Borrower and (b) consent letters
authorizing the Administrative Agents to enter into this Second Amendment from
the Required Lenders.
<PAGE> 2
Borrower and (b) consent letters authorizing the Administrative Agents to enter
into this Second Amendment from the Required Lenders.
3. Counterparts. This Second Amendment may be executed by the parties
hereto in any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
4. Governing Law. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed and delivered as of the day and year first above written.
CHARTER COMMUNICATIONS HOLDINGS LLC
By: /s/ Eloise A. Engman
------------------------------------
Name: Eloise A. Engman
Title: Vice President
CHARTER COMMUNICATIONS OPERATING, LLC
By: /s/ Eloise A. Engman
------------------------------------
Name: Eloise A. Engman
Title: Vice President
THE CHASE MANHATTAN BANK,
as an Administrative Agent
By: /s/ Edmund DeForest
------------------------------------
Name: Edmund DeForest
Title: Vice President
BANK OF AMERICA, N.A., as an Administrative
Agent
By: /s/ Jennifer Zydnay
------------------------------------
Name: Jennifer Zydnay
Title: Managing Director
<PAGE> 1
Exhibit 10.26(a)
EXECUTION
FIRST AMENDMENT TO CREDIT AGREEMENT
December 21, 1999
Reference is made to that certain Credit Agreement dated as of
November 15, 1999 (as heretofore amended, supplemented or otherwise modified,
the "Credit Agreement"), by and among CC Michigan, LLC and CC New England, LLC,
as borrowers ("Borrowers"), CC V Holdings, LLC (formerly known as Avalon Cable
LLC) ("Holdings"), as a guarantor, the financial institutions listed on the
signature pages thereof, Bank of Montreal, Chicago Branch, as Administrative
Agent, and the Co-Arrangers, Syndication Agents, and Co-Documentation Agents
named therein. Capitalized terms used herein without definition herein shall
have the meanings assigned to such terms in the Credit Agreement.
Borrowers, Holdings and the undersigned Lenders hereby agree as
follows:
(1) Section 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Qualified Indebtedness" contained therein in its entirety
therefrom and substituting therefor the following:
"Qualified Indebtedness": (a) with respect to a Qualified Parent
Company, any Indebtedness (i) which is issued in a Rule 144A private
placement or registered public offering, (ii) which is not held by any
Affiliate of a Borrower and (iii) as to which 100% of the Net Cash
Proceeds thereof are used by such Qualified Parent Company to make
Investments in one or more of its Subsidiaries engaged substantially in
businesses of the type described in Section 6.14(a) and/or to refinance
other Qualified Indebtedness or Indebtedness of a Borrower and (b) with
respect to an Affiliate of any of the Borrowers, any Indebtedness as to
which 100% of the Net Cash Proceeds thereof were contributed to any of
the Borrowers.
(2) Schedule 6.2(d) to the Credit Agreement is hereby amended by
adding at the end thereof "The Existing Senior Subordinated Debt."
On and after the First Amendment Effective Date (as defined below),
each reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit Agreement,
and each reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended by
this Amendment (the Credit Agreement, as so amended, being the "Amended
Agreement"). Except as specifically amended by this Amendment, the Credit
Agreement and such other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed. The execution, delivery and performance
of this Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of any right, power or remedy
of any Agent or any Lender under, the Credit Agreement or any of such other Loan
Documents.
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument. This Amendment shall
become effective (the date of such effectiveness being the "First Amendment
Effective Date") with respect to the Credit Agreement upon the execution of a
counterpart hereof by the Borrowers, Holdings and Required Lenders and receipt
by the Borrowers and Administrative Agent of written or telephonic notification
of such execution and authorization of delivery thereof.
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
1
<PAGE> 2
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
AGENTS AND LENDERS: BANK OF MONTREAL, CHICAGO BRANCH,
individually and as Administrative Agent
By: /s/ Michael Silverman
-------------------------------------
Name: Michael Silverman
Title: Managing Director
FIRST UNION NATIONAL BANK, individually
and as a Syndication Agent
By: /s/ Chris Kalmbach
-------------------------------------
Name: Chris Kalmbach
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
individually and as a Syndication Agent
By: /s/ Jeffrey E. Hauser
-------------------------------------
Name: Jeffrey E. Hauser
Title: Vice President
MERCANTILE BANK NATIONAL ASSOCIATION,
individually and as a Co-Documentation
Agent
By: /s/ Jennifer L. Schaefer
-------------------------------------
Name: Jennifer L. Schaefer
Title: Banking Officer
THE CHASE MANHATTAN BANK
By: /s/ Edmund DeForest
-------------------------------------
Name: Edmund DeForest
Title: Vice President
BANK ONE, N.A.
By: /s/ Ronna Bury Prince
-------------------------------------
Name: Ronna Bury Prince
Title: First Vice President
2
<PAGE> 3
PARIBAS CAPITAL FUNDING LLC
By:
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By: /s/ Lynn Chasin
-------------------------------------
Name: Lynn Chasin
Title: Vice President
FLOATING RATE PORTFOLIO
By: INVESCO Senior Secured Management,
Inc., as attorney in fact
By: /s/ Gregory Stoeckle
-------------------------------------
Name: Gregory Stoeckle
Title: Authorized Signatory
FREMONT INVESTMENT & LOAN
By:
-------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By: /s/ Debra M. Ritchie
-------------------------------------
Name: Debra M. Ritchie
Title: Assistant Vice President
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Thomas G. Gunder
-------------------------------------
Name: Thomas G. Gunder
Title: Vice President
3
<PAGE> 4
COOPERATIVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH
By: /s/ Alan E. McLintock
-------------------------------------
Name: Alan E. McLintock
Title: Vice President
By: /s/ Nancy J. O'Conner
------------------------------------
Name: Nancy J. O'Conner
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ Thomas M. Toerpe
-------------------------------------
Name: Thomas M. Toerpe
Title: Vice President
By: /s/ Roxana Sopola
-------------------------------------
Name: Roxana Sopola
Title: Vice President
CITIBANK, N.A.
By: /s/ Maureen Marona
-------------------------------------
Name: Maureen Marona
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Ian A. Hodgort
-------------------------------------
Name: Ian A. Hodgort
Title: Authorized Signatory
FRANKLIN FLOATING RATE TRUST
By: /s/ Chauncey Lufkin
-------------------------------------
Name: Chauncey Lufkin
Title: Vice President
4
<PAGE> 5
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management, as
Investment Advisor
By: /s/ Barbara Campbell
________________________________
Name: Barbara Campbell
Title: Vice President
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management, as
Investment Advisor
By: /s/ Barbara Campbell
________________________________
Name: Barbara Campbell
Title: Vice President
DELANO COMPANY
By: PACIFIC INVESTMENT MANAGEMENT
COMPANY, as its Investment Advisor
By:
________________________________
Name:
Title:
CAPTIVA III FINANCE LTD, as advised by
PACIFIC INVESTMENT MANAGEMENT COMPANY
By:
_________________________________
Name:
Title:
CATALINA CDO LTD.
By: PACIFIC INVESTMENT
MANAGEMENT COMPANY, as its
Investment Advisor
By:
________________________________
Name:
Title:
5
<PAGE> 6
AERIES FINANCE-II LTD.
By: INVESCO Senior Secured Management,
Inc., as Sub-Managing Agent
By: /s/ Gregory Stoeckle
________________________________
Name: Gregory Stoeckle
Title: Authorized Signatory
AVALON CAPITAL LTD.
By: INVESCO Senior Secured Management,
Inc., as Portfolio Advisor
By: /s/ Gregory Stoeckle
_______________________________
Name: Gregory Stoeckle
Title: Authorized Signatory
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Advisor
By: /s/ Barbara Campbell
_______________________________
Name: Barbara Campbell
Title: Vice President
OXFORD STRATEGIC INCOME FUND
By: Eaton Vance Management, as
Investment Advisor
By: /s/ Barbara Campbell
_______________________________
Name: Barbara Campbell
Title: Vice President
ARES III CLO LTD.
By: ARES CLO Management LLC
By: /s/ J. M. Moore
_______________________________
Name: J. M. Moore
Title: Principal
6
<PAGE> 7
BORROWERS: CC MICHIGAN, LLC
By: /s/ Eloise A. Engman
-------------------------------------
Name: Eloise A. Engman
Title: Vice President
CC NEW ENGLAND, LLC
By: /s/ Eloise A. Engman
-------------------------------------
Name: Eloise A. Engman
Title: Vice President
HOLDINGS: CC V HOLDINGS, LLC (formerly known as
Avalon Cable LLC)
By: /s/ Eloise A. Engman
-------------------------------------
Name: Eloise A. Engman
Title: Vice President
<PAGE> 1
Exhibit 10.36
Charter Communications, Inc.
12444 Powerscourt Drive
Suite 400
St. Louis, Missouri 63131-3660
May 25, 1999
Mr. Marc Nathanson
Falcon Cable TV
10900 Wilshire Boulevard
Los Angeles, California 90067
Dear Marc:
This letter sets forth our agreement relating to certain matters
pertaining to you in connection with the Purchase Agreement dated as of May 25,
1999 by and among Charter Communications, Inc. ("Charter"), Falcon
Communications, L.P., TCI Falcon Holdings, LLC, Falcon Cable Trust and Falcon
Holding Group, Inc. (the "Purchase Agreement").
1. Upon consummation of the Purchase Agreement, and until consummation
of the initial public offering referred to below, subject to the terms and
conditions set forth herein, you will be appointed as a Vice-Chairman of
Charter. In such position, which is a non-executive position, it is understood
that you will render such services and such time as you deem reasonably
necessary; we understand and agree that in such position you will not be
required to devote any specific amount of time and we further understand and
agree that you may participate in such other business, governmental or
charitable enterprises as you may determine. Charter will reimburse you for your
out-of-pocket expenditures (including first-class travel) incurred in connection
with fulfilling your duties in your position as Vice-Chairman.
2. Upon consummation of an initial public offering of Charter (or an
affiliate thereof), you will be appointed to the Board of Directors of the
public entity and continue as Vice Chairman of Charter and will be entitled to
the rights and benefits provided to other inside directors of such public
entity, including without limitation, reimbursements for attending meetings. In
such position, it is understood that you will render such services and such time
as you deem reasonably necessary, we understand and
<PAGE> 2
agree that in such position you will not be required to devote any specific
amount of time and we further understand and agree that you may participate in
such other business, governmental or charitable enterprises as you may
determine.
3. As either Vice-Chairman of Charter or a member of the Board of
Directors of the public entity, you will receive the same indemnification
protections and benefit of D&O insurance provided to other officers and
directors of Charter and such public entity, as applicable.
4. For the first three years following consummation of the Purchase
Agreement, Charter agrees that (i) it will pay you $125,000 per year, from which
you will pay for any secretarial or administrative support staff you will need;
and (ii) at its expense, it will continue to rent for your use (and use by
Charter from time to time) the existing Falcon eighth floor space located at
10900 Wilshire Boulevard, Los Angeles, California for the shorter of (A) the
remainder of its current term; and (B) an event contemplated by Section 5 below;
provided that you will reimburse Charter for one half of the rent for such
space, for the three year period.
5. You and we agree that (i) you may resign as Vice-Chairman or
director at any time and (ii) we may remove you as Vice-Chairman or director at
any time after three years from the date of your appointment, or in the event
you no longer own equity in Charter or its affiliates.
If the foregoing correctly reflects our agreement regarding the above,
please sign a counterpart copy of this letter.
Very truly yours,
Charter Communications, Inc.
By: /s/ JERALD L. KENT
-----------------------------------
Name: Jerald L. Kent
Title: President, Chief Operating
Officer and Director
Agreed:
/s/ MARC NATHANSON
----------------------------
Marc Nathanson
2-
<PAGE> 1
Exhibit 21.1
CHARTER SUBSIDIARIES
Charter Communications Operating, LLC
Charter Communications Properties LLC
Cencom Cable Entertainment, LLC
Charter Communications Entertainment, LLC
Charter Communications Entertainment I, LLC
Charter Communications Entertainment II, LLC
American Cable Entertainment Company, LLC
Charter Advertising Saint Louis, L.L.C.
Long Beach, LLC
Charter Communications Services, LLC
Charter Cable Operating Company, LLC
Marcus Cable Partners, L.L.C.
Marcus Cable, Inc.
Marcus Cable Associates, L.L.C.
Marcus Cable of Alabama, L.L.C.
Marcus Fiberlink, L.L.C.
Charter Communications, L.L.C.
Peachtree Cable TV, LLC
Peachtree Cable TV, L.P.
CF Finance LaGrange, Inc.
Charter-LaGrange, L.L.C.
Charter RMG, LLC
Renaissance Media Group LLC
Renaissance Media Capital Corporation
Renaissance Media (Tennessee), LLC
Renaissance Media (Louisiana), LLC
Renaissance Media LLC
Charter-Helicon, LLC
Helicon Partners I, LP
The Helicon Group, L.P.
Helicon Network Solutions, L.P.
Helicon Online, L.P.
Helicon Capital Corp.
HPI Acquisitions Co. LLC
Vista Broadband Communications, LLC
Interlink Communications Partners, LLC
Rifkin Acquisition Partners, L.L.C.
Rifkin Acquisition Capital Corp.
CCO Property, LLC
CCO Purchasing, LLC
Robin Media Group, Inc.
Cable Equities of Colorado Management Corp.
Cable Equities Colorado L.L.C.
Tennessee, LLC
CC VII Holdings, LLC
Charter Communications VII, LLC
Falcon Cable Communications, LLC
Falcon Funding Corporation
Falcon Media Investors Group (CA LP)
Falcon Cable Media (CA LP)
Falcon Community Investors, LP (CA LP)
Falcon Community Cable, LP
Falcon Community Ventures I, LP
Bend Cable Communications, LLC
Central Oregon Advertising, LLC
Falcon Cable Systems Company II, LP
<PAGE> 2
CHARTER SUBSIDIARIES (cont.)
Falcon Equipment Company, LLC
SFC Transmissions
Falcon Pacific Microwave
Falcon Investors Group, Ltd.
Falcon Cablevision (CA LP)
212 Seventh Street
Falcon Telecable (CA LP)
Falcon/Capital Cable G.P.
Falcon Lake Las Vegas Cablevision, LP
Falcon/Capital Cable Partners, LP
Falcon Telecable Investors Group (CA LP)
Falcon Telecom, LP
Falcon First, Inc.
Falcon Video Communications Investors, LP
Falcon Video Communications, LP
Falcon First Cable of New York, Inc.
Wilcat Transmission Co, Inc.
Falcon First Cable of the Southeast, Inc.
Plattsburgh Cablevision, Inc.
Falcon First Holdings, Inc.
Ausable Cable TV, Inc.
FF Cable Holdings, Inc.
Cedar Bluff Cablevision, Inc.
Athens Cablevision, Inc.
Eastern Mississippi Cablevision, Inc.
Dalton Cablevision, Inc.
Lauderdale Cablevision, Inc.
Multivision of Commerce, Inc.
Scottsboro Cablevision, Inc.
Multivision Northeast, Inc.
Scottsboro TV Cable, Inc.
CC V Holdings, LLC
CC Michigan, LLC
Charter Communications V, LLC
Cross Country Cable, LLC
CC New England, LLC
CC V.com LLC
Hometown TV, Inc.
CC V Holdings Finance, Inc.
CC V Finance, Inc.
CC VI Holdings, LLC
CC VI Operating, LLC
Charter Communications VI, LLC
Cable Systems, Inc.
Tioga Cable Company, Inc.
ARH Ltd.
Hornell Television Services, Inc.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
covering the audited financial statements of Charter Communications Holdings,
LLC and subsidiaries, CCA Group, CharterComm Holdings, L.P.and subsidiaries,
Long Beach Acquisition Corp., Sonic Communications Cable Television Systems,
and Greater Media Cablevision Systems (and to all references to our Firm)
included in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
January 21, 2000
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Charter Communications, Inc.:
We consent to the use of our report on the consolidated balance sheets of Marcus
Cable Holdings, LLC and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, members' equity/partners' capital
and cash flows for each of the years in the three-year period ended December 31,
1998 included herein and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG LLP
Dallas, Texas
January 21, 2000
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 22, 1999 (except for Note 11, as to which
the date is February 24, 1999), with respect to the consolidated financial
statements of Renaissance Media Group LLC included in the Registration Statement
on Form S-4 (No. 333-77499) and related Prospectus of Charter Communications
Holdings, LLC and Charter Communications Holdings Capital Corporation for the
registration of $1,532,000,000 Senior Notes and Senior Discount Notes.
/s/ ERNST & YOUNG LLP
New York, New York
January 21, 2000
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 22, 1999, with respect to the combined
financial statements of the Picayune MS, Lafourche LA, St. Tammany LA, St.
Landry LA, Pointe Coupee LA and Jackson TN cable television systems included in
the Registration Statement on Form S-4 (No. 333-77499) and related Prospectus of
Charter Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation for the registration of $1,532,000,000 Senior Notes and Senior
Discount Notes.
/s/ ERNST & YOUNG LLP
New York, New York
January 21, 2000
<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Charter Communications, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Holdings Corporation of our report relating to the combined balance sheets of
Helicon Partners I, L.P. and affiliates as of December 31, 1997 and 1998 and the
related combined statements of operations, changes in partners' deficit, and
cash flows for each of the years in the three-year period ended December 31,
1998 included herein and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG LLP
New York, New York
January 21, 2000
<PAGE> 1
Exhibit 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation of our report dated April 20, 1999, relating to the combined
financial statements of InterMedia Cable Systems, which appears in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
San Francisco, California
January 21, 2000
<PAGE> 1
Exhibit 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications Capital
Corporation of our reports dated March 19, 1999, relating to the financial
statements of Rifkin Acquisition Partners, L.L.L.P., and Rifkin Cable Income
Partners LP, which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
January 21, 2000
<PAGE> 1
Exhibit 23.9
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 19, 1999, with respect to the consolidated
financial statements of R/N South Florida Cable Management Limited Partnership
and Indiana Cable Associates, Ltd. included in the Registration Statement on
Form S-4 and related Prospectus of Charter Communications Holdings, LLC and
Charter Communications Holdings Capital Corporation for the registration of
$1,532,000,000 Senior Notes and Senior Discount Notes.
/s/ ERNST & YOUNG LLP
Denver, Colorado
January 20, 2000
<PAGE> 1
Exhibit 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 for
Charter Communications Holdings, LLC and Charter Communications Capital
Corporation (i) of our report dated March 30, 1999, except as to the agreement
with Charter Communications, Inc. under which Charter Communications, Inc.
agreed to purchase Avalon Cable LLC's cable television systems and assume some
of their debt described in Note 12 which is as of May 13, 1999, relating to the
financial statements of Avalon Cable LLC as of December 31, 1998 and 1997 and
for the year ended December 31, 1998 and for the period from September 4, 1997
(inception) through December 31, 1997; (ii) of our report dated March 30, 1999,
except as to the agreement with Charter Communications, Inc. under which Charter
Communications, Inc. agreed to purchase Avalon Cable LLC's cable television
systems and assume some of their debt described in Note 13 which is as of May
13, 1999, relating to the financial statements of Avalon Cable of Michigan
Holdings, Inc., as of December 31, 1998 and 1997 and for the year ended December
31, 1998 and for the period from September 4, 1997 (inception) through December
31, 1997; and (iii) of our report dated March 30, 1999 relating to the
consolidated financial statements of Cable Michigan, Inc. and Subsidiaries as of
December 31, 1997 and November 5, 1998 and for each of the two years in the
period ended December 31, 1997 and for the period from January 1, 1998 through
November 5, 1998 which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 21, 2000
<PAGE> 1
Exhibit 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 for
Charter Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation of our report dated September 11, 1998, relating to the financial
statements of Amrac Clear View, a Limited Partnership, as of May 28, 1998 and
for the period from January 1, 1998 through May 28, 1998 which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 20, 2000
<PAGE> 1
Exhibit 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 for
Charter Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation of our report dated February 13, 1998, relating to
the financial statements of Amrac Clear View, a Limited Partnership, as of
December 31, 1997 and 1996 and for the three years in the period ended December
31, 1997 which appear in such Registration Statement. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
/s/ Greenfield, Altman, Brown, Berger & Katz, P.C.
Canton, Massachusetts
January 20, 2000
<PAGE> 1
Exhibit 23.13
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications Holdings
Capital Corporation of our report dated March 30, 1999 relating to the
combined financial statements of the Combined Operations of Pegasus Cable
Television of Connecticut, Inc. and the Massachusetts Operations of Pegasus
Cable Television, Inc. as of December 31, 1996, and 1997 and June 30, 1998 and
for each of the three years in the period ended December 31, 1997 and the period
from January 1, 1998 through June 30, 1998 which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 20, 2000
<PAGE> 1
Exhibit 23.14
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 5, 1999, with respect to the consolidated
financial statements of Falcon Communications, L.P. included in the Registration
Statement on Form S-4 (No. 333-77499) and related Prospectus of Charter
Communications Holdings, LLC and Charter Communications Capital Corporation for
the registration of $1,532,000,000 of Senior Notes and Senior Discount Notes.
/s/ ERNST & YOUNG LLP
Los Angeles, California
January 20, 2000
<PAGE> 1
Exhibit 23.15
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Tele-Communications, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of Charter
Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation of our report, dated June 21, 1999, relating to the combined balance
sheets of the TCI Falcon Systems (as defined in Note 1 to the combined financial
statements) as of September 30, 1998 and December 31, 1997, and the related
combined statements of operations and parent's investment, and cash flows for
the nine-month period ended September 30, 1998 and for each of the years in the
two-year period ended December 31, 1997 included herein and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG LLP
Denver, Colorado
January 21, 2000
<PAGE> 1
Exhibit 23.16
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Tele-Communications, Inc.:
We consent to the inclusion in the registration statement on Form S-4 of
Charter Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation of our report dated April 2, 1999, with respect to the combined
balance sheets of Bresnan Communications Group Systems (as defined in Note 1 to
the combined financial statements) as of December 31, 1997 and 1998, and the
related combined statements of operations and parents' investment and cash flows
for each of the years in the three-year period ended December 31, 1998 included
herein and to the reference to our firm under the heading "Experts" in the
registration statement.
/s/ KPMG LLP
Denver, Colorado
January 21, 2000
<PAGE> 1
Exhibit 23.17
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 11, 1999, except for Notes 1 and 8, as to
which the dates are May 12, 1999 and June 22, 1999, respectively, with respect
to the combined financial statements of Fanch Cable Systems (comprised of
components of TWFanch-one Co. and TWFanch-two Co.) included in the Registration
Statement on Form S-4 and related Prospectus of Charter Communications Holdings,
LLC and Charter Communications Holdings Capital Corporation for the registration
of $1,532,000,000 Senior Notes and Senior Discount Notes.
/s/ ERNST & YOUNG LLP
Denver, Colorado
January 20, 2000
<PAGE> 1
Exhibit 23.18
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 16, 1998, with respect to the combined
financial statements of the Picayune MS, Lafourche LA, St. Tammany LA, St.
Landry LA, Pointe Coupee LA and Jackson TN cable television systems included in
the Registration Statement on Form S-4 (No. 333-77499) and related Prospectus of
Charter Communications Holdings, LLC and Charter Communications Holdings Capital
Corporation for the registration of $1,532,000,000 Senior Notes and Senior
Discount Notes.
/s/ ERNST & YOUNG LLP
New York, New York
January 21, 2000
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Judith Bartolini, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2527 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
CHARTER COMMUNICATIONS HOLDINGS LLC
CHARTER COMMUNICATIONS CAPITAL CORPORATION
(Obligor)
Delaware 43-1843179
Delaware 43-1843177
(State of Incorporation) (I.R.S. Employer Identification No.)
12444 Powerscourt Drive, Suite 400
St Louis MO 63131032
(Address of principal executive offices)
10.00% Senior Notes due 2009
10.25% Senior Notes due 2010
11.75% Senior Notes due 2010
(Title of indenture securities)
<PAGE> 2
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. through 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as now in effect
which includes the authority of the trustee to commence business and to
exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File No.
2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation, File
No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 24th day of January, 2000.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Judith Bartolini
--------------------------
J. Bartolini
Vice President
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ Judith Bartolini
--------------------------
J. Bartolini
Vice President
2
<PAGE> 4
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of September 30, 1999, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[HARRIS BANK LOGO OMITTED]
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on September 30, 1999, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin $1,139,804
Interest bearing balances $223,943
Securities:
a. Held-to-maturity securities $0
b. Available-for-sale securities $5,773,313
Federal funds sold and securities purchased under agreements to resell $148,650
Loans and lease financing receivables:
Loans and leases, net of unearned income $9,752,500
LESS: Allowance for loan and lease losses $111,660
----------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b) $9,640,840
Assets held in trading accounts $193,520
Premises and fixed assets (including capitalized leases) $271,847
Other real estate owned $339
Investments in unconsolidated subsidiaries and associated companies $0
Customer's liability to this bank on acceptances outstanding $44,067
Intangible assets $245,968
Other assets $1,328,114
-----------
TOTAL ASSETS $19,010,405
===========
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices $9,579,731
Non-interest bearing $2,953,755
Interest bearing $6,625,976
In foreign offices, Edge and Agreement
subsidiaries, and IBF's $1,396,781
Non-interest bearing $21,682
Interest bearing $1,375,099
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBF's:
Federal funds purchased & securities sold under agreements to
repurchase $3,951,113
Trading Liabilities 91,252
Other borrowed money:
a. With remaining maturity of one year or less $1,978,203
b. With remaining maturity of more than one year $0
Bank's liability on acceptances executed and outstanding $44,067
Subordinated notes and debentures $225,000
Other liabilities $481,642
-----------
TOTAL LIABILITIES $17,747,789
===========
EQUITY CAPITAL
Common stock $100,000
Surplus $609,913
a. Undivided profits and capital reserves $657,705
b. Net unrealized holding gains (losses) on available-for-sale
securities ($105,002)
-----------
TOTAL EQUITY CAPITAL $1,262,616
===========
Total liabilities, limited-life preferred stock, and equity
capital $19,010,405
===========
</TABLE>
I, Christy Wipper, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
CHRISTY WIPPER 10/26/99
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
ALAN G. McNALLY,
EDWARD W. LYMAN,
LEO M. HENIKOFF
Directors.
4
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
OFFER TO EXCHANGE
10.00% SENIOR NOTES DUE 2009, 10.25% SENIOR NOTES DUE 2010 AND
11.75% SENIOR DISCOUNT NOTES DUE 2010,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
10.00% SENIOR NOTES DUE 2009, 10.25% SENIOR NOTES DUE 2010 AND
11.75% SENIOR DISCOUNT NOTES DUE 2010,
WHICH ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED FEBRUARY [ ], 2000
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY
[ ], 2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED IN
THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
WHERE THE EXPIRATION DATE HAS BEEN EXTENDED, ORIGINAL NOTES TENDERED PURSUANT TO
THE EXCHANGE OFFER AS OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE MAY NOT BE
WITHDRAWN AFTER THE DATE OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
HARRIS TRUST AND SAVINGS BANK
By Registered or Certified Mail
c/o Harris Trust Company of New York
Wall Street Station
P.O. Box 1023
New York, New York 10268-1023
By Overnight Mail or By Hand:
c/o Harris Trust Company of New York
Wall Street Plaza
88 Pine Street
19th Floor
New York, New York 10005
Attention: Reorganization Department
By Facsimile: (212) 701-7637
Telephone Number: (212) 701-7624
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by holders of Original Notes
(as defined below) either if Original Notes are to be forwarded herewith or if
tenders of Original Notes are to be made by book-entry transfer to an account
maintained by Harris Trust and Savings Bank (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
Holders of Original Notes whose certificates (the "Certificates") for such
Original Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date or who cannot complete the procedures for book-entry
transfer on a timely basis, must tender their Original Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures" in the Prospectus.
SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF ORIGINAL NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT NAME AND ORIGINAL NOTES TENDERED
ADDRESS OF REGISTERED HOLDER (ATTACH ADDITIONAL LIST OF NOTES)
- ---------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OF
ORIGINAL
PRINCIPAL NOTES
AMOUNT TENDERED
CERTIFICATE OF ORIGINAL (IF LESS
NUMBER(S)* NOTES THAN ALL)**
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL AMOUNT TENDERED:
- ---------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Original Notes may be tendered in whole or in part in denominations of $1,000 and integral multiplies thereof. All Original
Notes held shall be deemed tendered unless a lesser number is specified in this column.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY:
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
----------------------------------------------------------------------------
DTC Account No.
---------------------------------------- Transaction Code No.
--------------------------------
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
----------------------------------------------------------------------------
Window Ticket Number (if any):
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-------------------------------------------------------------------
2
<PAGE> 3
IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER:
Name of Tendering Institution:
- --------------------------------------------------------------------------------
DTC Account No.
- --------------------------------- Transaction Code No.
- ---------------------------------
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED ORIGINAL
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE ORIGINAL NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
3
<PAGE> 4
Ladies and Gentlemen:
The undersigned hereby tenders to Charter Communications Holdings, LLC, a
Delaware limited liability company, and Charter Communications Holdings Capital
Corporation, a Delaware corporation (together, the "Issuers"), the above
described aggregate principal amount of the Issuers' 10.00% Senior Notes due
2009, 10.25% Senior Notes due 2010 and/or 11.75% Senior Discount Notes due 2010,
which are not registered under the Securities Act of 1933 (the "Original
Notes"), in exchange for a like aggregate principal amount of the Issuers'
10.00% Senior Notes due 2009, 10.25% Senior Notes due 2010 and/or 11.75% Senior
Discount Notes due 2010, which have been registered under the Securities Act of
1933 (the "New Notes"), respectively, upon the terms and subject to the
conditions set forth in the Prospectus, dated February [ ], 2000 (as the same
may be amended or supplemented from time to time, the "Prospectus"), receipt of
which is acknowledged, and in this Letter of Transmittal (which, together with
the Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Original Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Issuers all right, title and interest in and to such Original Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Issuers in connection with the
Exchange Offer) with respect to the tendered Original Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Original Notes to the Issuers
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Issuers, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Original
Notes, (ii) present Certificates for such Original Notes for transfer, and to
transfer the Original Notes on the books of the Issuers, and (iii) receive for
the account of the Issuers all benefits and otherwise exercise all rights of
beneficial ownership of such Original Notes, all in accordance with the terms
and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
ORIGINAL NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE ISSUERS WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE ORIGINAL NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS DEEMED BY THE ISSUERS OR THE EXCHANGE AGENT TO BE NECESSARY
OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE ORIGINAL
NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS
UNDER THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENTS. THE UNDERSIGNED HAS READ
AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Original
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Original Notes. The
Certificate number(s) and the Original Notes that the undersigned wishes to
tender should be indicated in the appropriate boxes above.
If any tendered Original Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Original Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Original Notes will be returned (or, in the case of Original
Notes tendered by book-entry transfer, such Original Notes will be credited to
an account maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Original Notes pursuant to any
one of the procedures described in "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will, upon the
Issuers' acceptance for exchange of such tendered Original Notes, constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under
4
<PAGE> 5
certain circumstances set forth in the Prospectus, the Issuers may not be
required to accept for exchange any of the Original Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Original Notes, that such New Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing Original
Notes not exchanged or not accepted for exchange will be issued to the
undersigned or, in the case of a book-entry transfer of Original Notes, will be
credited to the account indicated above maintained at DTC. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please deliver New
Notes to the undersigned at the address shown below the undersigned's signature.
By tendering Original Notes and executing this Letter of Transmittal, the
undersigned hereby represents and agrees that (i) the undersigned is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Issuers or
any of their subsidiaries, (ii) any New Notes to be received by the undersigned
are being acquired in the ordinary course of its business, (iii) the undersigned
has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act of 1933) of New Notes to
be received in the Exchange Offer, and (iv) if the undersigned is not a
Broker-Dealer, the undersigned is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act of 1933) of such
New Notes. By tendering Original Notes pursuant to the Exchange Offer and
executing this Letter of Transmittal, a holder of Original Notes which is a
Broker-Dealer represents and agrees, consistent with certain interpretive
letters issued by the staff of the Division of Corporation Finance of the
Securities and Exchange Commission to third parties, that (a) such Original
Notes held by the Broker-Dealer are held only as a nominee, or (b) such Original
Notes were acquired by such Broker-Dealer for its own account as a result of
market-making activities or other trading activities and it will deliver the
Prospectus (as amended or supplemented from time to time) meeting the
requirements of the Securities Act of 1933 in connection with any resale of such
New Notes (provided that, by so acknowledging and by delivering a prospectus,
such Broker-Dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act of 1933). See "The Exchange
Offer -- Terms of the Exchange Offer" and "Plan of Distribution" in the
Prospectus.
The Issuers have agreed that, subject to the provisions of the Exchange and
Registration Rights Agreements, the Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Original Notes,
where such Original Notes were acquired by such Participating Broker-Dealer for
its own account as a result of market-making activities or other trading
activities, for a period ending 180 days after the Expiration Date (subject to
extension under certain limited circumstances described in the Prospectus) or,
if earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. However, a Participating Broker-Dealer who intends to use the
Prospectus in connection with the resale of New Notes received in exchange for
Original Notes pursuant to the Exchange Offer must notify the Issuers, or cause
the Issuers to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided
herein for that purpose or may be delivered to the Exchange Agent at one of the
addresses set forth in the Prospectus under "The Exchange Offer -- Exchange
Agent." In that regard, each Participating Broker-Dealer, by tendering such
Original Notes and executing this Letter of Transmittal, agrees that, upon
receipt of notice from the Issuers of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in the Prospectus untrue in any material respect or which causes the
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference therein, in light of the
circumstances under which they were made, not misleading or of the occurrence of
certain other events specified in the Exchange and Registration Rights
Agreements, such Participating Broker-Dealer will suspend the sale of New Notes
pursuant to the Prospectus until the Issuers have amended or supplemented the
Prospectus to correct such misstatement or omission and have furnished copies of
the amended or supplemented Prospectus to the Participating Broker-Dealer or the
Issuers have given notice that the sale of the New Notes may be resumed, as the
case may be.
If the Issuers give such notice to suspend the sale of the New Notes, it
shall extend the 180-day period referred to above during which Participating
Broker-Dealers are entitled to use the Prospectus in connection with the resale
of New Notes by the number of days in the period from and including the date of
the giving of such notice to and including the date when the Issuers shall have
made available to Participating Broker-Dealers copies of the supplemented or
amended Prospectus necessary to resume resales of the New Notes or to and
including the date on which the Issuers have given notice that the use of the
applicable Prospectus may be resumed, as the case may be.
5
<PAGE> 6
Holders of Original Notes whose Original Notes are accepted for exchange
will not receive accrued interest on such Original Notes for any period from and
after the last interest payment date to which interest has been paid or duly
provided for on such Original Notes prior to the original issue date of the New
Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Original Notes, and the undersigned waives
the right to receive any interest on such Original Notes accrued from and after
such interest payment date or, if no such interest has been paid or duly
provided for, from and after April 1, 2000.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
6
<PAGE> 7
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Original Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the Issuers
or the Trustee for the Original Notes to comply with the restrictions on
transfer applicable to the Original Notes). If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
(SIGNATURE(S) OF HOLDER(S))
Signature(s):
- --------------------------------------------- Dated:
- ------------------------------, 2000
Name(s):
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Date:
- ------------------------------, 2000
Capacity of Title:
- --------------------------------------------------------------------------------
Name of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
7
<PAGE> 8
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Original Notes whose name(s)
appear(s) above:
Issue New Notes to:
Name:
- ----------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------
-----------------------------------------------------
(INCLUDE ZIP CODE)
- ------------------------------------------------------
(Taxpayer Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes are to be sent to someone other than
the registered holder of the Original Notes whose name(s) appear(s) above, or to
such registered holder(s) at an address other than that shown above.
Mail New Notes to:
Name:
- ----------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------
-----------------------------------------------------
(INCLUDE ZIP CODE)
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering" in the Prospectus. Certificates, or timely
confirmation of a book-entry transfer of such Original Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or manually
signed facsimile thereof), properly completed and duly executed, with any
required signature guarantees, or an Agent's Message in the case of a book-entry
delivery, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth herein on or
prior to the Expiration Date. Original Notes may be tendered in whole or in part
in the principal amount of $1,000 and integral multiples thereof.
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete
the procedures for delivery by book-entry transfer on a timely basis, may tender
their Original Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by the Issuers, must be received by the Exchange Agent on or prior to the
Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as
defined in the Prospectus) representing all tendered Original Notes, in proper
form for transfer, together with a Letter of Transmittal (or manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in the case of a book-entry
delivery, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent within three New York Stock Exchange trading
days after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Original Notes to
be properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Issuers will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
manually signed facsimile thereof), waives any right to receive any notice of
the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Original Notes) of Original Notes tendered herewith, unless such
holder(s) has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" above, or
(ii) such Original Notes are tendered for the account of a firm that
is an Eligible Institution.
9
<PAGE> 10
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Original Notes" is inadequate, the Certificate number(s) and/or
the principal amount of Original Notes and any other required information should
be listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Original Notes will
be accepted only in the principal amount of $1,000 and integral multiples
thereof. If less than all the Original Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Original Notes
which are to be tendered in the box entitled "Principal Amount of Original Notes
Tendered (if less than all)." In such case, new Certificate(s) for the remainder
of the Original Notes that were evidenced by your old Certificate(s) will only
be sent to the holder of the Original Notes, promptly after the Expiration Date.
All Original Notes represented by Certificates delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Original Notes to be
withdrawn, the aggregate principal amount of Original Notes to be withdrawn, and
(if Certificates for Original Notes have been tendered) the name of the
registered holder of the Original Notes as set forth on the Certificate for the
Original Notes, if different from that of the person who tendered such Original
Notes. If Certificates for the Original Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
Certificates for the Original Notes, the tendering holder must submit the serial
numbers shown on the particular Certificates for the Original Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Original Notes tendered for the
account of an Eligible Institution. If Original Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering," the notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawal of
Original Notes, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Original Notes may not be rescinded.
Original Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer -- Procedures for Tendering."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Issuers, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Issuers, any affiliates or assigns of the Issuers, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Original Notes which have been
tendered but which are withdrawn will be returned to the holder thereof without
cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Original
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Original Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Original Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or manually signed facsimiles thereof) as there
are different registrations of Certificates.
If this Letter of Transmittal or any Certificates 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 must submit proper evidence
satisfactory to the Issuers, in its sole discretion, of such persons' authority
to so act.
10
<PAGE> 11
When this Letter of Transmittal is signed by the registered owner(s) of the
Original Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless New Notes are to be
issued in the name of a person other than the registered holder(s). Signature(s)
on such Certificate(s) or bond power(s) must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Original Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Issuers or the Trustee for the Original Notes may require in accordance
with the restrictions on transfer applicable to the Original Notes. Signatures
on such Certificates or bond powers must be guaranteed by an Eligible
Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Original Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Issuers determine, in their sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes, which
determination shall be final and binding on all parties. The Issuers reserve the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Issuers, be unlawful. The Issuers also reserve the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer -- Conditions" or
any conditions or irregularity in any tender of Original Notes of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders. The Issuers' interpretation of the terms and conditions
of the Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Original Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. Neither the Issuers, any affiliates or assigns of the
Issuers, the Exchange Agent, nor any other person shall be under any duty to
give notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at one of its
addresses and telephone number set forth on the front of this Letter of
Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent
or from your broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Original Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Original Notes
exchanged pursuant to the Exchange Offer may be subject to 31% backup
withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
11
<PAGE> 12
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Original Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Original Notes. If the Original Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Original Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The holder will then be instructed as
to the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Original Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Original Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Original Notes in connection with the Exchange Offer, then the amount of any
such transfer tax (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR MANUALLY SIGNED FACSIMILE
THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
12
<PAGE> 13
TO BE COMPLETED BY ALL TENDERING NOTEHOLDERS
(SEE INSTRUCTION 9)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PAYER'S NAME: HARRIS TRUST AND SAVINGS BANK
- ---------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW OR
DEPARTMENT OF THE TREASURY, Employer Identification Number
INTERNAL REVENUE SERVICE -------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
PAYER'S REQUEST FOR TAXPAYER CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
IDENTIFICATION NUMBER (1) the number shown on this form is my correct Taxpayer Identification Number (or
("TIN") AND CERTIFICATION that I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, (b) I have not been notified by the Internal Revenue Service (the "IRS")
that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (C) the IRS has notified me that I am no longer subject
to withholding.
(3) any other information provided on this form is true and correct.
CERTIFICATION INSTRUCTIONS -- YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN
NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF
UNDER-REPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING
NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING, YOU RECEIVED ANOTHER
NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT
CROSS OUT ITEM (2).
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</TABLE>
<TABLE>
<S> <C> <C>
SIGNATURE ---------------------- DATE------------ PART 2 -- AWAITING TIN [ ]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a Taxpayer Identification Number by the time of payment, 31%
of all payments made to me on account of the New Notes shall be retained until I
provide a Taxpayer Identification Number to the Exchange Agent and that, if I do
not provide my Taxpayer Identification Number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a Taxpayer
Identification Number.
Signature
- -------------------------------------------------------------------------------
Date 2000
-------------,
13
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
CHARTER COMMUNICATIONS HOLDINGS, LLC
CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATION
TENDER OF
10.00% SENIOR NOTES DUE 2009,
10.25% SENIOR NOTES DUE 2010 AND
11.75% SENIOR DISCOUNT NOTES DUE 2010,
WHICH ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933,
IN EXCHANGE FOR
10.00% SENIOR NOTES DUE 2009,
10.25% SENIOR NOTES DUE 2010 AND
11.75% SENIOR DISCOUNT NOTES DUE 2010,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Issuers' (as defined below) 10.00% Senior Notes due 2009,
10.25% Senior Notes due 2010 and 11.75% Senior Discount Notes due 2010
(collectively, the "Original Notes") are not immediately available, (ii)
Original Notes, the Letter of Transmittal and all other required documents
cannot be delivered to Harris Trust and Savings Bank (the "Exchange Agent") on
or prior to the Expiration Date (as defined below) or (iii) the procedures for
delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY ,
2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED IN THE
EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. WHERE
THE EXPIRATION DATE HAS BEEN EXTENDED, ORIGINAL NOTES TENDERED PURSUANT TO THE
EXCHANGE OFFER AS OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE MAY NOT BE
WITHDRAWN AFTER THE DATE OF THE PREVIOUSLY SCHEDULED EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
HARRIS TRUST AND SAVINGS BANK
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<S> <C>
By Registered or Certified Mail By Overnight Mail or Hand:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station Wall Street Plaza
P.O. Box 1023 88 Pine Street
New York, New York 10268-1023 19th Floor
New York, New York 10005
Attention: Reorganization Department
</TABLE>
By Facsimile: (212) 701-7637
Telephone Number: (212) 701-7624
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Charter Communications Holdings, LLC, a
Delaware limited liability company, and Charter Communications Holdings Capital
Corporation, a Delaware corporation (together, the "Issuers"), upon the terms
and subject to the conditions set forth in the Prospectus dated February ,
2000 (as the same may be amended or supplemented from time to time, the
"Prospectus"), and the related Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the aggregate principal amount of Original Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer -- Procedures for Tendering."
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Aggregate Principal Amount Tendered:* Name(s) of Registered Holder(s):
---------------- -----------------------
Certificate No(s) (if available): Addresses:
------------------------- -------------------------------------------------
If Original Notes will be tendered ---------------------------------------
by book-entry transfer, provide
the following information:
DTC Account Number: Area Code and
--------------------------------- Telephone Number(s):
------------------------------------
- -----------------------------------------------------------------------------------------------------
* Original Notes may be tendered in whole or in part in denominations of $1,000 and integral
multiples thereof. All Original Notes held shall be deemed tendered unless a lesser number is
specified here.
</TABLE>
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association (each, an "Eligible Institution"),
hereby guarantees to deliver to the Exchange Agent, at one of its addresses set
forth above, either the Original Notes tendered hereby in proper form for
transfer, or confirmation of the book-entry transfer of such Original Notes to
the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant
to the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s) of
Transmittal (or manually signed facsimile(s) thereof), or an Agents Message in
the case of a book-entry delivery, and any other required documents within three
New York Stock Exchange trading days after the date of execution of this Notice
of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Original Notes tendered hereby to the Exchange Agent within
the time period set forth above, and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm:
-------------------------------------------------------------------------------
Address:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------
Area Code and
Telephone Number:
-------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Title:
-------------------------------------------------------------------------------
Name:
-------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Date:
-------------------------------------------------------------------------------
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF ORIGINAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY
OTHER REQUIRED DOCUMENTS.
3
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 1 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Original Notes,
the signature must correspond with the name(s) written on the face of the
Original Notes without alteration, enlargement, or any change whatsoever. If
this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of the Original Notes, the signature must correspond with the name shown on the
security position listing as the owner of the Original Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Original Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Original Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance for additional copies of the Prospectus may be directed to the
Exchange Agent at the address specified in the Prospectus. Holders may also
contact their broker, dealer, commercial bank, trust company, or other nominee
for assistance concerning the Exchange Offer.
4
